SalvageSale.com carves niche in busy world of Net markets

By Staff -- Purchasing, 8/24/2000

Charlie Wilson grew up in the salvage business. While other kids went off to camp, he spent summers traveling the world with his Dad, viewing the aftermath of factory explosions, hurricanes and train derailments.

In college, Wilson studied technology. But after embarking briefly on a high-tech career, he returned to the roost in 1990, taking over the domestic portion of his father's Houston, Texas-based salvage business while his Dad pursued new business offshore. When his father died in 1995, Wilson took over the global piece of the business as well.

From the beginning, Wilson says he looked for ways to apply technology to an extremely low-tech business. He started by digitizing the company's base of insurance and other supply contacts and customers (he claims 7,500-plus). He also began to standardize descriptions of the damaged or substandard goods he was buying and selling. In 1996, he launched a Web site because he was "tired of 'overnighting' photos to potential customers."

When the idea of Net marketplaces exploded on the global business scene, Wilson felt well positioned as a potential market maker, so he wrote a business plan and headed for Silicon Valley. Of the 46,000 or so business plans submitted to Garage.com, Wilson became one of 55 to win funding and one of the first, he says proudly, "to come from outside the Valley."

After five months performing competitive analysis, honing his business plan, and thinking of ways he might deliver value to the salvage industry, Wilson had a concept for SalvageSale.com. He decided it would be too expensive to build the site in Silicon Valley, so, once again, he returned to Houston.

There, he partnered with investor and Internet startup "veteran" E. Scott Crist (aged 35, Crist is now co-chairman of SalvageSale.com). On Crist's advice Wilson recruited Dan Parsley, a partner with CSC Consulting, to be president and COO. From Merrill Lynch's investment banking group, he lured Ira Green to be CFO. Together this trio assembled a management team (all, remarkably, over 30 years of age), with broad experience in technology, salvage, insurance, consulting, law, sales and transportation industries.

From analog to online

According to Wilson, SalvageSale.com represents the conversion of what he calls his "analog business"-an established network of sellers and buyers-to a Web-based marketplace serving the $50-billion global claims recovery and commercial salvage industry. The main difference, he notes, is that his company no longer takes title to goods. "We're positioning SalvageSale.com as a neutral exchange. We have no interest in buying low and selling high." Instead, the company makes its revenue by taking a percentage of deals done through the site.

Much of SalvageSale. com's value, according to Wilson, lies with its database taxonomy-the way it classifies items for sale and standardizes the ways in which they are described and rated according to extent of damage or other factors that have placed them into the salvage category (see sidebar).

"In my experience," Wilson says, "purchasing managers for small or medium-size businesses are always looking for ways to hold down costs. Buying salvaged goods represents a great way to do this. But they don't have time to be jumping from site to site, scrolling through massive listings of products that might be for sale and then doing the legwork needed to see if these are goods they might be able to use."

At SalvageSale.com, buyers interested in salvage goods can complete a profile at the site after which they will be notified by e-mail when items fitting their profile come up for sale.

SalvageSale.com is built around 12 discrete "ready markets" for salvage goods, including chemicals, paper, textiles and metals. To support these markets, the company employs what it calls vertical market makers, people who specialize in various types of salvage goods and who are responsible for making sure that sellers provide all the information that potential buyers will require. In chemicals, for example, Wilson notes that his Boston-based vertical market maker has 50 years of experience in the business and has been president of three different chemicals companies.

"Our market makers understand the supply base for salvage goods. They also know how to market these items. They don't accept listings that won't sell." In fact, Wilson says, "We reject over 40% of everything offered."

Where there's no ready market for salvage goods, Wilson says the team at SalvageSale.com may work to create one. "We had a tunnel boring machine that had been used to build a subway in Washington, D.C. In 30 years, we've never had to sell a tunnel boring machine, so our market maker searched around on the Internet and sent 400 e-mails to anyone even remotely connected with the tunnel boring industry." The machine sold within days. "Such one-off deals might require extensive research," Wilson notes, "but from all the bids we received, we now have a new database of potential buyers for that industry."

As well as evaluating goods for sale, Wilson says the vertical market makers anticipate buyers' questions and make sure that sellers accurately disclose the condition of salvage goods and present all relevant information, certifications, documentation, etc. To ease this process, sellers must list products according to predefined templates that are re-viewed by market makers for completeness and accuracy before they are posted to the site. "By providing better information, we're hoping to make buyers feel more confident about bidding. The end result is that they bid higher," Wilson says.

At present, SalvageSale.com offers two methods of selling salvage goods. Sellers can run straight e-auctions, price-only with standard terms. Alternatively, they can use a bid-exchange model where terms and prices are negotiated. "Different terms, such as packaging, transportation, etc, may dictate how much a buyer pays," Wilson observes. He says this latter model represents about 85% of all transactions that have taken place at the site to date.

By necessity, Wilson says most transactions at SalvageSale.com are anonymous between buyer and seller. "Where corporate salvage is concerned, companies must be careful not to undermine their brands by having sub-spec product openly available on the market. For this reason, it's frequently necessary that transactions remain anonymous."

Once deals are struck at SalvageSale.com, buyers pay into escrow accounts and the funds are released to sellers after the buyer has had 48 hours to inspect and accept the goods. As a service offering, SalvageSale.com also has partnerships with third parties that can perform onsite objective inspections on buyers' behalves.

From its launch at the end of May to early in July, SalvageSale.com reports transaction volume valued at around $380,000. CFO Ira Green says the number is climbing fast. Wilson claims that roughly 85% of his "analog" buyer base has now created profiles at the site. On the supply side, he says the migration is even stronger.

In general, people on the buy side represent mostly value-added manufacturers (mostly small and medium-sized) and import-export brokers (people looking to sell salvage goods into overseas markets). Wilson is hoping that regional salvage brokers will also use the site as a source of supply for local deals. "The benefit for them would be less risk and better information about the goods they're moving." While, to a certain extent, Wilson expects Net markets like SalvageSale.com to disintermediate traditional brokers, he says "There will still be plenty of room for good offline brokers to play in this $50-billion global market."

By making it easier for companies to move salvaged goods in methodical-rather than traditional haphazard fashions-the folks at SalvageSale.com are banking on the hope that CFO's worldwide will become less inclined to write off assets that might be at least partially recoverable. "In this competitive global economy," notes SalvageSale.com CFO Ira Green, "chief financial officers are looking for more ways to minimize leakage and waste. Good managers are going to be looking at ways to increase returns on their sales of assets."

As SalvageSale.com president and COO Dan Parsley describes it, "Surplus is `good stuff' that already has fairly efficient marketplace channels. Salvage, is `bad stuff' with unpredictable availability and which often needs to be sold quickly." Main sources of salvage, according to Parsley, are:

The difference between surplus and salvage