Delivering Happiness

Believe
Looking at the company’s financials, it became pretty clear that just
focusing on cutting expenses wasn’t going to get the company to
profitability. We needed to figure out a way to grow sales.
This was a particularly challenging problem because we had cut back
most of our marketing budget. We were already focusing more on getting
the customers we already had to shop with us more often, but that alone
wouldn’t get us very far in the short term.
What we really needed was a miracle.
In high school, I’d taken a Greek history class and learned about deus ex
machina, which is a Latin phrase that literally translates into “god from the
machine.” According to Wikipedia, it is a “plot device in which a person or
thing appears out of the blue to help a character overcome a seemingly

---

insolvable difficulty. It is generally considered to be a poor storytelling
technique.”
As I sat in the office at my desk pondering what to do next, I turned to
Fred. I didn’t care if this would make for a bad story later as long as we
could figure out how to save the company.
“Fred, do you have a deus ex machina?” I asked.
“A what?” Fred was confused.
“Deus ex machina,” I repeated. “You know, a Greek miracle.”
“Oh, no, sorry,” he replied. “I accidentally left mine at home in my shirt
pocket.”
“Maybe we can find one over a drink,” I said. “It’s 4:00 
PM
and we need
to figure out how to save the company. Is it too early for a drink?”
“Of course not.”
So we stopped what we were doing and headed over to the bar at
Venture Frogs Restaurant. I ordered a Grey Goose soda and Fred ordered a
beer. We sipped our drinks in silence for a few minutes.
I broke the ice. “So… any ideas on how to increase sales more quickly?”
Fred looked pensive. “I come from a merchandising background. I like
to say that all we need is the right product at the right time in the right
quantity, and the sales will take care of themselves. The problem is that we
don’t carry the brands or the styles that I know will sell. We just don’t have
the right products to offer our customers.”
“How do we get the right products?”
“The problem is that a lot of the brands that we want to carry can’t drop
ship,” Fred said. “Their systems and warehouses aren’t set up to send the
orders from their warehouse directly to our customers. And even for the
brands that can drop ship, usually they’re sold out of their best stuff, so we
wouldn’t be able to offer those styles to our customers.”
I paused for a moment to think about what Fred was saying. “So how
come all the brick-and-mortar stores are able to offer all the best-selling
brands and styles?” I asked.
“Because they hold and own the inventory,” Fred explained. “The brick-
and-mortar retailers future out their orders ahead of time, pay for the
inventory, and take the inventory risk. If a retailer isn’t able to sell
something, then that’s the retailer’s problem, not the brand’s or wholesaler’s
problem. But we can’t do that, because that’s not our business model.”

---

We had both finished our drinks.
“Another drink?” I asked. Fred nodded solemnly and motioned for the
bartender to bring us another round.
“So… what if we did that?” I said, thinking out loud. “What if we
carried all the inventory of the brands and styles you wanted? How much do
you think our sales would go up by?”
“Oh, we’d easily triple sales, no question,” Fred said without hesitation.
“Probably even more than that.”
“Okay, let’s figure out what we need to do to make that happen. If
changing our business model is what’s going to save us, then we need to
embrace and drive change.”
Fred and I spent the next hour talking through all the different
challenges that we would have to address if we wanted to start carrying
inventory in addition to the drop shipping business that we were already
doing. By the end of the hour, we felt we had a pretty good list. The list was
daunting, but at least we now knew what we needed to do to save the
company:
1) We would need to hire and grow a buying team to decide what
products to buy and to manage the inventory. Fred could do this in
the short term, but at some point we would need a dedicated team.
2) We would still need to convince the brands to sell to us. Most of
the brands that we wanted would only sell to brick-and-mortar stores.
3) We would need to update our software to enable our Web site to
sell inventoried products instead of just products that were being
drop shipped.
4) We would need a warehouse to hold all the inventory we were
buying. We would need to hire staff to ship the shoes out of our
warehouse.
5) To address number 2, we would need to open up a physical retail
store and hire staff to actually run it. Given our current financial
situation, it would be pretty hard to convince any landlord to sign a
lease with us.
6) We would have to figure out how to come up with the cash to
purchase the inventory we wanted. Fred figured we would need

---

another $2 million. The problem was that we didn’t have an extra $2
million lying around.
7) We would have to accomplish all of these things within a few
months.
Fred and I divided up the list. He would handle numbers 1 and 2. I
would work with our computer programmers and work on number 3. For 4,
we figured we could get everyone in the office to squeeze together and turn
half of the office into our warehouse for the short term.
“What about number 5?” Fred asked. “How are we going to open up a
brick-and-mortar store?”
“What if we turned the reception area of our office into a ‘store’?” I
asked. “What’s the definition of a store? What if stuff is available for
purchase but we end up selling only one pair of shoes a week out of the
store, and the rest off the Internet? Does that still count as a brick-and-
mortar store?”
“I guess technically that would fit the definition of a store. Some of the
brands might go for it, but probably not most of them once they saw what
the store looked like,” Fred said.
“Well, let’s start with that then,” I said. “And in the meantime, we can
start looking for a real store that’s in some small town somewhere that
doesn’t do a lot of business. We can buy the store for cheap if it’s in the
middle of nowhere. And once we take that store over, then all of the brands
that the store is carrying can be grandfathered to us as the new owners of
the store. We can start selling those brands on our Web site at that point.”
Fred looked skeptical. “I guess it doesn’t hurt to try asking around.
What’s the worst that can happen? All they can do is say no.
“But what about number 6?” Fred went on. “Where are we going to get
the money to pay for all the inventory for the new brands we sign up?”
I looked at him. “I’ll worry about that part. Just assume that if you can
convince a brand to sell to us, then we’ll have the money to pay for the
inventory for that brand.”
I had no idea how Fred was going to convince enough brands to work
with us in such a short period of time, and Fred had no idea how I was
going to come up with the cash to pay for the inventory. But we trusted

---

each other, and we knew we were in this together. This was a “bet-the-
company” plan. Our new strategy was going to either save Zappos or ensure
our speedy demise. But we really had no other option. Continuing with the
drop-ship-only route that we had been on and dying a slow death didn’t
sound like very much fun. It would just be delaying the inevitable.
What Fred didn’t know was that while we were talking, I had already
formulated a plan for getting the $2 million. But I didn’t want to tell Fred
what I was thinking, because he probably wouldn’t have gone along with it.
My plan was to take almost everything that I had left in my name and
liquidate it in a fire sale. I would bet the farm and put all the proceeds into
Zappos. To an outsider, it may have seemed like a desperate and reckless
plan.
But in my mind, it wasn’t. We had taken Zappos this far, and there was
no turning back now. In my heart, I knew it was the right thing to do.
I believed in Zappos, and I believed in Fred.