The Betty Mills Company is an Internet top 500 e-retailer that has taken a traditional low-tech business online by selling cleaning and facility products directly to business customers.
Cofounder and CEO Victor Hanna was on the four-person startup team that launched Onsale.com, an online auction that achieved over $500 million in annualized online sales as a public company. Prior to that he was the CEO and founder of Service Plus Technology, a distributor of local and wide area networking and remote access communication products that, during its tenure, led the market in dollar sales volume of remote access, thin-client and servers using remote node and remote control technologies. Service Plus was sold to Nasdaq company Solitec (SOLI) in 1993.
The idea for Betty Mills, which is based in San Mateo, California, and has 55 warehouses around the country, was to aggregate demand for products in its category online; these products were traditionally supplied by a fragmented low-tech industry of small operators that had collectively dominated the janitorial supply industry. On a more lighthearted note, Hanna says, “My co-founding business partner, David Schulhof, and I both had a similar experience where our wives would not want to be caught dead next to a man (their husband) buying a 96-roll case of toilet paper, no matter how good the sale. They would wait outside while we manhandled the case through the checkout and to the car.” An online purchase would make such trips unnecessary.
The company sells 120,000 products divided into six main categories: cleaning & janitorial facility supplies, snacks & break room, office & technology, furniture, and shed & outdoor. Brands represented include Kimberly-Clark, Rubbermaid, Oreck Commercial, KleenGuard, Stanley, Tennsco, and many others. Blended product gross margins approximate 24%, and Betty Mills also gets revenue from advertisers such as Kimberly-Clark, General Mills, Georgia Pacific, and HON. In 2010, Betty Mills had 76,500 orders with an average order size of $160.
It is widely published that the office products industry is a $330 billion market, with janitorial being 10% of that market, or about $30 billion. Because Betty Mills also supplies office supplies, office furniture, and industrial facility/maintenance products, the business has a TAM well in excess of $30 billion. E-retail channel sales in the traditional janitorial industry represent 1% of that market and are expected to grow to 10% over the next seven to 10 years. However, Betty Mills is less of a traditional wholesale janitorial supplier and more of a broad-line office products company with a focus on cleaning/janitorial supplies to end users. It targets any nonconsumer customer (business, .edu, .gov, etc.) looking to purchase products over the Internet in the categories it services.
When the company was founded in 2002, there were few, if any, businesses selling janitorial supplies online. The cost to purchase the keyword “janitorial supplies” on Google AdWords was $0.11 a click. Today, that keyword costs approximately $1.55 a click. The world didn’t need another office supplies reseller, says Hanna, so Schulhof and he focused their attention on a segment of the office products industry, janitorial supplies. Competitors are Grainger, Staples, Costco, and similar stores.
Compared to these competitors, Hanna says that Betty Mills “go[es] deep in janitorial/facilities and safety products, and we do so by partnering with the manufacturers of these products, who have a growing need to get their products showcased online as the competition for shelf space has increased with the advent of private label brands (Kirkland by Costco, etc.). Our content is unparalleled and includes rich product content and detail.” The company also has over 1,000 snack items for break rooms, which it says is the largest selection available. This category drives the company’s Snack Rewards program. All purchases made through Betty Mills earn points that can be redeemed for free snacks or beverages.
Over time, each cofounder invested or loaned up to approximately $1 million; the rest of the financing came from angel investors over several rounds ($2 million in equity) and the balance in supplier trade financing. Generally, valuation was at a 1x revenue pre-financial crisis. Says Hanna, “The battles are epic. We had many episodes over the years where the lights were flickering.” In 2010, revenue was $13 million at operational break-even. The company is profitable YTD 2011. Betty Mills employs about 16 people and wants to stay lean. “We believe in the Lucille Ball work ethic: If you want something done, ask a busy person to do it,” says Hanna.
“We knew nothing about the business when we entered it,” he adds. “We were e-commerce guys who tackled an industry in need of a strong online presence.” The focus now is on growing the business organically; there is no specific exit planned. That being said, the founders do think the secondary markets will evolve and that its investors will have opportunities to gain liquidity if they need to, while longer-term investors can stick around for the exit.