This is obviously shortsighted in the case of Zappos. You can buy shoes online from anywhere. The user selects the shoes he wants, you put them in a box, you ship the box. Take away the "expensive" features of Zappos, like good customer service and free shipping, and your customers will just go somewhere else, leaving you with nothing.
Amazon has a clue about dealing with customers, so I think Zappos will be OK. But if the banks and VCs took over, Zappos would have become another data point in the portfolio of "being nice fucks you over". (But really, it's the banks that are fucking you over. Or perhaps, the people that default on their loans are fucking everyone else over.)
That's grossly unfair but I think you know that. Without the initial capital there would be no Zappos to speak of.
The conclusion that people should be drawing is the same one we see time and again on HN, choose your investors carefully.
Yes, the investors and board are their to maximise the return. The job of the CEO is to sell the vision to them and keep them on board. That the company sailed into a headwind not of their own making and the board got jumpy is yet another challenge on the way to large growth.
The board members would probably have lost personal money and dented their careers if Zappos had lost it's funding lines. They certainly do not 'make money by doing nothing'.
If they didn't maximise the change that they got their check back tomorrow, a lot of stuff would fall in a heap as people took stupid risks.
Getting out a broad brush and painting 'corporate america' is not an insightful analysis.
"Therefore, they don't care if the employees or customers are happy" You are wrong, they do. Customers write the check and employees deliver what they write it for, obviously they have some influence on whetter the check arrives or not (and how big it will be)..
"they only care about maximizing the chance that they get their check tomorrow" They care about maximising profit, this obviously involves planning for the long term. (A company expected to earn more money in ten years will be worth more right now.)
"This article explains a lot of Corporate America." You don't get corporate america. Hacker news is great for technical news but there is a surprising amount of this kind of simple/uninformed anti-market rhetoric.
Marx thought the same thing, and decided that to remedy the situation the lower class should steal the capital from the upper class. Marx was wrong, and so are you.
Cynicism about capitalism is popular in this recession, but that speaks less about the failures of capitalism and more about the fickleness of public opinion. Allocation and management of capital is a bit harder than throwing money at things and expecting it to stick, as millions of American investors have discovered over the past two years. Anyway, it seems ironic to have this pseudo-communist whining on a board run by a venture capitalist.
Huh? Why are you trying to call people 'communists' now? Please don't try to turn this into some sort of political mud-slinging contest.
The bottom-line in this discussion is that Zappos's culture and customer service was the thing that set it apart from other retailers. It was the reason that people wanted to shop there. To try and marginalize the effect this has on Zappos' bottom-line because it can't be easily quantified in terms of dollars and cents on a quarterly earnings reports by calling it a 'social experiment' or 'insignificant' is short-sighted at best.
> Allocation and management of capital is a bit harder than throwing money at things and expecting it to stick, as millions of American investors have discovered over the past two years.
That may be true, but investing money in a business does not make you an expert in that business's core competency.
That is, I wanted to point out that the claim being made--that capital owners, in capitalism, add nothing to the capital they own--is fundamental to a philosophy we now understand to be old, bad and dangerous.
Would you mind providing a citation that proves this? Also I'd like to know what you mean by "free market". Are you speaking hypothetically here, or relatively?
>the man who risks only .00001% of his wealth only stands to gain .000001% of his wealth.
Nonsense, how do you come up with such a number? How much the man stands to gain is unbounded. If for example, some investor's .00001% was $100k, with which he bought 20% of a company that ended up being the next goggle then he would make billions from thousands.
When employees log in to their computers, we ask them to look at a picture of a random employee and then ask them how well they know that person -- the options include "say hi in the halls," "hang out outside of work," and "we're going to be longtime friends." We're starting to keep track of the number and strength of cross-departmental relationships -- and we're planning a class on the topic.
It's one thing when people do that voluntarily on various "social" websites, but being asked to do that at work is a whole different story.
If they're not, in that case, yes, it is very creepy. But I really doubt it.
To provide a software analogy you want the platform group to be friends with the application group and enjoy working together. I've experienced a split myself where one team would just blame the other team for the problems in the final solution and it isn't productive.
Certainly it's not more creepy than FB
FTA, there are about 1,800 employees. It's not clear how they are geographically divided.
2 - The most basic. Think romantic relationships, best friends, business partners, etc.
6 - The "group." Common chimpanzees patrol in groups of six. Next time you go to a party, notice the maximum number of people that can engage in a conversation. Its nearly always six.
Fun tip based on this: If you want to join a lively conversation, walk up to a group of six people and begin to talk to two of them. The group will naturally fission into two groups of three and four.
30 - The "tribe." This is your extended group of friends, or the maximum number of children that can be put in a classroom. Everyone knows everyone well. This group can be mustered to complete a common task without much trouble.
150 - The "nation." This is Dunbar's magic number, derived from the size of the human neocortex. This is the maximum size a group can reach where everyone has at least a passing relationship with everyone else. It is the last natural group size.
Any group beyond this stretches human social instincts, and requires social constructs such as rules or laws to augment it.
Great cultures begin with hiring right. That's not to say you are not awesome, it's just to say you may not be a fit for their culture and their values.
There's lots of discussion here at hn about MBAs and I often comment about how little use I got out of mine. I remember little from marketing, finance, and operations classes. But I remember the case studies. The comprised almost half of the curriculum. And I hadn't thought much about them for years. Until reading this post.
This reads like a Harvard Business Review case study. It's got everything that makes for good business reading: compelling ideas, profit and loss, tradeoffs between profit and growth, economic considerations, competing interests, and most of all, characters. For a minute there, I thought I was reading Lee Iacocca. This could even make a great Hollywood script.
Great post. Thank you dwynings. I gotta get this book!
Otherwise, go to a business school library if you have access to one and you should find copies to read...
On the other hand, all the free business case studies you can find on the web (http://www.google.com/search?aq=f&sourceid=chrome&ie...) are rarely worth the effort reading though them in my opinion...
Easily the best article I've read today.
You can tell through the heavily filtered language that Tony went through hell and back on this one.
1 bn in sales, yet the moment it misses a growth target it could easily get caught in a cashflow credit crunch and go belly up?
Besides, those that don't have credit lines from banks have them from their suppliers - with the same risks and conditions.
Surely this would be a better use of capital than the enormous risk of relying on commercial paper/short term credit lines?
A few days ago there was a link here on HN about marginal advantages in game design, how the best Starcraft players thrive in environments where they are just a smidgen ahead of their opponent, and maneuver themselves in such a position, in contrast with the amateurs who want to 'win big' - have a big lead and crush their opponent in an overwhelming fashion. It's an eye-opening read, putting in words a property of winners that I never quite managed to capture myself. The theory applies to businesses equally - in a mature market, you can never be hunkered down, playing an all-defense game while you build up resources and then crush the opposition. By that time, that competition will have eaten your lunch and driven you out of business.
B) Banks do charge them interest on that money. So their opportunity cost = (Money * (Potential return - bank interest rate), but risk also has a cost.
C) As a public company Edit:(Ahold) could sell stock and gain capital without making their numbers look bad.
IMO, if there was a 5% risk of going bankrupt it's a now brainer. If it’s less than 5% they can mitigate it by keeping more cash on hand.
(about Ahold, without knowing the details, the liquidity problem was at the time when details of shady accounting in a US subsidiary came to light. You can't issue more stock in a few days to cover immediate liquidity problems. plus investors aren't going to be too happy when you're diluting their stock just to cover an operating loss. It's a different thing when you're doing it to raise money to expand the business.)
No, optimizing for profit ignores your risk to capital. The US banking history has a long history of Martingale style investments where a high probability for modest return risks huge amounts of capital. http://en.wikipedia.org/wiki/Martingale_(betting_system) The important difference is banks risk far more capital than they have so a Martingale style bet works in their favor.
Alhold however, was risking 15 billion in capital to make a modest return. IMO, if you’re going to risk 15 billion then go whole hog and run a financial institution to better balance your risks. Why risk zero when you can go all the way to negative 15 billion etc.
PS: I know that's not what you meant by optimizing for profit, but they were still making a 15 billion dollar bet for a few millions of dollars in annual return.
I think we're on the same page but I don't understand your last line - are you saying that companies with 'low' (single digit) returns are suboptimal choices for investors?
As to safe return, as you say their stock holders where paying a premium for safety and unless the R/W was awe inspiring I suspect most of them would rather gone to safer route.
(Like it says in the OP) Zappos is not a public company, and if the Zappos board had been confident that Zappos could become a public company, they would not have objected to the direction desired by the CEO.
Imagine a decent sized store that does $200K over a 3 day weekend with people buying steaks, etc. Net profit for all that work, logistics, HR, etc. is about $2,000 .
For more fun and games take a look at an airline business funding one day. One hiccup with a line of credit, particularly fuel credit, can bring an entire airline down in a matter of days.
The risks of funding retail lines of credit are not for the fainthearted. Get some bad purchasing going, end up with a load of junk in the warehouse that customers don't want and the business can't pay for ; the whole thing unravels very fast.
when extremely large purchases are made between two large companies, the terms of payment can get very complicated, which is why you need banks in the middle. have you ever thought about how you would go about purchasing $1B worth of shoes? Hint: you don't put it on the company amex.
(This is definitely more of an honest question than some sort of inadvertently negative response.)
According to Branson's autobiography, that was Virgin's initial brand ethos too.