Entrepreneurial Small Business 4th Edition by Jerome Katz ,Richard Green

Exercise 3

THE RISE AND FALL OF AUCTIONDROP 50
Randy Adams had a garage full of stuff too good to throw away. It was so bad that his car would no longer fit. His wife suggested selling some of the things on eBay, but Adams wasn't sure it was worth the effort. He'd have to take digital photos of everything, post auctions, wait for bids, arrange shipments, hope payments came in, and hopefully eventually get rid of everything. Also, as a new "eBayer," he had no feedback from previous sales, something that can make or break a seller as buyers are sometimes reluctant to use untested sellers. Of course, if he had these problems, so would a lot of other people. This sounded like an entrepreneurial opportunity to Adams, and so he started AuctionDrop in San Carlos, California, in March 2003. For a percentage of the selling fee, AuctionDrop will do all the work for you photos, posting, monitoring, packaging and shipping, and payment collection. When the firm started, it amazed customers by selling 92 percent of everything it had listed compared to the typical eBay average of 50 percent. If the item isn't sold, AuctionDrop would ship it back to you or donate it to charity and provide a tax receipt for you. AuctionDrop wasn't the only company doing this. Isoldit ( www.i-soldit.com ), Quik-Drop ( www.quickdrop.com ), Auction Wagon ( www.auctionwagon.com ), Door to Door Auctions ( www.doortodoor.com ), and PictureitSold ( www.pictureitsold.net ) jumped into the market, creating a nationwide industry of drop-off centers offering similar services. At first the future seemed rosy. In less than a year, AuctionDrop had five stores with plans for 15 to 20 more. They slowed this expansion schedule down when Randy realized that the stores weren't bringing in a lot of profit. A city needed only one location to get the work done efficiently. Having multiple locations just meant more fixed costs and less profit. His thought was that arranging for places where customers could drop off their goods would be a better way to go long term. So he negotiated an agreement with The UPS Stores that provides more than 3,800 sites, worldwide.
But to fund his original plans for growth involved taking outside money, and those investors wanted to see returns. Randy estimated 10 items a day per UPS store, but while UPS was willing to receive, pack, and ship the goods, it was only one of a myriad of services they provided. AuctionDrop did not get anywhere near the volume they expected from these stores, and Randy couldn't afford to advertise nationally. Meanwhile the clock was ticking and the investors getting impatient.
CASE DISCUSSION QUESTIONS
1. If you were starting a similar service, where would you locate What sort of building would you want
2. Compare the costs and benefits of AuctionDrop's original store-based model with the model using UPS for drop-offs. What was needed to make each work What would you imagine to be the impact on AuctionDrop's profit margins of each approach
3. How could AuctionDrop let eBay and UPS users know they are available