Tony Hsieh is one of most widely respected and successful business innovators in the new economy. As the CEO of www.Zappos.com, the online shoe sales company, he’s achieved phenomenal company growth through revolutionary approaches to marketing, human resources, and customer service.
Tony joined Zappos in the year 2000, and under his leadership gross sales have gone from $1.6 million to over $1 billion in 2008. He joined Zappos because it was the most exciting and promising company a venture capital firm, Venture Frogs, was investing in. Before co-founding Venture Frogs, Tony co-founded and grew LinkExchange from a side business located in his apartment to a cooperative advertising network that reached more than half of Internet-enabled households. Microsoft bought LinkExchange in 1998 for $265 million. This year Zappos announced that it has agreed to have www.Amazon.com acquire 100% of its stock, a deal valued at about $850 million.
TONYHSIEH Thanks for having me.
CHRIS ATTWOOD Tony, the title of the series is Passions of Real Life Legends. Will you share with us how your passions, the things you care most about, have led you to what you’re doing today at Zappos?
TONYHSIEH I guess I’ve just always been really entrepreneurial, and for me the thing I like about being involved in business is it’s all about being creative and trying to think of new ways of doing things that haven’t been done before. I’ve kind of done that all my life, starting with the lemonade stand-type of thing to running a pizza business in college. I had the LinkExchange experience, and now I’m with Zappos.
For me, it’s more about trying to think outside the box and asking the question, Why not? As long as I have the opportunity to do that, what the actual business is doesn’t really matter; it’s more the fact that I feel constantly challenged in terms of creativity, I guess.
CHRIS ATTWOOD That makes sense. You’ve had an interesting story. Would you share that story with us? You mentioned from the lemonade stand to selling pizza in college to LinkExchange and then to Zappos. Can you share with us how you went from lemonade stand to a billion-dollar company?
TONYHSIEH I think it’s really more about-and those are just four or five examples-just growing up in middle school and high school, I was always trying out different business ideas. You only read in the press about the ones that were successful, but there were many, many failures along the way. I think that’s something that I would offer. My piece of advice for any entrepreneur would be, Don’t be afraid of failure, because that’s the only way you’re going to learn and figure out what works and what doesn’t work.
There is a quote that I really like. I think it is by either Albert Einstein or Thomas Edison who said, I failed my way to success. I think there are so many people out there who are trying to get everything geared up and planned perfectly so they don’t fail beforehand. Then they end up basically either never doing it, because they don’t feel like they have all their ducks lined in a row.
What works for me and what I’ve learned is that it’s more important just to do something and then adapt based on what works and what doesn’t work than it is to try to figure out the perfect thing beforehand. That’s just the philosophy I’ve taken through everything I’ve done. With LinkExchange, for example, on the outside it may have seemed like a success, but the reason why we actually ended up selling the company was because by the time it was 100 people, the company culture went completely downhill.
For me it just wasn’t a fun place to work anymore. With Zappos, culture has always been important from the beginning, initially just because I didn’t want to make the same mistake again. Today, culture is our number one priority, and that’s what’s gotten us to where we are. If I had gotten involved with Zappos without having had the LinkExchange experience, I’m sure we would be one of those companies where culture is important but we wouldn’t place nearly as much emphasis on it as we do now.
The failure from LinkExchange really resulted in what differentiates Zappos from everything else. I really don’t think we would have become the size we are now if we hadn’t focused as much on company culture.
CHRIS ATTWOOD I think I’d have to agree with you from having seen some of what you’ve done at Zappos. It’s clear that the culture is what has driven you and what makes Zappos so unique, as well as makes it so attractive to customers. You didn’t originally plan on going to work at Zappos. As I recall, you got out of LinkExchange and it sounds from the way you’re describing it that you said, Maybe I’ll just invest in companies so I don’t have to go through that experience again. Is that what was going on?
TONYHSIEH Yes, also what I really like is new ideas. There is something about learning about new ideas, companies, businesses, and so on that’s just exciting. The original thought in investing was that this would be a great way of being exposed to a lot of new ideas, and that was true. We invested in 20-something different companies. What I hadn’t really thought through was what you do after you’re done investing. There aren’t new companies to invest and the funds have been used up.
Basically, what we ended up doing was spending most of our time with the companies that weren’t doing well, because if a company is doing well they don’t really need our advice or help or anything. Spending the time working with companies that weren’t doing well isn’t that fun. The bigger thing was just sitting on the sidelines as an investor and advisor was actually kind of boring. I missed being part of actually building something. That’s why within a year I ended up joining Zappos fulltime.
CHRIS ATTWOOD What was it about Zappos as opposed to the other companies you’d invested in that made you say, I want to get involved in this one?
TONYHSIEH It was a few different things. The business itself seemed promising. I really enjoyed the people there, and then it was also the one in which we had the most money invested. It was all of those things.
CHRIS ATTWOOD That makes sense. You and I were recently in Calgary, and we had the good fortune to spend time with the Dalai Lama, Richard Branson and some other people, and I got the chance to hear you talk a little bit about Zappos there. You used to talk about Zappos having a passion for customer service, and you shared with us in Calgary that now you see the company as being about delivering happiness. What caused that shift?
TONYHSIEH It’s not really a concept shift as much as it is just making the universe bigger, or having a bigger vision. That’s really how we evolved. I was trying think of, How do we think bigger? How do we have a greater vision? Delivering great customer service is about making customers happy. The culture side is about making employees happy, and both of those are extremely important to us.
You zoom out of it, and the thing that ties all of that together is delivering happiness in general. That also, then, gets us thinking bigger. If we can deliver happiness to customers, if we can deliver happiness to employees, then we can apply that same concept to vendors and we can apply that concept to the world in general, even if they’re not customers.
Also, I think, that gets people into the mindset that it’s not just about, for example, my own personal happiness. It’s also not just about the happiness of Zappos employees, but really how you can take this concept and scale it to effect change in the world in general. That’s one of the reasons we have this program called Zappos Insights. Today we have Zappos Insights Live where we have 24 people from other companies come in.
It’s a two-day seminar that we’re doing. Basically, we’re sharing with them our approach to company culture, customer service and so on. They can take whatever makes sense to them and apply to their own business. One of our core values is about being open and honest. We share everything with them. I remember being asked once-it might have been four or five years ago-when a competitive company wanted to know what our interview questions were and how we interviewed people.
Our head of recruiting asked me if we should share that information or not. If we went back to one of our core values, which is about being open and honest, will sharing that information make the world a better place? The answer in our mind was yes. That’s why we do some of the things that we do, which may seem counter-intuitive, or may seem like it would put us at a competitive disadvantage by sharing. However, for me that’s kind of the litmus test of whether we should do something or not.
CHRIS ATTWOOD The litmus test being, will it make the world a better place by sharing this?
TONYHSIEH Yes. Another way I think of things, for myself personally, is if everyone in the world acted exactly the same way for this particular decision? What would the world look like? At least for me, that’s a helpful thought or experiment for guiding personal decisions. Forget Zappos. For example, if a waitress messes up on an order, should you give her a hard time about it? What if everyone in the world did that? Would the world be better off or worse off?
CHRIS ATTWOOD Worse off, I would think. It’s a great way of looking at things. It occurs to me-and I didn’t hear this directly from you-that you apply many of these principles in your personal life, as well as in your business life. Isn’t that the case?
TONYHSIEH Yes. For us-not just me, but in general–we’re really looking. When we hire employees at Zappos we actually do two sets of interviews. The first set is for the standard experience, technical ability and so on. Then our HR department does a separate set of interviews purely for culture fit. They have to pass both in order to be hired.
We’ve kind of formulized the definition of our culture into 10 core values. Basically what we’re looking for are candidates whose personal core values match the company’s core values. Then the integration is pretty seamless, and anything that applies to how the company thinks about its approach to the world and people, the person automatically does as well because there is a values match.
CHRIS ATTWOOD That makes sense. It’s actually a very powerful concept. You mention one of the values as being open and honest, and sometimes I’ve heard you speak about that as transparency, or being transparent. Are there any areas or times when you’re simply not able to be transparent for one reason or another?
TONYHSIEH Yes. However, for legal reasons we can’t. For example, there’s certain employee information that needs to be kept confidential for legal reasons. We announced in July that Amazon was going to acquire us, but because Amazon is a public company there were SEC rules and regulations where we couldn’t tell our employees in the months leading up to it that it was something that we were working on or talking to Amazon about. Whereas, if it weren’t for those legal restrictions we would have told our employees and kept them informed every step along the way.
CHRIS ATTWOOD Very cool. Are there any things other than legal reasons that would cause you to say, This is something we shouldn’t share? or we shouldn’t be transparent about?
TONYHSIEH I can’t really think of anything off the top of my head. There are definitely areas where you can use good judgment. For example, if there’s an opportunity for an employee to improve-let’s say the employee made a mistake or something like that-typically the manager would just talk to the employee one-on-one. The manager wouldn’t email the entire company or put a blog post up about what went wrong.
CHRIS ATTWOOD It sounds like you use common sense, as well as legalities. What will serve the individual and also serve the organization? Is that a fair way of saying it?
TONYHSIEH I think common sense is sometimes pretty hard to come by in a business contacts, because there are a lot of assumptions built into how business should be run. For example, we share our sales numbers with every single employee, where common sense would say, You shouldn’t do that.
CHRIS ATTWOOD Is it a matter of asking if sharing the information would produce some harm? I’m trying to get to what the criteria is that you use?
TONYHSIEH In general, we err on the side of sharing more rather than not sharing. It goes back to asking the question, Why not? We have daily sales reports, and when we first started sending it out to the entire company some people were concerned and said, I’m not sure we should do this. I just asked them why not, and they said the information might get out there.
You have to step through that, asking, What is the actual harm if the information did get out there, and then compare that with the benefit of it. Ultimately, the benefit of being open and honest is that it builds up trust, and that’s really important in the workplace.
CHRIS ATTWOOD Absolutely. You have created an environment, a culture, you and all of those at Zappos, which has become pretty famous for the amount of fun it appears you have. As we were getting ready for this interview there was some noise in the background. I asked you what that was, and you said there was a tour coming through, and the different departments were greeting the tour as they came through.
Will you describe a little bit about some of the goings-on at Zappos, the tours and those pictures you sometimes see of Zappos employees dressed up in costumes. How does all that work into running a business?
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