diapers.com: Marc Lore. The ecommerce visionary who lost to Amazon but still made billions (2021)

Back in the early days of ecommerce, Marc Lore took a classic retail loss leader–diapers– and turned it into a DTC giant– Diapers.com http://diapers.com. It did so well that it attracted the attention of Amazon, which slashed prices on its own diapers until Marc was forced to sell them his business. It was not a happy moment, but it was a galvanizing one: Marc went on to launch another ecommerce company, jet.com. Within a year, it was bought by Walmart in a deal valued at $3.3 billion. This is a story about a devastating corporate surrender, a multi-million dollar comeback, and a founder with a relentless ability to re-invent himself. Timestamps: 10:04 – Marc’s “boost-your-grades” bet with his college coach 14:21 – A job on Wall Street and a Master Plan: 8 figures by age 48 16:28 – How a lunchtime lark turned into a spot on the U. S. Bobsled Team 27:44 – How random Google searches led Marc to diapers 35:29 – Guerilla tactic: Buying all of P&G’s diapers to get their attention 40:07 – The simple packaging hack that boosted sales 45:53 – Building a retail empire (and getting on Amazon’s radar) 47:52 – Amazon’s scorched earth strategy forces Marc to sell 1:00:11 – Raising $750M to take on Jeff Bezos 1:03:02 – A brand new business and a $3.3 billion exit: Walmart’s record-breaking deal This episode was produced by Casey Herman with music composed by Ramtin Arablouei. It was edited by Neva Grant. Follow How I Built This: Instagram → @howibuiltthis https://www.instagram.com/howibuiltthis/ X → @HowIBuiltThis https://x.com/howibuiltthis Facebook → How I Built This https://www.facebook.com/howibuiltthis Follow Guy Raz: Instagram → @guy.raz https://www.instagram.com/guy.raz/ Youtube →guy_raz https://www.youtube.com/channel/UCNSfrxNEmCruNtjIzxCBHjg X → @guyraz https://x.com/guyraz Substack →https://urldefense.com/v3/__http:/guyraz.substack.com__;!! Iwwt! RZoD751oWzUzoqqdJiqaoL6HdJfRHDUO1TKvYJ424d3Udn7-Pw9Nj6nEsauh9zcgEvLjUEc$guyraz.substack.com http://guyraz.substack.com/ Website →https://urldefense.com/v3/__http:/guyraz.substack.com__;!! Iwwt! RZoD751oWzUzoqqdJiqaoL6HdJfRHDUO1TKvYJ424d3Udn7-Pw9Nj6nEsauh9zcgEvLjUEc$guyraz.com http://guyraz.com/ See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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• 5:16Speaker 00

  Hey, it's Guy here. So this week, we're revisiting my conversation with Mark Laurie, the founder of diapers.com and jet.com. It is an incredible story. You will learn so much in this episode. Anyway, Mark is now working on a new business called Wonder. It's a high-tech food delivery concept. And back in 2024, he joined me on the Advice Line podcast. And he talked about some of the challenges and changes that Wonder is facing. So if you want to hear more about that, you can scroll back in your queue. But for now, let's hear how it all began with Mark's earliest business, and diapers.com. Here's our conversation from May of 2021. Enjoy.

• 5:59Speaker 01

  In the early days, believe it or not, we'd actually go to the wholesale clubs. So BJ's, Sam's Club, and we would buy the diapers.

• 6:07Speaker 00

  And you were just paying full price for these diapers?

• 6:10Speaker 01

  Full price, no discount.

• 6:12Speaker 00

  Then you got to mark it up on the website. So why would somebody buy them from you on the website?

• 6:18Speaker 01

  We didn't mark them up.

• 6:19Speaker 00

  You didn't mark them up?

• 6:20Speaker 01

  No, we just lost more money.

• 6:22Speaker 00

  So you were basically losing money to make it more convenient for people to get diapers?

• 6:27Speaker 01

  As one investor liked to say, let me get this straight. So you're selling a dollar for 90 cents?

• 6:37Speaker 00

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 6:48Speaker 00

  I'm Guy Raz, and on the show today, how Mark Lorry took an idea guaranteed to lose him money selling diapers online, built an e-commerce giant, sold it to Amazon, and then went head to head with them by building an even bigger business, Jet.com.

• 7:17Speaker 00

  Lots of stories we've told on this show are about consumer brands that succeeded not by creating something entirely new, but by taking something old or unremarkable and selling it more cheaply or efficiently or seamlessly than others. Michael Dubin took the frustrating experience of buying men's razors at the drugstore and turned it into an easier and less expensive one by creating Dollar Shave Club. Same story with Warby Parker and Framebridge. These companies offered their customers pretty much the same type of glasses and the same type of picture frames you could buy anywhere else, and just figured out how to make them

• 8:00Speaker 00

  easier and cheaper and even slightly cooler to buy online. And that basically is what Mark Lorrie wanted to do with one of the most essential products ever invented, diapers. He wanted to sell them online easily, cheaply, and effortlessly. Except that unlike glasses, or razors, or picture frames, the margins on diapers suck. In fact, diapers are a lost leader. Most stores that sell them don't make money on them. They make money by getting you into the store to buy other things: baby wipes, pacifiers, clothing, strollers, and more.

• 8:40Speaker 00

  And Mark Lorrie believed that he could pretty much do the same thing, except without the costs of a brick and mortar operation. So in 2005, he launched diapers.com with a partner. And by 2010, his company became the biggest seller of baby products on the internet, which was great, but it also caught the attention of one notable and powerful competitor. And that competitor, yes, it was Amazon, would end up acquiring diapers.com for nearly half a billion dollars, which, as you will hear, was not a happy moment in Mark Lorrie's career.

• 9:21Speaker 00

  So a few years later, he started another e-commerce site, a retailer that went head to head with Amazon. And Mark called it Jet.com, a business that would eventually be acquired by Walmart for around $3 billion. As a kid, Mark Lorrie grew up in New Jersey. His dad ran a computer consulting business, and his mom was a personal trainer and a bodybuilder.

• 9:48Speaker 01

  So, it was kind of fun. I was probably a junior in high school, going to my mom's bodybuilding competitions. But she did well. She won a couple competitions and things. It was fun, but really inspirational as a kid.

• 10:01Speaker 00

  I bet, yeah. My mom's a bodybuilder. There's my mom. I ripped mom's, she'd kick your butt.

• 10:08Speaker 01

  She used to squat like 350 pounds when she was like 110 pounds. Yeah.

• 10:13Speaker 00

  That's insane.

• 10:15Speaker 01

  I know.

• 10:15Speaker 00

  I read that like when you were in middle school, you got into, you know, different businesses and stuff. And you started like selling baseball cards in high school and did you make money? Were you, were you good at like buying cards for cheap and selling them for, for more expensive?

• 10:29Speaker 01

  Yeah, I would say we did. Okay. I did it with a very close friends, Lakshandra. Big part of the business was grunt work. We would buy cases of baseball cards that weren't sorted. And then we would basically sort them into full sets and then sell the sets. And the sets were sold at a premium because somebody had to sort them.

• 10:49Speaker 00

  Yeah.

• 10:49Speaker 01

  But so we would do that all summer, but also did every possible sort of job a kid could possibly do. Everything from, you know, newspapers, recyclables, washing cars, mowing lawns, picking weeds, anything to make a buck.

• 11:04Speaker 00

  Yeah. Um, how were you at school as a kid? Were you good in school?

• 11:09Speaker 01

  No, I wasn't good at school. I, I definitely had some, you know, my parents used to fight all the time. It was like, it was rough growing up. I didn't focus on school at all. Parents, I was the first person to go to a four year college and my parents didn't really know much about school. My mom went back to get her high school diploma, you know, they got married when my dad was 20, she was 19, had me less than a year later. Yeah, it was, I, I didn't do homework. I didn't pay attention in class. I was the class clown. I would just didn't take school seriously. And there was no repercussions at all. In fact, when I was a sophomore in high school, I remember somebody asking me, hey, so where are you going to go to college? Are you thinking about college yet?

• 11:55Speaker 01

  I said, I don't know. I'll probably just go to Harvard. And they said Harvard, you can't get in Harvard. What do you mean? And I said, what do you mean, get in? Like, don't you just say where you want to go and then you pay and you go? Like, no, it doesn't work like that. You have to actually get into the school. They have to accept you. This is literally the first time I ever understood or knew sophomore in high school that you had to get accepted.

• 12:16Speaker 00

  Wow.

• 12:17Speaker 01

  And so that was sort of a wake up call. And then junior year, I did start like applying myself and did better.

• 12:24Speaker 00

  Yeah, it sounds like it wasn't particularly stressed at home, that like you had to do well and make good grades and stuff.

• 12:30Speaker 01

  Yeah, not at all. But I was mathematically gifted, like gifted in math. When I was a little kid, as a soothing mechanism, you know, I used to count. And then eventually, when I got a little bit older, I used to do multiplication problems in my head and big stuff like that. Yeah, it was just, it just, I guess it was just natural.

• 12:49Speaker 00

  You ended up going to Bucknell University in Pennsylvania, and I guess on a track and field scholarship, right? Like you, that was why you ended up going there? Because as a kid, you were like a pretty gifted athlete. You were like a high school state champion.

• 13:05Speaker 01

  Yeah. So it wasn't, they don't give scholarships, but it was what helped me get into that school because I didn't have the grades to get in. But when I got there, I didn't realize this, but when I got there, the coach sat me down. He said, okay, you know, you're basically on academic probation the day I got there. And they said, you know, you need to like get certain grades to stay on this team. And I said, well, you know, I want to be a decathlete, which is 10 events. And he said, no, you're not going to have time to train for that. You need to focus on school if you're going to stay on this team and stay in the school. I'm like, wait a second, I just got here. So that kind of got me fired up. And I told the coach, I said, all right, well, listen, how about this? If I get straight A's first semester, then I'm good, right? Then they'll train me? And he laughed and he told the

• 13:49Speaker 01

  team, he said, oh, Mark just made me a bet, you know, I gotta train him for the decathlon if he gets straight A's. So I was like, okay, fine. And then I got straight A's the first semester.

• 13:59Speaker 00

  What what did you what explains that? Did you were your classes more interesting once you got to college? Were they easier or what?

• 14:07Speaker 01

  It was more just, first of all, I was challenged by the coach and I felt like, you know, I think he thought I was just not smart or something because the way it started off.

• 14:16Speaker 00

  Did you, by the way, did you think you weren't smart?

• 14:18Speaker 01

  No, no, I knew I was smart.

• 14:20Speaker 00

  You knew you were smart?

• 14:22Speaker 01

  Yeah, because if I ever had to turn it on, once in biology class, I got the lowest score in the class and it was like a seven or something. I didn't study. It was really embarrassing because he, this teacher, Mr. Ormanati, would announce the lowest and the highest score. And it was just really embarrassing. He's like, I'm the lowest score. And he would do it in a really condescending way. And everyone laughs. It was just very bad. I can't imagine doing that today. But anyway, after I got the lowest score, I studied for the next exam. And he announced my name again, but this time it wasn't the lowest score, it was the highest score.

• 14:57Speaker 00

  So it sounds like what drove you was a competitive spirit, right? Like you wanted, if you had to, and to prove yourself, you you were gonna be the best.

• 15:07Speaker 01

  Yeah, also, it's just a, probably just based on growing up, my dad, you know, was not completely present. And the only way to get my dad's attention was to do something extraordinary. So it's sort of programming as a young kid, like to associate doing big things with feeling loved, basically. I didn't realize that growing up, obviously, it's only with therapy and as an adult, thinking back to that stuff. But that is ultimately where my drive came from. It didn't come from a healthy place. It wasn't healthy. But I've turned it into something more healthy today.

• 15:47Speaker 00

  So it sounds like you were a talented track and field athlete and you studied, I read you studied business and economics. So was it kind of in your mind that, and given that you had some like strengths in math, that you would go into something around finance out of college? Was that in your mind?

• 16:04Speaker 01

  Yeah, when I was in middle school, I started reading books like in seventh grade, I started reading books on derivatives. Like when it came to learning about how to, how derivatives work, I could get into that book and read it cover to cover, no problem.

• 16:19Speaker 00

  Wow, that sounds so unbelievably boring. Okay, keep going.

• 16:23Speaker 01

  Yeah, so no, so I would, I would literally read books on derivatives, any book I can get. So when I graduated from Bucknell, I wanted to get into derivatives, basically. Even though I was very entrepreneurial, I didn't even know that was an option, this, the idea that you could be an entrepreneur at that time.

• 16:40Speaker 00

  So you, I guess you graduate in 1993, and your first job at a school was Bankers Trust in New York City, and I guess your goal was to work at the trading desk?

• 16:49Speaker 01

  That's correct.

• 16:50Speaker 00

  Did you enjoy it? I mean, you're in New York City, you're on your own, you're independent, you've got your own apartment, like, was it exciting? Or were you always working? What do you remember about that time?

• 17:00Speaker 01

  Yeah, no, I loved, I did enjoy college as much as other people. I was ready to get in the work world, start, have a job and make money. I was, I grew up basically a mercenary, as I call it, you know? I was growing up in a household with my dad always talking about, you know, making money, and my uncles making money, and going to Atlantic City, and trying to beat the house at blackjack, and going to the horse track with my uncles, and trying to make a buck. It was like, everything was about making money. That's, that's what I call mercenary kind of attitude. And when I got into banking, all I wanted to do was make money. I put a, I put a sign on my cubicle that said, goal, six figures by 26, seven figures by 37, eight figures by 48.

• 17:42Speaker 00

  Wow.

• 17:43Speaker 01

  And I basically worked as hard as any person could possibly work. I was always the first one in the office at the bank, the last one to leave. It'd be eight o'clock at night, and, you know, ask, what else can I do?

• 17:56Speaker 00

  And this is kind of a rapid rise. I read that like from, you know, 93, because you're just out of college. Through the 90s, you really got some really big promotions. I mean, within seven years, you were like the head of the risk management division at Sanwa Bank.

• 18:14Speaker 01

  Yeah, I was the executive vice president, which was... By far the youngest executive vice president.

• 18:20Speaker 00

  You were barely thirty or twenty-nine or something, right?

• 18:22Speaker 01

  Yeah, I was twenty-eight when I got the job, yeah.

• 18:26Speaker 00

  So you were just, you were just grinding. And by the way, just to add one more thing, I believe that in nineteen ninety-six, in the midst of all this, I can't even believe I'm, this word's about to come out of my mouth, you qualified for the US national bobsled team.

• 18:41Speaker 01

  Yeah. Yeah, not a lot of people know that, but yeah, that's true.

• 18:45Speaker 00

  So my extensive knowledge of bobsledding comes entirely from Cool Runnings. And I know that they were, I mean, that movie, they were track and field athletes, and that's why they were good at bobsledding. Is that how it works? Like, if you're a really good fast runner, like, you can become a good bobsledder?

• 19:00Speaker 01

  If you're not only fast, but explosive legs and speed. So it's sort of like, if you could squat and broad jump and high jump from a standstill. So the way this all happened, you want me to tell you the quick?

• 19:13Speaker 00

  Yeah. I mean, you're a banker in New York, and you qualify for the US national bobsled team that's going to the Olympics in nineteen ninety-eight.

• 19:21Speaker 01

  This is.

• 19:22Speaker 00

  Yeah, how do you, how does that happen?

• 19:24Speaker 01

  How did, okay. Yeah, this is the story of how it happened. So I'm having lunch down at the World Financial Center, and I see that there's a, like, bobsled track set up, and there's like a tent, basically like, five bucks, come down, push the sled, and they'll time you on how fast you push the sled. That was fun and interesting, but more interesting was the thing that said, the fastest time of the week, they'll invite you to the training camp.

• 19:49Speaker 00

  Wow.

• 19:50Speaker 01

  So the next day, I brought my sneakers, and I pushed the sled. And the guys there were like, whoa, that was the fastest we've seen anybody push the sled so far. And so it turns out I had the fastest time of the week. And I did get this call, and they said, hey, do you want to come up to Lake Placid? It's basically like, people get invited up there, and they, they take a test.

• 20:12Speaker 00

  Hmm.

• 20:12Speaker 01

  Strength, speed, explosiveness, broad jump, high jump. And they scored me, and they said, hey, you got a great score. This is pretty amazing. Would you want to train for the next month? Because we have, at the end of the month, there's the tryouts to make the team.

• 20:29Speaker 00

  Wow.

• 20:29Speaker 01

  Push the sled. And, and I said, sure, let me see if I can get a month off from work. And I got a month off, and I lived up in Lake Placid. And trained every day for 30 days on how to push the sled and all kinds of other techniques and things.

• 20:44Speaker 00

  Wow.

• 20:45Speaker 01

  And then at the end of the month, they had like the time trials to see who makes the US national team and they were going to take 13 people and I finished 13th.

• 20:54Speaker 00

  It's like a movie story, right? It's like that movie Rookie of the Year where the kid throws the baseball back and, and he's got this amazing arm and then he joins the Chicago Cubs. You know, you're just like having lunch in downtown and you push the sled.

• 21:06Speaker 01

  This was perfect for me. Yeah, I, I'd still been working out and, but I did when they told me that I was invited to go train at the Lake Placid. It was like a few months from the time they were at the, the World Financial Center. So those few months, I basically just pushed cars around. Every day after work, I would go to a parking, empty parking lot and push cars.

• 21:28Speaker 00

  You'd push cars? You'd put the car in neutral and just push it around?

• 21:32Speaker 01

  Neutral. Yeah, basically.

• 21:34Speaker 00

  I don't even know where you find an empty parking lot in Manhattan, but you clearly did.

• 21:38Speaker 01

  This was in New Jersey.

• 21:39Speaker 00

  Gotcha, wow. But, but I guess ultimately you decided not to take this spot on the, on the team, right? Because you would have basically had to quit your day job to train for the Olympics.

• 21:49Speaker 01

  I don't have to travel around the world with the team for two years before the Olympics.

• 21:53Speaker 00

  And bobsledding is, is not really super lucrative.

• 21:56Speaker 01

  And, and I was driven to make money, remember? I'm a mercenary. So at that point in my career, I was a mercenary.

• 22:02Speaker 00

  All right. So you're back in New York, not on the bobsled team. And the story I've read, and I, and I'm sure there are more details to it, goes something like this. You, you've got this great career in finance, you're in your late twenties, but it's just something about, about it's just not fulfilling you and you are watching all this dot com action going on and you want to get in on it. Like you decide, I gotta get out of this and get in on this thing. Is that what happened in 2000?

• 22:30Speaker 01

  Pretty much. I was watching all that stuff happening. I was making a half a million a year at 28.

• 22:36Speaker 00

  Wow.

• 22:36Speaker 01

  And at that time, I was married and had just had a baby. And I felt this desire to want to be an entrepreneur. Like, you know, I wanted to be a farmer when I was four years old. And I wanted to be that for years. My grandmother would ask me what I wanted to be, and I'd say that. And she didn't understand and used to laugh. And I said, but Nan, they grow stuff from nothing. And now I get it, you know, I just wanted to grow stuff. And the other thing that was happening at the same time was I hated the culture in the bank. I hated the way people were treated.

• 23:11Speaker 00

  Yeah.

• 23:12Speaker 01

  It wasn't very diverse. It was very condescending toward women and it was very harsh. There was no empathy and kindness didn't play a role. And keep in mind, you know, I was kind of torn. So I was, I grew up in this mercenary household, my dad and uncles and

• 23:27Speaker 00

  Sure.

• 23:27Speaker 01

  stuff, but then because I was, my parents were so young when they had me. My mom used to lead me with her parents, which I called Big Nan and Big Pop. And they were the complete opposite. You know, my grandfather came over from Italy and had a job working on the railroad and used to say that he had the best job in the world, laying railroad times. And was literally serious. Like he, he used to say that he was the wealthiest man in the world. And he would count all of his grandkids and children as a million bucks. And he was just like the complete opposite and the classic missionary. He was driven by a higher purpose. And I was always drawn to that. But each year, I was only in banking for seven years, you know, before I quit. And something was really missing. Something was wrong.

• 24:12Speaker 00

  Yeah.

• 24:13Speaker 01

  I didn't feel fulfilled and I felt like, it seemed like a road to nowhere.

• 24:17Speaker 00

  So you, you decide to quit, which is a big deal. I mean, you had a big paying job and to go and start. A business with a childhood friend of yours, Vinit Barara. Is that, am I pronouncing his name right?

• 24:31Speaker 01

  Yep, Vinit. We call him Vinny.

• 24:33Speaker 00

  Vinny.

• 24:33Speaker 01

  Yeah.

• 24:34Speaker 00

  And, um, and were, was any part of you nervous about, about doing that?

• 24:39Speaker 01

  Yeah, also, I had a newborn baby at the time. So yeah, it was, uh, and actually did it with Vinny and Lakshandra. So two, we were, all three of us were best friends and Laksha did the baseball cards with both of my

• 24:53Speaker 00

  Childhood friends.

• 24:53Speaker 01

  Childhood friends since I was 10 years old.

• 24:56Speaker 00

  And by the way, what was the enterprise that you were gonna do? What was this business idea?

• 25:00Speaker 01

  This was like basically a sports stock market. We used baseball cards as a proxy for the athlete. But it was much more of a stock market than it is anything to do with baseball cards. People would have accounts, they'd have, build a portfolio. There was a ticker, there was market makers, there was bid offer spreads. It was meant to be a stock market for sports players.

• 25:22Speaker 00

  So this is gonna be a marketplace for, I still don't fully understand it. I'm, I mean, it's just a marketplace to sell sports collectibles online? Is that a fair?

• 25:32Speaker 01

  No, no, it was, if you imagine a baseball card that you never take delivery of.

• 25:36Speaker 00

  Okay.

• 25:37Speaker 01

  So it's just, it sits there as a proxy for the athlete. So you'd buy the cards, they'd go in your account, the price would go up, and then you'd sell them and the money would go in your account and you'd buy and sell and trade. And so actually, it felt much more like a stock market. Like we would watch the games and, and if players did well, the stock would go up. Player did bad, the stock would go down and people were trading pretty aggressively during the games.

• 26:01Speaker 00

  And you raised some money, right? You, you guys raised like?

• 26:03Speaker 01

  We raised $5 million, all from 60 angel investors.

• 26:08Speaker 00

  Who really believed in this idea? Cause I'm just thinking today, if you pitched me that idea, I would be very skeptical.

• 26:14Speaker 01

  Well, here's, this is gonna, this sounds like I'm absolutely crazy when I'll tell you this, but I invested 390,000 of my own money into the company. And, you know, the investors, the angel investors said, we're not sure about this idea, but wait, I see here, Mark, you invested 390 grand. That's a lot of money. You know, you're not that old. Um, why 390? Why not 400? And my answer was because that's all I had.

• 26:40Speaker 00

  Wow.

• 26:42Speaker 01

  So I literally had 390,000 in the bank. And I think the investors saw that and they said, wow, this guy's got a lot to lose.

• 26:49Speaker 00

  Yeah.

• 26:50Speaker 01

  Now, would I recommend this? No, I wouldn't recommend you take every dollar that you have. But I'll tell you what, if I didn't do that, wouldn't I got the investment dollars?

• 26:58Speaker 00

  No.

• 26:59Speaker 01

  And it wouldn't have worked either because it really felt like my life was on the line.

• 27:04Speaker 00

  All right. So you, and by the way, this is called The Pit, right? This was.

• 27:08Speaker 01

  Yeah.

• 27:08Speaker 00

  So you get the money and you launched this in 2001 and it's a website.

• 27:13Speaker 01

  2000.

• 27:13Speaker 00

  2000.

• 27:14Speaker 01

  2000.

• 27:14Speaker 00

  And it's a website? It looks like a marketplace with a ticker going across the screen and stuff like that?

• 27:19Speaker 01

  Yep. Yeah, it's just look, yeah, exactly.

• 27:22Speaker 00

  And, and did you get like some media attention for this? And, and.

• 27:25Speaker 01

  We did.

• 27:25Speaker 00

  Yeah.

• 27:26Speaker 01

  And we got a lot of customers.

• 27:27Speaker 00

  You got a lot of customers?

• 27:29Speaker 01

  Yeah, we had a lot of people came on there, were trading. They would send checks for 10, $50,000 and start trading.

• 27:36Speaker 00

  And how would you guys make money? What was the revenue model?

• 27:39Speaker 01

  We made money on the bid offer spread and commission.

• 27:42Speaker 00

  So you launched this thing, you're getting some traction. Was it, did it show promise? Did it look like it was gonna?

• 27:47Speaker 01

  It was, yeah, it was really working. The first 10 months, we were doing about 10 million in transaction revenue.

• 27:54Speaker 00

  Wow.

• 27:54Speaker 01

  It was, it was going really good. But then about 10 months in, the NASDAQ crashed. This is when the monster, monster crash.

• 28:02Speaker 00

  Yeah, that was the beginning of the bubble bursting.

• 28:04Speaker 01

  Yeah.

• 28:05Speaker 00

  And you immediately felt the results of that?

• 28:07Speaker 01

  We, yeah, because we needed to start raising money and it was just ghost town.

• 28:11Speaker 00

  There was no money.

• 28:12Speaker 01

  Zero.

• 28:13Speaker 00

  And so I guess you, because I'm wondering why this happened, but basically 10 months in, you sell the business to Tops, the baseball card company, for 5.7 million, which is not that much more than what you raised.

• 28:25Speaker 01

  That's right. And believe it or not, everyone got their money back and a little bit more. And they said, you know, it's the best performing investment in their portfolio.

• 28:33Speaker 00

  That year.

• 28:34Speaker 01

  So.

• 28:35Speaker 00

  So everybody get their money back and a little bit of change on top. And TOPS now, the biggest, one of the biggest, maybe the biggest baseball card company in the US owns you and you go, you and Vinny become TOPS employees, right?

• 28:48Speaker 01

  Yep, and Lax, yeah, all three of us. And then Vinny went on to become the general counsel of TOPS, Inc. Lax ran the pit and I went out to Seattle to run a game company called WizKids, which was acquired by TOPS as well.

• 29:04Speaker 00

  And just to be clear, they didn't make computer games, right? WizKids made like physical games that you played?

• 29:09Speaker 01

  Physical games, think about like little miniature figurines that have stats and things, almost like Dungeons and Dragons, but like with miniature figurines and you would collect the figurines, the figurines were collectible.

• 29:21Speaker 00

  All right, so you end up working under TOPS for two years and you decide that you want to start something new. Is that, is that what happened?

• 29:31Speaker 01

  Yeah, I was a little bit, it was tough. Like I was probably, after I was there for two years, I'm now 10 years out of school. I'm like 32, 33 ish. I had ambitious goals and dreams for my career and things and I'm basically, one day, I remember it was like after hours, I'm sitting, started getting into this Dungeons and Dragons and sitting around with a bunch of gamers at night and I've got this 20 sided die in my hand and I'm rolling it, just thinking, what happened? You know, I was like on top of the world at 28, the fastest EVP, making all this money, you know, and then here I am at 32, rolling the 20 sided die, you know? It was just, I don't know, it was like surreal.

• 30:16Speaker 01

  It was like, that didn't feel right. The banking didn't feel right, but also didn't feel right just running game companies.

• 30:24Speaker 00

  And you were not going to go back into finance? That was out of the question.

• 30:27Speaker 01

  Definitely not going back into finance, no.

• 30:29Speaker 00

  So I guess around this time, you and Vinny start talking about doing something new, a new business. And we now know that this would lead to diapers.com. But I want to understand what was going on. Did you guys start to have conversations like, you know, what can we do? And what opportunities are out in the world? Like, how did you even start? What was the conversation?

• 30:51Speaker 01

  Yeah, I'll tell you exactly how it started. This is even before talking to Vinny, but I would just go on Google and search for random words and see how many times they were searched in the search engine. And I remember searching the word diapers.

• 31:06Speaker 00

  Why?

• 31:07Speaker 01

  Well, I was doing a lot of diapers at the time.

• 31:10Speaker 00

  You were changing a lot of diapers yourself?

• 31:11Speaker 01

  Yeah.

• 31:12Speaker 00

  I got you.

• 31:13Speaker 01

  Buying them and changing them. But I put lots of words in. I mean, I don't know, hundreds, maybe a thousand different things, just getting the brain going.

• 31:20Speaker 00

  Just looking for what people were searching online?

• 31:22Speaker 01

  Yeah, just some nugget of like, what are people searching for? Just try to get ideas brainstorming, basically, not knowing what you'd find, no idea. But put in the word diapers. And I remember it came up 200,000 times in a month, searched. And I'm like, that's really interesting, because you can't buy diapers online, not even Amazon at the time. Could you buy them?

• 31:42Speaker 00

  In 2004, you couldn't buy diapers?

• 31:44Speaker 01

  Yeah, it might have been 2003, 2004, somewhere around there. You could not buy diapers at a normal price. They were like, prices were like jacked to ridiculous levels. It just wasn't a thing. Nobody bought them online. Then I went to Vinny and I said, hey, Vin, what do you think about this idea of like, selling diapers, delivering them like overnight to moms and dads at normal Walmart prices? I think we said Walmart prices. And he started talking it through and thought, yeah, there's something here. When we would ask people, though, about whether this would work, people that knew it as something, they said, that's silly idea. There's no way it'll work, because don't you know that diapers are a loss leader for these brick and mortar stores? They drive traffic, and so they lose

• 32:28Speaker 01

  money on them. And if you're going to pay for shipping and fulfillment, you'll lose them more money. There's no way it can work.

• 32:33Speaker 00

  And just so I understand, is the reason why diapers didn't, nobody wanted to sell them online, was because? Once you paid for shipping, you weren't actually making, you were not going to make money off them. Even if you were able to get great prices from the manufacturers, it would still be hard to.

• 32:49Speaker 01

  Oh, not even hard. It was impossible.

• 32:51Speaker 00

  Hmm.

• 32:52Speaker 01

  Because they're a loss leader. So there's, there's very little margin in diapers. And yeah, the cost to ship because they're heavy is really expensive. You were definitely going to lose money on diapers.

• 33:01Speaker 00

  But what I'm trying to understand is why are diapers, why do diapers lose money? I mean, everybody who was a kid is going to buy diapers for two to three years.

• 33:08Speaker 01

  Mm hmm.

• 33:09Speaker 00

  So that seems to me that there's a lot of money to be made there. How is it that that's not the case?

• 33:14Speaker 01

  It's not the case because all the retailers compete for people looking to buy diapers. And they'll keep lowering the price to try to drive traffic.

• 33:22Speaker 00

  It's a race to the bottom.

• 33:23Speaker 01

  Basically.

• 33:24Speaker 00

  It's a race to the bottom. I got you. So the retailers are pricing it down just to get people in the door to buy other stuff.

• 33:29Speaker 01

  Exactly.

• 33:30Speaker 00

  But you must have figured this out pretty quickly that you're not, you can't make money off diapers.

• 33:33Speaker 01

  Yeah.

• 33:34Speaker 00

  So I'm thinking, if I'm talking to a friend about a business idea, we're like, all right, we looked at that, let's go to the next idea. But that didn't happen. What, why?

• 33:43Speaker 01

  Because I think we saw the bigger vision, which was, wait a second, these things are a loss leader for a reason. They drive traffic to the store.

• 33:52Speaker 00

  Yeah.

• 33:52Speaker 01

  And online, the difference between a brick and mortar and online is online, you can sell so many more things because the unlimited shelf space. So we thought, okay, great. So let's drive people, you know, we're going to lose more money than a brick and mortar does in diapers because we have to pay for shipping. But that's okay. We can sell even more products and more high margin products than stores can.

• 34:13Speaker 00

  So you guys start working on this. And I guess initially it's not called diapers.com, right?

• 34:18Speaker 01

  It started off 1-800-dipers because we couldn't afford diapers.com domain.

• 34:22Speaker 00

  And you guys, I guess, kind of relocated to New Jersey where both of you grew up, right?

• 34:26Speaker 01

  Yep. In Montclair, New Jersey. Yep.

• 34:29Speaker 00

  And what did you, I mean, you had to build a website, you had to get inventory. Let's just break this down because. Building a website in 2004 in server space was really expensive, right?

• 34:42Speaker 01

  Yeah, we had our own box, physical box. There was no cloud.

• 34:46Speaker 00

  And you guys put, imagine you were putting, you put all of your money into this.

• 34:49Speaker 01

  A lot of it, yeah. It wasn't 390,000 this time, but it was.

• 34:55Speaker 00

  And what, like, I guess when you started calling up manufacturers to buy their diapers, was it just like, was everyone just saying, like, this is a bad idea? Like, selling diapers online is just crazy?

• 35:06Speaker 01

  It was crazy, so crazy, I guess, that Procter & Gamble and Conway Clark, the two big diaper manufacturers that make Pampers and Huggies, they refused to sell us diapers. They said they just don't want to waste their time on a business that's never going to work.

• 35:22Speaker 00

  When we come back after the break, how to turn a big fortune into a small fortune by selling diapers online? And how Mark and Vinny eventually figured out how to turn things around? Stay with us. You're listening to How I Built This.

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• 39:25Speaker 00

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2005 and Mark Laurie and his co-founder Vinny have just launched their website, which at the beginning is called 1-800-DIapers. But as customers start to find out about the site and start to put in orders, manufacturers refuse to sell them any diapers. So the two co-founders have to figure out how to get them.

• 39:51Speaker 01

  In the early days, believe it or not, we'd actually go to the wholesale clubs. So BJ's, Sam's Club, Costco, and we would buy the diapers.

• 40:00Speaker 00

  What, you would go with like a shopping cart and just load it with diapers?

• 40:04Speaker 01

  At first, we'd go with a big shopping cart and then we would make a deal. They would load them up with their...

• 40:11Speaker 00

  Like pallets?

• 40:12Speaker 01

  Yeah, they'd move the pallets and put them on a truck. We'd rent like an 18-wheeler would come and they'd put the pallets on the 18-wheeler.

• 40:19Speaker 00

  And did they ever ask, hey, what are these diapers for?

• 40:22Speaker 01

  No, they just, they loved getting the sales and they were quite happy to sell them. We had a little arrangement where we'd leave them some diapers for their other customers and in return, they'd put them on the truck. And eventually, we were clearing out like multiple clubs at a time.

• 40:38Speaker 00

  And you were just paying full price for these diapers?

• 40:41Speaker 01

  Full price, no discount.

• 40:42Speaker 00

  All right, so this is, I'm no business genius, but I'm thinking if you buy the diapers for full price, then you got to mark it up on the website. So why would somebody buy them from you on the website?

• 40:55Speaker 01

  We didn't mark them up.

• 40:55Speaker 00

  You didn't mark them up?

• 40:56Speaker 01

  We sold them. No, we just lost more money.

• 40:58Speaker 00

  So you were basically losing money to make it more convenient for people to get diapers?

• 41:03Speaker 01

  As one investor liked to say, let me get this straight. So you're selling a dollar for 90 cents?

• 41:10Speaker 00

  That's what you were doing? You were buying the diaper for, let's say, a dollar and then to compete against BJ's and Costco, you were selling it for 90 cents?

• 41:18Speaker 01

  Basically, yeah.

• 41:19Speaker 00

  And paying for the shipping costs?

• 41:21Speaker 01

  And paid for the shipping and fulfillment and credit card fees, yeah.

• 41:24Speaker 00

  That sounds like a crazy business. I mean, I read that within like a year after you launched, you did $11 million in revenue, but that probably means you were still, because you were losing money.

• 41:36Speaker 01

  The more revenue we had, the more money we lost. That was the problem.

• 41:39Speaker 00

  So how were you financing the loss before you even raised any outside investment?

• 41:44Speaker 01

  That was all me and Vinny.

• 41:45Speaker 00

  You were just watching your money being burned out of your bank account?

• 41:49Speaker 01

  No, it doesn't sound smart.

• 41:50Speaker 00

  It doesn't? It sounds nuts.

• 41:52Speaker 01

  We had a, we had a plan. We had a vision.

• 41:54Speaker 00

  And your vision was, it's gonna be okay because we're gonna figure this out. We just need to get customers first?

• 42:00Speaker 01

  Yeah, I mean, I think the learning, you know, it just, it still stands today. It's the idea that as long as customers love the service and they're repeating and they give you good marks, that you had something. You had something that was valuable. You had a brand. And there was lots of ways to solve the economics is what we thought and felt.

• 42:20Speaker 00

  How many people did you, were you able to hire before you got outside capital?

• 42:25Speaker 01

  At 11 million in sales, it was basically just me and Vinny. And we hired another woman to like help us with customer care and, and some of the fulfillment. But we got up to 11 million in sales with two people, three people, basically. It was really hard.

• 42:40Speaker 00

  And you were still only selling diapers, right? In the first couple of years?

• 42:43Speaker 01

  We were selling diapers, wipes and baby formula and some other things, but yeah.

• 42:47Speaker 00

  All right. I guess in 2006, you were able to raise some money, $4 million in venture funding. And you started to get, around that time, Procter and Gamble, Kimberly Clark and a few others agreed to start directly selling to you.

• 43:02Speaker 01

  The only reason why they did, by the way, is because we changed the rules with the Wholesale Club. You know, we used to leave them some diapers and then we said, you know, I wonder what happens if we take all the diapers. Maybe they'll get mad and they'll like call P and G. And so, so we tried it and it actually worked. We went in there, we took all the diapers. They said, you know, our deal was we load the truck up and you leave us diapers. And we said, okay, well, then you don't have to load the truck, but we're taking all the diapers. And they're like, whoa, whoa, whoa, you can't do that. I'm like, I think we can. I mean, we're just like any other customer. And he's like, well, yeah, I guess you can. I guess you can. But, and we said, hey, the only but is please, please call your Procter and Gamble and Kimberly Clark, you know, rep and tell them to just sell us direct. And then we're, then we're out of your hair. We won't take all the diapers.

• 43:47Speaker 00

  Yeah.

• 43:49Speaker 01

  Very soon, they did that, and we got a call from Procter and Gamble. And Procter and Gamble said, hey, we're doing a favor, basically, for a very important customer of ours who would like us to sell you. We don't believe in your business model. Nothing's changed in our side, but we're going to sell you.

• 44:06Speaker 00

  All right, so by 2007, this is now about two years, two and a half years after this idea really launches, you become diapers.com. You buy that domain name and you become diapers.com. What was the pitch to your investors? Did you say to them, like, what was the vision you laid out for them? Was it like, gonna be an everything baby store? It was gonna be your one-stop shop for all things, baby strollers and car seats and everything?

• 44:31Speaker 01

  Yes.

• 44:31Speaker 00

  That was what you were saying?

• 44:32Speaker 01

  Baby clothes and everything, yep.

• 44:34Speaker 00

  And I guess while you were in finance, there was a guy that you had worked with named Lev, Lev Borodovsky, is that right?

• 44:42Speaker 01

  Yes, yeah.

• 44:43Speaker 00

  And he was like a genius, or is maybe, he's like a PhD in nuclear physics, is that right?

• 44:48Speaker 01

  Yeah.

• 44:49Speaker 00

  And I guess you kind of recruited him to help you figure out a way to make your business more efficient, because he was like such a smart guy. What did he figure out? What did, how was he gonna make the business more efficient?

• 45:06Speaker 01

  Well, there's a little technicality on how you figure the price of shipping. Mostly, it's based on weight, but at some point, if the box is big and it's not that heavy, you'll get charged for the actual cube of the box instead of the weight.

• 45:21Speaker 00

  The dimensions, not the weight.

• 45:22Speaker 01

  The dimensions, yeah, the dimensions instead of the, instead of the weight. So, we noticed that there was still a lot of empty space in every box. We put diapers, we put formula, we put baby food, whatever, and then you look at what percentage of the box were those products actually taken up. It was like, maybe like 40%. And so, we thought, what if we had 20, 30 different box sizes? And we could build what we called Boxum, was basically a way to figure out exactly What box certain items can fit in. So you pick the box as soon as you knew the items and what configuration they need to be packed in the box to fit.

• 46:02Speaker 00

  So the idea was if we can be super efficient with the way we package things and then how we ship them, we actually might be able to make money even off diapers?

• 46:14Speaker 01

  Nope.

• 46:15Speaker 00

  No.

• 46:15Speaker 01

  Could not make money on diapers.

• 46:16Speaker 00

  You knew that you couldn't.

• 46:18Speaker 01

  Yes.

• 46:19Speaker 00

  But?

• 46:20Speaker 01

  But you could make money because the way shipping works is if you're shipping a box of diapers to someone and you have empty space in that box, the marginal cost to ship the next thing you put in the box is very, very small, very low. Like it might be you put something that weighs a pound into that same box, it might cost you 10 cents of incremental shipping. So the margin on the margins was great.

• 46:43Speaker 00

  That means you had to encourage consumers to buy more for every order. Is that, is that right?

• 46:49Speaker 01

  That's exactly right. Yeah. Buy more stuff. Buy baby clothes, buy pacifiers.

• 46:54Speaker 00

  So how did you do that?

• 46:55Speaker 01

  I think we just built a really good user experience online. We had everything that mom and dad could possibly want for their baby. They were all first party. So what was, we didn't have a third party seller. It's like everything was handpicked by us. And we had all the products that moms would want and we organized it in a really convenient way. Everything was covered.

• 47:17Speaker 00

  How are you getting the other stuff, the clothing and the, you know, the other products? Was it, were retailers coming to you and saying, hey?

• 47:25Speaker 01

  No. Once again, much harder than you possibly could imagine trying to convince retailers to sell you product. I didn't, I had no idea. I was never in retail and we had to fight really hard to get manufacturers to sell us products.

• 47:40Speaker 00

  One thing I'm wondering about, because I'm trying to put myself in your shoes, right? And our listeners know, and anyone who knows me is that I have probably more anxiety than you do, but, but maybe you do too and you just kind of hide it better. But I would be worried if I was like in my mid 30s and I was like watching. All of my money go down the tubes. Like, I would be nervous about me. I'd be nervous about the people who came to work for me and whether they were going to have jobs and like they depended on me and their families depended on me and like.

• 48:09Speaker 01

  Yeah, no, I had a seven-year-old, I had a four-year-old, and I had all my family and friends invested in the business, losing money every day. And I just always thought, like, what do we need to figure out? What do we need to do? What's the problem? What's the next hurdle? Like, what do we have to do? And that was like motivating me. You know, it was sort of like a challenge. It always came down to like, are we going to be able to make payroll? Like, so it was, it's never been easy.

• 48:33Speaker 00

  Yeah. But it sounds like it didn't, I don't know, you didn't get that like horrible, sick feeling in your stomach about that possibility. Maybe the way you're wired, it just enabled you to kind of feel like it's going to be okay.

• 48:45Speaker 01

  Yeah, I like to talk about this sixth gear because that's the only thing I can, I can say is that I didn't know it at the time. I was working in banking, working really hard, working really long hours, but I never got out of fourth gear. It's only when you have your life on the line and you can't afford to lose, can you find the sixth gear. And when you're in that sixth gear, at least for me, it's like a out-of-body experience. It is like, you don't have time to worry, think, be anxious, just have time to do.

• 49:14Speaker 00

  I think what's so fascinating to me about everything I've been reading about diapers.com is, it was like multi-pronged, or your strategy was multi-pronged. It was like, okay, we're gonna, diapers will be the entry point. We'll sell a bunch of stuff, and then we'll be super efficient. We'll be really efficient, and that's where we'll make our money. We'll squeeze this, get rid of any waste. We'll put warehouses in very targeted, specific places. Like, I read that you had warehouses in Camp Hill, Pennsylvania, Sparks, Nevada, and Lenexa, Kansas, because those were the most efficient and strategic locations to enable you to save money.

• 49:52Speaker 01

  Yeah, we had to, we had to have every cost advantage we could find. But the vision was even bigger than just selling everything for, that moms and dads would want for baby. It was, we're going to sell parents everything. So we launched another website that was wag.com for pets and soap.com for household supplies.

• 50:11Speaker 00

  Beautybar.com, which was makeup and cosmetics, right?

• 50:16Speaker 01

  Yep, yo-yo.com was toys, casa.com was home. We had like 10 websites.

• 50:20Speaker 00

  And this is where you kind of started to operate under the parent name, Quidsy?

• 50:25Speaker 01

  Yeah, Quidsy, we changed the corporate name to Quidsy. But we wanted to keep the specialty stores because we felt that was sort of the magic as opposed to just a mass merchant where you sold everything. But we had one shared shopping cart. So you can shop on diapers.com, add stuff to your cart. You can click on the wag tab, turns to wag.com. Now it feels like a pet specialty shopping experience, but you add it to the same cart and you check out.

• 50:48Speaker 00

  All right. Now we're going to get into the chapter of your life where you begin to encounter Amazon. You know, you guys were, I think by the end of 2010, you were on track to do 300 million in revenue. You were still not yet profitable, if I'm right, but there was a path to profitability. It started to look clear.

• 51:09Speaker 01

  Yeah, exactly.

• 51:10Speaker 00

  That that was going to happen. And as you grew, you obviously became, got on the radar of Amazon. And the reason why I know about this is because there's a book about Jeff Bezos and Amazon written by a reporter named Brad Stone. And he devotes quite a bit of it to the story of Quidsy and diapers.com. So I want to, I want to dive into this a little bit because I know that from what I've read, as early as 2009, Amazon approached you guys and said, hey, we'd like to acquire you. Is that right?

• 51:47Speaker 01

  No, we had a discussion with them, but they didn't say, we want to buy you.

• 51:50Speaker 00

  They would say, would you consider selling the company, something like that, just to fill you out?

• 51:54Speaker 01

  Yeah, like they said, if you're ever open to selling it, like, let us know.

• 51:58Speaker 00

  So from what I understand, not long after that, Amazon slashed its diaper prices by like 30%. Let's just say it was coincidental, but is the timeline?

• 52:08Speaker 01

  No, it wasn't coincidental.

• 52:10Speaker 00

  It wasn't, okay.

• 52:11Speaker 01

  No. It was unheard of at the time, the idea that a commodity product that already lost money, it's already a loss leader, that you would lose another 30%. That's unheard of, unprecedented in the history of retail.

• 52:24Speaker 00

  Did that have any quick impact on diapers.com, on your business?

• 52:29Speaker 01

  It definitely slowed our growth rate. You would have thought it would have had a much bigger impact, like we would actually shrink in size, but all it did was slow our growth rate. The customer base we had was very loyal and... We didn't lose many customers, which I think was surprising to Amazon.

• 52:45Speaker 00

  So that didn't make you nervous when that happened? You thought, we're going to be fine?

• 52:48Speaker 01

  No, I mean, when you say nervous, it was definitely something that we had to seriously like focus on figuring out how we were going to combat that. Anytime you have a company that size that's targeting you.

• 53:01Speaker 00

  Yeah.

• 53:02Speaker 01

  Yeah.

• 53:03Speaker 00

  So it seems like, this is 2010, it seems like your only option at that point, I'm thinking, is to go out and raise more money. And is that what you tried to do?

• 53:12Speaker 01

  Yes, we had only raised 50 million, $55 million up until that point, which was a pretty modest amount of money raised compared to today's standards. But we went out and we needed another 100 million to keep all the websites going and to really blow it out. We started putting some feelers around the market, but everybody said, hey, listen, Amazon's coming after you. We're, that's, that's too risky for us.

• 53:36Speaker 00

  By the way, by 2010, when you're doing roughly 300 million in revenue, how many employees did you have?

• 53:42Speaker 01

  Maybe like 300.

• 53:43Speaker 00

  Right, so there's a lot of people involved at this point. What are you telling yourself? What are you saying, okay, maybe we try this? What was that this that you would try next?

• 53:52Speaker 01

  It was really like, we're gearing up to battle to raise that money. But at the same time, Amazon had asked us to go out to see them in Seattle, so we did that.

• 54:05Speaker 00

  They asked you to go see them and you knew it was going to be about potential acquisition?

• 54:09Speaker 01

  I think we had a hunch, yeah. It's hard to remember exactly, but yeah, I think.

• 54:13Speaker 00

  Before we get to that meeting, because I think this happened in September of 2010, I mean, I imagine that, that within your business, there was a big dartboard with Amazon on it. I mean, that they were the enemy.

• 54:26Speaker 01

  Absolutely, yep.

• 54:28Speaker 00

  So when they contacted you and said, hey, come out here, what do you remember thinking about, about that offer?

• 54:33Speaker 01

  We were just like, yeah, they're coming after us. They're clearly targeting us. Now they want to talk or they, are they softening us up to, you know, before, before the surrender, you drop a couple, a couple bombs and then have the talk, you know, about surrendering? It felt like that. That's what it felt like.

• 54:50Speaker 00

  All right, so you go to, to Seattle to meet with Amazon. From what I've read about Amazon in the book by Brad Stone, on September 14, 2010, you guys go to Amazon headquarters to meet with them and they, to discuss a possible acquisition. What happens at that meeting?

• 55:08Speaker 01

  Yeah, now you just sparked my memory, but that's when they told us that they were launching Amazon Mom, which was a program designed to get moms into their membership program. And it was really driven by diapers.

• 55:23Speaker 00

  From what I read, it would have meant that like, if you guys at diapers.com sold a case of Pampers for 45 bucks, you could get it for $30, the same product for $15 less. I mean, there's no competing against that.

• 55:37Speaker 01

  Yes, that's exactly right. That is 100% correct.

• 55:41Speaker 00

  So, I mean, it sounds like, I mean, we know what happened. You eventually were acquired by Amazon, but it sounds like you were left with no choice. You had to agree to that acquisition.

• 55:51Speaker 01

  Yeah, it's even worse that we got a higher offer that we didn't take.

• 55:57Speaker 00

  A higher offer from?

• 55:58Speaker 01

  I would just say, I don't think I've ever publicly disclosed this, and I don't think I can.

• 56:05Speaker 00

  But you got a competing offer from somebody else?

• 56:07Speaker 01

  Yes, for 100 million more.

• 56:09Speaker 00

  Why didn't you take that offer?

• 56:11Speaker 01

  Because Amazon very clearly stated that if we took that offer, they would do even more to harm the business.

• 56:21Speaker 00

  And listen, let's just be honest. This is how a lot of big corporations operate. They shouldn't, but they do. It sounds like a mob shakedown.

• 56:29Speaker 01

  Felt like it.

• 56:30Speaker 00

  But did they do it with a smile on their face? I mean, these are people from the Pacific Northwest. They're very friendly. How did they, I mean, how were they presenting this to you?

• 56:39Speaker 01

  In a pretty aggressive way.

• 56:40Speaker 00

  They said, hey, you gotta accept this acquisition offer, or else we're gonna crush you. We're gonna bury you.

• 56:47Speaker 01

  They said, well, yeah, we're gonna take the price of diapers to zero, and we're gonna, you know, and they made some analogies to some other, used explicit language. And it was pretty scary stuff. I'll just leave it at that.

• 57:01Speaker 00

  So you sell it to Amazon. You sell the business to Amazon. They buy it for 550 million or something like that. That's a pretty good return. I mean, you raised 50 million. So but of course, you were losing money every year. But did that mean that your investors, you know, it sounds like they came out okay?

• 57:17Speaker 01

  Actually, all the investors did really well, but the early investors made a huge return on their investment.

• 57:24Speaker 00

  Yeah. So now you're an Amazon employee. You are running Qidsy, but now under the corporate umbrella of Amazon. And I'm just thinking, if it was me, it would be a little weird. Here was this business that was kicking me in the butt for two years that I could not compete against because they were just so much bigger and they were going to crush me. And I surrendered. I had to with a great outcome, financial outcome. But now I'm working for you.

• 57:54Speaker 01

  Yeah.

• 57:54Speaker 00

  How were you able to, you know, two weeks later, a month later, just like become an Amazon employee? Was that hard for you?

• 58:03Speaker 01

  Well, let me just say, I mean, one thing we didn't talk about at diapers.com was just how Vinny and I really set that culture up and that value system in a way that the culture was everything. Our mission was to make lives easier for for new parents. And that was really important to us. And we brought these people into this organization and we felt the responsibility to the employees. You know, one of the my personal core values is fairness. And I felt like, even though I maybe wasn't happy about how that went down, you know, we did accept the offer for 550 million. We did sell the company. And

• 58:43Speaker 01

  I just felt the right, fair thing to do was to give it the best we we got.

• 58:49Speaker 00

  Sure.

• 58:49Speaker 01

  For both Amazon and the employees, more importantly. And so that's the kind of the way we looked at it. So there was definitely like, wasn't happy. So we were when the day we sold the company, Vinny and I, you know, you might have thought would go out and like have a drink to celebrate.

• 59:02Speaker 00

  Sure.

• 59:02Speaker 01

  We were depressed. We were depressed.

• 59:04Speaker 00

  Even though that day was going to be transformational for you.

• 59:08Speaker 01

  Yeah. Basically, I think it was like 40 years old at the time. And we didn't have a lot of money saved, either of us. And so it was a Never need to work again kind of moment, and we couldn't even celebrate.

• 59:20Speaker 00

  Yeah.

• 59:20Speaker 01

  We had a vision for what we wanted to create. We put our heart and soul into it. And then our dream was sort of done. Like, Amazon didn't even, when they brought us in, say, hey, we want you guys to run the mom, baby, parent category within Amazon. They said, you know what? Just keep doing what you're doing. Just continue to keep competing with us.

• 59:38Speaker 00

  Wow.

• 59:39Speaker 01

  That felt terrible.

• 59:40Speaker 00

  So you were still competing, but now it was all part of the same family?

• 59:45Speaker 01

  Exactly.

• 59:48Speaker 00

  I understand the disappointment, for sure. I think some people listening would say, but maybe mitigated by the money. But it doesn't sound like it was entirely mitigated by the money. Is that right?

• 59:59Speaker 01

  Oh, for sure. Definitely wasn't.

• 1:00:01Speaker 00

  Yeah.

• 1:00:02Speaker 01

  If I was still in my mercenary mindset, I might have felt differently. But I had made the transition by this point to be a full-fledged missionary. I've gone all the way from one side already to the other. And I was driven and motivated by the bigger mission.

• 1:00:16Speaker 00

  Yeah.

• 1:00:17Speaker 01

  We didn't want to sell the business at that point. We definitely didn't want to sell the business. We basically sold out.

• 1:00:23Speaker 00

  When we come back in just a moment, how Mark took the hard lessons he learned from competing against Amazon the first time and decided to launch yet another business, this time with an even bigger e-commerce idea. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

• 1:00:56Speaker 00

  Hey, welcome back to How I Built This. I'm Guy Raz. So Mark is running Quidsy at Amazon, but it's not a super happy period in his life. And after around three years, he decides to leave. Now, at this point, Mark has enough money that he never needs to work again in his life. But still, he can't quite shake the idea that there's more to do.

• 1:01:23Speaker 01

  I just felt like there was unfinished business, meaning we had a vision and it got cut short. And so that vision we had, the mission that we had set out, was still alive, like we wanted to give it another shot.

• 1:01:40Speaker 00

  All right, so you start to noodle on an idea around e-commerce again. Talk me through what this idea was going to be in your head before you decided to launch it. What were you thinking about doing?

• 1:01:53Speaker 01

  I just still continued to think that there was room in the market for another e-commerce player. Amazon didn't have any real formidable competition at the time. And felt like I saw an angle. I saw the inefficiency that was brought about by people shopping on Amazon, buying things in one unit at a time, having it shipped across the country and things, and a lot of expense in that. And came up with this idea that, you know, what if you empowered customers to, and gave them the information to shop smarter, to save money?

• 1:02:27Speaker 00

  Meaning that you were able to encourage people to make, to buy more things at one time instead of just like a one-off?

• 1:02:33Speaker 01

  Not only more things at one time, but more things coming from the same location so they could ship in the same box. A lot of Amazon's packages will ship from different locations. Like what if somebody's building a basket of product and they're about to put a product in the basket that would not be available in that same warehouse to ship in the same box, but was on the other side of the country? You could give the option to the customer to substitute that product for a product that was in the warehouse, that could ship in the same box, that could save $6 in shipping and give $3 back to the customer. And so we built this real-time smart pricing engine that showed customers lower prices on things that would pull costs out of the supply chain.

• 1:03:17Speaker 01

  And so actually, if we did have scale, not Amazon scale, but enough scale, by having a more efficient supply chain, you could actually have lower prices and lower costs. But it assumed that you got to some level of scale and so you needed to raise money, enough money, a lot of money, to help bridge to that level of scale.

• 1:03:38Speaker 00

  And this was for what would become Jet.com?

• 1:03:40Speaker 01

  Yes, Jet.com.

• 1:03:42Speaker 00

  And how much did you raise?

• 1:03:43Speaker 01

  In total, about 750 million.

• 1:03:46Speaker 00

  Wow. And so this was going to be... If I'm right, kind of like initially like a hybrid between an Amazon and a Costco, which was for 50 bucks a year, you got a membership and then you would be offered the lowest prices on like 10 million items, more or less. Initially, that was the idea.

• 1:04:05Speaker 01

  Exactly.

• 1:04:06Speaker 00

  And I guess like Costco, because Costco really doesn't make money off the stuff they sell. They make money off selling memberships.

• 1:04:11Speaker 01

  Yep.

• 1:04:12Speaker 00

  That was the idea, that you would make the money from all those people paying 50 bucks a year.

• 1:04:17Speaker 01

  Absolutely correct.

• 1:04:19Speaker 00

  So with that $700 million, I mean, you had to build warehouses, you had to create the supply chain. I mean, you now had considerable experience in that space, but God, it just sounds like a huge undertaking.

• 1:04:34Speaker 01

  It was massive, yeah. It all comes down to what I call VCP, Vision Capital People. We had the vision, we needed to raise the capital, we needed to hire the very best people in the world, and it was the people that made the difference. The people we hired were incredible and empowered them, gave them the information, and let them run as fast as they could run. I mean, we got to a billion run rate in revenue within 10 months of the business launching, which was, I think, probably unprecedented at the time.

• 1:05:07Speaker 00

  Now, I have a feeling I know how you're going to respond to this, but I mean, if you were being truly honest, intellectually honest here, I mean, it sounds like anybody hearing this story is going to say, okay, Amazon really was not pleasant when they went after Quincy. So Mark goes and works for them for a couple of years after the acquisition, but then he leaves and he basically decides to compete against Amazon. I mean, I know at the time you were quoted saying, no, it's not about them versus us, it's just something I want to do. But that had to have driven you to some extent, because you talked about being a competitor as an athlete, a competitor in the math test. When you get the worst score in the biology test, you want to get the best score. That's inside of you.

• 1:05:50Speaker 01

  It wasn't about beating Amazon. It was about, you know, a big, massive market that was growing fast and... I was very excited to start a new culture and a new business with all the learnings from previous businesses.

• 1:06:05Speaker 00

  Yeah.

• 1:06:05Speaker 01

  And we really honed a lot of the core values and the culture at Jet, like in really cool ways that I'm super proud of. You know, the transparency of salaries, so everybody could see what everybody else was making, the fact that everybody in the company at the same level made exactly the same amount, you know, to really prevent unconscious bias from creeping in and things like that.

• 1:06:25Speaker 00

  But how did you, I mean, you knew what Amazon was capable of doing. They could say, "We're just going to cut the price of diapers by 30%, and we don't care if we're going to lose a lot of money because we are going to win this battle." I mean, Amazon is a very smart company.

• 1:06:39Speaker 01

  Yeah.

• 1:06:40Speaker 00

  What was going to prevent them from doing the same thing this time around?

• 1:06:43Speaker 01

  It was a little bit different because we weren't, like, had one product we were so single-threaded on. You know, diapers were such a high percentage of our sales and such a low percentage of their sales. So, you know, we would go in mass. They weren't going to be able to cut prices on everything.

• 1:06:58Speaker 00

  So, I guess, like, three months into launching jet.com, because I remember those, seeing those ads everywhere, all over the New York subways, they were everywhere. I mean, you guys put millions of dollars into marketing this, but three months in, you drop the $50 a year membership fee. Was that because that just was not going to be a smart way to make money?

• 1:07:18Speaker 01

  No, I still continue to think to this day that that would have worked well. The problem was that started to, we knew we had to do a big round of financing. And starting to read the tea leaves from investors who said, you know, this membership, they really want to see what the retention rate's going to be. People buy the membership, do they stick with you? Do they renew? And sort of got spooked by that, thinking, "We're not going to have enough time to prove that out."

• 1:07:46Speaker 00

  Yeah.

• 1:07:46Speaker 01

  At the same time, we're also seeing great traction without it. And so, we sort of pivoted the business model in such a way that the math worked without a membership. It did not necessarily mean that that wasn't the right strategy for the business had we had the capital and had the time.

• 1:08:03Speaker 00

  So, the site launches in July of 2015, and you knew that it was going to lose money for at least five years. That was part of the plan that you showed to investors, but then there was going to be an inflection point where it would turn around. You would get-

• 1:08:17Speaker 01

  I told the investors we needed, we were going to lose $3 billion.

• 1:08:20Speaker 00

  Before you started making money?

• 1:08:21Speaker 01

  That's correct.

• 1:08:22Speaker 00

  And what did you have to do to- What was the plan? What was going to happen to start turning around and becoming profitable?

• 1:08:30Speaker 01

  Just e-commerce is all, it's a scale game. You build the infrastructure, build the technology, get the people. And then you just need enough sales because the margin, the variable margin on sales is pretty low. And so you need a lot of sales to cover your fixed expenses.

• 1:08:43Speaker 00

  I have to imagine that you knew you were going to burn through cash, but you were not worried about this because this was part of the plan. You had predicted this and you were okay. And with the money you raised of 700 million, how much runway did you have? How much time did you have before you actually had to either raise more money or shut down?

• 1:09:00Speaker 01

  We were burning about 40 million a month.

• 1:09:02Speaker 00

  All right.

• 1:09:03Speaker 01

  But the real key was raising, we did a $618 million Series A. So we'd raised some money before that. And then we had the 600 million Series A. That was a really tough round to get done. That was, at that time, we had negative gross margins. It was going up against Amazon. We needed to raise 600 million dollars to get through the next 18 months, basically.

• 1:09:29Speaker 00

  What did investors who decided not to invest, the skeptical ones, what were they saying to you?

• 1:09:34Speaker 01

  It always came down to whether or not you can raise the capital you needed to create a really big business because you were going to burn a lot of money competing against Amazon until you got to scale. And so 3 billion was what I said. It could have been more. And they didn't know whether or not we'd go out and be able to raise 3 billion.

• 1:09:52Speaker 00

  Even with your track record at this point, because you'd already, you were still getting lots of no's, even with what you'd already built?

• 1:09:58Speaker 01

  Oh, yeah. Way more no's than yeses, of course, yeah. But I always had a great experience with venture capitalists. I think they added a lot of value to the company outside of capital. I'm one of these entrepreneurs that says, raise as much money as you can. Get the best venture capitalists, the best people that can help you around the table. I never worried about control and all kinds of other things that people worry about. You have to trust people. I think people start from a place that just trusts too much. And it's funny, the more you're able to let go and trust, the less work you do. Just have a lot more bandwidth to do a lot more. And I do that in my personal life and it's, it gives me an extraordinary amount of time, just straight up trusting people.

• 1:10:41Speaker 00

  I was talking to somebody who's been on the show about a year and a half ago. He's a really wonderful entrepreneur. We're just chatting and I said, um, do you have any resentment? Or do you have any, do you hold any bad feelings against the people who doubted you? Or who turned you down? Or do you remember them? Or do you not take any personally? He said to me, I remember every single one. I take every single one personally. And I love that. That was very honest. How about you?

• 1:11:08Speaker 01

  No, uh, I don't know. I just feel like it's, you know, usually good reasons. Like I don't, I definitely don't take it personal. It does feel good when there's a big, you know, exit and investors say, man, I should have listened to you. I can't believe I didn't invest. You know, that definitely feels good, but it doesn't feel like I'm not, I don't have anything. People make different decisions based on what's right for them and at the time. And I accept that.

• 1:11:35Speaker 00

  So jet.com, I mean, it's, it's burning through 40 million a month, but it sounds like with what you have, I mean, you could last a year and a half, but a year in, you get an offer from Walmart, an acquisition offer. Before I ask you, this is sort of strange. I'm going to ask you why, but then I'm going to say the price, which was $3.3 billion. It was, it was the highest anyone had ever paid to acquire e-commerce startup in the U.S. At that point. So imagine that was an offer you couldn't refuse.

• 1:12:07Speaker 01

  It depends. So I think we could have refused it, but again, tying back to what I said before about mission and values, it was the conversation that I had with Doug McMillan, the CEO of Walmart, on a whiteboard in his office that sort of made the decision really easy for me. He basically said, listen, like, first of all, I, a lot of trust was built between us from the very beginning of every conversation. He did, always did exactly what he said. And we also shared a similar vision of what we wanted to to achieve in e-commerce. Walmart had an e-commerce site, Jet had an e-commerce site. And we felt, hey, if we could bring the assets of both companies together, sort of the people

• 1:12:50Speaker 01

  and technology that we had built at Jet with the capital of resources, the stores of Walmart and merge it together, wow, we could really, really become a formidable competitor. And this is where I say it's the difference between selling out and selling the company. We didn't sell out. Yes, we sold the company, but the mission was very much intact. And everything we had set out to do was now with a higher probability of success. And we had more capital to do it. We were going to get there faster.

• 1:13:19Speaker 00

  Were you surprised how quickly that happened? I mean, a year after you launch?

• 1:13:24Speaker 01

  I was surprised, but at the same time, I got it. It made sense. And when Doug said, Mark, we want to give you and your team the keys to sort of pull this all together and run this and take us to the next level. That was empowering. Now I wanted to give Doug, Walmart and the board the very best I've got because it was very different than the Amazon experience. Didn't feel like selling, by the way.

• 1:13:47Speaker 00

  Yeah.

• 1:13:47Speaker 01

  It was very motivating. It was like, wow, now we have, we've got, you know, it's sort of like we're fighting there with guns and then, you know, all of a sudden you see like the big tanks roll in, like, yeah.

• 1:13:57Speaker 00

  Yeah.

• 1:13:58Speaker 01

  Give me the tanks. I want the tanks. I want the air force, you know, coming to back us up here.

• 1:14:05Speaker 00

  So how was it going to work? I mean, was the idea that you would run jet.com but also turn walmart.com into a more formidable player?

• 1:14:14Speaker 01

  I mean, yeah, Walmart was the number one responsibility. I think we basically took all the best people from Jet and put them on Walmart. We took the technology, we took the fulfillment centers. It was, I think the goal was really clear, like, let's turn walmart.com into a formidable econ player and use all the assets available to us. It didn't really make sense to have to. Mass market sites because we wanted to merge the best talent and put them all in Walmart.

• 1:14:42Speaker 00

  It wasn't the brand they needed. It was the technology and it was the logistics and the people.

• 1:14:46Speaker 01

  Yeah, exactly.

• 1:14:48Speaker 00

  What was it like for you? I mean, and this is now the third time you were acquired, right? You'd gone to work for Tops, you'd gone to work for Amazon, now you're working for Walmart. But, you know, you're an entrepreneur. It has to be a little bit strange or hard to all of a sudden work in an environment where you're not totally calling the shots.

• 1:15:10Speaker 01

  Yeah, it was very challenging, very challenging. I mean, I'd already had experience working inside Amazon, so I knew what to expect. And so I wasn't surprised by anything. In fact, I was probably pleasantly surprised, you know, at the culture of Walmart and the ability for me to make the moves we made with speed. But still, it's just hard. I mean, anytime you're in a big company like that, there's so many people to get on board, to convince. And you have to educate people and you have to bring them along. And it's not the entrepreneur way. The entrepreneur way is, you know, you just go and you can't do that.

• 1:15:47Speaker 00

  But compared to your experience at Amazon, it does seem like you had a better experience with Walmart. I mean, they actually made you head of e-commerce. And in that role, you did some kind of interesting things. Like you, I think in 2017, you acquired Bonobos. We actually had Andy Dunn, the founder, on the show a couple of years ago. And that was a pretty big deal, right? I mean, people were like, wait, Bonobos and Walmart? But presumably that was part of your strategic plan around e-commerce.

• 1:16:15Speaker 01

  Yeah, the high levels, the most strategic part of the plan was to change the narrative. I knew that we didn't have the talent inside of Walmart at the time to do what we needed to do. We had to attract the best people in the world. And at that point, you know, honestly, that wasn't the place the best people in the world wanted to go. And so I knew we weren't going to go anywhere unless we changed the narrative, unless the people thought that Walmart was now going to be a contender. And buying Bonobos was part of that strategy because that was a cool, hip, modern brand focused on millennials, that was more premium product. It basically opened people's eyes and made them look at Walmart differently. And that was certainly not one thing alone, that one move.

• 1:16:57Speaker 01

  But it was all the moves that we made together. It all started to compound. And it really, in the last couple of years, it really started to come together.

• 1:17:05Speaker 00

  You recently announced that you are stepping down after four years at Walmart.

• 1:17:10Speaker 01

  Four and a half, yep.

• 1:17:11Speaker 00

  Four and a half. Do you feel like you accomplished the things that you promised you would accomplish and that were expected of you?

• 1:17:19Speaker 01

  I do. I do feel good about it. Would I have liked to have done more, gone faster? Sure. But if I just take a step back, did we change the narrative? Yes. Did we dramatically accelerate top line sales? Yes. Did we create an incubator that's now building startups that could shape the future of retail? Yes. So, all things considered, given the size of the company and the fact that it's an aircraft carrier, not a speedboat, to move it the way we did, I feel proud of that. And I think that experience is going to make me a better entrepreneur going forward, too, which I really appreciate.

• 1:17:58Speaker 00

  You are either almost or already 50 years old, I think.

• 1:18:06Speaker 01

  I'm 49, yep.

• 1:18:07Speaker 00

  Okay, so sorry. I'm pushing you over the edge.

• 1:18:10Speaker 01

  The 50 is a scary number. It's a big number.

• 1:18:12Speaker 00

  And you've got a lot of experience behind you. You're at an age where people become first-time CEOs. You've done it at least three times. There's no question that you're going to do something else.

• 1:18:26Speaker 01

  That's true. I mean, there's opportunities in retail, there's opportunities in healthcare, opportunities in energy, and I'm in a place now where I can really do something really disruptive that can have a lasting impact on the world, and that's what gets me fired up.

• 1:18:43Speaker 00

  When you look over the course of your career so far, how much of your success do you attribute to how hard you worked and how smart you worked, and how much do you think happened because you got lucky?

• 1:18:55Speaker 01

  I think it's a combination of all three. I could think of things that where I did get lucky, where things could have gone a different way and I've been really screwed. But at the same time, the drive to keep coming, like the Terminator, I wouldn't accept failure, you know? I just would keep going and going and going until, until the luck turned my way.

• 1:19:20Speaker 00

  You know, your, every story is different, right? And every journey is different. And, you know, you're still going. I mean, I can talk to you in 20 years and there may be, we may talk about none of this that we just talked about. And I wonder, when you think about your trajectory, you were a crappy student and had a rough childhood. And if, if you knew that we were going to have this conversation then, when you were 18, 19, and you would say, oh my God, look at me now, would you, what would you think? Would you think, man, I made it? Would you have been satisfied and impressed and happy? What do you think you, you feel if you had that crystal ball?

• 1:19:57Speaker 01

  Yeah, I think I'd be happy. The path to get to where I am today was, was not a straight line. Like I said, you know, I'm in my early to mid 30s, you know, playing Dungeons and Dragons, you know? That wasn't what I had set out to do. But once I made the transition from mercenary to missionary and I really, I let values create the value. That's what happened. Values created the value. And like, I feel in a great place now and I feel like I'm set up, like you said, the next 20 years are going to be, I think are going to be a lot better than the last 20.

• 1:20:31Speaker 00

  That's Mark Laurie, co-founder of diapers.com and jet.com. By the way, even though Mark's career as a founder and executive has been wildly successful by any measure, the competitive athlete in him still can't help wondering what might have happened had he chosen a different path. Does a part of you ever kind of wonder what would have happened or maybe you should have, you should have just?

• 1:20:59Speaker 01

  Oh, absolutely. Absolutely.

• 1:21:01Speaker 00

  Yeah, gold medal or something?

• 1:21:03Speaker 01

  It's possible. It's very possible.

• 1:21:07Speaker 00

  Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter at guyraz.com or on Substack. This episode was produced by Casey Herman with music composed by Ramtin Arablouei. It was edited by Neva Grant. Our production staff also includes Chris Messini, John Isabella, Sam Paulson, Alex Chung, Kerry Thompson, Catherine Seifer, Norgil, Ramel Wood, and Elaine Coats. I'm Guy Raz, and you've been listening to How I Built This.