Zazzle’s pizzazz

Online retailer Zazzle began in 1999 as a garage operation, creating custom t-shirts and merchandise. Soon after the business began, founders Jeff and Bobby Beaver managed to secure $US16 million from Google’s original investors and won the “Best Business Model” 2007 TechCrunch award.

The business is a Silicon Valley success story. From the Beavers’ garage to its modern headquarters, Zazzle now records 60% year-on-year growth, estimated revenue of $US80 million and has eight million unique visitors per month.

The business sells customised apparel, allowing users to upload photos of their own and print them on t-shirts, jumpers and other merchandise. In addition to custom wear, the business has licensed images from companies including Disney and Lucas Arts to widen the store’s appeal.

But despite the success of the company – Silicon Valley Insider valued it at $U250 million last year – the company had a near death experience.

But Jeff says it wasn’t cashflow problems of a funding crisis that almost killed the business – it was a new type of washing detergent.

“We ran into a huge obstacle when a prominent detergent came up with a new model. It was designed to keep your shirts vibrant. We had tested all our techniques with different washing machines and different fabrics, but this new make completely wiped off the designs we had on our shirts. It literally wiped them all out.”

“We had spent so long doing this, we nearly had our website ready for launch, and this had completely destroyed the whole thing. We tried to work around it, but at the time we thought we might as well just shut up shop – it was certainly the easiest option. The lesson here, of course, is persistence.”

The solution was to develop a new hardware and software technique whereby ink is shot directly onto the fabric, and is then trapped with 400 degrees of heat and 100 pounds of pressure per square inch.

Beaver says the company experienced sheer chaos during its early years, but admits that comes with the territory of starting a tech company in California during the early 2000s.

He says having Google’s original investors, John Doerr and Ram Shriram, literally knock on the door to offer them a deal changed the business altogether, and they weren’t necessarily ready for the change.

“It was totally out of control. When you’re in the thick of it, trying to develop and innovate and do new things, it was a constant challenge. We were in this converted car garage making the orders, driving them to the post office, pulling all nighters for weeks. And it was totally crazy.”

Hunting for a niche

The Beaver brothers started the business by specifically looking for a niche market they could attack.

“We looked at certain markets to penetrate in the beginning and came across custom t-shirts, which we thought was interesting, and a market that never dies out due to things like sporting teams, organisations, parties and so on. We then made the website and launched in 2003.”

The site has also become a marketplace for clothing manufacturers, with individuals setting up their own space on the site to sell unique designs.

“We looked at the models that were interesting at the time, which was in the early 2000s, and so that was eBay and Dell. We tried to come up with a model that had the best of both aspects, Dell with manufacturing and eBay’s marketplace. We felt we came up with a good mix and it obviously succeeded. It really was just getting on the idea at the right time.”

Power of the crowd

Beaver says the decision to do business online was a natural one, and not just because Zazzle started during the tech bubble.

“The simple conclusion is that we’ve really been able to grow fast and hard on the internet by making a platform for people to benefit. That is the core benefit – if you can create incentives for other people to make money, they will do all your marketing for you.”

“And so we have a whole ecosystem of people who have a vested interest in the site, and they tell more people about it and that’s how we’ve grown. In the early days we spent literally zero dollars on marketing because we didn’t have to. If you have a great product, a fantastic costumer experience, eliminate the risk and create incentives, you can grow extremely fast.”

But Beaver says the businesses cannot solely rely on a self-governing user base, and requires constant review to help it operate smoothly.

“We try to make the highest quality products in the fastest time. Over 95% of our products are manufactured and shipped within 24 hours. But keeping it at that benchmark is a challenge, and we now we have a much more complicated model, different product lines, etc. The internet has helped us succeed, but it also produces a number of challenges.”

Success in the downturn

Retail sales have managed to perform relatively well in Australia, with the Government’s two stimulus packages helping push things along. It’s a different story in the US, where retail sales have plunged 8.3% during the 12 months to July 2008.

But Beaver says the power of e-commerce, and the business’s young target demographic, has kept Zazzle moving through the downturn.

“What’s good about our model is that this economic environment is fantastic for what we do. We have no inventory solution, so we’re not exposed to the risk that normal retailers would be.”

“We’re also seeing a lot of people turn to Zazzle as a solution for earning supplemental income. And our site is a good platform to do that, and that’s where we’ve seen a lot of activity grow.”

But Beaver says this also produces new problems. As the business grew from a two-man operation to an international business, the brothers have had to learn how to operate the business with no emotional attachment.

“Success begets success, and the more opportunities you have creates more challenges. So it’s hard for us to be rigorous about prioritising what is important and what isn’t. If we have a bad decision on just one thing, it’s over. You can get lofty in this type of environment, and so you have to have laser focus and learn to be emotionally detached and get rid of things that don’t work.”

Social networking and not selling

Like any media savvy e-commerce site, Zazzle is using social networking to promote its brand online. But Beaver warns Australian businesses to be extremely careful when developing their own social media strategy, warning one wrong move can tarnish a company’s reputation for a long time.

“It’s important, but how it should be used is another question. What we’ve found is those services are great, Twitter is great for having a dialogue and really building relationships with customers.”

“What these things are not about are marketing and promotion. If you just use these to send promotions or market, then that’s not a social activity, then someone is trying to sell you something. As soon as you treat these things as promotional tools, then I don’t think it works. People don’t want to follow that, what they want is to build a relationship.”

“These people are the heartbeat of your site. If you’re not mindful and communicative with these folks, it’s not going to be healthy. We’ve seen that happen. Be open to all feedback from your community and don’t turn a blind eye.”

Local retail trends

Beaver delivered the keynote address at the retail conference in Sydney last week about the success of online retail, and how Australian businesses can use e-commerce to succeed. But despite the fact Australia trails behind the US in online retailing, Beaver says businesses can catch up if they set the bar high enough.

“There’s a normal maturity cycle to this that probably can’t be affected that much. It takes time, for the offline retailers to realise the scope of the industry. We’ve heard that the Australian online scene is about three or four years behind the US and Europe, and that is really just a macro economic thing that will take a little bit of time.”

“As for specific advice I would give, it might sound cheesy, but you need to build trust. You need to show that the online experience is as good, if not better, than the traditional retail environment. Things like speed of turnaround, money back guarantee, eliminating the risk and really getting people to experience it. You need a few retailers to set the bar very high, and then you’ll have thousands of others joining them.”