Huge selection, it was clear, would be critical. That meant that Shah and Conine would need a lot of suppliers. For that, they would have to get creative. Or, to be more precise, they would have to get dull.
In 2002, in the wake of the dot-com crash, manufacturers were understandably skittish about dealing with Internet retailers. So Shah and Conine camouflaged the fact they had an online address by giving their new business a name so plain that no self-respecting Web start-up would ever choose it: CSN Stores. "It's actually just our initials mixed together," says Shah. "We knew it wasn't a very good consumer name, but we did it for the supply chain. We'd be talking to suppliers at a trade show for 15 minutes before they realized that we were actually 100 percent Internet. By that point, they could tell that we seemed pretty credible. If our name was something dot-com, we wouldn't have even gotten a chance to chat with them."
With suppliers on board, CSN Stores began branching out to other niche sites. Need a dog bed? SimplyDogBeds.com had more than 1,000 to choose from. A cuckoo clock? EveryCuckooClock.com had hundreds. At one point, CSN Stores had eight websites alone dedicated to different types of barstools. Twelve months after launching, the pair had half a dozen websites selling stuff such as sofas, TV mounts, and patio furniture.
This wasn't exactly where the two expected to find themselves when they met in 1991. They were engineering students at Cornell University who shared an entrepreneurial bug. After graduating in 1995, they launched Spinners, which built Internet software systems for businesses, and soon had clients such as Merrill Lynch, The New York Times, and Time Warner. In 1998, they sold their company to iXL, an interactive advertising agency that would eventually go public, only to fall apart following the dot-com crash.
The pair stayed on with iXL for two years after the sale but never quite got over the itch to start another company. In 2001, they launched Simplify Mobile, which aimed to create a mobile-phone brand geared toward corporate customers. After about eight months without much traction, the pair pulled the plug and went back to the drawing board. A few months later, they had their birdhouse epiphany.
Conine grew up in New Vernon, New Jersey, and his mother owned two stores that sold outdoor furniture. His work for his mom as a teenager was the full extent of the pair's retail experience. But Shah and Conine were undeterred. "The retail business is such a basic business," says Shah. "But it is fairly complex. Not everyone does a good job at it, because it is very competitive. I think that's what made it an exciting market for us."
In fact, it turned out that you don't necessarily need retail or merchandising chops to build an effective online retailer. Each of Shah and Conine's websites was run with the efficiency and know-how gleaned from the experience of running each prior website. In fact, by poring over data on search analytics, Shah and Conine were able to determine what shoppers were searching for (say, diaper bags, Adirondack chairs, and shag rugs) and build an online store to meet their needs (DiaperBagBoutique.com, EveryAdirondackChair.com, and JustShagRugs.com).
The growth was exponential. By the end of 2006, CSN Stores had 150 websites, nearly 250 employees, and revenue of more $100 million. The next year, with help from new sites such as AllPetFurniture.com and LuggageSetsAndMore.com, sales more than doubled. By 2010, CSN Stores had about 200 sites, 4.8 million customers, and $380 million in sales.
Churning out websites is easy enough, but selling several million different items means promising that you will actually be able to deliver them to customers in a way that makes and keeps them happy. That is much more difficult. "We realized that there was a reason that no one offers this kind of selection," says Shah. "The world isn't set up to operate this way." The two began working to change that.
Most e-commerce companies, to guarantee selection and on-time delivery, keep inventory in their own warehouses and fulfillment centers. That increases costs in terms of labor and real estate but is considered simply a cost of doing business. Shah and Conine were determined from the outset not to be hobbled by such expenses. Although they added two warehouses in 2011, 90 percent of their products are still being shipped directly from their suppliers. Indeed, the true guts of CSN Stores are less the sites themselves than the mammoth back-end system they share. It's a staggering feat of computing that is capable of coordinating the order flow and logistics of the more than 4,000 suppliers that ship out an average of 93,800 items each week.
"I don't want to name names, but there are companies much larger than Wayfair, and in some cases much smaller than Wayfair, that are littered with bureaucracy," says Mike Horowitz, president of Southern Enterprises, which supplies the company with tables, media stands, and other furniture. "They've got smart people there who are very approachable, and there's very little bureaucracy. It's very much a two-way street. They want to help us do more with them, knowing that it helps us grow and it helps them grow."
"In my mind, that's the secret of the business—teaching thousands of small, mid, and large manufacturers how to do drop-ship so well," says Alex Finkelstein, general partner of Spark Capital, a Boston venture capital firm. "That's what really enables the engine behind the engine to work."
By mid-2011, revenue was on track to break the $500 million mark, up from $450,000 in 2002. For nine straight years, Shah and Conine had been on a winning streak. The planning and execution had been meticulous, and there was no reason to believe that the growth curve wouldn't remain on that same upward trajectory. And the enterprise had been entirely self-funded; they hadn't taken a dime in venture capital.
In many ways, this would seem to be the logical end to the company's story. But Shah and Conine had something else in mind. And pulling that off would mean taking nearly everything they had learned and flipping it on its head.
When is a Niche Not a Niche?
With more than 200 websites, CSN Stores was an expert at going narrow. But JustBraidedRugs.com was just too small. So the site was folded into CSNRugs.com, whihc, in turn, was folded into Wayfair.
Staff writer Kasey Wehrum has written for Inc. magazine on subjects ranging from the businesses behind professional bull riding to gadget inventor and father of the infomercial, Ron Popeil. His work has appeared in the New York Times, Worth, Budget Travel, and on MSNBC.com. He lives in New York City.
