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Clicks and temporary bricks Featured

9:34am 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, who 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, they 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 liked 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 a 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, OneWorld2U.com.

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 routed all orders through that medium.

And by setting up temporary showrooms at two-week intervals at cities around the country, where people can view the furniture they are buying online, Fishman and Khosla avoided the huge overhead normally associated with running bricks-and-mortar retail operations. As Khosla says, they are now in the business of "clicks and temporary bricks."

They launched their first showroom on July 29 in Cleveland at Tower City Center. This month, they are scheduled to set up shop in Schaumberg, Ill., and will bring the showroom to Columbus City Center beginning Dec. 2.

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 financially successful foray into e-commerce are those with solid bricks-and-mortar histories.

Fishman and Khosla think they can join that select group. Apparently, so do others. Before they ever launched a site, the model received validation. The initial round of capital was oversubscribed. And those who were able to get in early include some pretty heavy hitters.

"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 previously held a stake in All Wound Up.

The OneWorld2U site offers, direct from the factories, hundreds of pieces of furniture made around the world. By eliminating the middleman markups, they can offer furniture at rates far below those of other retailers with whom they compete.

In fact, they expect the cost of their merchandise "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.

"One of our real concerns is that most people [think] when a deal seems too good to be true, it usually is," Fishman says.

That was the reasoning behind the Temporary Internet Mobile Showroom. The 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 effectively set up and market a temporary showroom 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 would be 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 Temporary Internet Mobile Showroom 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's also the reason Fishman left his position at Border's to start OneWorld2U with Khosla.

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

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.

It took more than four years, and visits to countries around the world, for the pair to learn the process.

"We've been in towns that are so small it's shocking," Fishman says. "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 miles] 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."

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 [million] or $20 [million] or $50 million business, 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

Dan Jacobs (djacobs@sbnnet.com) is a senior editor with SBN Cleveland.