This retailer built a $33M business on Amazon and pickleball

Little Alexandria, Virginia-based Amify is the 21st-century version of the thousands of enterprises that thrived around the railroads 150 years ago. Meatpackers, farmers and mail-order retailer Montgomery Ward are just a few examples of businesses that reached customers through the railroads.

Instead of railroads, Amify has latched onto retail supertanker Amazon.com, which has redefined how people today buy just about everything.

Amazon.com (founded and chaired by Washington Post owner Jeff Bezos) just a few days ago became the second-most-valuable company in the world, behind Apple.

Amify is one of about 3 million "third-party sellers" that use the Amazon.com platform to sell their products, paying a 15 percent commission to Amazon in return. Ethan McAfee, 41, Amify's founder and sole owner, wants to capitalize on Amazon's growing dominance and seize what he believes is a rare opportunity.

"We think there is a land rush going on," McAfee said. "We have all these tail winds pushing us along. We are trying to grow this baby, hitting the accelerator and taking a long-term vision."

Amify's niche amounts to a tiny slice of the Amazon juggernaut. The Seattle-based giant sells an estimated $330 billion in merchandise each year - about two thirds of which is sold by renters such as Amify.

McAfee expects to generate revenue of $33 million this year on 600,000 orders for Asics shoes, high-end Fender guitars (they expect to sell 8,000 this year), and for binoculars and telescopes made by Vortex Optics, to name a few of his 350 sources.

About 90 percent of Amify's revenue comes from being a third-party seller. The rest comes from Amify's "value add." That means coaching clients on how to sell more through better-looking Web pages, buying Amazon advertising and combating counterfeiters.

Amify's secret sauce is knowing which products to make money on, McAfee said. "The higher-price points usually have a higher margin than low-price points. It's harder selling a $15 item," he said, "but with a $100 item, you can probably do it and make a profit. You can use technology to figure out which ones are the best bets."

Amify's biggest costs are the goods it buys and then resells on Amazon, and its labor force. The usual profit for a retailer is 3 to 5 percent of gross sales, which would put Amify's profits in the neighborhood of $1 million this year. McAfee said he is plowing every cent of profit back into the business, adding to its sales team, opening up a second warehouse in Las Vegas to lower shipping costs, and hiring technology people to expand its consulting business.

"We tell brands to work with us, and we will help you sell more products, clean up your Amazon channel and maximize it," McAfee said of the consulting business. "We help increase their selection and give good products at quality prices. They know they need an Amazon strategy."

The company has been growing fast and is one of the largest in the third-party Amazon market. Most competitors are smaller mom-and-pops, so Amify uses its relative size to create its own technology, which it sells in its consulting practice.

Amify has a payroll of 42 people, 30 full-timers in the United States and 12 outsourced full-timers in the Philippines.

Amify has been profitable since McAfee started the business as Pickleball Direct in 2011 in a rented townhouse in Arlington, Virginia. Pickleball is a game played with paddles, similar to tennis and badminton but requiring less running, which makes it popular among retired baby boomers.

McAfee graduated from Virginia Tech with a degree in accounting information systems. He was hired at Baltimore-based asset manager T. Rowe Price, where he helped pick stocks for the firm's $5 billion science and technology fund starting in 1998, which was near the apex of the dot-com era.

"I was the low person on the totem pole," he said. But he closely followed the start-ups that promoted themselves to T. Rowe as they were going to the public markets. He got a close look at many of the winners and losers from that era. He sat in on meetings with some of the biggest technology names, including former eBay founder Pierre Omidyar and its then-chief executive Meg Whitman, and Mark Cuban, who was promoting his start-up Broadcast.com.

"Meg was polished," he said. "A lot of internet entrepreneurs, as they are today, were young people wearing hoodies. So a polished person really strikes you as impressive."

His few years at T. Rowe Price in his early 20s helped him develop an eye for spotting the fake companies from the real thing.

"We were trying to pick what would be the real businesses that would survive the dot.com explosion that we knew was going to happen," he said. "The good ones would probably go down 70 percent, but the bad ones would go down 100 percent."

He left T. Rowe Price in 2001 and joined a hedge fund in northern Virginia headed by Russ Ramsey, one the founders of Friedman, Billings & Ramsey, an Arlington-based asset manager.

"It was my job to help figure out what we were going to invest in," McAfee said. "This was 2001, after the internet bubble had burst, and the idea was that there were going to be a whole bunch of internet companies that you could buy for pennies on the dollar. We did pretty good."

He stayed until 2009, earning enough money to take a year off. He got a master's at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University and figured out his next move.

His eye for internet survivors steered him toward Amazon, which had survived the blowup, and at a far cheaper price for its stock.

"I saw something, it seems obvious now," he said. "Amazon was getting bigger and bigger."

The more he thought about it, the more he realized Amazon was dramatically altering the retail landscape.

"Retailers only would sell things that are really profitable and that would sell a lot," he said. "Retailers didn't want to stock your niche products. The internet changed all that. You could now go to the internet and buy any product you wanted."

So, as crazy as it sounds, around 2010 he started selling pickleball paddles.

"My parents played this down in Florida, and they said 'We can never find the equipment,' " McAfee said. "At the same time, I was looking to start selling stuff online." It was love at first pickleball sight.

McAfee chose pickleball paddles for his test run on selling niche products on the internet because he could buy them in small batches, instead of thousands at a time.

He ran Pickleball Direct out of a bedroom in his Arlington townhouse. For the next two years, Pickleball Direct expanded into tennis shoes, hockey skates, roller skates and sunglasses.

His homeowners association evicted him after seeing the pallets full of sporting goods dropped at the townhouse driveway. He moved to an Old Town Alexandria storefront in 2013 and began hiring people and turning his project into a real business. Revenue went from $300,000 to $1.2 million to $5 million, $10 million and, last year, $25 million. He made the Inc. 500 list twice.

Last year, McAfee changed the name to Amify, which is a combination of Amazon and amplify. He also moved Amify into larger offices. McAfee's office is just a pickleball's whack from the Potomac River.

Now that is not a 19th-century diversion.