News Feature

E-Commerce: What Works--and What Doesn't--on the Web

By SUSANNAH PATTON

September 15, 2001 — CIO — Leonard Shneyderman turned his first profit when he was 16 years old. It was 1986, a year after he and his family had emigrated from Moscow to Brookline, Mass. Shneyderman, then a high school sophomore, noticed that parking was tight in his neighborhood. So he made a deal with a local property owner to rent a vacant lot, subletting parking spaces to eager local residents, all before putting a penny down himself. The margins were high and profits so substantial that he was soon able to buy himself a black Volkswagen Jetta.

He also absorbed a lesson in doing business.

"I would never bother starting a business that wasn’t cash flow positive early on," says Shneyderman, who went on to earn an MBA from Babson College in Wellesley, Mass., and work as an investment banker for GE Capital and PaineWebber. Shneyderman, now 30, and his older brother started an Internet company two years ago based on the same principles derived from the parking lot venture: Find a promising niche and proceed without spending a bundle. GameColony.com, which hosts fee-based tournaments in chess, checkers, gin and other games of skill, went live in February 2000?just before the Nasdaq took its dive and the dotcoms started to expire. But don’t expect the Shneyderman’s Newport Beach, Calif.-based company to go the way of Pets.com or Kozmo.com. In February, the Internet startup started showing a profit (albeit a small one), something neither Boo.com, Furniture.com, Kozmo.com, Pets.com, nor hundreds of other well-financed and well-promoted dotcoms ever did.

Shneyderman, the CEO, says the frugality that was natural to an immigrant has much to do with it. With $755,000 in original capital?$625,000 from venture companies Acorn Angels, D.K. Capital and Dover Capital, and $130,000 from his and his brother’s bank accounts?Shneyderman started GameColony.com, buying three Sun enterprise servers from a defunct dotcom for a total of $39,000, less than one-third the original sticker price. (The deceased dotcom had received $15 million in startup funding and shut down after nine months.) He signed up with Web hoster HarvardNet (whose Web hosting assets have recently been swallowed by Allegiance Telecom) for $1,500 a month for a T1 line, which can burst to a T3 line if volume increases. Then he hired five programmers from Saint Petersburg, in the former Soviet Union, to run the site. "They’re working very hard, and they’re making the equivalent of six times what an average Russian programmer makes," Shneyderman says, adding that a windfall for them is roughly one-fifth of what their U.S. counterparts would earn for the same work. (The Russian programmers also receive housing and a small piece of the company.)