Zappos CEO Tony Hsieh

Zappos CEO talks about getting people to buy into his unique vision for corporate culture, which he details in his first book.

Widely-admired as the CEO of Zappos, Tony Hsieh has achieved phenomenal growth for the online shoe retailer and helped it land on Fortune's list of Best Companies to Work For. Following his success with other ventures—a firm that invested in Internet startups, and LinkExchange, an advertising network that he co-founded and, at age 24, sold to Microsoft—he joined Zappos as an advisor-investor. Hsieh is a Harvard grad and was a software engineer at Oracle. He details many of the company's unique practices in his first book, Delivering Happiness.

TRANSCRIPT

Tavis: Tony Hsieh is the CEO of Zappos.com, which began as a relatively small online shoe retailer and burgeoned into one of the most successful dot-coms out there today. As I mentioned at the top, Zappos is now part of the Amazon family but remains independently run.
Tony Hsieh’s new text is called, “Delivering Happiness: A Path to Profit, Passion and Purpose.” Tony, good to have you on this program, sir.
Tony Hsieh: Thanks for having me.
Tavis: Let’s jump right in – “Delivering Happiness.” It’s all about what?
Hsieh: Well, I think maybe 50 years ago people and businesses felt like they had to choose between maximizing profits and making customers happy or making employees happy, and I think we’re actually living in a special time where everyone’s hyperconnected, whether through Twitter or blogs and so on. Information travels so quickly that it’s actually possible to have it all, to make customers happy through customer service, to make employees happy through strong company cultures, and have that actually drive growth and profits.
Tavis: I think you’d be hard-pressed now – I haven’t done a scientific survey about this, but I’ve seen many. I’m not sure that most American consumers believe that businesses care about the customer, much less delivering happiness to them. That’s obviously a different story than what happens at Zappos.
But why is it that most American consumers don’t believe that business cares about them, much less delivering happiness to them?
Hsieh: Well, I think because most businesses don’t. Most businesses are really just focused on the short-term profits. What we’ve found is actually we’re basically trying to build the Zappos brand to be about the very best customer service and customer experience.
Our whole philosophy is let’s take most of the money we would have spent on paid advertisement and paid marketing and instead invest it into the customer experience. So things like free shipping both ways, surprise upgrades to overnight shipping, not having scripts in our call center and not trying to get customers off the phone, that’s really driven a lot of our growth over the years.
We’ve grown from no sales in 1999 to over $1 billion in gross merchandise sales every year, and the number one driver of that growth has been through repeat customers and word of mouth about the customer service.
Tavis: So you can do this and make money at the same time.
Hsieh: Yeah, and on top of that we set as an early goal to make the Fortune 100 Best Companies to Work For list, which we were super excited to make the last two years in a row. So it’s not just about customer service but it’s – the title of the book is “Delivering Happiness” because it’s about making employees happy and making customers happy and then ultimately driving business results.
Tavis: Seems to me that if you’re – and I was going through the book last night – if you’re going to deliver happiness you have to start with people, or at least help to create people who are happy doing what they do. It’s kind of hard to deliver happiness – if Santa Claus is a grouch, he ain’t making kids happy.
Hsieh: That’s true.
Tavis: So if you go deliver happiness, you’ve got to first be happy. How do you find these happy people?
Hsieh: I think part of it is really trying to find people who believe in the long-term vision of the company, and ultimately there’s been studies that have been done that show that companies need to have a higher purpose, beyond just money or profits or being number one in a market.
What’s interesting about that is by having a higher purpose that’s more than just about profits. You actually end up making more profits in the long run because employees really are a lot more engaged and customers see the higher purpose in the company.
Tavis: There’s a biblical verse that I’m fond of that says that where there is no vision the people perish. So somebody has to give the people a vision, so you’ve laid this vision out. But how do you get people to buy into that vision?
Hsieh: Well, for us, really, we just say, “This is who we are.” We wanted to make employees happy and we want to make customers happy through customer service. Then actually it goes beyond Zappos. We’ve actually now, we have a programs called ZapposInsights.com, for example, where we’re helping other companies create their own strong cultures to make their employees happy.
So not everyone buys into that, but for the ones that do, those are the people that we tend to hire. So last year we had over 25,000 people apply to work at Zappos and we hired only 1 percent of them.
Tavis: To your point about the hiring process, which is fascinating – you talk about this in the book – you have a process where during the – I’ll let you explain it, but during your training program you can get up to $2,000 if you quit during the training program. I’ve never heard of a job that pays you to quit. Tell me how this process works. It’s pretty fascinating.
Hsieh: So everyone that’s hired in our offices in Las Vegas, it doesn’t matter what position, you go through the exact same training as our call center reps. It’s a four-week program and two of those weeks you’re actually taking calls from customers.
So at the end of the first week – it actually started out at $100 a few years ago and it’s now actually up to $3,000, where you just say we’ll pay you for all the time you’ve spent training, plus a bonus of $3,000 to quit and leave the company right now.
The reason we do that is because in Vegas there’s plenty of other call centers. Starting pay is $11 an hour, and we don’t want employees that are there just for a paycheck. We want employees that really believe in the long-term vision of the company and really feel like this is a culture they want to be a part of, where the company’s core values match their own personal values.
Tavis: I’m not going to try that with my guys. (Laughter) I’m looking around the room, thinking, “If I just offer these guys some money to quit, the camera might be dead right about now, I don’t know.”
To your point about working in these call centers, something else that you guys do differently than most companies – you don’t have people working off of a script.
Hsieh: Right.
Tavis: I can always tell when I get a cold call, or when I call in to a call center; I think I’m calling downtown, I’m calling Taiwan somewhere.
I can always tell when somebody’s talking to me off of a script, in part because of what I do for a living, I guess. But what’s the difference and why not have people operate off of a script like everybody does these days?
Hsieh: Well, it’s funny, because there’s so much talk, especially in the advertising world, about consumers being bombarded with thousands of marketing messages every day, and people are spending money on the Super Bowl.
For us, we think the telephone is one of the best branding devices out there. So rather than view it as an expense center, we’re trying to minimize and maximize the efficiency of scripts and looking at how long phone calls are. We don’t measure call times. Our longest phone call was almost six hours long, actually, (laughter) and we’re happy to talk to customers and yeah, we really just want to develop a personal, emotional connection with each and every customer.
It’s not about trying to maximize a sale; it’s about building that lifelong relationship. So if someone calls in and is looking for, say, a pair of shoes we happen to be out of stock on in their size, everyone’s trying to look on at least three other websites and they find it there, direct the customer to that other website.
Obviously we lose that sale, but we’re trying to build our brand to be about the very best service.
Tavis: As I mentioned at the top and you mention now, most of us have come to know Zappos because of the shoe connection, so to speak. But there’s a wonderful story that you tell about – the pizza story.
Hsieh: Oh, yeah, the pizza story.
Tavis: I don’t want to color the story but it’s a great story, so tell the pizza story.
Hsieh: Well, yeah, this was in Santa Monica, California a few years ago. I was at a sales conference for Sketchers, which is one of our brands, and after a long night of – we were busy during the day and then at night we went bar-hopping and then went back to the hotel room.
There was a group of five or six of us, tried to order a pizza from the hotel room and they weren’t serving hot food at the time. So in our slightly inebriated state (laughter) we basically said, “Oh, call Zappos, call Zappos. We’re all about the best service.”
And yeah, we thought it was funny; the Sketchers person wasn’t quite as amused. (Laughter) But basically she took us up on our dare and put it on speakerphone, called Zappos and basically tried to order a pizza, and the rep said, “You know we sell – you called Zappos, right? We sell shoes, clothes, but not pizza.” (Laughter)
Tavis: Not pizzas, yeah.
Hsieh: Yeah. Then she said, “Yeah, but I’m super hungry,” and the rest of us were in the background trying not to laugh, and then the rep put us on hold and came back two minutes later listing the five closest places that were still open in the Santa Monica area and delivering pizza.
So I can’t believe you just made me tell that story on air, because now everyone – I don’t want everyone -
Tavis: Zappos does not do pizza, y’all.
Hsieh: Yeah, so don’t order a pizza, yeah.
Tavis: It’s just a story. (Laughter)
Hsieh: But obviously we don’t have a process or procedure for late-night drunk pizza orders, and if you had a script for it I’m not sure how that would turn out. (Laughter) But that’s just an example where now that person from Sketchers is a customer for life. If you get the culture right and make sure everyone understands the long-term vision of the company, then a lot of this stuff just takes care of itself and becomes very human and personal, and that’s what we’re all about.
Tavis: To your point, why we don’t want people calling Zappos trying to get pizza when they’re slightly inebriated, or more than slightly inebriated late at night – I noticed that word “slightly” you snuck in there. (Laughter)
Hsieh: The lawyers are watching us.
Tavis: Yeah, exactly. You’re telling the story, so it will be slightly inebriated. That said, though, it had to make you feel good, in your slightly inebriated state, when your company delivered while your client was on the phone.
Hsieh: Yes, and it still makes me feel good in my very sober state, so. (Laughter)
Tavis: You mentioned earlier that you have a program now basically that you talk to other companies and help educate them, help enlighten them about how this process, this goal of delivering happiness can work not just for you but work for them. If you tell all your competitors and everybody else your secrets -
Hsieh: Well, so company culture is one of those things that can’t be copied, and so we actually invite – our headquarters are in Las Vegas and we offer tours to the public. Anyone watching can just go to our website at tours.Zappos.com, sign up right there, and we’ll pick you up in a Zappos shuttle, give you a tour. That’s actually how you really experience our culture, and that’s what we share with the public.
But in terms of helping other companies, it’s not about having them replicate our culture, because in most cases that wouldn’t make sense. It’s more about helping them figure out their core values and building their own strong cultures that are right to them.
So it’s really cool because we’ve had companies that have read the book or come through the Zappos Insights program, like the Atlanta Refrigeration Company. Based in Atlanta, they do refrigeration and repairs out in the field, so in some ways you can’t think of a more opposite company or industry. Yet they went back and focused on culture and they showed us before and after pictures and now employees are much happier, customers are happier, and their profits and revenues are up in a pretty tough economic time.
Tavis: We had a picture on the screen while you were talking a moment ago of you in the cubicle area where you actually work. Tell me about – you’re the guy that runs this operation, but tell me about your office, your physical office.
Hsieh: Yeah, well I – it’s not just me; almost all employees have a cubicle and really, we believe in an open-door policy and the best way to have an open door policy is to not have a door in the first place.
Tavis: But you’re part of that as well, though.
Hsieh: Yeah, and definitely you can overhear each other’s phone calls and so it just helps make you feel like you’re really part of the action. For me, I think I’d give pretty – if I were in a corner office or in an office anywhere I’d be pretty lonely, I think. (Laughter)
Tavis: Tell me about your personal back story. How did you come to be at the epicenter of all of this?
Hsieh: Well, so back in 1996, during the first Internet dot-com boom, I started an Internet company with a college roommate called Link Exchange, and we grew that to 100 or so people and then ended up selling the company to Microsoft in 1998.
But what a lot of people don’t know is the reason why we sold the company, and it’s because I remember when it was just five or 10 of us, it was a lot of fun, we were working around the clock, sleeping under our desks, had no idea what day of the week it was, but we didn’t know any better to pay attention to the company culture and eventually the culture just went downhill.
At first we hired friends to join us and got up to 15 or 20 people, but then eventually we ran out of friends and so we had to hire people we didn’t know that weren’t all good for the culture, and I remember myself, by the time we got to 100 people, I dreaded getting out of the bed in the morning to go to the office, and that’s kind of weird because that was a company I co-founded.
So that drove the sale, and with Zappos we wanted to make sure we didn’t make that same – and there’s so many people that they’re a different person in the office versus at home or on the weekends, and people leave a little part of themselves, or in a lot of cases a lot of themselves, a big part of themselves, at home.
We wanted to create an environment where you’re the same person, you can be yourself in the office, and we found that when that happens that’s when the ideas come out, that’s when creativity happens, and that actually improves the productivity of the company.
Tavis: The Zappos story has been talked about just about everywhere. It’s hard to read any business magazine, business publication or major newspaper that has not covered their story. Thankfully now there’s a book about it that you can read. It’s called “Delivering Happiness: A Path to Profit, Passion and Purpose,” written by the CEO of Zappos. Tony, good to have you on the program.
Hsieh: Thanks for having me.
Tavis: Tony Hsieh.
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  • Bo Garrison

    This was a great story. I’m definitely intrigued to know more.

Last modified: April 26, 2011 at 12:28 pm