One of America’s most interesting nascent brands, Zappos, has been bought by Amazon for $800 million. Despite the gloss of good news, this might show show fragile entrepreneurial businesses are. As one investment banker said to me earlier today. ‘Noone in their right mind would be selling today – unless they had to’. I think there are some interesting parallels between Zappos and Innocent Drinks in the UK.
Zappos is a poster child of the new social media revolution with reported sales of $1 billion, Zappos is a brand that was actually loved by customers. The culture will be the stuff of MBA case studies for years to come. It focused on getting the right staff for the business in any way possible – offering people money to leave after 1 month of employment for example. Every member of staff was supposed to be on Twitter. Customer service was legendary – Google ‘Zappos + Customer Service’ for endless examples.
Now it has been bought by Amazon – or not. CEO, Tony Hsieh, in his letter to staff explains this is a natural progression for the business etc etc
“Over the next few days, you will probably read headlines that say “Amazon acquires Zappos” or “Zappos sells to Amazon”. While those headlines are technically correct, they don’t really properly convey the spirit of the transaction. (I personally would prefer the headline “Zappos and Amazon sitting in a tree…”)”
CEO Blog – worth reading the whole thing here.
They might be ‘sitting in a tree’ but the tree is Amazon.
Zapppos had experienced executives and experienced investors. For an investor like Sequoia to be offered an exit at that sort of valuation given uncertainty of future short term growth would be hard to resist.
I am struck in some ways by the similarity between Zappos and an equally admired UK brand, Innocent Drinks. An incredible success story of wholesome nuttiness, as it grew and grew it garnered more fans (even though the product was ‘premium’ in the, ‘Fork me that is expensive’ sense of the word).
Innocent was looking to raise massive amounts of money for expansion and partial exit from PE firms a couple of years ago. It ended up selling a minority stake to Coca Cola for a small fraction of those putative valuations earlier this year. The amazing founders of this business also claimed that this was a huge victory, natural fit etc.
Lesson is simple. As you get bigger, it gets very hard to keep growing. Companies that are growing are very hard to run and are highly susceptible to changes in environment. They make fantastically juicy targets for bigger less innovative companies. Whatever people say at the time, these decisions are hard and not taken lightly. I wish the founders of Innocent and Zappos every success and happiness. They really deserve it. I hope the people and the culture of the businesses survive the changes too – for the sake of the employees and the customers.