While 65% of revenues come from the sale of laptop and notebook batteries, customers also buy batteries for other portable devices. The sale of add-on products such as adapters, power boosters, and car-lighter-socket converters for on-the-road recharging has raised Power Express's average order from $117 with its first catalog to $162 today. Power Express's revenues are divided evenly between corporate and individual buyers.
The comprehensive product database now lets Power Express fill 9 out of 10 battery orders without additional research. As for the remaining one in 10, Power Express tries to track down the battery for each one. If it can't, it has suppliers that will reverse-engineer and custom-build a replacement battery.
Hawk says his low overhead and lean operation enable Power Express to offer prices that average 30% less than those of its competitors (and it will match any price). The company turned a profit in the summer of 1994, a year after start-up. Its pretax margin, 2.7% that year, could more than triple, to 9.1%, by 1996 -- placing Power Express in rare company among catalogers, whose sales, says catalog consultant Bill Dean, typically must hit $5 million before a venture breaks even. "Profitability within a year was an important benchmark to me," says Hawk. So were response rates exceeding the industry average -- 3% from the first two catalogs and 4.6% from the third.
The founder expects to pay down Power Express's $75,000 debt by the end of the year. Another near-term goal: to move beyond battery retailing to offer comprehensive battery services. The company's new director of business development is designing a package for corporate customers that will offer companies free analyses of their sales forces' mobile-power needs as well as seminars on battery care. Hawk is talking to the top 10 notebook manufacturers about his providing product-registration service if they'll put Power Express's 800-number stickers on their original equipment batteries.
He'll have achieved all his goals, says Hawk, when Power Express becomes the undisputed "number one rechargeable-battery supplier in the world." But is his business model sustainable? The company currently relies on its suppliers to drop-ship most orders after it faxes them a Power Express purchase order and packing slip. While that arrangement reduces Power Express's overhead by eliminating inventory-carrying costs, it puts Hawk at the mercy of his suppliers. What would happen if they found a way to sell directly to his customers? "It's something we're working on," one of them confides. Power Express also relies on its suppliers to pick up the tab on one of the perks it offers customers -- free recycling of spent batteries -- as most of them have paid the fees to belong to the industry's nonprofit recycling association. "We'll join if we have to," Hawk says.
Power Express has carved out a niche in today's rechargeable-battery market. Is it a business for the long term or just a novel distribution channel that others will replicate? Hawk hints that he might settle for building Power Express into an attractive candidate for acquisition by a specialty-parts distributor or a large catalog company by 1997. As certain as he was that the Power Express idea met all the challenges implied by Porter's five forces, he thinks there's no point to pushing that certainty too far into the future. What would happen, for instance, if battery makers pursued standardization to the point that rechargeables became a commodity? "You can't become so enamored with any idea that you hold it forever," Hawk says.
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Power Express Forecast
1995 1997
Number of Catalogs Mailed 400,000 1,600,000
Gross Sales $2,100,000 $7,500,000
Expenses
Cost of Goods Sold $1,386,000 $4,800,000
Payroll $264,000 $867,000
Printing & Mailing Catalogs $176,000 $704,000
Advertising & Marketing $60,000 $240,000
Rent $21,850 $87,400
Other Overhead $50,000 $200,000
Total Expenses $1,957,850 $6,898,400
Pretax Profit $142,150 $601,600
Pretax Margin 6.8% 8.0%
EXECUTIVE SUMMARY
Power Express
Company: Power Express, in Portola Valley, Calif., founded by recently minted Stanford M.B.A. Ken Hawk
Concept: Be the top source of replacement rechargeable batteries for users of notebook computers, cellular phones, and camcorders. Make it easy to shop for the batteries through a mail-order catalog, on-line services, the Internet, and a 24-hour service hot line
Projections: Current-year revenues of $2.1 million; $7.5 million by 1997
Competitive Advantage: First, a database that will let Power Express quickly locate the hard-to-find batteries most replacement-battery shoppers need; and second, lower costs through elimination of warehousing and inventory expenses
Hurdles: Finding customers who will call its 800 line, and recruiting good telephone-sales reps. "Unlike taking orders for a sweater, color pink, size large," says Hawk, "helping callers figure out which battery out of thousands they need is a tough job."
