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!”
VB’s research team is studying mobile user acquisition: Chime in here, and we’ll share the results.