The threat of substitute products or services, Porter's fourth force, appeared small for the foreseeable future. The three M.B.A. students decided that portable electronic devices' power needs were unlikely to fall to the point that users could substitute throwaway (for example, C or AA) batteries. They spotted no looming technological breakthrough that would grant indefinite life to rechargeables. And battery makers told them that their own attempts to standardize products wouldn't pay off for several years at least.
Porter's fifth force, the industry's rivalry, Hawk characterizes as "pretty gentlemanly." Established industry players seem to welcome the new retailing concept. "It makes sense," says Sanyo's Carcone. "No single store has the ability to serve all customers." Supplier Pat Hoscoe of House of Batteries, in Huntington Beach, Calif., is happy to work with newcomers: "The way I see it, these smaller distributors are almost like a subdistributor for me. If I can't get the business directly, I can get it indirectly."
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The business plan that Hawk's team wrote and submitted earned an A+ from the B-school professor who had assigned it. But an A+ business plan does not ensure a smooth start-up -- even when it attracts two angels. (Mackall and another investor put up $125,000 for a 23% stake in Power Express.) Power Express had to climb the same learning curve as any new mail-order company, but Power Express's had an extra wrinkle -- a critical one. Unlike customers of, say, J. Crew or Gardeners Eden, who know what they want when they call, the people who phone Power Express usually don't. Discovering what kind of battery powers their Zenith Mastersport ZWL-360-06 or Magnavox V08116BK01 is more daunting for most people than choosing among T-shirts or plant pots. It's a job best left to battery experts. The trouble is, would-be battery experts need to acquire their expertise somewhere.
In the beginning Power Express consisted of Hawk and a Stanford undergrad, Brian Villanueva, squeezed into Hawk's bedroom. Hawk's business-plan partners had conveniently exited the scene as their own career plans jelled. They sold Hawk their rights to the plan for a token $10. Hawk spent $4,500 on ads that were to appear in the June 1993 issue of three airline magazines, and with two suppliers lined up and 300 batteries in his database, he thought he was ready to go. Not so.
The phone started to ring on May 28 (more than three weeks before Hawk's graduation), and as Villanueva recalls, "calls were coming through for products we didn't have." Their hit rate -- the batteries they could supply versus those they couldn't -- was an abysmal one in 10. It didn't take genius to see that Power Express needed greater product variety. Then one of Hawk's suppliers was acquired and abruptly stopped filling orders. Hawk's next employee, hired to design the company's first catalog, suffered an eye injury and couldn't look at a computer screen for longer than an hour at at time. A dejected founder suggested to Mackall that perhaps the business wouldn't fly, but the lawyer saw a bigger picture than the freshly minted M.B.A. did. "He was discouraged because sales were going nowhere. He'd just graduated and thought he could build something big instantaneously," Mackall recalls. He gave Hawk a critical piece of advice: "Instead of looking at revenues, try to define success in another way."
Specifically, Mackall advised Hawk to concentrate on building his database of battery models. The suggestion was right on track. Today the company's silver bullet is a cross-referenced database of detailed specs, part numbers, descriptions, and digitized photos of more than 4,800 battery models. Power Express obtains that information from its nationwide network of suppliers, which includes the top 30 battery-pack makers and the occasional device maker or distributor.
Hawk has begged, borrowed, and bought the information that fills the database. He spent months negotiating contracts that gave him access to 1,500 battery models in the databases of two suppliers. Other entries have come from combing through the resource materials published by manufacturers. Sometimes he's asked customers to measure their batteries and read him the part numbers over the phone.
Once Hawk had the database and supplier network under control, he had to create and distribute a catalog -- inexpensively. He bartered with a Berkeley, Calif., design firm, trading some of Mackall's frequent-flier miles and a couple of cellular phones for a catalog design template on a disk. Helen Park, Power Express's first full-time employee, got the first catalog into the hands of the Comdex computer trade show's attendees in November 1993, even though the company had no booth (a booth was too expensive) and couldn't pass catalogs out curbside (that was against Comdex rules). She put the catalogs in cabs and promised the drivers that a mystery rider would reward random cabbies with $50 for distributing them to passengers. The distribution cost: $400 -- "cheaper than postage," boasts Hawk. And the 3% response rate (that is, catalog recipients who subsequently placed an order) was "pretty good," he adds, "considering a typical catalog response rate is in the 1%-to-2% range."
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"I love reviewing that little sheet. You can see the dream on its way to becoming a reality," said John Mackall, reacting to the sales figures Hawk had sent him in February 1995. The chart graphed quarterly sales for 1993 and 1994 and sales estimates for 1995, and all the bars consistently rose. Sales, $60,000 in 1993, increased more than 10-fold, to $676,000, in 1994. Hawk foresees them hitting $2.1 million this year and doubling again in 1996.
The company, with nine employees, has graduated to new but still basic digs: 2,000-square-foot headquarters in Portola Valley. The new location generated enough foot traffic to justify opening a small retail area, which helps cover the company's $4,000 monthly rent. Most customers, however, contact Power Express through its 800 number, advertised in computer magazines. Their names are added to the company's mailing list, to which Power Express sends free quarterly catalogs. The company also collects mailing-list names at trade shows and by trading lists with vendors who target portable-device users -- magazine publisher Ziff-Davis, for example. To date, the customer database contains 45,000 names, with associated information, such as Jamal Jabar, Gabon, IBM ThinkPad; Frank Duzenski, Greenwich, Conn., Toshiba T1000SE. An increasing number of people learn about Power Express through its home page on the Internet's World Wide Web or through its postings on America Online and CompuServe. Currently, 30% of Power Express's orders are generated electronically, and Hawk predicts that on-line sales will spurt when payment over the Internet becomes more secure.
