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FN: What was the biggest challenge?
NS: We couldn’t get brands to work with us. The original model was drop ship [where manufacturers send ordered product directly to customers], and most manufacturers weren’t willing to do that. And many of the ones that were didn’t have very good data feeds — their inventories and warehouses weren’t accurate. So we switched to an inventory model, and even then, most brands wouldn’t sell to us because they were worried we’d cannibalize their brick-and-mortar sales. A big turning point for us was when we got Dr. Martens. That was the first brand we got that seemed to impress other brands, and there was a lot of demand online for their shoes. People began to see that being on Zappos didn’t kill their brand. But it still took nine years to get Nike to agree to come on the site. And there are still some brands that aren’t on there.
FN: What else did you do to drum up business?
NS: We spent a bunch of money sponsoring the San Francisco Giants and the other local sports teams just so we could call brands and say, “In the third inning of the Giants game, you’ll see a big Zappos ad behind homeplate.” A lot of brands seemed to think that the more money we were spending, the better our chances for success. But it was actually the opposite. If we had kept doing things like that, we would have gone out of business.
FN: How did the growth of e-commerce affect Zappos in the early days?
NS: When Nordstromshoes.com launched in October 1999, I got all these phone calls from people saying, “It was fun while it lasted. At least you guys tried.” But it was actually one of the best things that ever happened to us. When Nordstrom launched it made our business look better because it gave the investors [faith in us].
FN: How did your role at the company change over the years?
NS: I was the CEO until 2001, and Tony and I were co-CEOs from 2001 to 2003. Then one day we had a meeting in a restaurant with some investment bankers. They would address me with a financial question. I’d defer to Tony, and he would answer. We did that the whole lunch, and as we were walking back to the office, I told him, “I don’t need to be co-CEO. We’ve gotten to a point now where the CEO’s responsibilities are mostly going to be financial, and I don’t need the title for my ego.” By the time we got back to the office, I told everyone, “Tony’s the CEO now. I’ll be chairman.” Our responsibilities didn’t really change, it was just a title thing.
FN: Why did you leave in 2006?
NS: I started thinking it was time to do something else around the end of 2004. [At that point], it had become about processes and lawyers and getting a bunch of people to sign off before you could do anything. I prefer startups and being able to jump in and change things. Then we went to Las Vegas, and it was like starting again, and I got reinvigorated. But when the rest of the company moved out there, it was back to being a big company again — meetings about meetings. Finally, by the beginning of 2006, I thought, “The company is running itself. I don’t need to be here.” So I left.