What’s your business? For Doug Kerwin and Richard Sbarro, as they left their IT positions at Merrill Lynch in 2002 to form an Internet start-up called Metaverse Corporation, the business was “content management” — back-end software systems for large websites. But when the dot-com crash and tech implosion wiped out their market, what was previously a side project transformed into their main business — an online art gallery and store called FulcrumGallery.com, which is now doing $4 million in sales. As the CEO turns 30, and after only 2 1/2 years, the online business supports a staff of nearly 40 people at its offices on Whitehead Road in Hamilton.
But now the business is transforming again. Since most prospective customers are looking for art prints through searches on Google, they are back to building technology: Custom search marketing optimization software needed to administer more than 1 million Google ads that respond to searches for more than 200,000 works, 10,000 artists, and many categories of art.
Why the importance of Google for online stores? “We do a lot of E-mail marketing to our own customer base,” says Kerwin, founder and president, “but for new acquisitions, search marketing is where it’s at. We would never put a billboard on I-95 saying ‘Interested in art? Come to our site!’ — 999 out of 1,000 people would pass it by and not care, and for the one guy who cares to respond, you would need a hundred of him before anybody buys something. The numbers don’t add up.”
In comparison, search marketing is about responding to specific interests. Says Kerwin, “Someone at home types into Google something they’re specifically looking for, like ‘ snow-covered trees,’ and sees our ad, which says exactly what they’re looking for about snow-covered trees, and they click. The website doesn’t take them to the home page, it takes them to exactly what they’re looking for — you see a couple hundred pieces of art of snow-covered trees.”
“It’s very targeted,” says Kerwin, “and that’s a refreshing thing. In the software business it’s direct sales, where you’re interrupting someone, you’re hijacking their day when they have important things to do. With the new search marketing, the people are looking for you, they’re calling us up because they are interested in something. That’s a refreshing side to be on. There’s nothing more targeted than when they’re looking for exactly what we have, at the exact time that they’re looking to make a purchase.”
To see how this works, go to Google and type in a general search like “art prints,” or a more specific search like “snowy mountains art.” In addition to returning a list of the resulting hits, Google also shows “Sponsored Links” in the right column and at the top of the page, typically with ads from FulcrumGallery.com and its competitors including Art.com and AllPosters.com. These are Google AdWords (www.google.com/ads) — posted by businesses that signed up to post ads when users enter specified keywords, and then pay a cost per click when viewers click through to the advertised site.
The challenge for businesses like Fulcrum Gallery, of course, is to choose the right keywords and manage the advertising budget to achieve a reasonable return. This is even more complex because Google manages its AdWords program through a process of bidding for keywords, which requires constant monitoring and updating.
“We put out a bid per click on all these keywords,” says Kerwin, “and if no one’s looking you could spend your way out of control.” In addition, “when you’re in that range of a million keywords under your control you can’t do it by hand.” The answer for Fulcrum Gallery has been to develop custom software to automate the process, and to interface directly to Google’s software. Says Kerwin, “We have software to automate placing new advertising. The big thing we’re working on now is software to automate bid changes, maintaining accounts where we need to make a change to a thousand keywords at a time.”
Kerwin and co-founder Richard Sbarro started their company, a content management system, at the wrong end of the IT boom. Kerwin, who had landed a lucrative job at Merrill Lynch based on his high school and college work history, was in charge of a software team. His group was among the first to develop software for Microsoft’s .NET (pronounced dot net) programming tools. They wanted to develop a back-end website software so that non-technical business users could control their own websites.
At that time they were ensconced at Merrill Lynch in 2001 and somewhat insulated from the bad news that IT companies were suffering. Fresh in their minds were tales of small firms using Porsches as signing bonuses, and they ignored signs that other programmers were feeling lucky just to hang on to their jobs. “People were leaving. Saying ‘return on investment’ and technology in the same sentence was laughable. But we were still in the mindset that — if you do something cool with the technology, people will come,” he says.
But Kerwin had the confidence and adventuresome spirit that comes with being young and unencumbered by family responsibilities. “I had people working for me who were twice my age, and I felt like I had to cover my youth,” he says. “When I left, everyone thought I was in my ‘30s, even though I am just turning 30 now. It was definitely a fun ride, but all of a sudden it stopped being exciting. I could keep the job and get incremental raises, but it was not going to go up dramatically. And I wanted to go to the next level. We had some code, and it built some momentum, and it got the point where we said, let’s do this.”
But how could a small group in New Jersey compete in this niche? “Our twist on why the world deserved another content management system,” says Kerwin, “was ‘software as services,’ like Salesforce.com, using the Microsoft .NET way of doing things.” Instead of selling a software package to be purchased, with the ongoing pain of installations, support, and upgrades, they would use the new model of a Web-based monthly subscription service. “But it was not a great time. We were never able to make a real business out of content management.”
After Kerwin came to Merrill in 1999, he renewed his acquaintance with Sbarro, a high school friend who graduated from Stevens Institute of Technology in 2000. The pair got the idea in 2001, and they left to found Metaverse Corporation in 2002. The software was close to ready, and they had one production installation in a beta stage. The first customer was NWL Transformers in Bordentown, where Kerwin had done programming when he was 15.
“We raised a little seed capital,” says Kerwin, “from private investors, people I knew professionally, people who were invested in me rather than in ideas.” The company promoted versions of its software for small businesses and enterprises in September, 2002, and promoted new capabilities with Microsoft in May, 2003.
However, it was quickly clear that the idea was not working. “We saw within six months that our burn rate was much too high to keep going,” says Kerwin. On the payroll were six people, including two sales people who were unproductive. “I came from an engineering background, so I thought I should hire sales experts, but I learned that you need to learn to sell your own product first before you hire salespeople.”
The staff dwindled to three: Kerwin, Sbarro, and another programmer and they switched to consulting to pay the bills. “We did pretty well at consulting,” he says, “but in my mind that is not so much a business, it was very similar to having a job.”
Meanwhile the little side project that Kerwin describes as “entirely an accident,” took on a life of its own. Fulcrum Gallery was originally designed as the demonstration site for the content management software. (As the site explains, a “fulcrum” is defined as a hinge or point of support on which a lever pivots to transmit force.) The founders decided this aptly portrayed the role of art in society and used it for the gallery’s name.
When Metaverse launched the gallery site in October, 2002, it demonstrated website software to prospective clients, says Kerwin. Other companies would typically build simple faked-up demos, but, he says, “since we have to spend a bunch of time and energy on it, we decided to make a demo site that’s kind of cool on its own, and something that we were interested in.”
However, Fulcrum Gallery was just a content site that displayed artwork. There was no E-commerce, says Kerwin, “we still had no idea we could sell this. Yet people would ask to add their artwork to the site. It was easy enough, so we started doing it.”
“I don’t know how they found it,” he says. “We never did anything to promote it. We added a few artists over the months, and then we started getting E-mails saying ‘I wanted to let you know I sold a painting, and they say they found it on your site, so I want to say thanks.’”
Nobody had time to turn the gallery into an E-commerce site, develop new software, and then run the business. George DiLorenzo, also a Steinert graduate, volunteered to head this project and work on commission. DiLorenzo, the son of a truck driver and a Princeton High School guidance counselor, graduated from the Fashion Institute of Technology in 2003 and had been art director at Fantaseyes in Manhattan.
“It was a meager beginning,” says Kerwin. “With no capital, no software resources, we put an ‘Add to Cart’ button on the page and then George worked with the artists.” In September 2003, Metaverse relaunched the new Fulcrum Gallery with E-commerce for online shopping, as “an online gallery of original and limited edition artwork, with a current inventory of original oil and acrylic paintings, photographs, mosaics, etchings, sculptures, and digital prints, priced from under a hundred dollars to over $50,000.” Artists could exhibit for free, and Fulcrum collected a 30 percent commission on sales.
In the beginning, Fulcrum Gallery did not do direct sales. Instead it brokered sales for original artists. But, says Kerwin, “it’s tough to do convince someone to buy a $1,000 oil painting sight unseen online.” The site graduated into art reproductions in 2004, he says “which is all that we carry now. That’s when this started to become a business.”
“This is proven stuff that sells,” he says, “$30 fine art reproductions instead of $1,000 oil paintings.” And even before advertising, “people would find us through search and it started to take off. Then we got into the Google advertising and that’s what really made it take off.”
Fulcrum Gallery started out selling reproductions with some 20,000 pieces of art from two art publishers and today works with more than two dozen art publishers, offering about 200,000 pieces online, from about 10,000 different artists.
In the beginning, Fulcrum Gallery operated out of Kerwin’s 4,000 square foot Robbinsville home that he bought when he was flush with his Merrill Lynch salary. (He realizes now it was too big for a bachelor, and has moved, but it served the growing company.) Once the company started selling reproduction prints, they needed to stock and ship the artwork. And once they got into custom framing, they needed to build and mount the frames. “We could have gone to outsourcing,” says Kerwin, “but when we looked at the cost savings of doing it ourselves, I couldn’t bear to pay someone else to do the actual framing.” They bought equipment and continued to upgrade, so, he says, “there’s no better equipment than what we have now — and we had that in my house.”
“It was quite a scene,” he says, “pushing a home-based business to the limit. We had 10 to 11 people, and 20-foot miter saws in my basement. We were probably shipping around a hundred pieces of art a day. The FedEx people couldn’t believe what we were doing. The framing vendors who dropped off supplies were amazed; they couldn’t believe we were doing that kind of volume.”
By January, 2006, says Kerwin, “we had to get out of my home. We were supposed to move in January, but this was brand-new construction, and it was delayed. We wound up in existing space up front in this same facility. It was actually smaller than my house.” The business then moved into its current space last September.
The current building is 5,000 square feet, with both office and production space, including the inventory of prints and shipping tubes for unframed prints, plus framing and assembly equipment including the molding supplies, wood saws, glass trimmers, and shipping cartons. The company also uses an additional 5,000 square foot warehouse across the street for storage. “We buy 20,000 tubes at a shot,” says Kerwin, “that takes up a lot of space.”
The staff numbers 38 and is growing. “We need more people in operations, custom framers for packaging. But the focus of growing the business is marketing and software development,” says Kerwin. He has three full-time software developers, “not including myself; I don’t have time for software anymore.” And for marketing, says Kerwin, “four to five months ago I had no marketing, it was just me doing all the marketing. Now I have four people, and am looking to expand that group as well.”
As a result, Kerwin has asked Bill Barish of Commercial Property Network to find more space. He wants to say close to the Princeton area, “so I don’t lose half of my people.” However, “the challenge for us is that we need flex space, which is kind of unusual in this area. We need office space and production space in the same location.”
The content behind the site is expanding as well. Kerwin is still adding new publishers, and adding new artists and artwork. He also plans to expand into other product categories. “People already on our site looking to decorate their walls, maybe they’re looking to decorate other ways, with a lamp and other product areas that have synergy with what we already sell. With the kind of traffic that we already have, we should be able to add those products.”
Kerwin grew up in Hamilton, where his father was a marketing manager for Conrail and his mother a social worker; his brother is a graphic artist. His first computer was a Texas Instruments TI 994A, back in the days when programs loaded with cassette tapes.
In high school he worked with the advanced C language through a bulletin board system (BBS), “the Internet before the Internet,” he says. “You would dial directly into someone’s home computer, and you could share files.” He then set up a computer and software to host his own bulletin board system. Even better, says Kerwin, by registering the software and paying $50, the BBS software developer would send the C source code, “which you could modify all you want.”
So, he says “I ended up modifying it so much that it was an entirely different piece of software.” Then he offered his own source code for sale. “When I was 13 or 14 years old,” he says, “I had people sending me $50 checks to register. I made about $10,000 doing that. I remember my parents wondered what I was doing, why all these people were sending me money.”
But even with this deep involvement in software, says Kerwin, “Ironically, when I was a senior in high school I got interested in accounting, and somehow — I don’t entirely remember this thinking — I thought that would be a better career path.”
After graduating in 1999 from Steinert High School, he was influenced by a youth pastor at Faith Baptist Church to enroll at a Baptist school, Cedarville University in Ohio. It was a bit of culture shock at first, he admits, “way different from Steinert and way different from the life I would have in Manhattan, but overall I loved the Cedarville days.”
Starting out as an accounting major, he got back on the software track during an internship with Deloitte & Touche in Princeton in his sophomore year. “All I was doing there was software, and the people there opened my eyes to the opportunity of IT. That was around 1997 when IT was just starting to take off.” He switched his major to management information systems.
Kerwin’s father was also making a similar transition around the same time, changing careers to be a mainframe IT consultant. “He had had a career in marketing, working for Conrail in Philadelphia for 20 years. He was doing more and more programming, and when Conrail split, he found out his technology experience was more relevant than his managerial experience.”
While taking a full course load in his senior year at college, Kerwin picked up a job as lead software developer for Appletree.com. “It was an online dating service similar to eHarmony,” he says, “but it never really got funding.”
“I talked my way into it,” he says. “I was the first one to contact them, and I transformed a $10 an hour ‘nothing’ job into a $100,000 opportunity once they knew what I was capable of. It was a mutually good situation. They got the same work at the least half of what they would have paid otherwise, and it was a great situation for me. I hired five people who were in my major and knew how to do this stuff, and we built their whole E-commerce site.”
“Part of it was good timing,” he says. “Everyone was trying to throw money at technology at that time. However, just because there’s opportunity doesn’t mean everyone takes advantage of it.”
When he graduated from college, the first thing he did was to buy a Lexus for cash. He started working in Philadelphia and a headhunter plucked him to work for Merrill Lynch in Manhattan. “For me personally it was such a dramatic curve, everything was just moving so quickly. You just could not ask for anything better. I really loved it at Merrill. I had a good experience there. I did very well there, but when it came to 2002, all that excitement seemed to plateau, and most people were just lucky to keep their jobs at all.”
“The next step had to be something bigger and more interesting. I always wanted to make my own way, do my own thing. I’m building something that’s valuable to customers. I’ve created jobs in this area, and there’s the satisfaction of doing something that goes beyond just a paycheck in your company.”
So where does Fulcrum Gallery go from here?
“This is just getting started,” says Kerwin. “We’ve been growing between 10 and 20 percent each month, but we are still a small business, and there is a lot more potential.”
“It’s more than a local business,” he says, “although in the larger scheme of things it’s small potatoes. But it has the potential to grow and to be something very big. Our big competitor is Art.com [of Raleigh, North Carolina], with about $150 million a year in revenue. BareWalls.com [of Sainte Genevieve, Missouri] is second with $12 million a year in sales, and third is us.”
“That’s one of the encouraging things about what we’re doing. No one handed us $3 million to make it. Art.com and AllPosters.com [of Emeryville, California, which merged with Art.com] both have very similar histories.”
“That’s kind of unusual,” he says, “to go from nothing to this percentage of the market in 2 1/2 years. It’s almost like this whole area of selling artwork online was overlooked by the Amazons of the world. It was a forgotten opportunity through that whole dot-com era; no one with public money has really made an effort in this area. That makes some of the opportunity for us, because it’s enough to compete with an Art.com — they are big, but they’re not an Amazon. If Amazon were to enter, it would probably buy someone. These are custom-made products, and Amazon really doesn’t get into that.”
The challenge then is to buy the right keywords for Google searches without blowing through the budget, and then convert the resulting clicks into sales. “We are all bidding on the same search words,” says Kerwin, “There are a handful of people who do this well. If you do a Google search for something like ‘Andy Warhol prints’ you’ll find out who our competitors are.”
“It’s about how you can monetize that traffic,” he says, “doing better at converting that traffic than others. We put all the work into our software and our offering. We have our 800 number prominently displayed on the site.”
But how much can a company afford to bid? “I know I can afford to pay more for that traffic than the small guys,” says Kerwin, “because I have a better chance of converting clicks into a sale. Maybe I can spend 40 cents on a keyword for a click, while my smaller competitor can afford to spend only 20 cents. The better we can convert our sales, the more we can afford to do the advertising.”
“Our offering is pretty similar to our competitors,” he says. “They still offer a few more things than we do, but I’d like to say our online frame shop is better than theirs. It’s an intensely competitive market for keywords. You see this more and more, as more people wake up and realize that this is a really great sales channel. Only now there are crowds of people who are all bidding for the same thing — there’s only a fixed number of people in the world searching for Andy Warhol prints. The trick is to come up with the best possible offering so that you can afford to pay more for each keyword.”
“It makes me choke every time I see how much we spend on Google,” says Kerwin. “We give Google more money than anyone else: It’s more than payroll, it’s more than cost of goods sold. It’s outrageous; sometimes I feel like we’re in the business just to give Google money. But at the same time I know why we continue to do this — It’s because it works. It’s not spending money putting up a billboard and crossing our fingers. I know this converts, as long as we keep it targeted and do it right. It’s just really a matter of math.”
Kerwin is back to a major software development effort to manage those million keywords. “We originally started building custom software for our own purposes,” he says, “but as we’ve gotten further along, we see that this software has usefulness far beyond our own purposes.” Kerwin believes the company could take the software to market as a separate search marketing optimization product. “It’s not for everyone; there only a few advertisers who have the scale of keywords and feel the same pain we feel. There is no software available — not from Google, not from anybody else — that really addresses the unique challenges from having so many keywords under management.”
“This work with search marketing is another area we got into kind of by accident, but it’s potentially bigger than just selling artwork online. Some of our history is going in whatever direction the wind takes us, as long as it seems prudent. We decided to do this software because it’s something that we need for ourselves, so it’s not like we’re going on this wild tangent on a whim. I know that other people in our situation will be able to use this as well.”
Says Kerwin: “I don’t know anyone else who is doing what we’re doing here, especially with search marketing. We try to hire our marketing staff and bring them up to speed, but you can’t find anyone who has any experience with this, the people just aren’t around here. This business was meant to be in Silicon Valley, but I just happened to be born in New Jersey, so here we are.”
Fulcrum Gallery (Metaverse), 277 Whitehead Road, Hamilton 08619; 609-689-6603; fax, 609-689-6608. Doug Kerwin, president. www.fulcrumgallery.com