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Clicks and temporary bricks Featured

9:39am EDT July 22, 2002
It was a cold winter day in January when Stu Fishman and R.K. Khosla laid out plans for their next business.

The pair, which worked together in Fishman's last venture, toy retailer All Wound Up, kept of a log of ideas from which they intended to make their next millions. As they met, the two considered which of those possibilities -- jotted down over the years --made sense to pursue.

"Stuart and I were arguing," recalls Khosla. "He liked three of the 32 and I like three of the 32, but there was no overlap. As we were explaining to each other what we liked about the ideas, this idea really came down between us and sat down on the table and said, 'I'm here. I'm the one.'

"We looked at each other and said, 'OK, we'll break for 24 hours because this one seems too obvious, because it incorporates the skill sets that we've learned and it's in an area which is a very large market and fragmented."

The idea that evolved, No. 33, was to create an Internet Web site that sold high-quality furniture at prices well below what any ordinary retailer could offer, while at the same time still giving customers an opportunity to sit on and touch the merchandise.

"It's really the convergence of standard retailing and Internet retailing in the most cost effective manner," Khosla says of the company that's been named OneWorld2U.

In the process, co-founders Fishman and Khosla developed a new e-business model. Recognizing that the Internet creates a cheaper, faster and more efficient operation, they landed upon what they hope is the perfect Internet business model. By giving their virtual business a physical presence in the traditional retail world without the huge overhead normally associated with running brick-and-mortar operations, the pair aims to effect real change in this developing marketplace.

As Khosla says, they are now in the business of "clicks and temporary bricks."

The methodology behind the idea is simple: OneWorld2U will sent up temporary showrooms at two-week intervals in cities around the country, where people can view the furniture they are buying online. They launched their first showroom July 29 in Cleveland at Tower City Center.

Even before they launched a site, the model received validation. The initial round of capital was oversubscribed. And those who got in early included some pretty heavy hitters in the local investment community.

"You've got the absolute best horse you could probably ride to this kind of party," says Boake Sells, former CEO of Revco Drug Stores and COO of Dayton Hudson (now Target). Sells is an investor in OneWorld2U and had held a stake in All Wound Up.

The business model

In the mad rush to turn the Internet into their business gold mine, many entrepreneurs forget one basic tenet: A business is expected to turn a profit. With very few exceptions, the only companies able to make a successful foray into e-commerce are those with solid brick-and-mortar histories.

Fishman and Khosla plan to join that select group. Their site offers hundreds of pieces of furniture directly from factories around the world. By eliminating middleman markups, they can offer furniture at rates far below those of the retailers with whom they compete.

"If you've been furniture shopping, you know every time you go into a furniture store, it seems like it's your lucky day, because the whole store is 50 (percent) off," says Sells. "And not only that, it's also your lucky day because it's Thursday, so you get an extra 10. The furniture people have ruined their pricing integrity. Stu is going to bring a one-price concept. This is a fair price for good furniture."

The concept is so radical a departure, and has such potential to disrupt the traditional marketplace that, after reviewing the business plan, their accountant half-jokingly suggested Fishman and Khosla walk around in flak jackets should their peers hire hit men.

"Because there are so many middlemen cut out, we think (the cost of our merchandise) is going to end up somewhere around 42 to 45 percent of discounted retail in a typical store," Fishman says. "So if something in a typical store (retails for) $1,000 and they say their price is $800, we're going to shoot to be 42 to 45 percent of that $800."

The Internet forces business to run cheaper, faster and, one might argue, too efficiently. An online business can run operations so cheaply that consumers disbelieve the prices they're offered. It's a problem Fishman and Khosla have embraced.

"One of our real concerns is that most people, when a deal seems too good to be true, it usually is," Fishman says. "So they aren't going to believe the values that we're offering. So what we're going to do is we're going to something called TIMS -- Temporary Internet Mobile Showrooms. We're going to go into each city. We're going to set up a Temporary Internet Mobile Showroom where people can actually come in and see the furniture that they're buying."

That ability to see and feel the value is key.

"The way we look at it is that it is just a more efficient business model," Khosla says. "If our consumers are given the opportunity to understand the business model, they will understand what the brand is. The brand is the business model. Get it at the factory, use third party inspection, check the hell out of it, make sure it's of the quality level that we want and ship it directly to the consumer. It's a very efficient model."

The ability to execute the TIMS is a skill Fishman and Khosla learned at All Wound Up, which in most markets is only open during the Christmas selling season. The stores are quickly opened and closed as needed.

"Those are the two things (retailers) hate," Khosla says. "That's what we've done for the last five years is open and shut down stores. That's really what these Temporary Internet Mobile Showrooms are."

They believe the skill set is so unique that they've followed in the footsteps of Amazon.com with its one-click technology and applied for a business process patent on the TIMS concept.

Learning from the past

Fishman lives for start-ups. It's a knot in his stomach fueled half by nerves and half by adrenaline. It's that drive that led him to build All Wound Up into a national chain for which he gained recognition as an Ernst & Young Entrepreneur Of The Year before selling the company to Border's Books & Music.

"This is what I love doing," Fishman says. "What we're doing here today is the biggest kick because you envision something, you dream it and then you have to make it happen. It's scary. It's a little bit like riding a roller coaster. There are so many ups and downs and so many thrills.

"To me, starting up a business is the most creative process around. Everything is always changing, evolving. It's sort of like trying to get your arms around a giant amoeba; it's always changing shapes on you and you've got to run with the flow. It's intense. You get to make so many decisions that are going to really affect the future. That's really why it's so much fun."

It is also the reason Fishman left his position at Border's to found OneWorld2U with Khosla.

With each new venture -- Fishman has been involved in a few prior to All Wound Up -- he's gained insight into the process, developed skills and learned to apply them to each new enterprise. Now, Fishman and Khosla have applied their skills to OneWorld2U.

"We have an understanding of not only what works, but what doesn't work and what to avoid," Khosla says. "So we've built this business model not only for what works, but to stay away from what we knew was taught in the last business model. We've been very careful about that. We've spent a lot of time making sure that the business model itself was rock solid."

The business model is simple to understand, yet difficult to execute. Fishman and Khosla were able to work their way back through the layers of middlemen: retailers, distributors, warehousers, importers and exporters that mark up the price of a product before it gets to the consumer.

"Not everybody has those layers," Fishman says. "A lot of people have those layers. Some people only have a couple of layers, but there always seems to be layers involved somewhere. We got back to the factory and we're going to do it through the Internet."

But it hasn't been easy to peel back the layers.

"For a while there, for a few years, it seems that every time we were up the river, we found out there's one more layer -- there's one more layer," Khosla says.

Over more than four years, visiting countries around the world, the pair slowly learned the process.

"We've been in towns that are so small it's shocking," Fishman explains. "We've flown into cities and then have had to take little commuter planes back into the boondocks, and then, on this one particular trip, we took a 75-kilometer (46.5-mile) car ride that took us four hours. The reason it took us so long is because the road looked like it had been through a world war."

Many of the places they visited were quite remote.

"We're actually going into towns where people stop us on the street and ask us if they can take their picture with us because they've never seen an American or an Indian," Khosla says. "We had people trying out their English on us, because they've learned English, but they've never actually spoken to an English-speaking person. One gentleman one time asked Stuart, 'What time is it?' Ten minutes later, he asked me, 'What time is it?' practicing."

The result

"The real goal behind this is to develop a brand, a true Internet brand, where when people think of OneWorld2U they think of high quality, expensive goods that they pay rock-bottom prices for," Fishman says. "If we can really establish that brand, we'll have a huge operation here."

Fishman's optimism is well-founded. There is huge opportunity in the $201 billion fragmented furniture market industry for someone who can become a dominant player online.

"And we knew if we were going to work as hard as we were, we wanted to do something with a big vision," Fishman says. "We had lots of little ideas that would have been 10- or 20- or $50 million businesses, not that there's anything wrong with that, but we both wanted a shot at a brass ring. Neither one of us was born particularly lucky."We knew that we wouldn't be the people to take a company public, which is running $15 million in losses and have a $5 billion valuation. We figured by the time we got to market, we'd need to have a rock-solid business model." How to reach: OneWorld2U.com, www.oneworld2u.com

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.