Zappos' Hsieh: Building a Formidable Brand


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Zappos CEO Tony Hsieh offers a compelling account of his transformation from callow Harvard student entrepreneur through his years as a dot-com wunderkind to the creator of a formidable brand.

Zappos.com, Inc.: www.zappos.com

Designing Happiness, MKT 555 media:

Center for Social Innovation podcast:

Stanford University’s Entrepreneurship Corner:
Before getting started, how many of you
have heard of Zappos prior to this, and how many of you
have shopped with us before? Wow, very cool. So normally when I do this survey to a
random group of people the ratio is actually about two to
one, women to men. And a lot of women I've asked or, or men
that I've ask say they, they haven't personally shopped from
us, but their wife or significant other has. And a lot of times it's the significant
other buying for the guy. And I was actually giving a tour in Las
Vegas little whi, a few years ago to an executive from one of
the major record labels. And I'll let, we actually were based out
of Las Vegas. So next time any of you are in Las Vegas,
we definitely recommend coming for tours. It's actually a lot of fun. We'll pick you up from the airport in a
Zappos shuttle, give you a tour. It takes about a hour, and then drop you
off at your hotel afterwards. So anyways, we were doing this for an
executive from one of the major record labels, and I happened to
be giving the tour. And I asked him the exact same question,
had you shop from us before? And he said no he hadn't but he suspects
his wife has because these white boxes would show
up on his doorstep and then they'd disappear and he didn't know
what was going on, [LAUGH] you know, if she was buying them or
exchanging them, returning them. And every time he asked his wife she would just change the subject or refuse to
answer him. And so you know, giving the tour
downstairs is the merchandising area and we walk upstairs to our Customer
Loyalty Team which is our name for our call center and as we're
walking through like I, I starting to explain stuff and then I
turn around and he's gone. And I'm like what happened? And I find out that he actually went down
one of the isles and sat down next to one of our reps and forced
her to pull up his wife's account. [LAUGH] And so as it turned out he
discovered, she had spent over $62,000 in her life time so
[NOISE]. Yeah [LAUGH] hopefully we weren't
instrumental in any divorce proceedings. so, and then, as was mentioned, I have a
book that came out a few months ago called Delivering Happiness and we're actually on
this three month cross country bus tour. We got this 50 foot bus, and actually we
have some pictures to, to show you. We wrapped the bus. There's ten of us on the bus, and we're,
we've gone through ten cities so far. And and we, and the inside, I don't think
I have any inside pictures of us. But this is the Delivering Happiness Book
Team and it's actually its own mini start up. There's about 20 of us and 10 of us are on
the bus at any one point. So if you want to find out more information, just go to deliveringhappinessbus.com and also
deliveringhappinessbook.com. There is fun videos and pictures and, and
so on there. And and, oh yeah, this is also a fun video
to, to watch. If you have the time. And I'll make this presentation available,
so you can check out the video later. But we're actually, the bus is in Miami
right now, so I'll be meeting back up with the bus at the end
of this week. But before getting into Zappos, I wanted
to talk about what led me to Zappos. And the story actually begins in college
with pizza. I was running a pizza business on the
ground in from of my dorm in college and with my roommates Sanji, He
and I decided to invest in pizza ovens. And it's this area that was, we set aside, we probably had 300 or 400 students in our
dorm. And the way it would work is every year
there would be a new set of students that would run that grill,
it was called the grill area downstairs. And so one year we had, we were the
highest bidders and we bought it from the owners from the
previous year and we decided to invest in pizza ovens, and we, hired other
students, set the menus, dealt with suppliers and so on and occasionally
I was making the pizzas myself. And this guy named Alfred who actually is
the Chief Financial Officer today at Zappos, he would stop by every night and
order a large pepperoni pizza from me. And this is actually how we meet, and to
me actually it wasn't that weird. He was doing it cause I had heard about
his reputation and he was known to actually eat it, really
eat a lot of food. He had nicknames like monster or human
trash compactor. And literally there would be nights when
there would be 10 of us late night at a Chinese restaurant and he
would just finish everyone's leftovers. So you know, not that weird but sometimes
a few hours later he'd come by and order another large pepperoni pizza from
me and I was like wow this boy can really eat. Well I found out several years later
Alfred was taking the pizza's up stairs and selling them off by
the slice so. That's why he's our chief financial
officer. So after the pizza business, then Sanji
and I, who I was running the pizza business with, we got together
and formed a company called link exchange. And this is during the first .com
craziness, and we grew that to about 100 or so people and then ended up selling the company to Microsoft two and a half years
later. But what a lot of people don't know is the
real reason why we ended up selling the company, and the real reason is
because it just wasn't a fun place to work at
anymore. And the company culture just went
completely downhill. I remember when it was just five or ten of
us. It was your typical .com is a lot of fun. We were working around the clock, sleeping
under our desks. Had no idea what day of the week it was. Trying to remind ourselves to shower
occasionally but lots of fun and as we were growing we hired friends and friends of friends
and I remember there was a friend of mine that was on a cross country trip from New York
and this was all out of our apartment here in San Mateo at the time
and he stopped by to help out and then. He actually never made his way back home,
he ended up joining the company, and that works really well until
we got to about 20 people. We were having a lot of fun, and then we
ran into a really big problem when we got to 20 people, and the problem
is basically we ran out of friends. And so we're trying to figure out, okay
what do we do now, we didn't know how to hire
people. And so we started just figuring out on our own, and we ended up hiring actually all
the people with the right skill sets and
experience, but they weren't all necessarily great for the
company culture. And by the time we got to 100 people, I
myself dreaded getting out of the bed in the morning to go to the
office and that's kind of a weird feeling cuz this was a company I
co-founded and I felt like, you know, if I felt that way, how much did
all the other employees feel. So that's really what led us to sell the
company to Microsoft. And after the sale, myself, Sanji, and
most of the early employees, we all left the
company shortly thereafter. So after that sale, you know, worked out
well financially trying to figure out, okay, now what do I want, what do I want
to do with my life? And I'm the type of person who gets bored real easily and always excited by
new ideas. And so Alfred and I got together and we
formed a fund. And invest in about 20 or so different
internet companies. Then in my mind I was like wow, this is a
great way to really just get exposed to a lot of
different businesses and ideas and so on. And making investments was actually pretty
exciting and pretty fun.There was always some new idea, some
new business. And you know this was in the beginning of
the internet days. But then after we had made all the
investments and you know, there wasn't anymore money to
invest in the fund. I realized that at that point and for me
at least investing was pretty boring. I felt like I was sitting on the sidelines and I really missed being part of building
something. So I started thinking about what do I
wanna do and out of all the companies who had invested in,
Zappos happened to be one of them. And it was both the most exciting and the
most promising. So basically within a year I joined Zappos full time and, I've been with Zappos ever
since. Some of you may have heard, it was about a year ago that Amazon announced they were
acquiring Zappos. And, except, it's actually very different
from most acquisitions that, Amazon has done, in, in
the past. In most of their acquisitions, the plan is
to integrate the company being acquired into
the parent company, and then eventually, the, original company
kind of loses its identity and everything's integrated into the
mother ship and absorbed there. Whereas for us, as a precondition for even
considering to explore the deal, we told them that we would only
consider it if Zappos could remain independent, if we
could continue to grow our brand, and our culture and our way of
doing business, our way. And the great news is they've remained
true to their word. So from our point of view it's just as if we've swapped out our Board of Directors
for a new one. So once a quarter instead of flying to the
Bay Area we now fly to Seattle once a quarter for the
equivalent of a board meeting. So most people, when they hear about
Zappos, think of us as an online retailer of shoes because
that's how we started. But internally, we actually have a
different, mentality. We have a saying that we're a service
company, that just happens to sell shoes. And in fact we sell a lot more than shoes
today. We sell clothing, beauty products,
housewares, kitchenwares, and, and, and so on. And we're actually hoping ten years from
now, people won't even realize we started out selling
shoes online. We really just wanna build the Zappos
brand to be about the very best customer service
and customer experience. And in fact it doesn't even have to be
limited to online. We've actually had customers email us and
ask us if we would please start an airline or run
the IRS. We're not gonna do either of those things
this year, but 20 or 30 years from now I wouldn't rule out a Zappos airlines,
that's just about the very best customer service and
customer experience. So one brand that we look to for
inspiration sometimes is Virgin. They're in a whole bunch of businesses,
they're in music, airlines and so on. The difference is the Virgin brand is more
about being hip and cool where as we just wanna be about the
very best customer service. So our whole philosophy is let's take most
of the money that we would have spend on paid
advertising or paid marketing. And rather than buy our exposure, instead,
let's invest it into customer service, and the
customer experience. And let our customers do the marketing for
us through word of mouth. On any given day about 75% of our orders
are from repeat customers and we basically grew
from no sales in 1999. In 2008, was the first year where we hit a
Billion Dollars in gross merchandise sales, and actually,
even despite the bad economy, we've actually continued to grow over the last
two years, in fact our net sales for Q1 this year were up almost
50% year over year. And people ask us, what do we do
differently over this last 24 months? And, it's actually, we actually didn't do
anything differently. And it's not because of anything we did
over the past two years. It's because of all the investment we made
prior to that, that we continue to grow because of the
loyalty of our customers. And the number one driver of all that growth is through repeat customers and
word of mouth. So these are some of the questions that we
ask ourselves in terms of thinking about how to deliver
great customer service. And we internally use the word wow when thinking about how you would treat
customers. But we use it as a verb. We, we talk about how do we wow our
customers and also how do we wow our employees and the
vendors that we work with. And it starts with the policies you see on
our website. We offer free shipping both ways. So, a lot of people will order 10
different pairs of shoes, try them on in the comfort of their
living room with 10 different outfits, and then send back
the ones that don't fit or they don't like, and we encourage
that type of behavior. We have a 365 day return policy, for
people that, I guess, have trouble, committing or
making up their minds, >> [LAUGH]. >> And you know, they can take a while to
to return products and you know, most websites it's
very hard to find contact information. Usually, it's buried five links deep and
maybe it's an e-mail address you can only e-mail
once. Whereas for us, we take the exact opposite
approach. We put our 1-800 number on the top of
every single page of our website. Because we actually want to talk to our
customers. And it is funny because sometimes I will
be speaking at a branding or marketing
conference and there is a lot of discussion about consumers
being bombarded with thousand and thousand of marketing
messages every day. How do you get your message to stand out,
how do you get your brand to stand out and should
they be investing millions of dollars into this million
dollar Super Bowl ad that people may or may not be paying attention
to or should they. >> Be it leveraging the latest, the social
media fad, and for us as kind of low tech and unsexy as it may sound, we found that the
telephone is actually one of the best branding
devices out there. Cuz we have the customer's undivided
attention for five to ten minutes and if we get the
interaction right, we find that the customers remember that
for a very long time and tell their friends and
family about us. And we run our call center very
differently from most call centers. We don't have scripts, we don't have this
concept of average handle time which most call
centers have. Which is all about how quickly can you get
the customer off the phone in the name of
being more efficient. But we're not trying to maximize for
efficiency. We're trying maximize for the customer
experience. And we don't up sell and so going back to
the no, no call time. Actually I just got an email last night. A new record was set for the longest phone
call ever. It was eight hours and three minutes long. So, yeah, I don't know how the bathroom
situation worked out for, for that one. But, so, and it may seem weird that, you know,
for us, we're an Internet company, 95% of our
sales go through the website. So why do we focus so much on the
telephone? And what we found is actually on average
almost every customer calls us at least once sometime
during their lifetime. And it's actually usually not to place an
order. Most of our phone calls do not result in
orders. It might be their first time going through
the returns process and they just need help stepping through the
process of printing out the return label. For the first time or maybe they have a
wedding over the weekend and they just want some
fashion advice and I think we have some customers that call
us because they're lonely [LAUGH] and we'll we'll
talk to them as well. So, so that's our call center and then for
our warehouse, we actually run it very differently from
most warehouses as well. Most warehouses they let the orders pile
up so that when, the picker needs to walk around, there's higher picking
density, more efficient, doesn't need to walk as
far. For us we run our warehouse 24 seven which is not the most efficient way to run a
warehouse. and, but we're not trying to maximize for
efficiency. And because we run it 24/7, and because
our warehouse is located in Kentucky, right next to the
UPS hub, and because we do these surprise upgrades
to overnight shipping for a lot of, most of our repeat loyal
customers. When you combine all three of those
things, a lot of customers order as late as midnight
eastern time. And the shoes show up on their door step eight hours later when they're expecting
it a week later. And that creates that whole emotional
response we're trying to elicit and that wow
experience. That causes them to remember us for a very long time and tell their friends and
family about us. So for all this focus on customer service
and building our brand to be about customer service, customer service
is actually not the number one priority of the
company. Our number one priority is company
culture. And our whole belief is that, if you get the culture right, most of the other stuff
like delivering great customer service or
building long, a long-term enduring brand will just happen naturally
on its own. And our belief is that a company's culture
and a company's brand are really just two sides
of the same coin. The brand is just a lagging indicator of
the culture and if you think of, you know, ask random
people about what they think of the airline industry as whole and
usually you'll get back responses about bad customer service
or apathetic employees and so on. And like it or not that is the brand of
the industry, even though no airline set out for that to
be their brand. So we really focus on getting the culture
right. So what are some of the things that we do
to really help build our culture? Well, it starts with the hiring process. Everyone that's hired in our headquarters
in Las Vegas, it doesn't matter what position, you know,
accountant, lawyer, software developer. You go through the exact same training as
our call center reps. One of the weeks is actually later on when
we send you to Kentucky and you do all the
different warehouse functions. Picking, packing, shipping, receiving, and
so on. But the first four weeks before you start your actual job, we do call center
training. And we go over company history, the
importance of company culture, our philosophy, our
customer service. And then you're actually on the phone for
two weeks taking calls from customers. And the reason why we have everyone do
that is because if we're serious about building
our brand to be about the very best customer service
and customer experience, then customer service
shouldn't just be a department. It should be the entire company. And the other great thing about that is
during our busy Q four holiday season which is now
coming up, people from all different departments can and do
help out and they hop on the phones and help answer the
phone calls. So that means we don't need to hire temps
that may be bad for our culture. Where you don't need to hire temps that
may not deliver the same level of customer service
that we're looking for. The other thing that we do is at, at the
end of the training we actually make an offer to the entire class and the
offer is this. We will pay you actually it starts at the
beginning of the end of the first week of training,
they've been there for a week, and the offer is we will pay you for that week you spend
training, plus a bonus of $2000 to quit and leave the
company right now, and that's a standing offer
until the end of the training, and then we raise it to
$3000, and extend it a couple months beyond that
as well. And the reason we initially did this was
because we didn't want employees that were there just
for a paycheck. And starting pay in Las Vegas is $11 an
hour, there's plenty of other call centers there and so
it's a pretty significant amount of money, and on
average we found that actually about 2 or 3% of people end up taking the
offer. The offer started several years ago at a
$100. And we actually keep upping the offer
because we feel like not enough people are taking the
offer. But what surprised us and what we didn't
realize was that actually the biggest benefit came from the people
who didn't take the offer because they still had to go home, talk to
their friends and family and ask themselves, is this a
company that I really believe in? Is this a company that I want to be a part of and whose culture I want to
contribute to. And when they decide to turn down the easy
money, what we found is that, when they're back in the office
on Monday, that they're that much more passionate and engaged and, and
and, and really that, by far that's been the biggest benefit for us
that we didn't expect in doing that. But before someone gets started at Zappos,
before they go through the training, we actually interview
everyone in two sets of separate interviews. The first set of interviews for someone is kind of the standard of the hiring manager
and his or her team will interview for fit
within the team, relevant experience, technical
ability and so on. But the second set of interviews is done
by our HR department looking purely for culture fit, and they have to pass
both in order to be hired. So we've passed on a lot of really smart,
talented people that we know can make an immediate impact on
our top or bottom line. But if they're not good for our culture we
won't hire them. And the reverse is true too. We'll fire someone if they're bad for our
culture even if they're doing their specific job function perfectly fine, even
if they're a super star in their job
function. If they're bad for the culture, we'll fire
them just for that reason. And our performance reviews are 50% based
on whether you're living and inspiring the Zappos
culture in others. The the other thing we have is something
called a culture book, and I'll make that freely available give
you information later on about that. But it's something we put out once a year,
and we ask all of our employees to write a few paragraphs about what the Zappos culture means to
them. And except for typos it's unedited, so it
includes the good and the bad and it's organized by department, so you can kinda see how the
accounting culture may be slightly different from the
warehouse culture. So kind of like when you go to Amazon and
you read customer reviews of products, these are essentially employee reviews of the
company. We're also very active on Twitter. If you go to Twitter.Zappos.com, you can,
see there's a page there. We have about 500 employees that are
active on Twitter. We introduce every employee to Twitter
during the training, and then it's up to them whether they want to
continue using it. But then we have a page that aggregates
all of the employee tweets together, and so the way that's helped our culture
is, you may not talk to that person that's three aisles down from
you, except for saying hi in the hallway, but through Twitter, you might
find out that he went hiking over the weekend. And if you're also an avid hiker, now you
have something you can talk about, and you
might go hiking together. So those are some of the things that we do
on the company culture side. In terms of growing our brand over the
next several years, we have what we internally refer to as the
three C's. Clothing, customer service, and company
culture. And really we think of this as, in terms
of the life cycle of the customer, so customer that
have never heard of Zappos before, have no idea what we do, we want
them to know that we've got a great selection of clothing, footwear and other product
categories. Once they know about our selection, then
we want them to know that we're all about delivering
the very best customer service, which isn't something that we
tell them so much as something that they experience when
they get that, you know, see how easy that free shipping both ways
is, or get that surprise upgrade to overnight
shipping or talk to one of our customer loyalty reps and see, see
that the person on the other end truly wants to
provide great service. And once they know that we're all about delivering the very best customer service,
then we want them to know about our culture, and core
values, which is essentially a formalized
definition of our culture. Cuz, that's, really, the platform that
makes all of that possible. So we've actually had customers tell us
that, when they get that perfect outfit or perfect pair of shoes, that
Zappos is happiness in a box. So whether it's the happiness that the customers feel from getting that perfect
outfit or a perfect pair of shoes, or the happiness that a customers get, feel from
experiencing great customer service, or the happiness
that employees feel from being part of a
culture where the personal values match their own,
where, their personal values match the corporate
core values. The thing that we realize ties all these things together is that Zappos is really
just about delivering happiness whether it's to
customers, employees and we apply that same philosophy to our vendors
as well. So when you come in for a tour at Zappos
in our lobby area, the first thing you'll see
is the Zappos library. And there's about 30 or 40 titles there. These are two of the titles you'll see. Except it's not a lending library, it's a
giving library. And we give the books out freely to our
employees as well as to visitors, because one of our core
values is to pursue growth and learning. So at the end of the tour a lot of
visitors will take home three or four titles that they think are
relevant to their business or their own personal
life. And two of the books that are, some of the
titles rotate in and out, two of the books that are always there are
Good to Great and Tribal Leadership. And in fact, we have even partnered with
the Office of Tribal Leadership. You can download one of the audio versions of the book for free from the Zappos
website. And we, in fact, teach classes on each of
these books to our employees. And the reason why these two books we
really believe strongly in is because the authors
researched and looked at what separated the great
companies in terms of long-term financial performance from
just the good ones. And they were actually surprised by their
findings. It wasn't at all what they expected. They found that the great companies had
two important ingredients that the good ones and the mediocre ones
generally did not have. And the first important ingredient was
that the great companies all had strong
cultures. And for us we formalized the definition of
our culture into ten core values. And we actually didn't always have core
values at Zappos. We'd been around for 11 years, and it
wasn't until five or six years into it that we rolled out our core values cuz it was
kinda something that a bunch of us, myself
personally, resisted. Cuz it felt like one of those big
corporate things to do and you know, a lot of corporations
have, they might call them core values or
guiding principles or so on but the problem is usually they're
very lofty sounding. They kind of read like a press release the
marketing department put out. They sound just like their competitors and
maybe, you learn about it on day one of your job but then it becomes this
meaningless plaque on the lobby wall. Well, we wanted to come up with
committable core values. And by committable, meaning we're willing
to hire or fire people based on those values completely independent of their actual job
performance. And when you use that criteria, it's
actually a really hard list to come up with. It took us a year to come up with it. And it wasn't just a few executives that
spent a long weekend at an offsite somewhere and came
up with the core values. But instead, I just emailed the entire
company and asked our employees what should our values be, got a
whole bunch of different responses back and went back and forth for
about a year and then eventually came up with our list
of ten core values. So, this is our list of ten core values and we actually have interview
questions for each and everyone of these core values and, and actually one of the cool things that I
like about the list we ended up with is if you
do a Google search for any one of these core values by itself in almost
all the cases Zappos is the number one search
result. Whereas for take almost any other company
do a search for one of their core values and page after page after page you
won't see that company name show up. So the one that actually probably trips us
up the most during the hiring process is this
last one, be humble. Cuz there's a lot of really smart, talented people out there that are also
egotistical. And for us, it's not a question. We just won't hire them, where as the
conversation at most other companies would be, well this person
might be kind of annoying and rub you the wrong way but
he's gonna add a lot of value, and therefore we should
hire that person. And that one person may or may not bring the company closer downhill, but I think
if you keep making compromises like that over and over
and over again, that's why most large companies don't have
great company cultures. But it's actually probably the one that's
hardest to actually ask a natura interview question for it cuz you can't
just say, how humble are you? And they say, I'm the most humble person
in the whole wide world. [LAUGH] Right and so but one of the ways
we test for this is a lot of our candidates actually
are from out of town. And so we're picking them up from the
airport in a Zappos shuttle. Give them the tour, and then they'll spend
the entire day interviewing. Well, at the end of the day of interviews,
the recruiter will circle back with the shuttle driver, and
ask how they were treated. And it doesn't matter how well the day of
interviews went, if they didn't treat the shuttle driver well, then we
won't hire them, it's not even a question. So I'll give some examples of other of
interview questions we ask. Number three, create fun and a little
weirdness. One of our interview questions is actually
on a scale one to 10 how weird are you? And you know, if you answer one you might
be a little bit too straight laced for the
Zappos culture. If you answer 10 you might be to psychotic
for us. But it's actually not so much the actual
number we care about, our whole belief is that everyone's
a little weird some how. And this is really more just a fun way of saying that we really recognize and
celebrate each person's individuality. And we want their true personality to come
out and shine in the work place. You know, there's so many people in corporate America where they're a
different person at home on weekends versus when they show
up to the office on Monday's. And you know they end up leaving a little
part of themselves or in a lot of cases, a big part of
themselves at home. And that leads to discussions about work
life, separation or work life balance. And for us actually rather than worry
about work life separation, we really think about it
in terms of work life integration, we want the
person to be the same person at home or in the
office. Cuz what we found is that's when the great
ideas come out, that's when their creativity shines and that's when
true friendships are formed, not just coworker
relationships. And that's really what, when people are in
that environment, that's when the passion comes out and that's really what's driven
a lot of our growth over the years. And core value number four be adventurous,
creative and open-minded. So one of our interview questions here is,
on a scale of one to ten, how lucky are you in
life. One is, I don't know why bad things always
seem to happen to me, and ten is, I don't know why good things
always seem to happen to me. Well, we don't want to hire the ones, cuz
they're bad luck and we don't want bad luck to come to
Zappos. [LAUGH] That, that wouldn't be good. No but this was actually inspired by a
research study that I read about several years earlier where they actually ask that
exact same question to a random group of people. And they got, you know, someone, sometimes
a bunch of answers in between, and then afterwards, they have
them do a task. And the task was to go through a newspaper
and count the number of photos that were in
that newspaper. But what the participants didn't know was
that it was actually a fake newspaper, and sprinkled throughout
the newspaper were these headlines that would say things like if you're
reading this now, you can stop the answer is 37 plus collect an
extra $100. And what they found was that people that
considered themselves unlucky in life, generally
never noticed the headlines. They went through the task and, you know,
eventually came up with the right answer. Whereas the people that considered
themselves lucky in life generally stopped early and made the
extra $100. So the take away is that it's not so much that people are inherently lucky or
unlucky in life. But luck is really more about being open
to opportunity beyond just how the task or
situation presents itself. So that's why we ask that question for
core value number four, be creative. Adventures and open-minded. And so one of our other core values is
about being open and honest. It's really just all about transparency
and we really try to be as transparent as possible to our customers,
to our employees to our vendors as well. So for our customers, for example, we hold
a quarterly all hands meeting for our employees and we
actually live stream that on the internet, so anyone can tune in and
employees will ask questions about company financials or what brands
we're gonna carry and so on. The other thing we do is when there's a
reporter that wants to do a story on us, whether it's
for TV or a magazine or so on you know most
companies, most corporations, what would happen is they're
escorted around by PR person. The PR person says you can talk to that VP
over there, and that person in communications over there,
everyone else is off limits, don't talk to anyone else. Whereas what we do is we give a tour and at the end of the tour, we say, bathroom's
over there, lunch room's over there, walk
around talk to whoever you feel like, and when you're done, come
find me. And the reason we're comfortable doing
that is because we know that employees understand the
long-term vision of the company. And we know that employees we've hired, their personal values match the corporate
values. So every employee is just automatically
living the brand. And, you know, they're not going to, we
don't do media training and so when the reporter
talks to 10 different employees, they're not
gonna get the exact same phrases or sound bites and, and
so on. But what they are gonna find is
consistency in every employee's attitude, and more importantly
the authenticity in their interactions. And so that's why we en, we're, we just
tell anyone just walk around talk to whoever you, you want because that's what we're comfortable
with. With our employees we have a monthly
newsletter called Ask Anything where it's literally that and employees can ask about
financials or brands or whatever and we'll find the best person to answer them and
then put that all in a newsletter and we send that out to the
entire company once a month. For our vendors, we work with 1500
different brands. And they have access to this backend
system we call the Extranet where they can log in and
view the exact same information our own buyers and
merchandisers can view so they can view on hand inventory, sales,
profitability, markdowns and so on. And when we first rolled this out the response from the vendor community was wow
this is great but aren't you worried this
information is gonna get into the hands of
competitors? And, realistically, I'm sure some of the
information does eventually find its way into the hands of
competitors. But, on the flip side, we now have an
extra 1500 pairs of eyes helping us co-manage our business,
and they're not on our payroll. And so for us we found that the benefits
far outweigh any perceived risk. Cuz a lot of times, they'll catch stuff
that our own buyers or merchandisers might miss if
there's some style that's suddenly taking off and, you know, our buyers have
portfolios of 20 to 30 brands so they may not catch it in
time. So, you know, this is a common reaction
get, we get sometimes, okay, happy for you Zappos, you
have this great culture. Made the Fortune 100 best companies to
work for list but the stuff you're talking about would never
work at my company. and, when people come to our offices,
they're like, oh, okay, I, I get it but the way your, you allow your employees to
do X Y Z, would never fly at my company. But what I found really interesting about
the research from good to great in tribal leadership, is that they've found that it actually doesn't matter what your core
values are. What matters, is that you have them. And the power you get is out of the
alignment you get, when you have the entire organization
acting a certain way. And have kind of default way of thinking. And, and, and that's what I found really
interesting. And for us, what the real power came from when the values become integrated into our
everyday language. And we don't even notice it but not a day
goes by where we don't use our core values just in our everyday conversation on a day-to-day
basis. So it's really, that's the real power of
having a strong culture, of having alignment
throughout the entire organization. And I'm gonna make this presentation
available cuz another reaction we get sometimes and I wanted to include these other stories
is, oh Zappos you're an internet company. Special rules apply to internet companies. And some of these stories in here are
actually from companies in completely different
industries and completely different types of
companies. And one of the other ways we're
transparent is actually we have this separate entity called Zappos
Insights, it's actually it's own website, zapposinsights.com, where we, actually
help other companies figure out how to build their own strong cultures and figure
out their own core values. And there's a monthly video subscription
service, there's also these one day and two day seminars where people and companies from all over
the world actually fly in and go through these
exercises. And one of the stories I included in
there, is a company that I went through about a year ago,
called The Atlanta Refrigeration Company. They're based in Atlanta, Georgia and they
do refrigeration repairs out in the field. So in some ways you can't think of a more
opposite company or industry than Zappos. And they went back, focused on company
culture, focused on delivering better customer service, and
now they're reporting back that their customers are happier, their
employees are happier, they even sent us before and after
pictures of their offices, and in a down economy, their
revenues and profits are up, and so for us, it's just
been really interesting and rewarding to see
this whole idea of happiness as a business model work in
other industries and, and other companies. So going back to Good to Great and Tribal
Leadership, I said the author's researched and they
found there were two important ingredients that separated
the great companies, in terms of long term financial performance from
just the good ones. The first thing ingredient was the great
companies all had strong cultures. And the second one is actually really
counter-intuitive at least to me. And what they found was that the second important ingredient was that these great
companies all had a vision that had a higher purpose beyond
just money or profits or being number one in
market. And the weird thing and ironic thing about
that is, actually by having a higher purpose, it actually enabled these
companies to generate more profits in the long run. And sometimes I'll be speaking at an
entrepreneur conference for example and I'll get
approached afterwards where entrepreneurs will ask what's a good
market to get into, where I can make a lot of money? And my advice to them is rather than have
money be your primary motivator, instead think
about what would you be so passionate about doing that you'd be
happy doing that for 10 years, even if you never made any money
from it? And that's what you should be doing and if
you actually do that, it actually, in an ironic way, it
greatly increases your chances of making more money in the
long run because your passion is what's gonna get you
through the tough times. Your passion is gonna rub off on your
employees and your your, sup, suppliers and the
customers are gonna sense it. And be, the, it has this whole ripple,
domino effect. So I like to say chase the vision, not the
money. There was a movie that came out several
years ago called Notorious. I think it lasted a week in the theater
and I may have been the only person that saw
this movie. But in the movie Puff Daddy says to rapper
Biggie Smalls also known as Notorious B.I.G. don't chase
the paper, chase the dream. I just wanted an excuse to put this
picture up here in a business talk, but. So if you're an entrepreneur, you know
think about what would you be so passionate about doing that you would
be happy doing it for ten years. Even if you never made any money from it. And that's what you should be doing. And if you have employees that report to you, then think about what's the higher
vision and greater purpose in their work beyond just
money or profits or being number one in a
market. Cuz that's what's actually gonna help
inspire them. And you know, there's a lot of consultants
and books that talk about how to motivate employees, and there
always seems to be a new trend in. And you know, the latest management fads
and you know, there's different ways to
motivate employees. They're a lot of corporate in America
actually motivate employees through fear you can also
motivate employees through incentives and you can motivate employees
through recognition and all those things work up to a certain
extent. But what we found at Zappos is there's a
huge difference between motivation and inspiration, and if you can inspire your employees by having a higher purpose in
the company beyond just money or profits or
being number one in market in, if you can inspire your employees by having
corporate core values, that match their own personal
values. And not just the stated core values but
the actual practice core values. Then you can accomplish so much more and
you don't really need to worry about the motivation
part of it. The inspiration just will ex, will
accomplish much, much more than the motivation part of it. So this is the evolution of our brand at
Zappos. In 1999, it was just, okay, let's just,
our visions was let's just sell a lot of
shoes. It's all gonna be about selection. And then 4 years into it, in 2003, we all
sat around and asked ourselves, what do we want to be
when we grow up? Do we wanna be about shoes, or do we wanna
be about something more meaningful? And that's when we decided, okay, let's
build the Zappos brand to be about the very best customer service
and customer experience. And a funny thing happened when we
communicated this to our employees. We found that suddenly employees were a
lot more passionate and excited about the company and when
customers called they could sense the person on the other end of the line
truly wanted to provide great service and wasn't there
just for a paycheck. We found that when vendors came and
visited us they wanted to visit us more often and stay
longer and so all these things had this kind of
multiplicated snowball effect that drove a lot of our growth over
the years. And in 2005 was when we switched from
culture to just being important to culture being the
number one priority in the company. With the belief that if we get the culture
right, then most of the other stuff, delivering great customer service,
building a long-term enduring brand that will just take care of itself. And then 2007 we started thinking about,
okay, what are different ways we can provide great
customer service. Some companies focus more on the
technology and the efficiency part of it. Well, we decided instead of going the
high-tech approach to go the high-touch approach and really focus on building personal, emotional
connections. And then 2009, we took a step back and realized, okay, customer service is about
making customers happy. Company culture is about making employees
happy. Let's just tie it all together and really
have our vision be about delivering happiness
to the world. And then from that expanding vision,
that's what led to the development of Zappoinsights.com,
which is a completely different business. It doesn't have anything to do with
e-commerce or selling shoes online. So I wanted to tell another piece of story
and this actually happened a few years ago in
Santa Monica California. And I was actually at a Sketcher's
conference and it's one of the brands we work with, one of the
footwear brands. And it was a long day and at the end of the day a bunch of us decided to go bar
hopping. There were three people from Sketchers and three people from Zappos, including
myself. I'd never been bar hopping in the Santa
Monica area before. So we went to the first bar and some,
someone ordered a round of drinks and then someone, I can't remember
who, decided to order a round of shots. So been a long day, we took the shots,
finished the round of drinks. And when we went to the second bar, and
someone else ordered a round of drinks to pay back for that first round
of drinks, and someone else ordered a second round of shots to pay
back for that first round of shots, and were looking at it, and we
determined that, you can't waste alcohol. So we took the shots and finished the
drinks, and then went to the third bar. And I'm actually unclear on how many shots
or drinks we had after that. But what I do know is that in California,
last call is, I think it's two, is it two am? I, I'm from Vegas, so last call isn't in
the dictionary there but so it's two am and anyways so finally
lights go on. >> I don't know how many bars we've been to and finally start walking back to the
hotel room. And as we were walking back to the hotel
room, one of the girls from Sketchers asked if we all
wanted to share a pepperoni pizza. And she was so excited. And we're like, yeah, sure. And she's like, oh, I'm so excited. I actually checked it out on the room
service menu before we left. It was on page 17, item number two. And I know when it comes, it's going to be
super hot, and I don't want to burn the roof of
my mouth. So I'm just gonna blow on it and let the
aroma slowly waft into my nose. And she kept talking about it, and getting
super excited. And it was only a five minute walk, but it
seemed much longer than that cuz she would not stop
talking about this pepperoni pizza. So anyways we finally wind up in someone's
hotel room. She's super excited, calls room service
and then ten seconds later hangs up the phone all dejected and I ask
her what's wrong and she said apparently this hotel doesn't
deliver hot food after 11 p.m. And she was like, oh, you have no idea how
much I was craving that pepperoni pizza. And I was like, I think we all have a
pretty good idea. >> [LAUGH]. >> And, but she was still really sad and
I'm trying to think okay, how do you cheer her up and
then I tell her the story of how in college I used to
make pizza and this guy named Alfred, and, and this
is how we met. And at the end of my story she looks at me and she's like, that's so not helpful
right now. [LAUGH] So you know, Fred, whose also from
Zappos, he and I are, are kind of brainstorming and then we come
up with the best idea ever. We say, oh call Zappos, call Zappos. We're all about the best customer service. We'll take care of you. And really in our inebriated state of mind we thought that was the funniest thing
ever. And so. [LAUGH] So she actually takes us up on our
dare, and you know, puts it on speaker phone and you know, it says, rep answers, thanks for calling Zappos, how can I help
you? The rest of us are in the background
trying like to be quiet, and I laugh. She's like oh, thank goodness, you
answered. I know it's three A.M. but I'm in Santa
Monica right now in this hotel that doesn't serve hot
food after 11 P.M. I've been craving this pepperoni
pizza on the room service menu, I'm looking at it right now, page 17
item number 2. >> [LAUGH]
>> Is there anything you can do for me? Well first, there was an awkward silence. >> [LAUGH]. >> And then, and the rep said you know you
called Zappos, right? [LAUGHING] We sell shoes. We sell clothes. But we don't sale pizza yet and she's like
I know but I heard you're all about the best
customer service. And the rep said okay hold on. And put us on hold for two minutes. And then came back listing the five
closest places in the Santa Monica area that were still open and
delivering pizza at that hour. Now, well first of all, I, I hesitate a
little to tell this story cuz I don't want all of you to
start calling Zappos. >> [LAUGH]. >> [LAUGH] Ordering pizza from us. But you know, clearly we don't have a
process and procedure for late night drunk pizza
orders, but in, it just goes back to, I think it's just a fun, sort of, illustrate that if you get
the culture right, then most of the other
stuff like delivering great customer service, and
building your brand, one story at a time, one phone call at a time just happens naturally on its own and you know,
these types of stories we're creating at Zappos, literally, thousands and thousands of
times every single day and that's how we built
our brand over the years. And these are, you know, questions that we
think about. How do we create more happy memories for
our customers and how do we elicit more positive emotions and really we're in the memories, and emotion business and
stories business. And then we also think about how do we keep thinking differently and expanding
what business we're actually in. How do we think bigger and think differently, and one of my favorite
stories is about Cirque du Soleil where you know, they completely redefined the circus
business. Prior to Cirque du Soleil, to have a
better circus meant more elephants. Bigger elephants. And the market research surveys, if they
did them, would be exiting you know, doing
exit polls. And they'd be like, were the elephants of sufficient quantity and sufficient size
and you know, and then, that, that would tell
them how to build a better circus. And then Cirque du Soleil just thought
completely, you know, outside of the box. So anyways just wanted to wrap up and
actually take a step back from all of this business
talking. How do you guys actually think about this
for yourselves? What is your goal in life? And like think, for yourself personally
what is your actual goal in life. And when I asked different people this
question, I actually got a whole bunch of different
answers back. Some people would say they wanna grow a company, especially at entrepreneur
conferences. Some people say they wanna be healthy and
then I'll ask them why. So whatever your goal in life is, ask
yourself why. And then people come up with another set
of answers. They want to retire early or run faster. And then I'll ask them why again, and so whatever your answer is, just ask
yourself why. And what's interesting is if you ask why
enough times, almost everyone comes up with the
same answer. And it's, they're pursuing their goal in
life is that they believe it ultimately make
them happier. So I started a few years ago reading about this whole field of research called the
Science of Happiness. The official name is actually positive
psychology, but it's based on actual research that's been
done. Not, so I am not saying, talking about go
to, you know, self-help session or books or think
positive and you'll be happy. But actual research that's been done, and
as I was reading about this, prior to 1998 most
of the psychology was about how do you take
people that have something wrong with them and make
them more normal? But almost nobody bothered to study how to
take normal people and make them happier. So, as I was reading about this, one of the consistent findings from the
research was that people are actually very bad at predicting
what will make them happy on a sustainab,
sustainable basis. Mo peop, most people think, oh once I get
x, then I'll be happy, once I achieve x, then
they'll be happy. When the research shows, you know, for
example, lottery winners. Look at their happiness right before
winning the lottery, and then a year later. And a year later, it's the same, or maybe
a little bit lower than before. So people are bad at predicting what will
make them happy. And then, you know, started thinking about
well you know, at Zappos there's a science
behind a lot of the stuff that we do in terms of website conversion, customer acquisition, metrics, repeat customer
behavior. And if the ultimate goal is happiness,
what if some percent of the time was actually spent just
reading up on the research. That's been done. How can that not only help personally but
how can it help the company in terms of making customers
happy and making employees happy. Because it's not as simple as just asking customers or employees what would make you
happy. You know, a lot of people go through life, trying to get to that ultimate destination
of happiness. But, a lot of people never get there, and
of the people that do get there, a lot of them, most of them, find
that it's actually very short lived. Not quite what they were expecting. What if by reading up on the science of happiness and learning a little bit
about the research, you can kind of short cut some of it and go, to the happiness much
faster. So I just wanted to share some of the
frameworks of happiness that I thought were most interesting from
the research that I read. First framework is happiness is really
just about four things. Perceived control, perceived progress,
connectedness, meaning the number and depth of your relationships, and being part of
something bigger than yourself. And what's interesting is you can apply
this to business as well. You know, connectedness goes back to
company culture. I'll give a quick example for perceived
progress. We used to hire people in our
merchandising department at entry level, and then give them promotions
every 18 months. And you know they get trained and
certified and so on, and in three years they become a
buyer. Well we changed that a few years ago so
that instead of a promotion every 18 months, we gave them
smaller promotions every six months. Nothing changed, they, they, they still
took three years to become a buyer. They still had to go get certified and so
on, but we found employees were much happier cuz there was
that ongoing sense of perceived progress. And it cost the company nothing to do
that. Maslow's Hierarchy, there's a book called
Peak by Chip Conley, P – E – A – K, where he condenses it down to
three levels. And so for example for employees, its do
they think of their work as a job or a career or
calling? And our whole goal at Zappos is to move
them up that pyramid so that they're still employees at
Zappos ten years from now. And then the last framework I wanted to share real quickly are the three types of
happiness. Pleasure, engagement and meaning. And the first type, I like to call the
rock star type of happiness. Cuz it's all about chasing that next high. And it's great if you can sustain it, the
problem is it's very hard to sustain, unless you're
basically a rock star. And what the research has shown is that as
soon as the source of stimuli goes away that's
giving you that high, as soon as that goes away, your
happiness just plummets and drops right down back to
wherever it was before. It's the shortest last, lasting type of
happiness. The second is called flow, and it's about
we've all experienced this, it's about those times where time just flies because you're so into whatever you're
doing. For some people it's running, for other
people it might be painting. And it's three hours passed. Seems like only twenty minutes have
passed. And professional athletes refer to it as
being in the zone, where peak engagement meets
peak performance and other characteristics associated with
it are you lose the sense of self conscious, self
consciousness or even self, and basically the strategy
there is notice when it happens and then change
your environment, your friends, where you live, your job,
and, or so on, to have it happen more often. And the research show that, that's the
second longest lasting type of happiness. And the third type is the longest lasting
type. It's about being part of something bigger
than yourself. And for some people might be, volunteering
for your favorite charity for example. And what I found interesting is most
people go through life chasing after the first type of
happiness, thinking once I can sustain that on an ongoing basis,
which is next to impossible, then I'll worry about
the second type. And then if I ever get around to it, then
I'll worry about the third type. When based on the research data, and
purely on the research data, the proper strategy is
figure out the third type first, layer on top of that the second
type, and then anytime you experience the first type,
just icing on the cake. So some books I would recommend for a copy of this presentation, email
[email protected] Make sure to include the book at the end
in the URL or the email address. And for a culture book that I talked about
make sure to include your mailing address, cuz
it's a physical book. And we'll send it to you. Next time you're in Vegas go to
tourist.zappos.com to get a free tour. We'll pick you up. And, you know, the subtitle of my book is, the title of my book is Delivering
Happiness. The subtitle is A Path to Profits, Passion
and Purpose. And you need all three in order to have a
business that will continue to grow. And companies, you know, so many companies
in corporate America focus on just the profits part of it, and forget
about the passion and purpose. And that actually ends up hurting their ability to generate profits in the long
term. And then I had this weird ah-ha moment
where happiness, you know, is really about being able to
combine pleasure, passion, and purpose. And so, you know, this whole idea of
happiness as a business model is something that, through the book, we want to spread to other organizations and other
companies. And I think we're just at the beginning of the very special time where we're all
hyper connected. Information travels so quickly. Companies culture, companies brand, are,
that lag time is becoming less and less and really, that's how we've
approached things at Zappos. And you know, just want to leave you with
thinking about, what percentage of the time do you
want to spend reading up on the science of
happiness and how can that help yourself personally, your
brand or your business. And the research shows that companies that have a higher purpose actually generate
more profits in the long term and people that have a higher purpose actually are
happier. You know, think about what is your
company's higher purpose and what is your own higher
purpose. And if through this presentation you've
been inspired to make customers happier through customer service or make
employees happier by focusing more on culture and, and figuring out the
vision or just make yourself happier by reading up more on
this whole science of happiness. If any of those things have happened, then
I'll have done my part in helping us fulfill our own higher purpose which is all about delivering happiness to the
world. Thank you very much. [SOUND] [BLANK_AUDIO]

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