There is a ton of buzz these days surrounding Twitter's upcoming IPO. Along with the frenzied anticipation and the chatter about who stands to make the most money when the company goes public, there are some cautious voices looking back at the pratfalls of the Facebook IPO and hoping that we don't see another high-tech letdown.
Somewhat lost in all the hubbub over Twitter's IPO was the fact that a major e-commerce company, Zulily, also filed for an IPO. In its S-1 filing, Zulily, the "Flash Sales Site for Moms", revealed that it had $331 million in sales last year, and $272M in revenue in the first half of this year. By comparison, Twitter's filing showed that it had $317M in revenue last year and $253 million in the first half of this year.
In a recent PandoDaily piece, Kevin Kelleher argued that while Twitter's IPO will make a bigger splash, rightly so, Zulily's public offering might be the one that could give everyone a better sense of the value for tech companies in today's market.
"Zulily’s revenue may be comparable to Twitter’s, but the impact its IPO may have on the market won’t come close. From an investor perspective, however, that cultural impact matters less than the performance of the stock once it hits the market. Looking at the financials, Twitter may be the company with the bigger long-term potential, but Zulily is the one quietly making a profit today. Depending on how these two IPOs are valued, that detail may carry a lot of weight with investors."
— "Zulily: This is what a fully baked IPO looks like" - PandoDaily
One local company is watching what happens with Zulily very closely.
Wayfair, the online furniture retailer, is a company built much more similar to Zulily than Twitter or Facebook: a bit under-the-radar, not generating much buzz with local and national media outlets, and lacking a huge volume of "users" to make the company a nationally recognizable brand. There is a slight difference between Zulilly/Twitter and Wayfair, however. Revenue.
Zulily and Twitter have pretty similar numbers, hovering in close to $350 million in revenue. By contrast, Wayfair.com is going to surpass $900M in revenue this year and come in close to $1 billion.
"Wait a second!" you might say. "You have this company in Boston that has close to a billion dollars in revenue and no one has ever heard of them?"
Yes. And, they just brought on a new CFO who has been in charge for two of his former companies recent IPOs.
If you don't know anything about Wayfair.com, you better get caught up on the company because they will be on everyone's radar very soon.
From Cornell to Birdhouses to the Rack "Space"
Like many aspects of the company, Wayfair's founding story is simplistic (even a bit cliché), and yet has a richness to it that makes it compelling. Company founders meet in college, have a few exits, and then try something different that ends up exploding.
However, Niraj Shah's and Steve Conine's adventure has a lot more to it than you might find in some of the founding tales of better known companies (think hard work, a good partnership, and the building of great teams).
Shah and Conine met at Cornell in the early 90's. Actually, they met before Cornell when they both happened to be at a program together the summer before their respective senior years of high school. As Shah explained, "I wanted to go to a bigger school, being from Pittsfield [MA], and something about Cornell caught my eye." Conine and Shah ended up being on the same freshman hallway together, actually three doors apart. They connected as part of the engineering program and even took some elective business courses together as well.
As Shah explained it, "What ended up happening for Steve and I, is that there was a good business school there, but at the time there was one entrepreneurship course available to undergraduates." (Today there are over three-hundred, Shah added.)
"We took the entrepreneurship course our last semester there," he said, "and it led to starting our first business right out of college."
"It wasn’t any sort of master plan we had."
That company, Spinners, ended up being focused on the commercial internet. "This is in 1995," Shah said, "we were there from the very beginning of the commercial internet."
Shah and Conine sold Spinners to iXL in 1998, and both joined the company in leadership roles. They eventually left in 2000 to try a new venture. They started and sold a software company before "going back to the drawing board" at the beginning of 2002.
As Shah explained, "We wanted to do something around the internet, something that played to our strengths, and something that we thought could scale to be fairly large."
"We were looking around for ideas, and one of the threads we had been trying was looking for small businesses. We could afford to buy something small," he added.
"In the end, we weren't looking for e-commerce websites, but we ran across a couple and one was a woman selling birdhouses out of her garage. She had a website with seventy-five birdhouses on it."
Shah continued, "What had happened is that people learned to go to Google and type "birdhouse" and sites would come up that had them for sale. [The woman] had no idea why she was doing so well. She had no marketing, she didn't have any deep technology. She just had the best selection out there, and people were voting with their dollars."
As he told me, the business ended up growing to over $150,000 per year and was becoming too much for the woman. She decided she wanted to sell it.
"What we realized, looking at a bunch of similar e-commerce companies, is that they had the same story. It didn't make any sense for us to buy these companies, but we realized that e-commerce was a pretty good category," Shah added.
What no one realized at the time, among all the tales of woe from the dotcom bubble burst, was that e-commerce was steadily growing.
Shah and Conine saw an opportunity and decided to focus on e-commerce categories that were not the popular online categories already being dominated by someone or that they thought would be dominated by somebody who was already in the sector, ie. electronics and books.
So in mid-2002, Shah and Conine started RacksandStands.com, which sold TV stands and speaker stands, out of a room at Conine's apartment that eventually became his baby's room. (Typing in the web address now directs you to Wayfair.com.) Four months into the new venture, the company had sold a quarter million dollars of product through the website.
How did they succeed? As Shah said, "We were committed to having the biggest selection on the market, so we would go to manufacturers and distributors and convince them to let us sell their products where they would then ship them for us. We wouldn't take in any inventory."
"Over time, more of the companies would say 'yes' to us, we kept building up the selection, we would be price competitive, and we tried to offer great service."
Shah still seems amazed that it took off as he talked about it. "As simple as that sounds," Shah said, "that was a winning recipe."
CSN Stores is Born
Shah and Conine started expanding categories by adding new stores. They started a company called MountsandMore.com - just as the flatscreen TV craze was hitting full swing - and then started an outdoor furniture store selling teak goods.
Also, many of the suppliers and manufacturers they had relationships with through 'Racks and Stands' and 'Mounts and More' were coming to Shah and Conine telling them that they should sell more of their furniture for them. Shah believes that this happened because the retailers saw the volume of goods the sites were selling, but also, "picked up the vibe that we were a couple of bright guys who wanted to be aggressive."
By 2005, Shah and Conine's company, CSN Stores, had the furniture market covered with fifty to a hundred different websites selling various goods. They then got involved in other housewares and home improvement products by offering home decór, lighting, plumbing, housewares, etc. By 2006, the company did $100M in sales. As Shah said, "We probably peaked in 2007 with about 250 different sites."
However, CSN Stores, for its size and success seemed to be missing an opportunity and faced the threat of having insurgent sites peck away at its business.
"It was then that we realized," Shah explained, "having more and more of these sites was probably not ideal compared to having the sites be a little broader in footprint."
Between 2008-2009, CSN Stores started adding product but didn't expand the number of sites. They were also doing $250 million in sales.
However, Shah and Conine felt they were missing an opportunity.
One Big Risk
What company, with $250M in revenue, decides to risk all their success by rebranding as its growth and sales are exploding? Wayfair.com.
As Shah told me, between 2008 and 2010, CSN Stores made it its mission to drive the repeat customer rate up. They made all the websites have a consistent header, made all checkouts happen under the name CSN Stores, made the email marketing more targeted and focused on the CSN Stores brand. As a result, the company doubled its return customer rate at the time.
However, something was still troubling for the company's leadership. 70% of CSN Stores customers had no idea that the websites that they were shopping from were part of a larger network of stores.
As Shah said, "The only way we were going to build a brand that people get to know, is that if from the very first moment you enter the site, you are clearly at a very big home store, you understand what the offerings are, and, at first blush, you are on the best site out there."
"We didn't have that site," he said, "so what we decided was that we had to close down the other 250 sites and change our name."
Shah and Conine and their team wanted a name that was short, had domain names available, and could be written in big block letters and be recognizable, a lá "Sears" or "Target". They also wanted the name to make customers think, "That's the best home store out there." The task was not an easy one.
Newton's Brand Equity came up with the name "Wayfair", and Shah and Conine were immediately convinced that it was the right choice.
Over a year process, CSN Stores evolved into Wayfair and officially re-launched in September of 2011.
As Shah commented, "From September of 2011 to August of 2012, we went through a process where we closed those two-hundred odd websites. We were left with Wayfair, All Modern, and Joss and Main, and this summer we bought Dwell Studio, in all, we became four brands over nine websites."
On the risk of re-branding, Shah said that they did a ton of consumer research, and they were "convinced it was the right strategy." What they didn't know was how the massive loss of website traffic would affect how search engines would find Wayfair.com. They had built a massive amount of "brand" recognition that was searchable to the Googlebots of the web, and didn't know how big a "crater" the re-branding would make in what they had already built.
As Shah explained, "We were convinced in the end that we could build a household brand name with Wayfair."
The move worked out and may have more to do with what got CSN Stores/Wayfair to the top of the online furniture mountain in the first place: they have always been very good at wrangling up domains and having the best SEO of any one else in the space.
As one local entrepreneur told me, what separates Wayfair from everyone else is that they are "Wizards of SEO".
Wayfair is also still expanding. They have recently added new products, including "Wayfair Inspiration" that allows shopping through online magazines, and, as Shah told me, they are in the process of building their own delivery network.
'Bootstrapped' for Nine Years
Amazingly, Wayfair didn't receive any outside funding until 2011. As Shah proudly told me, "We went nine years without getting any institutional funding."
Over two years, and two rounds, a Series A and a Venture Round, Wayfair raised $201M in funding. The syndicate for both rounds, all Boston-based investors, included Spark Capital, Battery Ventures, HarbourVest Partners, and Great Hill Partners.
Spark's Alex Finkelstein, explained the interest in investing in Wayfair, “Initially we invested because it was two great founders who put together a good management team. Sitting down with Niraj and Steve you just realized very quickly that these guys play on a different level. They were incredibly impressive and wanted to build a truly great business from the bottom up."
"What they built is really hard to build and hard to replicate," he added. "Behind the scenes, the difficult aspect of what they built is the relationships with thousands of manufacturers so that they don’t have to have warehouses in multiple categories of furniture."
Finklestein further explained, "E-commerce is obviously growing very quickly, but if you look at the home goods sector, you see a lot of thirty-year-olds who grew up on the internet moving into their first home or first apartment and it lines up incredibly well. So the combination of e-commrerce growing and this generation really coming online as they are getting into their first homes, it's just a massive, massive, massive category, a hundreds of billions of dollars category."
The Quiet Flagship
In 2013, Wayfair has had what Shah described as "breakout growth, growing over 50% from just under $600M to well over $900M."
The turnaround, after the massive risk of rebranding, is amazing.
As Spark's Finkelstein said, "Two years ago, [Wayfair] didn’t exist. It was CSN Stores, hundreds of websites, no brand. There is a brand that is starting to emerge now. They have the backend totally figured out, but they didn’t have a brand."
"The brand Wayfair is relatively recent," he added, "people have already forgotten that. That’s why not everyone has heard about the company."
Finkelstein even added that in talking with people about Wayfair, most people don't even realize that they have purchased goods from the company at some point.
"This is a quiet company that many people, even in Boston, hadn’t heard of even two years ago," he said. "I spent two years knocking down Niraj's door trying to convince him to take our money. But I think the average person had never heard of CSN Stores because it was a disparate group of websites."
"I think that is changing quicker than we would have thought."
As for their role in Boston, Finkelstein see big things ahead for Wayfair. "They want to build a large, stand-alone business that can be one of the flagship companies in Boston and Massachusetts for many, many years."
"When you have a team that wants to do that, it's fantastic."
If they do go public, as many people expect, Wayfair could also become the pillar company that Boston badly needs. There couldn't be a better company, than the one led by Niraj Shah and Steve Conine, to have its leadership ultimately turn around and mentor and invest in the next generation of Boston entrepreneurs.
One Last Thing
The day I sat down with Shah just happened to be the same day that Zulily announced its IPO. Luckily, I was able to get his take on the IPO matter.
"If you look at the Zulily filing today," Shah said, "I don't know anyone else in e-commerce who is more that $500 million in sales and growing at faster than 50%, outside Zulily and us."
"In that sense, we are one of the e-commerce leaders out there."
"That said, we have always taken a long term view on building the business," he added. "We are not in any hurry, so we aren't working on anything just yet. There are still some things that we want to do while we are still private."
I must add, Shah did have a bit of a twinkle in his eyes as he spoke about Zulily and going public.
Dennis Keohane is a staff writer for VentureFizz. You can follow Dennis on Twitter (@DBKeohane) by clicking here.