The next big idea finds a home

13 Jun, 2012

Steve Conine and Niraj Shah want to help you pick out the perfect pillows. They want to help you choose just the right colour of bedding for your baby's nursery. And they want to help you select the set of porcelain plates that you did not even know you wanted.

As co-founders of Wayfair, the Boston-based online housewares company that last year had sales of $500m, the pair have built a business focused on the practicalities of internet retailing: wide selection "the company has more than 5,000 brands and 4.5m items; customer service – it has, for example, received high marks from Stellaservice, an online retailer rating service; and competitive prices.

Now, the partners have set their sights on becoming the Amazon of the housewares business, and are trying to elevate Wayfair from a site you happen upon for the humdrum chore of buying a bookcase to the online store you seek out for the deeply personal act of decorating your home.

"We're trying to go from the transactional part of shopping to the emotive," says Mr Shah, the company's chief executive. "When you go online for anything in your home, we want you to think: Wayfair."

Mr Conine and Mr Shah, who are both engineers and long-time business partners, are old friends from Cornell University. They each wear nerdy-chic glasses and the office-casual uniform of a brightly patterned button-down shirt and khakis (Mr Conine) or jeans (Mr Shah).

The company's headquarters, located in Back Bay, one of the city's smartest neighbourhoods, are typical of a dotcom business. Employees sit in an open-plan office that resembles a trading floor, and the desks of Mr Shah and Mr Conine, who is the company's chairman, are piled with boxes of Girl Scout cookies and colourful knick-knacks, are in the centre. The walls are painted shades of wasabi green, conference rooms have nicknames such as "the den", and there is the requisite playroom complete with table football and table tennis on the 24th floor.

Mr Shah and Mr Conine started their first company, Spinners, which developed corporate websites, from a business plan assignment for a college entrepreneurship class. They sold Spinners to iXL Enterprises in 1998. After a few years of working for iXL, in 2002 the two began to search for a new idea.

"We knew the internet," says Mr Shah, and the pair went about looking for any businesses that were for sale. "We had a goal for doing something quite large."

What they found, however, was something rather small: tiny internet retailers, often run out of a basement by a husband and wife team, that sold niche items such as binoculars or grandfather clocks. These businesses were profitable: they made $100,000-$200,000 a year, and they were growing at a rate of 30 per cent a year.

The "mom" and "pop" proprietors had also realised that shopping online often starts with a web search. Make sure your outfit is the first result that pops up on Google and a tidy profit is there for the taking.

Rather than buy one of these businesses, however, the partners decided to start their own: a site that sold television stands and speaker racks. At the time, those items were some of the most searched for on the internet. It was profitable from the launch.

They further studied analytics data on popular search phrases and their click-through rates to determine the next areas of expansion. The items shipped straight from manufacturers so they didn't need a large inventory. This meant they could make do with only one outside warehouse to handle product returns. (Today they have two.)

The partners understood that successful customer service hinges on perfectly executed logistics, and the company's 150-person engineering team works closely with the commercial side of the business. "That's the complexity of retail," says Mr Conine. "You have to be good at the logistics side and then you have to shield customers from that complexity."

Mary Cronin, professor at Boston College and a former adviser to Spinners, says: "They carefully picked categories where they saw a lot of long-term growth, and they chose large enough ticket items that had good profit margins. They were making money on every sale."

By 2007, the company, then known as CSN Stores – an acronym of their names – was a collection of 200 websites that sold everything from luggage to waterbeds to crock-pots, with sales of $202m.

There was a big problem, however: surveys indicated that while customers would happily buy from the online store they had used before for their specific item, they weren't aware the company had other sites selling other products.

In order to grow, they needed to unify the 200 websites and cultivate a single, homey brand. Out with CSN, in with Wayfair.

To foster a community, the company also created an editorial team. Headed by a former editor at Better Homes and Gardens magazine, it blogs about subjects from design and gardening, to marriage and parenting.

The founders brought in a brand marketer, formerly of Procter & Gamble, to build the company's online presence. This included increasing the number of images on the site to make it cosier and more eye-catching.

The company also launched JossandMain, which does flash sales of upmarket housewares, such as framed vintage posters and stylish iPad cases.

Last year, for the first time in the company's history, Mr Shah and Mr Conine raised outside money: $165m from a consortium of four private equity investors, who have taken an undisclosed stake in the company. An initial public offering is an option in a couple of years.

"We think we're making the right decision, but [we decided to be] extra prudent," says Mr Conine. "We knew our core business really well, but there was an opportunity to have investors who could be helpful. They have international experience; they know social media. They have insights we don't have. As we think about going public they can help."

Mr Shah adds: "We still own the majority of the company. And the truth is: when things are going well, there are not a lot of divided votes."

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