Building an Online Business
from the Ground Up

by Luke Peters

What goes into creating a successful online retail store when your background is in something entirely different? Find out in this startup story of the ecommerce business Air & Water Inc.

“Get out before your brain turns to mush.”

That was the mantra my first year as an environmental scientist for the state of California. This was my first job out of college, and I was significantly younger than the other engineers and geologists who worked there. They all told me the same thing – “Get out now before your mind turns to mush!”

It was my brother that first told me about the online business world – he had successfully started up his own online business. I started to research the industry, and saw there was a high demand for air conditioner-related searches online. This was it – the niche market that I could dive into. I had been going over the idea in my head for a while, and then one day while driving home from work, I was going over the freeway and the name “Air & Water” randomly popped into my head. Call it a moment of inspiration or whatever you want, but I went home that night and immediately began working on the site. I wish at this point I could simply say “the rest is history,” but I think you and I know that’s never the way it goes for small businesses. The actual history is always a lot more interesting than that.

My background was in microbiology and chemistry – so initial development of the site was slow. To make things as easy as possible, we first started developing the site as a Yahoo store. My wife and I had just had our second child, and I would come home from work every day around 7 PM, eat dinner and play with the kids until they went to bed, and then work on the site until 11 PM or midnight. This process repeated every day in an effort to roll out the site right from our condo in Huntington Beach, CA.

The initial products we were able to list were a few basic heaters as well as some thermostats from a company called Virtual Returns. When I first started negotiating with suppliers, they didn’t want to deal with me at all since we intended to sell their products online. Moreover, they didn’t want to give us any credit either. To this day, we still run into the same issues with vendors who just do not want to deal with online retailers, despite the obviously successful results! Though we’re seeing more and more companies finally coming around to the idea of ecommerce.



I finally realized that I could run Air & Water full time while I was on another business trip for the state in 2002. All trip long – while I was sitting in important meetings – my phone would ring nonstop with questions from my wife about different thermostats that people were ordering. That was the last trip I went on for the state of California.

Before I left my government job for good, my wife and I decided to upgrade from our condo to a house. The only problem was that the escrows were off by about six months, so we ended up moving into my Mom’s house while waiting to close on our own home. I don’t think she knew what she was getting into, as shortly thereafter we were shipping between 20 and 40 products a day from her garage. We would drive out every morning to pick up orders directly from the manufacturers and then ship them out from my mom’s house by that afternoon. As things got busier, we would miss the UPS pickup from time to time. My wife would load the van with different orders and drive around Orange County looking for a UPS truck that would stop and let her drop off the shipments with them. Amazingly, she was able to find a willing and able brown truck every time!

When we finally moved into our new house, I was ecstatic about the great new warehouse we had – our 400 square foot garage! It was so nice to finally have a place to put our products. We eventually turned the entire garage into an operations center, and were finally able to hire employees to help out with the daily operations. It wasn’t long before we outgrew it, though. So we moved operations down the street to an 1800 square foot warehouse, a location that I never imagined we’d outgrow. We made a few more hires at this point, including finally adding some much-needed IT help. Yes, we waited that long to hire a real IT professional. But not only did we eventually outgrow this warehouse, but two more as well!

We truly did everything by hand at this point, until we just couldn’t stand it anymore. Prior to buying our first forklift, we actually would move pallets of product onto the trucks by hand! It typically took four or five of us just to move some of the larger orders.

Two orders stand out in particular from those early days. In one instance, one of our vendors drop-shipped too many products to a customer – way too many. Rather than the single heater someone had ordered, they sent him an entire case! The customer was located in San Francisco, and it just so happened I was scheduled to head there for a work conference. I spoke with the customer and told him not to worry about shipping the heaters back to us, and that we instead would send a courier over to pick them up. Once I got to San Francisco, I hitched a ride in our rental car with a few coworkers, and had them drop me off at his apartment building. I walked up to his apartment and picked up the product myself, as if it was straight out of a movie. He just couldn’t believe the service!

We’ve always had a loyal local customer base here in southern California, and we try to make a big deal out of offering will-call pick up for orders. That process started early on in our, too early perhaps. In our infancy, one vendor was again supposed to ship some heaters to a customer in Corona. Well, rather than have them shipped, the customer wanted to come pick up the units from us. The only problem was that we were still running the company out of my condo! We improvised and told the customer we’d save him some time and meet him halfway – at Anaheim Stadium in the parking lot. There we were, just like in a mafia movie, handling a transaction in an empty parking lot at a baseball stadium.

Jump ahead four warehouses and eight years later, and we’re now operating out of a 35,000 sq ft space in Santa Ana. With all the moves, I’ve just stopped making predictions about how long we’ll be in any one location, but I will say that our latest spot is perfect for us right now, and we’ve certainly enjoyed working with the city.

 

I’ve learned a lot through all of us, the most important being – if I can borrow a slogan from Nike – “Just do it!” Sometimes you just have to jump right in and do something. You can plan and plan and over think every minute detail, but there’s nothing that can really prepare you for actually doing it. Plus, your ideas make it to market faster this way, without wasting any times. Some may call it reckless, but it was the one thing that kept us ahead of the competition. We spent much less time thinking than doing. 

The other important key I learned is to just keep moving forward. Again, it’s nothing new, but I never liked getting stuck on projects. Even if the current results are not 100%, keep moving forward and don’t let yourself get bogged down with analysis and over-planning. With these two philosophies we keep things fresh and new. We also get to test our new ideas in the best lab of all – the real world market!

Like any business, there were a lot of hurdles along the way. But we managed to overcome anything and everything thrown our way, because I believe we’ve found the formula for success. While we’re in a relatively new business, it’s the same simple concepts of hard work and having great people that have worked for businesses for years. The best part is that it’s simple enough that really anyone can do it. Our combination of great people and hard work makes me confident that we’ll be able to withstand whatever the future holds.  

Luke Peters is the founder, owner and president of Air & Water Inc., an online retailer focused on meeting customers’ heating and cooling needs. Established in 2002, Air and Water has grown into one of the Internet’s premier online retailers of portable air conditioners, swamp coolers, space heaters and other home appliances.

 

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