Young, forward-thinking, entrepreneurial Luke Howard-Willis founded Hamilton-based online retailer Torpedo7 (www.torpedo7.com) in 2004. His stated aim was to give the bike industry a shake-up. He complained that such goods were over-priced, the range was limited and customers did not have a lot of choice.

Now customers in both New Zealand and Australia can buy bikes, components and accessories online from a company that is roaring along, and a copybook example of how a budding entrepreneur succeeded in finding a niche online.

Torpedo7 is ranked as one of the fastest growing technology businesses in the Asia-Pacific region, driven by the core bikes and accessories site, along with several successful add-on sister businesses such as 1-day, 1-daytee, 1-daycellar and 1-dayout.

The 31-year-old has expanded into other online e-commerce ventures and sniffs huge opportunity in Australia and New Zealand, if it’s done right. “We have a lot of plans on opening up new web businesses.

Some you’ll see in the next few months,” he says. “Others will be rolled out in the next year or so. “One thing is certain. We see a lot of opportunity in New Zealand and Australia and we’re in an aggressive growth mode so we are full steam ahead.”
Spotting a business model
The background as to how Howard-Willis’ venture started is a classic example of how a customer explores present online and mail order offerings and sees a gap in the marketplace.

At the time he was heavily into his mountain bike riding, and, as part of his interest, was reading a lot of the US bike magazines that had mail order advertisers in them selling bike product at great prices.

“Comparing the prices to New Zealand, I discovered it was very worthwhile as an individual to purchase from these mail order companies in the US, which I did along with many of my friends. It didn’t take long to figure out that if we could offer the same product in New Zealand at the same or similar prices to what the US mail order companies where doing, then we could have a lucrative business idea. So that lead to a lot of research overseas to see what supply I could get especially on brand product, and it also meant that to get to the pricing required, we would need to parallel import key brands.

After researching various retail methods, we decided that online would be the best way in order to capture the whole of the New Zealand market.”

Then came a first harsh lesson in how existing competitors can get nervous about the sudden emergence of new players in the market encroaching their territory and approaching things differently. “We attempted to launch Torpedo7 in a local bike magazine but once they saw our advert and the pricing on product, they chucked us out of the magazine. No-one in the bike industry would touch us and they said it would destroy the New Zealand bike market if we proceeded ahead.”

Howard-Willis said while this was disappointing, it was encouraging at the same time, as it showed that if they could pull this off, then they could be on to something. So Torpedo7 was launched with no traditional marketing at all, which he said had actually proved to be an advantage as they really had to work hard at getting the word out. It allowed them to experiment in non-traditional activities which lead to word-of-mouth marketing.

Torpedo7 would be his first experience on the net and what he saw happening at the time online with US stores encouraged him, although he admitted New Zealand seemed to be still in its infancy with online e-commerce activity.

Learning the trade
Howard-Willis has a natural instinct for what works but he did do a four-year business degree. He says even with his natural talent at turning a buck, a degree is something you need to do as it teaches you disciplines and research skills.

“Everything else that I have learnt has come from reading books, and the people that I associate with.” The most important of his “associates” is his father. “My father has been in various businesses for many years, so I have been brought up discussing business at the dinner table. My father is now a key part of the business and brings a wealth of experience to the company.

I read about business extensively and have done for many years. “

In the early days, he did everything from sourcing products to dispatching the orders and handling customer service.

Now with 100-odd staff, he is not one for flash titles and describes his role as Strategic / Marketing Director. Many who ponder setting up an online business are attracted by the thought you could potentially run the business from home. Not having big storefronts means lower overheads.

Howard-Willis quickly provides a reality check on what is involved to make it work.

“We do have some very high overheads. This is especially so with staff numbers and those key people that you need to run a successful online e-commerce business – a customer service team, website development team, IT team, photography team, buying team and the list goes on with all the specialized key personnel. However, the advantages with online come with having a business that you can quickly cover a whole country without having to put dollars behind bricks and mortar as traditional retailers do.”

A smart approach
Technology is as important an ingredient to any online success and being of a generation that grew up with technology, Howard-Willis knows how important it is to keep current and continue to push the boundaries.

The granddaddy of online retailers, Amazon, formed in 1994, learnt early on that pumping money back into the business and developing clever technology to make customers enjoy the shopping experience better encouraged loyalty, a bigger customer spend and a closer offline shopping experience. One of those early “smart” technology moves Amazon perfected was to prompt other buying suggestions (“You might also be interested in…”) based on what the customer had bought previously, what the customer had been looking at in that visiting session or based on what other people who had bought that item had also ordered or shown interest in.

Amazon’s business approach was not to expect a profit for the first five years and to plunge money back into technological advances so that it future-proofed the business against competitors.

For a while, some stockholders grumbled about that strategy, saying they were not seeing the company achieve profitability quickly enough. It’s a different story today. In the latest quarter, the online retailer’s net income climb 16 per cent, beating beat analyst expectations.

“We are on our 3rd generation website, “says Howard-Willis, “The latest version is allowing us to go well into the future, whereas the previous website limited our growth. We have our stock system, accounting software all working live with the website and operate a near paperless system for all orders.

“We have some key systems people within the company,
and we put a lot of dollars back in to create some pretty amazing technology systems to help the company handle the growth and ever increasing order numbers. Technology is a key area in the business that we are constantly investing in as it is an area we do not want to lag in as it would be detrimental to the future of the business.”

Technology is a key area in the business that we are constantly investing in as it is an area we do not want to lag in as it would be detrimental to the future of the business.

Being an online retailer, functionality of the website is crucial. His approach is that classic line about keeping it simple. “When we design our sites or add additional functionally I’m always pushing for it being simple, clear and concise.” Howard-Willis confirms anecdotal evidence that online customers are shifting to mobile –and that m-commerce is going to be a significant part of future online businesses. It means those businesses need to start planning to be in that space. He says the mobile side of his business is definitely seeing growth with each month showing a further increase in traffic via mobile. He launched an iPhone app and has further developments for it in mind.

Going Trans-Tasman
Some New Zealand entrepreneurs have tried expanding into Australia and run into headwinds.

Around half of Torpedo7’s sales are now from Australia with the company running its own Australian site. It was the fact that Howard-Willis noted that 10% of the sales to the original New Zealand site where coming from Australia that made him ponder a wider reach. This was happening even though the company wasn’t even being promoted in Australia. “So we decided to launch a .com.au website with all the prices fixed in AU currency and the sales in the first month jumped from 10% to just over 40%.” In view of the failure of other Kiwi sites moving into the Australian space, how did he achieve that sort of success and what lessons has he learnt?

“We did our research, started slow and didn’t put a lot of capital behind it. With online, there is the advantage of opening up in another market easily with little cost associated so if things are not quite going to plan, then you can easily and cost effectively make changes to adapt to the market conditions.”

Torpedo7 has now expanded beyond selling just bikes to other outdoor sports such as motocross and snow sports.

One issue, for an online retailer selling such goods, is that some who want to buy a bike may be a bit nervous about not sitting in the saddle before purchase and then not being able to come in to a physical shop if there are any teething problems. However, that person may well be a returning customer for all ongoing parts and accessories. So how did he get over such customer service worries?

“When we started Torpedo7 it was focused around parts and accessories (P&A), and still to this day those areas equate to 95% of our business. We quickly understood that selling 2000 x cycle shorts or 1000 x bike tool sets was so much easier than selling one bike and the margins in doing the P&A was far better. So in essence we have specialized mostly on the P&A, which are also far easier to stock and dispatch as they are generally smaller.”

Impulse buying
Fuelled by the success of Torpedo7, Howard-Willis picked up the idea for a potential new standalone. Torpedo7 had been running what it called “First in, First Served” weekend promotions and found they worked really well. “I expanded on this idea by thinking that with this model we could sell anything. As long as the product and pricing were attractive, then people would impulse on the deal.”

In a variation of the often-famous “back of an envelope” business idea, his story is that the idea came to him on a long airline flight back from Taiwan and the concept scribbled on the back of an Air New Zealand serviette. He says he had been swamped with offers of products to put on Torpedo7 but they were products that didn’t quite fit into the action sports category the site catered for. So he created 1-day.co.nz (http://www.1-day.co.nz/), a site which offers participants three products at midday every day in a cheap deal that lasts only 24 hours.

“It has proven so successful and grown amazingly quickly now being the larger of the two companies in terms of sales and website traffic.

1-day has expanded into sub-sites 1-daytee (T-shirt deals), 1-daycellar (wine deals) and recently 1-dayout (voucher deals) which has grown itself very quickly with some impressive numbers.”

What recession?
The Torpedo7 story is not just a positive story about how a few dedicated individuals can strongly grow an online business from scratch, but provides inspiration that those thinking about dealing in specialized goods can rise above the swirling uncertain economic times that so often discourage people from even giving it a go.

We made, as a company, the conscious decision that we were not going to participate in the recession, and went forth and continued business as per usual. As soon as we made that decision some pretty amazing business opportunities came our way.

With turnover this year at around $80m, Torpedo7 has continued to show year-on-year growth. Howard-Willis says it’s all about thinking positively and not buying into the bad news filling the business pages of the media. “To be honest if you looked at our figures, you wouldn’t even notice a recession. We made, as a company, the conscious decision that we were not going to participate in the recession, and went forth and continued business as per usual. As soon as we made that decision some pretty amazing business opportunities came our way which we have benefited from substantially.”

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