For two years, Internet entrepreneur Ben Federman did something most businesspeople would consider, at best, stupid.
He lost money on purpose.
In 2007, Federman, then 23, launched 1SaleADay.com, a website dedicated to doing just that – offering one super-discounted item every 24 hours.
A Milwaukee native and a high school dropout, Federman had settled in Brooklyn around 2003 after a stint in the Army. He worked at a small electronics retailer before scraping together $200,000 from savings and credit cards and then branching out on his own.
He trolled trade shows for bargain merchandise. Since he couldn’t afford to buy in the large volumes required to get deep discounts, he took what he could get – and then sold it for less than he paid.
It didn’t go well at first. His first sale – an electronic fish finder – didn’t even get a nibble since no one knew about the site.
Eventually, the site’s popularity grew, largely through word of mouth. He built buzz by occasionally offering items for free.
“Everybody else was trying to make money and I’m trying to build a company here, so I kind of saw the bigger picture.”
In those days, selling 75 wireless headsets was a big coup. Now, the site, which offers five items a day in different categories such as jewelry and electronics, can sell up to 30,000 items in a day.
So-called “flash” retail sites like Federman’s, which offer discounts for a limited period, have taken off during the economic recession.
Federman’s business has moved from his apartment to a 40,000-square-foot warehouse in East New York where his staff has grown to about 70 employees.
Vendors now come to him, Federman said. “The manufacturers know they can unload a huge volume with us.”
Looking to expand further, Federman talked with various venture capital firms, but decided that he didn’t want to give up control of the company that he created.
Instead, he teamed up with Optima Ventures, which injected an undisclosed amount – which Federman said is in the tens of millions of dollars – into the company to create Octagon Commerce, a parent company to Federman’s growing portfolio of discount retail websites.
“He had really built a base,” said Optima Ventures CEO Uri Laber. “All we need to do is get the concept out to more people and it would just grow.”