As a startup, how do you become what you know you need to be? Especially when it might cost you some or all of your sales?
Zappos faced that existential crisis soon after its founding in 1999.
Originally, the online shoe retailer (that now has arguably the best customer service available anywhere online) was a dropship company: sell a product, tell a factory to ship it, and pocket the cash.
“On paper, that was a great idea,” founder Tony Hsieh says in a new video from A Total Disruption. “But we couldn’t control the customer experience.”
So the fledging company made a tough decision: no more dropshipping. Immediately, revenues dropped 25 percent. Zappos wasn’t profitable at the time, couldn’t get funding, and the U.S. had just been attacked — Sept. 11, 2001 — was in recession, and was about to start a war.
But Hsieh, whose parents had wanted him to become a lawyer or doctor, persisted. And over time, Zappos found more and more customers — by word of mouth, and by repeat business.
Here’s the story of the pivot:
“We take most of the money we would have spent on paid advertising and invest it into customer service,” Hsieh says.
Hsieh sold the company to Amazon for $1.2 billion in stock, and it now sells in excess of $2 billion worth of product annually. But that’s not quite enough to satisfy his parents, says Hsieh.
“My parents say it’s not too late for me to become a doctor!”