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Extended Business Model

In Zappos.com CEO Tony Hsieh’s new book:  “Delivering Happiness“, Tony describes the original Zappos.com business model as “drop-ship”. As the UML sequence diagram below shows, a customer would place an order at the Zappos.com website, Zappos would relay the order directly to the shoe manufacturer’s warehouse, and the order would be fulfilled and shipped directly from ground zero. It was a low cost model for Zappos, but it limited sales growth since many shoe manufacturers didn’t have the information systems in place to execute their end of the model. In addition, sales were limited to the inventory that warehouses held in storage, not necessarily what Zappos’ customers wanted.

During the initial stage of growth, Zappos.com was often short on cash (surprise!) and often just a month or two away from goin’ kaput (surprise, again!). The Zapponians needed to increase sales in order to increase cash flow. During a brainstorming session in a local bar (not in a committee of BMs, CCRATS, BOOGLs, consultants, and other self-important dudes) they came up with the idea of extending their existing business model.

Man creates by projection, nature creates by extension – Unknown

The sequence diagram below shows the extended business model that Tony “chez” et al decided to move toward. In a nutshell, Zappos would purchase or lease a warehouse and stock its own inventory based on trend information extracted from its website. As simple as it looks, the devil is in the details. Buy and read the book to learn how they pulled it off – despite being cash poor and close to going tits-up.

If changing our business model is what’s going to save us, then we need to embrace and drive change. – Tony Hsieh

How many times have you heard or spoken the “embrace change” words above but never experienced or executed any follow through?

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