Marc Lore, the CEO of Diapers.com, has a thing for numbers. How many types of boxes should his warehouses carry? How big are his competitors' operating margins? How long is the lead time from vendors? Lore's obsession has paid off for Diapers.com, which he co-founded with his old friend Vinit Bharara. Last year, the one-stop shop for new parents sold $89 million worth of formula, wipes, baby gear -- and about 200 million diapers -- to 550,000 customers. Lore spends his days on the floor of the company's warehouse office in Montclair, New Jersey. Nights, after his kids are in bed, he holes up in his home office or sits at the kitchen table, poring over more numbers and refining his vision for the company's future.
I usually get up at 6:15 and go running or kayaking at Mountain Lake, near my house. I'm usually back by 7:15, so I have a good hour in the morning to spend with my
kids -- Sierra, who is 9, and Sophia, who is 6 -- before they leave for school. My wife or I will cook; we'll have breakfast together. I see the kids off to their carpool at 8:15 and then leave for work.
I live in Mountain Lakes, New Jersey, but my partner Vinit Bharara lives in New York City. Our office in Montclair is in the middle. The 25 minutes' driving to work, running, kayaking, the time before I fall asleep at night -- when it's quiet -- that's when I can focus. That's where the vision comes from.
I get to the office around 9. Once Vinnie gets in, one of us always says, "You know, I was thinking last night…" We sometimes spend an hour or two debating ideas. We've usually thought about stuff independently overnight, so in the morning, we kind of download. We share an office, and our desks are right next to each other, so we talk there.
Vinnie and I have been friends since we were 10. This is the second company we've started together. We complement each other really well in terms of the way we think: He's stronger verbally, and I'm stronger mathematically. It enables us to see both sidtes of every argument. Neither one of us is really stubborn. Often we'll argue one side, and then by the time the argument is over, we're arguing the other side. I think we often come to an answer that neither one of us would come up with alone.
In a fast-growing company, there's a constant need for brainpower in varying parts of the business at different times. So Vinnie and I tend to pinch-hit in areas where we feel that we're weakest. Since we're constantly focusing on different areas of the business, every day is different.
We don't have a lot of meetings. In meetings, there's really only a couple of people that are getting value out of it -- a telltale sign is when people start checking their BlackBerrys. We also don't have department areas on the floor. As people join the company, they pick whatever seat they want. Most of the departments -- marketing, merchandising, accounting, technology -- are intermingled. People become friends; they sit next to one another. It breaks up the departmental politics. Vinnie and I only moved into our own office six months ago. Before that, we were sitting in cubicles like everybody else.
We're constantly trying to minimize costs that don't pay dividends. One of the ways we communicate that to the staff is that we're very understanding when things don't get done. You can't say, "I want you to be lean, and I want you to get everything done." We are very clear that "Here are the three key priorities: These need to get done. If these other things don't get done, I understand." We have two people in the supply chain, three people in accounting and finance, three people in marketing. You have to have really great people to make that work.
We'll probably hire 40 people this year to keep up with our growth. As we get bigger, I can't assume new hires know why decisions are getting made. During the day, I make five or six trips to the kitchen at the other end of our office. On my way, I try to talk to people one on one, solicit their questions, and reiterate our strategy as it pertains to them.
All 25 of our customer service folks are in-house. We have a 24/7 operation, and we empower the reps completely to take care of the mom at whatever cost. Really, the fewer rules, the better. The concept is just if Mom calls and there's an issue, do whatever is necessary to make her happy and really wow her. (We got into the habit of referring to all of our customers as "Mom.") If we don't have a product you're looking for, we'll get it from a competitor. The day before yesterday, a mom really needed a car seat for the weekend, and there was no way UPS was going to get there on time, because UPS comes late on that particular day. But UPS comes to the customer service rep's home in the morning. So the rep had it shipped to her house in the morning, and then she drove it over to the mom's house. We're doing 6,000 orders a day, but that stuff still happens all the time.
Our best customers get over-the-top treatment, even when there isn't an issue. If a really good customer calls in, and we see that they've ordered a lot from us and they've referred other moms to us, reps have the power to send them a $100 gift basket just to say thank you. We send them flowers, gift certificates to get a massage. We spend about $1 million a year on this, 10 percent of our marketing budget. I try to take calls myself once a quarter, but this year, I've probably only done it once so far.
Vinnie and I go to lunch together basically every day. We get sashimi at this sushi place called Aozora in Montclair. We drive over together and spend 45 minutes or an hour talking, usually about things that are more confidential that we may not want to discuss in the office. When we get back, we spend the next half-hour or 45 minutes following up on that discussion.
When we launched the company, our biggest competitors were already at scale. We knew early on that the key would be how fast we could ship stuff, what prices we could sell for, and how many product lines we could carry. Having my second kid and seeing my wife having to keep us in stock with diapers and formula and stuff -- it wasn't easy for her. I thought, If we could make this an easy experience for Mom, offer premium service and speedy delivery, we could extend into the other high-margin baby products.
So before we launched, we built proprietary software from scratch. We built software with computational algorithms to determine what the optimal number of boxes to have in the warehouse is and what the sizes of those boxes should be. Should we stock five different kinds of boxes to ship product in? Twenty kinds? Fifty kinds? And what size should those boxes be? Right now, it's 23 box sizes, given what we sell, in order to minimize the cost of dunnage (those little plastic air-filled bags or peanuts), the cost of corrugated boxes, and the cost of shipping. We rerun the simulation every quarter.
Using the right box probably adds close to 1 margin point. That may not seem like a lot, but the difference between a supersuccessful Internet retailer and a so-so Internet retailer is just a few margin points. Amazon has about a 4 percent operating margin, but they're at this massive scale. Anything less than massive, you have to be more efficient. The year we started, our gross margins were 4.6 percent. Today, they're in the teens.
Still, I think there's a time to be analytical and there's a time to make decisions based on things that can't necessarily be analyzed. How do you analyze the impact of hand-delivering a car seat to a customer who needs it? How do you assess the negative impact to the business of a mom coming to the site and finding the product she wants out of stock? Selection, price, customer service, speed of delivery, in-stock rates, ease of shopping -- when it comes to any of those areas, I put analytics aside and work backward. I say, "Let's work with the most perfect thing we can do, the best possible consumer experience, and then now, analytically, let's try to figure out how to do that as efficiently as possible."
I leave the office around 7 o'clock. These days, I tend to work after the kids go to bed as well. My kids are both involved with sports, and I don't think I've missed one of their games. It's important to fit that stuff in. I think I've struck a pretty good balance, but it's not always easy.
Sometimes I eat dinner with the kids, sometimes not. Often it's close to their bedtime after I eat, so I will read them stories and put them to bed. Afterward, I catch up with my wife, talk about her day. Then, I go in to work. I have like a little mini office off the bedroom.
At home, I'm doing work that doesn't involve other people. Stuff that takes time and silence. I don't really watch TV at all. I much prefer working. We're outsourcing our pay-per-click marketing, and we really weren't happy with the job that was being done, so I worked on that two or three hours a night for about six weeks. I've also been spending a lot of time on competitive analysis. I've gone through the Internet Retailer Top 500 Guide so many times that I can recite just about any stat of any company that's in there.
I go to bed around 11 or 12. That's the one time when you're really doing nothing but thinking. We have a pretty lofty five-year plan, and I visualize the path over and over again. I try to think about what could throw it off, think through each quarter, each year, from here to there -- exactly how we're going to do it and what challenges and pitfalls we're going to face and preparing to deal with them before they happen. I don't know when I actually fall asleep, because when I wake up in the morning, it feels like a continuation of my thought from the previous night.