HobbyTron.com, which was named “Utah Valley’s Best Kept Secret,” became a privately held company in 2000 after its predecessor, LittleFish Commerce, closed when it lost $2.5 million in venture capital funding as skittish investors backed out following the collapse of the dot-com sector.

HobbyTron.com, which began by shipping electronic kits from its distribution center in Orem, was acquired by Tim Gibson, then-vice president of finance of LittleFish, in 2000 after LittleFish closed.

Armed with about $200,000 in savings and credit card loans, Gibson, HobbyTron.com’s founder and chief executive, developed cost-effective Web marketing methods and tools that helped HobbyTron.com achieve profitability in just one year.

Although specific figures weren’t disclosed, Gibson, who had previously led other successful e-commerce software and Web advertising companies including Engine House Media, said HobbyTron.com has millions of dollars in sales revenue, with triple-digit growth achieved in 2002. The company, which chalked up $8.5 million in sales last year, expects to achieve $15 million in sales for 2004, he said.

That track record, in turn, helped attract $500,000 in investment capital in November from Salt Lake City-based small business investor UTFC Financing Solutions LLC. HobbyTron.com, which plans to use the funding to buy more inventory and add product lines, is seeking additional capital this year to acquire businesses in areas other than toys and hobbies.

“Tim is one of the savviest Internet marketers we have ever encountered,” said Steve Grizzell, UTFC’s chief executive. “It shows in his financial results.”

Gibson attributes HobbyTron.com’s high profit margins to niche product lines and “high returns on its investments in online advertising, affiliate programs and search engine positioning.”

“The Internet is still a very misunderstood tool by many companies. Many don’t understand how to create a Web site for a good user experience,” said Troy McDonald, HobbyTron.com’s vice president of marketing. “It’s like having a billboard. If you have it in the wrong location, you won’t get the customers you want coming to your Web site.”

He said the company had at one point considered teaching e-commerce companies to use its Web marketing tools, but dropped the idea because it found it more profitable to use those Web marketing methods for its products.

Gibson agreed. “As we helped companies receive a high return on investment on advertising, we noticed the successful ones were those in niche markets,” he said. “So we decided rather than provide services to other companies, let’s own niches ourselves.”

“User groups, e-mail, discussion boards — all these must be used in conjunction with a product Web site to deliver customers to your site,” McDonald said.

“Instead of trying to reach a broad range of people, you should market specifically to the target audience you want. Instead of buying ad space on Amazon.com or Google, which many companies think is the only way to advertise their product, go to where the market is and sell there,” he said.

To that end, HobbyTron.com has recruited more than 5,000 distributors nationally and globally through an affiliate program that allows anyone who owns a Web site to receive a commission for marketing its technical toys and hobby products.

“We get 50 to 100 new Web sites each month joining our distribution chain,” McDonald said. “We paid $157,000 in commissions to our affiliates in December, our busiest month because of the holidays, compared with about $40,000 on average each month.”

The company has a retail outlet at 65 W. Center St. in Orem, but said its online distributors on average generate $30,000 in sales daily compared with about $1,500-$2,000 in sales at its retail store.

“We wanted to find our niche in a market where the competition was smaller so we can dominate, or market toys that can’t be commonly found in Wal-Mart,” he said. “We felt we can develop a niche marketing to hobbyists that want a challenge in creating FM radio transmitters, robotics, remote control cars.” The company is a distributor of Harry Potter LEGO, Bionicles, LEGO Star Wars, K’Nex Toys and toys by Traxxas and Nikko.

Grace Leong can be reached at 344-2910 or gleong@heraldextra.com.

This story appeared in The Daily Herald on page E1.