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Error of Margin

The founder of EBC Computers, from the 2000 Inc. 500, knew he could continue to eke a profit out of selling commodity computer parts, but instead he launched a new start-up with fewer worries -- and higher profits.
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Legacies

EBC Computers: Class of 1999

The founder of EBC Computers knew he could continue to eke a profit out of selling commodity computer parts. He just didn't know why he should

During the past year, as he'll readily admit, Eduardo "Edy" Bedoya began to feel different about his business: namely, he got fed up with EBC Computers Inc., which ranked #83 on last year's Inc. 500. (This year it's #223.)

More specifically, he had grown tired of having to cast a hawk's eye on costs just to protect a penny or two of profit -- even if he was unusually adept at doing so. (For evidence, see " Rare Commodity," in the 1999 Inc. 500 issue.) So when Bedoya opened his second computer store, in September, he expanded beyond his core niche in the cutthroat business of selling computer components. For his new store, in Orem, Utah, he's targeted high-end business customers who want powerful ready-made systems, laptops, and service. "I'm going after small-business users," says Bedoya, who is based in Salt Lake City.

He's also chasing a profit margin of around 7% -- as opposed to the 2% or 3% he's conditioned to netting. For most of the 10 years since he founded EBC, Bedoya has focused on selling monitors and other components to customers who are either tinkering with machines in their garages or repairing and upgrading PCs in volume for, say, universities. His ability to make money in that business depends on how speedily his inventory turns over. A computer part can't stay on the shelf too long, or Bedoya may have to sell it for less than it cost him.

Paying as little as possible to procure inventory is also key. A shrewd buyer -- rather than calling himself CEO, he prefers the title of purchasing manager -- Bedoya negotiates hard with his suppliers and saves money by scouring the Web with automatic shopping bots (specialized search engines). He sometimes finds computer products online at prices that are even below what the manufacturers are offering. He buys them with his credit cards. "I got 12 free round-trips on my cards," says Bedoya, who spends up to $65,000 on the Net every month.

Even with free plane trips, though, Bedoya wasn't getting where he wanted to go. So he began climbing the value chain, looking to attract a more profitable clientele. His new thrust should boost revenues at least 30% above last year's sales of nearly $14 million. And he expects revenues to rise further come 2001, aided by another location he's hoping to secure in Ogden, Utah.

Bedoya buys his inventory mostly from Chinese suppliers on the West Coast and in Hong Kong, Taiwan, and mainland China -- a network built on personal introductions. Two of his closest associates may end up investing in the new Orem store, "not because I need the money," he says, "but to cement our relationship." Bedoya traveled to mainland China in June and explored a new business -- jewelry -- through one of his local contacts. "I can land watches from China at $26.50 -- ones that sell here for around $86," he explains. "Well, what if I only take a 30% markup -- that puts it at what, about $35? Which would you buy?" He also wants to sell wedding bands. "The markup there is like 150% or 200%," he estimates. He has already added a jewelry Web site linked to EBC Computers' online store.

Clearly, it's not just the drive for profit that's steering Bedoya in new directions. This year his parents received U.S. visas to immigrate from their home in Peru to this country, joining Bedoya, who came in 1985, and his two brothers. He plans to set his parents up in a jewelry shop. "They don't want to just sit at home," Bedoya says, referring to the five-bedroom, four-garage home that they'll share with him and his family in the shadow of the Rockies.


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