Nick Swinmurn had problems buying shoes
Nick Swinmurn, the founder of Zappos, had a problem buying the right shoes in bay area. He had to go to many different stores looking for the right size and color. He thought that if people have problems finding shoes in Bay area then certainly people in other areas would have the same problem.
Nick started Shoesite.com
Nick decided to start a website to help people locate shoes easily. The website was initially called Shoesite.com which would become zappos.com later on.
Nick raised $150,000 from family and friends
Nick Raised $150,000 from family and friends to start shoesite.com. After some time he realized that the company will run out of money if he didn’t get a new supply of cash.
Shoesite was making $2000 a week
Shoesite was making $2000 a week but no profits at all. When a customer made an order Nick had to go and buy the shoes before shipping them to customers.
Nick tried to contact many venture capital firms
Nick’s offer was rejected by many venture capital firms for most companies didn’t believe that anyone would want to buy shoes online without trying them.
Nick got funds from Venture Frogs
Nick went to meet Tony Hsieh, the guy who successfully sold his old company Linkexchange then started a venture fund called Venture Frogs. Venture Frogs decided to back Shoesite and the name was changed to Zappos.com after Venture Frogs made that suggestion. (See How 4chan started?)
How Nick convinced Venture Frogs to invest in Zappos
Nick had a very tempting statistic that he used to convince the people at Venture Frogs. He told them that the shoe industry was a $40 billion industry and that 5% of sales were already being done by mail order. This one fact managed to convince venture frogs to invest $500,000 in Zappos.
Zappos had serious financial problems
Although the company was making sales it had serious problems making profits and it was burning cash so fast. At one point Tony Hsieh started selling the apartments he had bought with the money he made after selling his company Linkexchange to finance Zappos operations.
Zappos was saved in the last minute by a loan from Wells fargo
Tony spent most of his savings trying to keep the company alive but the company was running out of cash fast. Zappos was then saved few weeks before bankruptcy by a 6 million credit line from wells Fargo.
The company decided to focus on the inventory model
After the company got a fresh supply of cash they started focusing on having their own inventory and shipping shoes directly to people who order them. Sales almost tripled as a result of those actions. (See How 9GAG started?)