Entrepreneur Puts His Own Spin on Gift Cards
What are friends for -- but to give you good ideas for start-ups?
Kwame Kuadey was chatting with a pal who groused that he was "stuck" with a bunch of gift cards for stores and restaurants he would never patronize. "Wouldn't it be nice to have a Web site where you can sell the gift cards or trade them for something else that you like?" mused the friend.
Kuadey knew that there were a few online sites that did something similar, but they were set up as an exchange between a buyer and seller. He wanted to take out the middleman, so he founded a firm to purchase gift cards from people who don't want them.
He only accepts the cards if they can be used at any of 200 merchants that he lists on his Web site. A customer mails the card to Kuadey, who either pays the customer the cash value of the card through PayPal or the customer can use the proceeds from the card's value to choose a different merchant card.
Kuadey started his firm as a project at business school, which he attended for two years in the evenings after working at Citigroup during the day.
He officially began his business in January 2008 -- exactly a year after his friend sparked the idea for GiftCardRescue.com and graduated the following November. He runs the firm with his wife, Patricia, out of their Ellicott City, Md., home.
The easiest part of the process was finding the right domain name; the hardest was finding funding. He's financing the business himself now and is preparing to look for outside help.
"Right now the model works," he said and is on track to break even by the end of the year.
Kuadey makes a profit on the spread between how much he buys a card for and its sale price. For example, he might buy a $100 Home Depot card for $70, but then sell it for $90.
Sales increased when he began promoting his firm's policy that if you buy a card from him and the company affiliated with that card goes bankrupt within a year of purchase, GiftCardRescue will reimburse the customer for any amount left on the gift card.
Kuadey said his research shows that despite the high profile case of Sharper Image not honoring its cards when it began shuttering its doors, the practice is quite rare for a major retailer.
There are still some kinks to smooth out in the business -- he never receives about 20 percent of the gift cards that people register online at GiftCardRescue with the intent to mail to him.
When he was in business school, someone suggested that he follow the Netflix model where the movie rental service mails its customers a self-addressed stamped envelope to return DVDs via the mail. "I thought that was brilliant and immediately went out and tried it," Kuadey said. It didn't work. The company sent 50 envelopes and not one came back.
But that hasn't been a deterrent to Kuadey. He's chalking it up to lessons learned.
"I learned that as a small business owner, you should test things before you implement them - especially if it's going to require system changes," he said. "I'm glad I didn't make changes to the Web site before seeing that it didn't work. It's really important to test your ideas before you fully roll them out."
He said he came to realize that the Netflix customer is more committed to the company in the sense that it's a monthly subscription model. "With a gift card, a person doesn't really lose anything not to send it to us," he said.
Down the line, he's hoping to explore adding e-card reimbursement or exchange to his site, but this year "it's all about growth," said Kuadey, who moved to the United States to attend Middlebury College in Vermont from his native Ghana.
He says he's in it for the long haul, but adds "one of the things I've realized is that being a small business owner can sometimes be a lonely experience. Once the buzz clears up, you have to put in the work and it's important to have a plan. Half of the time it doesn't turn out the way you planned it, but I can be flexible."
He's also learning about the long hours of an entrepreneur. "I feel like I'm on the job 24/7 -- sometimes I just need to figure out when does work stop and when does family life begin." That's a question he's mulled over a lot lately now that he has a three-month-old daughter, he's the president and CEO of GiftCardRescue and his wife is the COO.
"Working for yourself, you're laying everything on the line... but the rewards are tremendous," he said.
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