Knoxville-Based Tradingo.com Wants Your Stuff

Web entrepreneurs TJ McNamara and Scott Scheinbaum hope to turn online bartering into a moneymaker. Can they pull it off?

The idea came to him during Super Bowl XLII—Giants-Patriots—and just wouldn't go away.

Thomas "TJ" McNamara had settled into the living room of his plush suburban home in far West Knoxville to watch the game with about 30 of his friends. As vice president of operations and business development for DEMCO Power Services Group, the energetic 46-year-old former New Yorker doesn't get much time to take it easy and relax. Mostly, he jets around the world and the United States, traveling some 200,000 miles in the air each year, managing projects for commercial nuclear utilities and large-scale demolitions like Yankee Stadium. There aren't many free days.

But then this idea came along and lodged itself in his brain, completely distracting him from the big game.

It started when his youngest daughter Heather was explaining how she wanted a new Coach purse.

"I thought she already had a multitude of Coach purses. I told her no," he recounts in a movie-perfect New Yawk accent. "But my buddy's daughter Courtney said, ‘I like your purse, and I've got the one you want, so why don't we trade?' I'm sitting back, going, ‘So you guys would trade purses?' ‘Yeah.'

"And I sat there stewing during the whole second half of the Super Bowl, going, ‘Well, if a couple of teenage girls will trade purses, what else do they have? Or adults?'"

It was a moment not unlike many in our daily lives: the unexpected stroke of genius that might make you a millionaire, when you come up with some sort of thing that maybe nobody else has thought of, the concept that makes perfect sense. If only you knew how to create it.

That's the point where most of us reach for the cheese dip and forget all about it. Not TJ McNamara.

"It kind of grew from there," he says. "I did a bunch of research after that—I called a couple of buddies of mine at Viacom, I called friends in New York who are in the kid retail business, and I asked, ‘Hey, what if I were to start a company where kids and adults could trade things online?' Take a Facebook and an eBay, and kind of throw it all into one thing?"

The idea is simple and the timing seems right. With the country's ongoing economic meltdown, people are spending less money on new things. At the same time, they're loaded up with stuff they bought during their halcyon days of the past decade and are now realizing they don't ever use it. So what if there was a place online where you could easily get rid of the possessions you don't want anymore for the things you really need? And what if this site added a social networking element, allowing people to quickly communicate—and maybe even bond—over their transactions?

Wouldn't that be fun?

Sure it would. But there was one big problem: "I'm a construction, demolition, nuclear guy. I'm not an Internet guy," says McNamara. "Heck, 10 years ago, my secretary had to tell me how to turn on my laptop. This is definitely way outside of my bailiwick."

So how does a demolition guy build a new Web application that's supposed to compete with eBay and Craigslist? And does Knoxville even have the talent base to initiate and sustain Internet entrepreneurs with dreams of sidestepping Silicon Valley? McNamara decided to spend the next year and a half of his life—and a major chunk of his own money—finding out. And now, Knoxville's most competitive e-commerce start-up in, well, forever has just launched its beta version: Tradingo.com.

Enter the Nerds

Scott Scheinbaum bears impeccable cybergeek credentials. First, he's bald by choice, his smooth dome accentuating bright eyes that appear to be analyzing his surroundings as much as seeing them. Second, he used to front a goth band in the late '80s Knoxville music scene named Ministry of Love. Third, he directed sound and music for the games at CyberFlix, the homegrown video-game software company that hit it big with Titanic: Adventure Out of Time before hitting its own iceberg in 1998. And fourth, he got laid off last year by IdleAire, the bankrupt Knoxville start-up that tried to change the trucking industry with an innovative climate control system.

In fact, it was shortly after he got pink-slipped that Tradingo hired its first (and so far only) employee.

McNamara had known Scheinbaum socially, and after six months of doing research into that Super Bowl epiphany, he decided to share his Web 2.0 idea with his friend over lunch at The Crown & Goose in the Old City last fall.

"I thought it was a really good idea, but there are a lot of good ideas out there," Scheinbaum says. "I knew that if it was going to be successful, it had to be executed well—so I started thinking about that. I was still employed at the time at IdleAire."

But not for long. By October, Scheinbaum had survived seven rounds of layoffs as the company imploded, and knew his time was drawing near—as the director of media production, he didn't actually have any media left to produce.

"When the layoffs came, it was more of a relief. It's like, ‘It's done. Finally,'" he says. "So I walked out of there with my box of stuff, and as I was walking out of IdleAire, I was texting TJ: ‘Hey, man, what do you think?' And he was like, ‘All right, let's go.'"

McNamara hired Scheinbaum as COO—though the main part of Scheinbaum's job has been figuring out how to put all their ideas into a functioning website. As a longtime Knoxvillian in the local tech field, he knew many of the Internet pros in town and started introducing some of them to McNamara—who was impressed enough with their talent to keep the project in Knoxville. With the exception of Vancouver-based graphic design firm MetaLab, Tradingo.com is a made-in-Knoxville product.

Patrick Hunt, a user-experience expert, mapped out the navigation, labeling, organization, and interaction of Tradingo.com's content; Hunt recently opened MSQ Studio on Market Square, and owns the widget software company Tingz. Sean Christman, president of Web host Slamdot and winner of this year's Young Entrepreneur Award from the Knoxville Chamber, was responsible for programming—building the code behind the interface.

"I'm very pleased with the fact that for almost everything we've done for the site we used Knoxville people—I'm very proud of that," Scheinbaum says. "Having done the CyberFlix thing, I'm very optimistic about what Knoxville can do. So while I really sweated some of those decisions, now that we're a couple of weeks from launch, I'm very happy with that. That makes me feel good because I love it here, I really do. I'd love nothing more than to have a Silicon Alley over here."

Of course, Knoxville has a history of attempting to tout itself as a hub of high-tech and Internet activity, from the formation of the Tennessee Technology Corridor in 1983 to the days of Mayor Victor Ashe's "Digital Crossing" on Market Square. And while it is home to companies such as the Scripps Internet Newspaper Group, Cadre5, and various website design firms, Knoxville hasn't exactly been the buzz of industry trade blogs. But it could still happen, now more than ever.

"I think it's a great time to start an Internet company in Knoxville, or anywhere there's a lower cost structure," says Mike Tatum, co-founder and partner of Whiskey Media, from his office in Sausalito on the San Francisco Bay. Tatum, a 1994 University of Tennessee graduate in communications, is now a grizzled veteran of Silicon Valley start-ups: Lot21, Searchlinux.com, 
Listen.com, Digital Home Technologies, and CNET, where he ascended to vice president for strategy and development. Whiskey Media creates mega-data pop-culture sites like GiantBomb.com and AnimeVice.com that leverage user-generated content. When he entered in the industry in 1997, the costs for starting up any sort of business online were massive.

"In the late '90s, you had to be near money," Tatum says. "That's because the barrier into these businesses was so high, like you had to pay $20,000 for a Web server—people had these multi- multi-million-dollar bandwidth charges. I remember with Listen.com, we had to have $15 million just to get going. Now, with my current setup, we're in the low single-digit millions and we're still in the Bay Area. So you could take that back to Knoxville, and for a couple hundred grand, you should be able to get the business up, test it, see if you're getting any customers."

And that's exactly Tradingo.com's plan: launch a beta site to gather a local user base, test its functionality, and keep the costs low. Tradingo does not have a headquarters; Scheinbaum works out of his bachelor's apartment on the 100 block of Gay Street. The company's CFO is Stacey McNamara, TJ's wife. Hired guns Hunt and Christman both have their own company offices. Focus groups consist of friends and family.

"I don't think there's any way that we could have done what we've done so far anywhere else," Scheinbaum says. "The cost of living here is extremely low, which means that I can be paid a lower salary and not eat ramen noodles, and the development costs are much lower. I did a comparison, and it's much, much less than anywhere else in the country.

"Can you walk out of your door, go down to the coffee shop, and solicit investors like Silicon Valley? No. Are we gonna need that until we get up and running and we have our concept proven? No. And by that time, people will be hopefully coming to us."

But in the meantime, TJ McNamara has put everything he's got into Tradingo.com.

Monetizing The Barter System

Ask him what his hardest decision has been as a first-time Internet entrepreneur, and McNamara doesn't hesitate to bare his anxiety:

"Blowing my entire savings. Mortgaging the house here in Tennessee and the house in Maryland. Getting an SBA loan. Knowing that you've got $150,000-plus hanging out on the line, going, ‘Okay, if it doesn't work, that's money gone.' That's tough."

The apocryphal failure rate for Internet start-ups is 90 percent. But hard numbers aren't easy to come by in such a fast-moving industry of websites that may or may not be making money. Last May, blogger Meg Pickard at Meish.org made an attempt and posted her analysis of Web 2.0 companies launched in 2005 or later under the title, "Game Web 2.Over?"—and it's since become obsessed over by other industry bloggers. Kevin Ecklund at ToMuse.com probably gave it the most thorough re-analysis and concluded:

"According to this small sample of Web 2.0 startups this would suggest that Internet-based startups have a 59 percent chance of survival over a short period of time (~2-4 years), a 27 percent chance of total failure, and a 14 percent chance of being sold to a major corporation. These numbers are fairly optimistic if you assume that the majority of the 58 percent that are still in operation are successful."

Still, those are tall odds to face when you're not backed by a big corporation. So how does the Tradingo brain trust expect to make money?

First, they hope to hook people with their easy-to-use system for buying, selling, and trading. When you log into Tradingo.com, you see a clean interface populated by the now-standard conventions of social networking tools: the ability to make friends and track their activities, to create your own profile page and proclaim your "status," and most importantly, to immediately engage in conversations. Unlike e-commerce powerhouses eBay and Craigslist, which rely on a slow exchange of e-mails, you can jump right in to an IM-like dialogue on Tradingo.com. Once a trade is agreed upon, both parties mail each other the items (provided they agree to comply with federal mail-fraud statutes and keep their ends of the bargain); later, the company may utilize a fulfillment-house system.

Further distancing Tradingo from Craigslist's creaky classified-ad model is the ability to see everything contained in each user's "closet" all at once. And that's what Tradingo's creators think will keep users coming back.

"It's just fun," Scheinbaum says. "Wouldn't you like to walk down the street, go to your neighbor's house, open up their closets and go, ‘Anything you're not using here?' That's basically what this is. You'll be able to browse closets at random. All of the components of this have been out there, but nobody has put them together in this particular way."

According to plan, once 
Tradingo.com has developed a sizable following in the near future, the team will start introducing some revenue-generators: 1. ads, 2. a percentage from straight sales that will undercut eBay's rate, and 3. a $1 fee for each trade via purchasable tokens.

"A low barrier to entry, nobody's going to complain about that," says Scheinbaum. "I think for the power of having a nationwide flea market, if you will, certainly outweighs any purchase of a dollar token to trade. This is to offset our cost, and people take it more seriously if they have to pay for it, even if it's a dollar."

How does that plan sound to someone already in the industry?

"What's interesting about this is that now there's third-generation Internet companies who can go after eBay, like Tradingo is doing, and really assault their business model," Tatum says. "EBay has been established for 12, 14 years now, and everybody knows who they are—they've established the concept that you can go online to either create a business or at least monetize products you have laying around your house that you no longer have a use for. But the economics around that trade may no longer be as appealing and necessary. The hosting and the technology they had to build 10-12 years ago to the scale that they did was incredibly expensive. And now you can come along and get the same amount of scale so much more cost-effectively that you as a small entrepreneur in a smaller market can tap into that and effectively compete with them—and actually undercut the established business model and create a brand new one.

"I'm not sure if Tradingo has that completely figured out yet nor not, but there's definitely an opportunity to go in and be the last hand on the bat in a new trading/used-good model online. And you can do that from Knoxville."

Crunch Time

Tradingo's tipping point came on April 16. Scheinbaum was still slightly hungover from celebrating his 39th birthday the night before as he drove out to McNamara's house for their usual team meeting. When he got there, he found a decidedly unhappy TJ.

The site was originally planned to launch in January. Didn't happen. Now, four months later, it didn't seem like they were getting any closer. Every new idea for expanding the site's feature set was causing development delays. And McNamara was starting to have doubts: Would they ever get this thing launched?

"I've got two houses mortgaged, I've got savings going out the door. It was one of those times when you say, ‘Okay, how long am I in it for? How much do I keep throwing out there before there's the actual project?' It was a little tense. I'm a get-it-done kind of guy."

Site developer Sean Christman calmed things down by observing that it might be in their best interests to focus on the site's core features: trading, buying, selling. Put out a simple beta site now to see how people use it, and then take their recommendations before building out all the bells and whistles. That way, they'd greatly shorten the engineering time and save money on features that users might not even want.

McNamara agreed, and Tradingo.com's beta site launched just a few weeks ago.

"That was a tough decision: Is this my dream? Hands down. When I came up with this, something said, ‘Go with it.' And then when people started losing jobs and everything else started happening, I got a little scared," says McNamara. "I said, ‘Geez, what if something happened to me?' I'm spending all this money, and God forbid, if something happens, my savings are gone.

"But with the times now, people don't have a whole lot of money to just go out there and buy stuff like they used to, so why not give people something they can utilize so they can trade? After everything I put into it, I'm committed to this forever and a day."

Right now, Tradingo.com is awaiting Knoxville's traders to sign up and use it. While still a bit rough around the edges, and missing some features, the application is ready for hardcore beta testing. Scheinbaum says he hopes to enlist a few thousand locals to see what they break and to learn what can be improved or added based on actual usage. Although they have a lot of work ahead of them—figuring out the best way to get national attention, planning ahead for the inevitable lawsuits—McNamara thinks Tradingo.com is even better than what he had first envisioned, and he's already feeling some New York moxie.

"Do we want to hit it out of the park? Oh yeah," he says. "You don't start a business thinking, ‘Hey, I just wanna scrape by.' No, we started this business to knock it dead, to take off and run with it and have a good time.

"Every time I drive down I-40 and I see the Goody's building there, I'm going, ‘Those guys are gone. Maybe that should actually say Tradingo on the side of it...'"