May 2000 Issue of WebBusiness Magazine
For the head honcho at www.dans.com, freshest is best and a scalable system means everything.
BY MEGAN SANTOSUS
or Dan Cunningham, starting a business is second nature. The Vermont native's first venture was a lawn mowing company he launched while in junior high school. Now 25, Cunningham heads up Dan's Chocolates, (www.dans.com) a gourmet online chocolate retailer based in Watertown, Mass. (His official title is Chief Chokolada). Spun off from Blue Mountain Arts in December 1999, Dan's Chocolates is not Cunningham's first Internet start-up. He also launched sporting goods company Sportsape.com, now part of Fogdog. As a veteran of online retailing, Cunningham offers advice to others attempting to weather the storm.
What's the key to succeeding in online retailing?
One of the things we planned first was the technology. We put a lot of effort into building an extremely scaleable system from the start, and that turned out to be a real benefit. We built a full customer relationship management system, designed the network architecture and built scale into the site.
How did you build scale into the site?
Each machine we install has a specific function. The database, transactions and CRM are all separate. If any one area becomes a stress point, we can add more hardware relatively easily.
That sounds quite straightforward, yet many retailers still have site performance problems particularly around the holidays. Why do you think that is?
In terms of technology, people are just too short-sighted. By not planning ahead, companies end up having to re-architect their entire systems. It's incredibly expensive both in terms of the cost of the technology and the cost of lost opportunity. Really, you need to look ahead about 18 months. See what you hope your traffic will be, and plan accordingly for that.
The online retailing space seems primed for a shakeout. Are there any common characteristics separating winners from losers?
Companies that sell commodity products are competing on price. If everyone has good service, and everyone is selling the same pair of Nikes, then price will be the only competitive. I don't think that model can sustain itself on the Internet. You have to sell products that have margin; even a 10 percent margin isn't going to be enough to survive.
How have you tried to avoid that at Dan's Chocolates?
We don't compete on price. We differentiate ourselves by making our own chocolates and delivering them within seven days. To be successful online, you really need a business that has a scaleable model. We control the entire back-end operations. We don't carry any finished goods because we make product a day ahead of time or on demand. We don't have a warehouse with thousands of SKUs, packers, shippers or receivers. All that is very expensive. Our goal is to increase our gross margins as the business matures. Another issue is content, which is very different from commerce. We won't get into content or community because that's not why people come to our site. They come to buy a creative gift. A lot of sites are starting to realize that content and community are very different from commerce. Content and community don't generate new buyers. Instead, sites need to take their resources and focus on building new products. That's the way to get much more return on the investment.
Why do you think people will buy chocolate over the Internet?
In Europe, people love fresh chocolate; it's considered part of daily life. A lot of the chocolate sold in stores in the U.S. is on the shelf for at least six months. But like any other food, when it's made fresh, chocolate tastes very different. With the Web, we're trying to solve that shelf problem.
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