Online retail is not exclusively the domain of Amazon.com. There are others out there. One in particular that I like is a company which started up just a few years ago, and just this week received a hefty valuation of $2 billion. That valuation was the basis of a $157 million Series C placement that is designed to swing them in to an IPO sometime soon. I am talking about Wayfair.com. Have you seen their site? Pretty snazzy. But there is a lot more to this online retail store than just pretty pictures and comfy furniture. They’ve caught the imagination of venture capitalists and an eager public as well.

Wayfair is doing to home furnishings what Amazon did to books (first). Surfing its site, you will see all sorts of pretty unique inventory. The site is well organized and perfectly mapped out with the user in mind. The concept is also rather brilliant; and after researching the background story, it is evident that the guys behind this had true entrepreneurial spirit. They said ‘the hell’ with the odds, and built a 2 billion dollar company in an industry filled with online titans.

The Poster Boy For How to Sell Online

The story began a dozen years ago, when the two partners that put this together, Steve Conine and Niraj Shah, decided to set up specific websites to sell individual items. So, for instance, they would have set up something like tablelamps.xxx to sell table lamps only. But they didn’t just set up one, they set up more than 250 of them. The rationale? Well, they figured they’d play the law of averages - set up as many as they can and customers will eventually find their way to a percentage of them.

With that idea, they set about optimizing each site and within some time they started getting visitors. Once everything was said and done, the two hundred and something websites of dedicated products were grossing about $400 million annually. Their strategy, planning and execution worked like a charm.

Remember, these were still fragmented sites. Each one having their own website and most of the customers didn’t even realize one was related to the other, if they bought from more than one. That’s when Shah and Conine decided to tie them all together and from almost three hundred, emerged one - Wayfair. Pretty neat move. Once combined, the website catapulted and hit sales in 2012 of $600 million, then to $1 billion in 2013. Based on this and its strength and growth, T.Rowe Price just bought in at the $2 billion valuation.

Strength and Weakness

The evidence of strength in any company, be it a start-up or an established brand, is that it should have strong leaders, good funding and a loyal clientele. It’s not always easy to identify this when you are a start-up. But in this case, Wayfair has a pair of strong co-founders who aren’t afraid to roll up their sleeves and get down to the nitty gritty of website building and search engine optimization to get their stores in front of customers. Niraj is a graduate of Cornell University, as is Steve.

As far as strong funding is concerned, they’ve established great support so far. To date, Wayfair has taken on $358 million in financing. That’s a lot of street credit. For essentially a pure e-commerce play, that is a tremendous amount of financing that wouldn’t have materialized if the VC / PE industry did not think this was a strong candidate.

As for the third strength factor - clientele, well they have sales hitting the billion-dollar mark. That’s a lot of customers. Enough said.

If I had written this article twenty years ago, I would have thought, ‘no way this company would amount to anything’. It doesn’t build anything, it doesn’t own anything (aside from server racks) and it doesn’t design anything. But the dynamics of retail have changed and the landscape is not what it used to be. Every aspect of the marketing mix can be sub’d out and this is the marketing side that deals with the customer - it’s the commodotization of retailing, and it works.

Key Success Issues

Wayfair has already done what’s necessary to prove itself. That’s the first thing that companies like this have going for them. They have already received their baptism of fire and they have done well. That is the first key success factor - to build the business from hard work and sweat, then prove it scalable. Just like how Jobs and Wozniak first worked on the circuitry in the garage, this is what proves an entrepreneur‘s mettle. And this duo has it.

The business end of the equation has a few factors that need to fall into line. This is not a small operation. Wayfair’s geographic scope is not limited to the United States; this is a global play. And that’s what I like about it. The internet offers the entrepreneur with the right frame of mind, the world as his clientele. It is the great equalizer, and limiting yourself to a certain geography is ancient thinking. Wayfair has got it right. They’ve already recruited internationally and set up offices in some of the major markets.

How Wayfair and FedEx Created a Great Working Relationship

The other success factor that this sort of an operation needs is brand recognition. In that respect, Wayfair seems to be coming up short. I presume many of you have never even heard of Wayfair. That’s not a knock on you, it’s a problem the company hasn’t dealt with. They need to build their brand equity. How they will go about doing this, we don’t know yet. But one of the four bankers arranging the impending IPO will certainly alert them to this fact, I am sure. Brand recognition will cut both ways. It will sell products and it will create demand for the shares. Prepare to be flooded with Wayfair branding material over the next few months.

One of the Few Wayfair Commercials I’ve Seen

Overall, I believe Wayfair.com has a lot of upside, even from its $2 billion valuation. However, I’d like to see them push the envelope a little further and get out from being just an e-commerce play. I like the clean lines of the website and the straight talk from the principles. It’s going to be an interesting IPO season.