The Long-Term Benefits Of Short-Term Thinking

I find entrepreneurs frustrating, especially successful ones, because their approach flies blatantly in the face of the strategic best-practices that were drilled into me by business schools and management gurus.

When I studied entrepreneurship, I was told to create a long-term vision, write a business plan, raise capital, and then build. The entrepreneurs we studied seem to follow this formula. But as I get a chance to rub shoulders with ever-more-successful business builders, I notice that they more often do exactly the opposite. Instead of plotting a course, taking the plunge, and racing to their endpoint, they jump, flail around, learn to swim, and end up often on a completely unintended shore.

Consider Wayfair (view recent commercials here and here), a home goods website that last year sold $500 million in products. I first came across the company unwittingly, the day before hurricane Sandy was scheduled to knock out our power. I figured we should get a generator in case the power outage lasted more than a few days. I logged onto Amazon.com and ordered one that promised to arrive by Thursday, likely three days after our power would fail, just before we’d have to dispose of our refrigerator contents.

Monday we lost power. Tuesday we enjoyed “camping” out with flashlights. Wednesday we huddled by the fire. Thursday, just as the cold and darkness were getting old, three events coincided. First, our power popped on! Ten minutes later, a box arrived from a company called Wayfair. Our generator had arrived. Third, after reading the box’s label, I hurriedly flipped through my notes from earlier that day and realized I had actually spent an hour that same afternoon interviewing Wayfair’s CEO, Niraj Shah.

Ten years ago, he met Steve Conine at Cornell’s engineering school. During the dot-com boom they built an internet real-estate classification system and sold it. They built a software company and sold it. By the end of 2001, they were looking for their next internet idea when the dot-com bubble burst.

Though experts lamented over the end of the dot-com era, Niraj and Steve noticed something strange. Many small specialty websites were growing. They came across a woman selling birdhouses out of her garage. Her website was growing at 30% a year. They realized that while the stock market had crashed, e-commerce was doing well. This created a window of opportunity: while others ran away, Niraj and Steve would move in.

They started buying up small niche websites and launching others on their own. They followed a simple strategy: provide great service, offer large selection, price competitively, and focus on categories not being adopted by others. By mid 2011, they had built a roster of over 200 specialty websites with names like “bedroomfurnituredirect.com.”

In September 2011 they realized they had assembled the assets to become a home goods giant, to become for goods what Zappos has become to shoes. They did this by following a simple set of rules, not by pursuing a big vision.

In a bet-the-company move, the closed all of their 200+ sites, consolidating them under one site and brand, Wayfair.com. “You’ve got to pick one,” Niraj explained.

Unlike typical dot-com entrepreneurs, the team did this without tapping outside capital. Last year, nine years into their venture, they closed their very first round, $165 million.

On Cyber Monday, Wayfair had its biggest day ever, with $6.4 million in sales (up 60% from 2011). Overall the company logged more than $16 million in sales over the long weekend. They have more than 1,000 employees, claim the largest selection of home goods online, and are well positioned to become the Zappos of their category.

Here is the lesson of Wayfair’s success, which ignores three well-accepted norms of business planning:

1) Pursue short-term opportunities, not a grand vision. Wayfair didn’t know it wanted to become a home goods player. It just pursed an opportunity to buy and build niche e-commerce sites.

2) Don’t raise capital. Investors will require you put a business plan in place and that will restrict your options. Instead, shoestring your venture for as long as you can.

3) Ignore the market. VCs look at market valuations and industry dynamics. Analysts on CNBC will offer intelligent-sounding rationales for why your market is dead, margins are low, the future unattractive. Ignore them. As Niraj suggests, “Some people say great businesses have high margins. I think if you want to start a company, it should be something you care about, something you are interested in, then look at it unemotionally and ask, is this something that can make money? If you answer yes to both of those things, then you really have something.”

My Wayfair-sourced generator perhaps summarizes it well. Get your generator while others are focused elsewhere. Ignore the forecasts. When the storm comes, your lights will shine.

[Image: Flickr user Maurizio D'Arrigo]

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5 Comments

  • Enrico Zamarra

    It's like the Seinfeld episode where Geroge does the opposite of everything he would normally do....

  • Klaudia Jekosz

    Just love what you are doing and the money will follow. With number 3, I would be watching the market and constantly change your entrepreneur mindset. 

  • Stephane Berghmans

    Spending too much time on creating the long-term vision makes you lose time. It's better to get started and discover your vision along the way. I believe there has to be a vision but it does not need to be too crisp. It will take care of itself. 

  • Kimbe MacMaster

    Your post is so timely, Kaihan - have been posing some of the same questions recently and feeling that much of what I was taught in business school: research, research research, plan, plan, plan seems to not be the way of the entrepreneurial world (a world I have recently joined). Sure you're taking a risk, but it's an even greater risk to spend so much time planning that you miss the opportunity. Great read - thanks! 

  • Kaihan

    I finally started reading "The Lean Start-up" after many entrepreneurs have suggested it. It sort of breaks down this approach into a system. It's great.