The Andrew Warner Story: How a 21 Year-Old Created a 38.5 Million Dollar Business by Returning His J.Crew Clothes

The chances are, you probably haven’t heard of the name Andrew Warner. And if you have, all you will see is a young man who throws local web conferences and interviews successful entrepreneurs. But the thing is, there is a lot more to Andrew Warner than meets the eyes.

Although Andrew spends most of his day interviewing successful entrepreneurs, he himself is more successful than the people he is interviewing. On top of that you can probably learn a lot more from listening to Andrew than if you listened to Internet celebrities such as Guy Kawasaki and Seth Godin.

By no means should you stop listening and learning from Internet celebrities, but you need to start listening to people who are more like you. Andrew Warner wasn’t a rich kid who had everything handed to him. He had to return his old clothes to J.Crew so he could have enough money to start his first business, and it happens to be that company made 38.5 million dollars a year.

Here is the Andrew Warner Story!

So Andrew, tell me a bit about yourself?

I’m an entrepreneur and salesman living in a world that has little appreciation for either.

In elementary school, I had this little business where I bought packs of gum from the candy store and sold each piece to kids in my class. I bought each pack of 10 for 50 cents and sold the pieces for 10 cents each. It wasn’t a huge amount of money, but I doubled my money and I was proud.

You think the teachers were proud? If a kid wanted to draw or write poetry or do anything artistic, they were full of praise. But as soon as they found out what I was doing, they shut me down. Sharing your candy with others if fine, but there was something disgusting to them about commerce.

Isn’t the same true on the Internet? Everyone cheers user-generated content. But if one of those users wants to profit from all the time he’s spending online, the community is turned off.

Ever since elementary school, I wanted to show that businesspeople are the heroes and encourage others to become entrepreneurs. After I cashed out of my Internet company, I dedicated myself to doing that.

How old were you when you started your first .com business, how much capital did you put into it, and where did you get the money from?

When I was 21, I discovered the business that would make me my first (mini) fortune. It was the mid-90s and I got this daily word-a-day email newsletter. I liked it, so I called up the guy who wrote it and said, “I love your email newsletter, but why aren’t you running ads in it? You can make some money.”

“You don’t understand,” he told me. “If I ran ads in it, it would taint my work.”

There were a bunch of email newsletter guys who felt that way. In their stupidity, I found an opportunity. My brother Michael is a brilliant coder, so I partnered up with him and in about a week, he whipped up a system that allowed us to manage our own email newsletter.

Within a year, we were making a profit of about $1,000 a day.

What inspired you to create an online greeting card business?

In the mid-90′s, people would subscribe to just about any email newsletter because email was still a novelty to them and they wanted to see something in their inboxes. As the excitement wore off, people were less likely to go out of their way to sign up for a service that sent them more email. We were constantly looking for new ways to get people to join. Michael is a fast developer, so when we saw something promising, he coded it up quickly and we measured the results.

Then I read a BusinessWeek article that changed my life. It talked about virtual gifts. There were web sites that let people email each other pictures of flowers. The concept seemed ridiculous to me, but it was insanely viral. So I showed it to Michael and in about a week he built what we simply called “virtual gifts.”

Mostly we copied the people in the BusinessWeek article, but we added one thing that I don’t think the others were doing. When users sent virtual flowers, we also let people join our mailing list.

Since flowers did well, we wanted to see what else people would want to send. We let them send virtual toys, gag-gifts, whatever. Eventually, we realized that greeting cards were the most popular, so we focused on that.

Suddenly we got hundreds of new subscribers every day–for free!

You took your business from 0 dollars in revenue to 38.5 million dollars. How did you get your revenue that high and how long did it take you to do that?

Great question!

Getting hundreds of people to send our greeting cards was exciting, but we were too ambitious to be satisfied with hundreds. We wanted millions.

So we took the basic functionality of our greeting card system and opened it up to other Web sites. Using Michael’s code, anyone could add a greeting card section to their site. And when their users’ sent out a greeting card, we asked them to join our newsletters.

Now we were getting thousands of people to join our newsletters. But remember, we wanted millions, not thousands.

That’s when we decided to pay web sites to use our system. We’d give them 10 cents every time one of their users sent out a greeting card. Now that was powerful. Suddenly millions of people were using our greeting card engine and our newsletter had millions of subscribers.

That was great, but as you can see, it’s also scary. Because for every million people who used our greeting card engine, we had to pay webmasters $100,000. We didn’t have that kind of money. The newsletter business was profitable, but revenue was slow. Every day, we made a fraction of a penny on each user. That added up to real money, but it took a long time to get that money. And the affiliates that sent us all those users didn’t want to wait.

So we needed a way to bring in money quickly.

This is where that salesmanship that teachers tried to beat out of me came in handy. I noticed that there were some venture-backed firms with a lot of money and an urgent need to get new users. So I told them that every time a user joined one of my mailings, I’d urge them to become members of the venture-backed company’s site.

They loved the idea so much that companies offered to pay us anywhere from $1 to $3 per user.

Millions of people used our greeting card engine each month. Venture-backed firms paid us $1-$3 every time we convinced those users to sign up for their services. You can see how that adds up nicely.

Your business had high profit margins. How did you keep your costs so low?

I’m amazed that you noticed our margins Neil.

Let’s do the math. We paid webmasters 10 cents every time one of their users used our greeting card engine. We got paid up to $3 by venture-backed firms every time we got those users to register for these venture-backed firms’ services. That’s how we got our margins.

Even when we raised our payouts to 25 cents, our margins were good.

But those are gross margins. From that, we had to pay for servers, salaries, office space and more.

I reached for the moon and rented a floor of office space in mid-town Manhattan. That alone cost over a million dollars a year.

So, in 2000, the only year we had our finances audited by Earnst & Young, our revenue was $38.5 million, but our net profit was $6.7 million.

You sold your company to Brad Greenspan, who was one of the MySpace founders. How did you go about selling your company?

We sold the business in pieces to people we did business with over the years.

Netcreations, for example, bought our opt-in email database. They were the leaders in that space and managed that part of our business, so they knew what it was worth and how to run it.

Brad Greenspan bought the last of the business. He was one of the few people who discovered our company on his own. He must have been monitoring traffic rating services to see whose traffic was spiking. As soon as our business hit his radar, he called me and tried to buy me out.

I turned him down, and over the years we became both competitors and friends. We competed fiercely with each other, but we also did some mutually beneficial business deals.

Brad’s company had a super-smart group of guys working in it. So when I needed to move on, I made a deal with him. I knew his guys could run the business without needing me to stick around through a long transition period.

What advice would you give to someone who doesn’t have much money and wants to start a business?

I hate the pansies who whine that “it takes money to make money.” No it doesn’t! It takes a sense of mission. If you’re on a mission, you’ll find a way.

When I didn’t have money to start my company, I called up J.Crew and asked if they’d take back the clothes I bought from them over the years and give me a refund. Believe it or not, they said, “sure.” That J.Crew refund check helped put me in business.

The problem with most people who want to start companies is that they’re not real entrepreneurs because they’re not enterprising.

I have shelves full of biographies or great businesspeople who all started with nothing but somehow found a way to build their businesses.

Any last words to the Quick Sprout readers?

Keep learning from others. We’re fortunate in the Internet business because successful entrepreneurs are willing help startups. We have to take advantage of that.

In college, I worked on Wall Street. The guy who made it in the market had zero interest in helping out the younger guys coming up.

Today I run a Web site called Mixergy, where successful Internet entrepreneurs teach others what they learned. There is no way that anything like that would happen on Wall Street. It’s too competitive and people are too ruthless.

We need to be grateful for this environment and soak up as much knowledge as possible.