Delivering Happiness

Juggling Act
“Well,” I said to Fred, “we can either pay our employees or pay all of our
vendors. How do you think our vendors will feel if we pay them late?”
“It’s definitely not ideal,” he said, “but I guess we don’t really have a
choice. We’ll just make sure that we’re in constant communication with
them, and try to get extended payment terms with as many of them as
possible.”
“Okay,” I replied. “I’m going to e-mail you a spreadsheet of all the
invoices that are due this week, and I need you to highlight the ones that we
should pay first. This week, we have enough cash to pay about 70 percent
of our vendors.”
For the next several months, Fred and I repeated this routine every
week. I left it up to Fred to decide which vendors to pay. Sometimes he
chose vendors who had called the week before wondering when they were
going to get paid, and other times he chose vendors we were most
concerned about negatively impacting our relationships with. As Fred had
said, it was definitely not ideal, but we felt like we really had no other
choice.
In the background, conversations with Wells Fargo appeared to be going
well. We were asking them to give us a $6 million line of credit. They
hadn’t given a loan to an unprofitable Internet company before, but the
people that we were talking to could sense the passion we had for the
business and were impressed with our growth rate. We found out later that
internally at Wells Fargo there was a lot of debate as to whether they should
stray outside of their norm and risk giving us a loan.
I think Fred and I felt the most stressed about the situation because we
had a weekly reminder when we tried to figure out the best way to juggle
our payables without hurting any of our vendor relationships. We felt that
we were right on the tipping point of taking the company to the next level,

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but if the Wells Fargo loan didn’t come through, then sooner or later our
accounts payable situation would catch up to us and we’d be out of
business. Our accounting and software development teams were scrambling
trying to meet all of Wells Fargo’s due diligence requests, providing them
with the information they wanted as quickly as possible.
It was like being deep underwater, trying to swim up to the surface as
quickly as possible to get a lifesaving gasp of oxygen. We could even see
the surface from where we were. We were worried we would drown before
we could come up for air, but we knew that if we made it, then we’d be
home free. We were teetering right on the edge between death and a long
healthy life ahead. There really was no in-between.
We really hoped that Wells Fargo would come through for us before our
time was up.
* * *
A
nd then, one day in June 2003, just as Fred and I were finishing up
deciding which vendors to pay that week, we got the phone call from Wells
Fargo. Everything had been approved on their end, and they were ready to
sign the loan document.
Zappos was saved.
We signed the documents and breathed a collective sigh of relief. I think
we all felt like we had lived through a scene from Indiana Jones, just
narrowly escaping certain death by rolling under a falling stone door at the
very last second while somehow still managing to keep our hats on.
We had done it. We had somehow survived. It still didn’t seem real.
But it was.
I decided to write an e-mail to our employees, vendors, and friends of
Zappos to spread the good news.
Date: June 19, 2003
From: Tony Hsieh
To: Friends of Zappos

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For the past 2 months, we’ve been working with Wells Fargo on
getting a revolving line of credit so that we can increase the amount
of inventory in our warehouse. We finally closed the deal this
morning, and I’m happy to announce that Zappos now has access to a
line of credit of up to $6 million.
For the first time in Zappos history, we now have over 200,000
pairs of shoes in our warehouse. While $6 million may seem like a
lot, it is only when we combine it with the extended payment terms
that we are getting with our top brands that will allow us to build out
our warehouse and grow our inventory to a high enough level to
support our rapid growth. The plan is to have over 600,000 pairs of
shoes in our warehouse by the end of next year, so that we can offer a
truly amazing selection for all of our customers.
For those of you who don’t know, this month is the 4-year
anniversary for Zappos. Here’s a quick look at our sales over the past
4 years:
1999: Almost nothing
2000: $1.6 million
2001: $8.6 million
2002: $32 million
For 2003, we are on track to reach $60–$65 million in sales—
double last year’s sales numbers. This, however, is only the
beginning. With getting our first line of credit from a bank, we’ve
moved from the “building the runway” chapter of the company’s life
cycle to “getting ready for takeoff.”
We are now enabled to really take the company to the next level,
assuming we spend the money as carefully as we’ve been spending it
up to this point. There are plenty of examples of companies with a lot
more money that have gone out of business because they became
careless or overconfident, celebrating their past successes instead of
carefully navigating for the future.
If we spend our money carefully and continue to constantly
improve the customer experience, we will reach over $1 billion in
shoe sales a year in the not too distant future. I know $1 billion
sounds impossible at first—but so did our current sales volume 3
years ago. But the reality is, it’s actually not that crazy a number, and

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it’s a very achievable goal: By 2010, total footwear sales in the US
will be over $50 billion a year. Online footwear sales will be 10% of
that—$5 billion a year. If we continue to be the leader in our space
because of our relentless focus on improving the customer
experience, then there is no reason why we won’t be doing at least
20% of all online footwear sales by then. In fact, we have the
potential to be doing a lot more.
Already, we’ve done a lot of revolutionary things that our
customers love. We have the best in-stock shoe selection available
anywhere, offline or online. We provide free shipping and free return
shipping… for all of our customers as a standard part of our service.
And although we promise our customers they will receive their shoes
within 4–5 days, we upgrade the service for almost all of our
customers…. It’s not something we have to do, and it’s not
something that will increase our profits in the short-term. But
because it’s something that creates a great customer experience, we
choose to do it, because we believe that in the long run, little things
that keep the customer in mind will end up paying huge dividends.
Our goal in doing all this is to one day become the #1 e-
commerce company. We will out-Amazon Amazon in terms of being
the most customer-centric online company. Although we happen to
sell shoes today, we’ve built and will continue to build the platform
for a great customer experience. This will allow us to one day expand
into other categories beyond just shoes. But for now, it’s important
for us to remain focused on being the leader in online footwear sales,
in terms of both selection and service.
I’d like to thank all of our employees, investors, vendors, and
other partners for helping us get as far as we’ve gotten….
We’ve already been through a lot over the past 4 years, but the
road ahead is as exciting as ever. There will be a lot of changes ahead
as we grow, but one thing will always be constant: our focus on
constantly improving the customer experience.
Tony Hsieh
CEO—
Zappos.com

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We paid off all of our overdue invoices later that week and had a happy
hour to celebrate.
There was still a feeling of disbelief.
We no longer needed to worry about survival anymore. Now we could
just focus on building something great for the long term.
We ended 2003 doing $70 million in gross merchandise sales,
surpassing our own internal projections from just six months earlier. To
reward everyone for their hard work, we decided to fly employees from San
Francisco and Kentucky to Las Vegas for a weekend of celebration.
Everyone had a great time. One of our employees ended up dancing next to
Britney Spears the weekend she got married.
We were in Vegas as tourists, and the lights seemed magical and like a
dream. Little did we know that less than a month later, we would decide to
shut down our headquarters and move everybody from San Francisco to Las
Vegas.
The next turning point for the company was right around the corner, and
none of us had the foggiest idea that it was coming.

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