When you head a startup, you can pivot until you get where you need to go, but when you run a successful company you have a lot more to lose. Actually, the difference between nursing a startup and running a successful company is a bit like the difference between being married and being married with children. The deeper your commitment, the harder it is to make abrupt changes. Or as comedian Louis CK observed, “When you get married, you go, ‘Holy Shit! I can’t leave now.’ I mean, I wasn’t thinking of leaving, but now I really can’t leave. Then you have a kid and you go, ‘Holy shit! I could’ve left.’”
Which leads me to this week’s pivot. A decade ago, when former Cornell classmates Niraj Shah and Steve Conine entered the online retail business, few shared their enthusiasm. The epic failure of Pets.com was fresh on the minds of many entrepreneurs. The New York Times characterized the online pet supply category as “the prime example of what went wrong during the dot-com craze,” with Pets.com and others putting “a face on the e-commerce lunacy” in the form of the infamous Pets.com sock puppet.
While Shah and Conine knew sallying forth with sword drawn to do battle with Amazon was, at best, a long shot and, at worst, startup suicide, they recognized ample opportunity in niche ecommerce, which, while growing at 20% to 30% a year, still flew under the radar. Shah knew a woman working out of her spare bedroom and making a quarter of a million dollars a year selling birdhouses online. He and his partner decided to sell products that would be hard to find in Best Buy or even Walmart. They wouldn’t stock TVs or other electronics; instead they would offer every possible TV stand or rack to hold those TVs.
In August 2002 they launched CSN (it derives from their initials) and their first site was racksandstands.com, which as its name suggests peddled TV and speaker stands and nothing else. Then a gym in Houston ordered eight television mounts and they added a second site hyper-focused on TV mounts and related accessories. In short order they added retail sites specializing in outdoor furniture, bedroom furniture, and office furniture. Meanwhile over their first four months revenue grew rapidly from $10,000 to $30,000, $250,000, then $400,000.
Over the years they continued adding niche properties, eventually controlling 200 sites that spanned 15 categories–exercise equipment, home improvement, pet and garden supplies, rugs, baby strollers, toys–and bringing in gobs of cash. In essence, they were mapping the Jason Calacanis Web Logs, Inc. model. Instead of publishing a syndicate of niche blogs, though, they operated niche retail sites to serve disparate and underserved markets.
A parent searching for a bunk bed might go to Ikea or a furniture store, where there is a limited inventory. But Shah and Conine could offer every bunk bed on the market and sell it at a very competitive price. The same went for bathroom and lighting fixtures, chandeliers and rocking chairs, office desks, wall mounts and ironing boards. They carried more than 5,000 accent pillows and every stroller made. In short, they warehoused all the stuff you never think about until you needed it, and when you did, they had it.
Along the way they fine-tuned each site, because each had the potential to tease out different consumer behaviors. Home furnishings, for instance, differs from, say, electronics. If you ask your friend to recommend a digital SLR and she tells you to get a Canon EOS Rebel, you might very well do it. But home furnishings is like fashion: No one wants to have the same sofa or bedside table as his neighbor. Pet food, not so much. But one thing remained constant over all the sites: “Our business is not about bestsellers and the top ten,” Shah says. “It’s about price, selection, and service.”
Within nine years the company was selling 4.5 million items from 5,000 brands and generating half a billion in annual revenue, up from $380 million the year before. It had become the largest home-seller on Amazon and eBay, and the largest marketplace partner at Walmart. Yet most of their customers had no idea these ten-score sites, and their corresponding satellite stores on Amazon, eBay, and Walmart, were linked. The truth was CSN had precious little brand equity even after a concerted effort to improve its customer repeat rate.
“We said, ‘Geez, even though this has been super successful with all these narrow sites, we’re not going to get to the next level unless we throw away what we’ve done and move to one site,” Shah says.
There were substantial risks. Much of their traffic came via search (the rest from paid advertising and returning customers) and if they melded these 200 sites into one mega site Google would penalize them. To buffer themselves against a potential downturn, Shah and Conine, who had until then bootstrapped their company, raised $165 million in funding from Spark, Battery, Great Hill, and Harbour Vest, and chose the name Wayfair.
They didn’t move all 200 sites at once. In September they started in waves, and, as they expected lost 50% of their traffic at the microsites that redirected to Wayfair, taking a 30% hit on revenue. “It did in fact hurt us the way we worried it would,” Shah says. While it hasn’t fully recovered, “We’re actually seeing that it works.”
The lesson learned is that even a company that is growing might benefit from biting the bullet and changing course.
Now Wayfair, which was recently ranked as one of the top 20 best places to work, is on its way to becoming a billion dollar company despite pivoting. No, make that because of the pivot.