Company: Daddy's Junky Music Inc.
Revenues: $33 million
Web address: www.rockauction.com
Site launch cost: $10,000
Current technology profile: OpenSite Auctions, C2net Stronghold, Verisign OnSite, Sun Sparc server, DigitalNATION, Cyber Cash
Why we love it: Dynamic on-line auctions turn aging inventory into hefty revenues
Categories of success: ROI & Innovation

Two years ago, the rock group Limp Bizkit was an innovative but obscure performer; today it's so mainstream that it seems positively déclassé. The same could be said of on-line auctions. But in December 1997, when no one knew from eBay, Daddy's Junky Music began putting its own electric guitars and other musical instruments on the digital block. Today revenues from the Manchester, N.H., company's on-line auction division, RockAuction.com, average $30,000 a week.

Daddy's birth legend bears the slightly disreputable cast of a Seattle garage band. Its founder, Fred Bramante, was playing rock in college in the late '60s when he heard about a guy who was selling his guitar to raise bail money. Bramante, who in addition to his entrepreneurial activities has upon occasion sought the governorship of New Hampshire, bought the instrument, shined it up, and sold it for a profit. He then continued buying and selling used instruments part-time until 1972, when he took on a partner and leased a storefront in Norwalk, Conn., that had been vacant for 30 years. Inspired by the broken glass and dead pigeons on the floor, Bramante's young son christened the new business "Daddy's Junky Music." The name stuck. How could it not?

Although Daddy's origins are in rock, it is very much a business -- a business that suffered from having too much cash trapped in slow-moving inventory. "A significant part of our inventory is essentially computers: microprocessor-based keyboards and synthesizers," says Robert Timmins, the company's first vice-president of E-commerce. "That kind of thing gets obsolete very quickly." For a while the company ran a liquidation center out of its Boston store, but it required a lot of hard selling from a knowledgeable staff, and not many customers showed up.

Then in 1982, Bramante began staging live auctions as grand-opening promotions for new stores. Those events attracted about 200 bidders each and proved far more efficient at moving Daddy's tired, poor, and huddled inventory than the liquidation centers did. "My motto is 'When things get cheap, the cheap get things,'" says Bramante, who fondly recalls his own first exposure to "auction fever," at an open-air affair in 1970. "A stuffed moose head came up for bid," he says. "It started at $20, and no one bid. The auctioneer lowered it to $10, and still no one bid. The auctioneer pleaded with the crowd to offer anything. I bid $1. He immediately said, 'Sold, and don't bring it back!' I was enthralled."

With the popularization of the Web, Bramante saw an opportunity to combine the excitement of a live auction with the imperative of a liquidation sale. The "RockAuction," as it came to be called, let anyone with an Internet connection bid on Daddy's merchandise. Among the connected were shoestring-budgeted college-age kids -- the perfect target audience. They found the opportunity for bargains irresistible: for example, a Korg Poly 61 synthesizer and an Ovation classical guitar, each of which retails for $600, recently sold on RockAuction for $100 and $175, respectively.

The company's first on-line auctions, in 1997, were spindly affairs; RockAuction offered only 50 or 60 items at a time. Today each weeklong event attracts 200 to 300 people who bid on up to 1,000 instruments. The company began offering daily auctions this fall.

Here's how it works: Say that an amateur musician is looking for a used keyboard. Once an auction opens, she searches for a product, then registers on the site, leaving her credit-card information. A meager opening bid of $10 could put her in the running for a Casiotone 610 model with slightly dingy keys. At the close of the auction, if she is the high bidder, Daddy's charges her card and ships her the prize.

"One of the nice advantages to our system is that we don't have to chase a private party for payment like you have to do if you're selling on eBay or Amazon," says Timmins. "Once an item is sold, we get paid immediately. Since we set the minimum bid, a single bid means a guaranteed sale." Bidders will sometimes pump prices into the stratosphere but generally inch up the final figure only 5% to 10% above Daddy's established floor.

Daddy's makes its best margins -- as high as 30% -- on the products its buys specifically to auction: closeouts from regular suppliers obtained at heavy discounts. "Our vendors value this as a way to increase their business with a major retailer, improve sales, and move product that is not selling through other avenues," says Timmins. Buy-to-sell products comprise about a third of what Daddy's puts out for bid at the RockAuction.

Not that those sales are effort free. "Behind all the magic of the Internet is a lot of hard work doing text entry, warehousing, and fulfillment," says Timmins. While many companies struggle to launch Web sites on the backs of existing staff, Daddy's E-commerce division is nine employees strong and includes customer-service reps, data-entry clerks, and a copywriter hired, in part, for his wry humor.

Fortunately, RockAuction's next addition -- consumer-to-consumer auctions, in which private sellers will pay Daddy's a modest listing fee and a commission on all items sold -- should be far less labor-intensive. It's also, of course, similar to what eBay and its imitators do. But with Daddy's early start in the world of auctions and its still rare focus on selling only its own merchandise, the company needn't fear being called derivative.