A Wharton School alumnus has parlayed what started as his MBA graduation project into a rapidly growing Internet start-up company that landed $4.5 million in venture capital funding at the end of July.
Cashing in on the e-commerce bandwagon, Culver City-based Binary Compass Enterprises collects customer satisfaction data on Web purchases, then sells the information to companies like e-Toys and REI, the wilderness outfitter.
With more than 100 clients, the company has taken off quickly since its inception in 1996, leading to the infusion of venture funding by Media Technology Ventures in Los Altos and Mission Ventures in San Diego.
“We can be a Web shopper’s dream,” said co-founder and CEO Farhad Mohit, who hatched the idea for the company during his last year at Wharton. “Consumers want to know more about the reliability and quality of all those e-commerce sites. And for their part, merchants want a third-party seal of approval to inspire greater confidence and purchases. We help on both these levels.”
Binary Compass gathers point-of-sale online customer feedback by enlisting over 100 merchants to place its questionnaire at the bottom of a customer receipt. Information is then aggregated and an e-mail message is sent to the online purchaser a couple of weeks later to get feedback on the delivery.
Mohit says Binary Compass receives between 1,000 and 10,000 responses per e-commerce site every month.
In addition to the 100-plus merchants who have signed up, some company employees work as “stealth shoppers” who steadily order items from e-commerce sites and evaluate them based on their own experiences.
The information is published online as the BizRate Guide, geared as a type of Consumer’s Report for e-commerce sites. The guide evaluates more than 450 e-commerce sites on factors like competitive pricing, timeliness and the ordering processes, and can be accessed for free on the Internet (www.bizrate.com).
The company’s revenue stream comes in part from strategic partnerships with search engines like Lycos and GoTo.Com that want to use the Binary Compass name to establish credibility of the e-commerce outlets featured on their systems.
Primarily, however, revenue comes from selling proprietary market research to online merchants. Mohit says the company is near the break-even point even before the infusion of venture capital. This is unusual in the Internet industry, where most start-up companies bleed copious red ink for the first couple of years.
“Binary Compass research has been very valuable for us,” said Robin Walsh, online analyst for NECx, a Peabody, Mass.-based company that retails computers and related products and makes a reported 14,000 online sales a month. “It gives us a gauge on how we’re performing as a commerce site and how we compare to our competitors.”
Company officials and others believe it’s the only company doing this kind of market research.
“By being the first in this niche, Binary Compass will be almost impossible to displace,” said Robert Kibble, managing partner of Mission Ventures. “The company becomes the barrier to entry. Coupled with the fact that they have already proven that their information is valuable to both merchants and consumers, Binary Compass is a good investment for us.”
Kibble plans to start culling a second round of venture capital sometime next year. Meanwhile, Mohit said that the first infusion of money will be used on advertising and internal growth.
“Those who doubt that e-commerce is here to stay can stand on the sidelines and watch the ride the rest of us are going to have,” Mohit said. “Actually, I’m glad there are naysayers. Their hesitation gives start-ups like us a chance to exist before the big boys show up. I intend to stay No. 1.”
