When I was a kid, growing up in suburban New Jersey in the fifties, we bought all our shoes from one man. Andrew’s Shoes was more than a shoestore: it was a place where we were taken care of. A first-generation American with a sonorous Italian accent, Andrew would measure our feet, wink at us, find just the right shoe, and make us feel like princes.

It’s a half-century later and the world has transformed—but some of its best features remain. Now the entire nation buys its shoes (or at least, a lot of them) from one man: his name is Tony, and even though hundreds of thousands of us buy our shoes there, he has managed to find a way to make us each feel like princes and princesses.

Tony Hsieh (pronounced “Shay”) joined Zappos as an advisor and investor in 1999, just three months after the company started. By 2000 he had joined Zappos full-time, and within a few years they had developed a company culture focused on ensuring that every customer interaction results in the customer saying, “That was the best customer service I have ever had.” Building a huge word-of-mouth reputation among their legion of devoted customers (more than 60 percent of Zappos’ customers are repeat buyers), the company became legendary for such features as its free shipping (both ways), its “surprise upgrades” (they often ship overnight, just to delight you), a 365-day return policy, and a call center that never closes. “To us,” the company’s web site declares, “customer service isn’t a department—it’s the entire company.”

In the decade from 1999 to 2008, Zappos grew from an idea to over $1 billion in annual gross sales. Today Tony runs a billion-dollar empire that has the culture and feel of a mom-and-pop store, where good things are always happening and business is always fun.

Andrew would have felt right at home. — JDM

Where does the Zappos culture come from?

It evolved over time. The original idea was simple: let’s sell a lot of shoes. There were other Internet companies out there selling pet food and furniture, so our idea was to create a web site with the best selection of shoes. For the first four years, that’s basically all we focused on.

In 2003, we started to ask ourselves, “What do we want to be when we grow up?” Did we want to be about shoes—or did we want to be about something more meaningful? We decided we wanted to be about something beyond shoes; we wanted to build the Zappos brand around being the absolute best in customer service.

We hope that ten years from now, people won’t even realize that we started out selling shoes online, and that when you say “Zappos,” they’ll think, “Oh, that’s the place with the absolute best customer service.” And that doesn’t even have to be limited to being an online experience. We’ve had customers email us and ask us if we would please start an airline, or run the IRS.

I second that emotion.

We’re not going to do either of those things this year. Thirty years from now, I wouldn’t rule out a Zappos Airlines.

One brand we sometimes look to for inspiration is Virgin. They do a lot of different things—music, airlines, and so on—but it’s all the same kind of customer experience. The difference is, the Virgin brand is more about being hip and cool, whereas we want Zappos to be about the best service.

Actually, although customer service is what we want our brand to be about, it is not our number one priority. Our number one priority is company culture.

 

Zappos Core Value

As we grow as a company it has become more and more important to explicitly define the Zappos core values from which we develop our culture, our brand, and our business strategies. These are the ten core values that we live by:

  • Deliver Wow through Service
  • Embrace and Drive Change
  • Create Fun and a Little Weirdness
  • Be Adventurous, Creaive and Open-Minded
  • Pursue Growth and Learning
  • Build Open and Honest Relationships with Communication
  • Build a Positive Team and Family Spirit
  • Do More with Less
  • Be Passionate and Determined
  • Be Humble

Why so?

Our belief is that if we get the culture right, most of the other aspects of the business—like building an enduring, long-term brand, or delivering great customer service—will just happen naturally, on its own.

We formalized the definition of our culture into ten core values [see sidebar—Ed.]. A lot of companies have core values, but usually they are very lofty-sounding. Typically they read like a press release that the marketing department put out and that you learn about during Day One of orientation—but after that it’s just a meaningless plaque on the wall.

We wanted to come up with committable core values, meaning that we would actually hire and fire people based on these values—and we do. Even if we come across someone who seems in every way like the perfect job candidate, someone who has a lot of experience, is really smart, and can make an immediate impact on our top or bottom line, if their personal values don’t match our corporate values, then we won’t hire them.

We know that not hiring that person might hurt us in the short run, but it’s protecting our culture for the long run.

The Zappos culture seems incredibly upbeat; I take it that’s intentional?

We’ve actually had customers tell us that when they receive the perfect pair of shoes or the perfect outfit, they experience Zappos as “happiness in a box.”

Whether it’s the happiness customers feel from opening their box, or from experiencing our customer service or some feature we offer, like our free shipping both ways, or the happiness our employees get from being part of a company whose vision they believe in and whose values match their own personal values—one thing that ties all these experiences together is that Zappos is about delivering happiness, whether it’s to customers or employees.

We apply that same philosophy to vendors, as well.

One of your ten core values that intrigues me is “be humble.” Why is that there, and what does that look like day-to-day?

This is probably the thing that trips us up the most during the interview process, because frankly, there are a lot of smart people who are also really egotistical. Personally, I get annoyed by that, and really would rather see that trait of humility in our culture.

This is also strategic. The moment you think you know everything, that’s the moment you stop learning and stop looking for new opportunities. Making sure we stay humble has to do with the long-term good of the company. We want to make sure that no matter how big or successful we get, we don’t sit back and rest on our laurels.

We’re always looking for new opportunities. We know that no matter who we meet or who we talk to, we can always learn something from them.

When you’re extremely successful, it’s so easy to forget your origins and stop being innovative.

There have been so many big companies that did that, even entire industries. Take the music industry, for example, or the railroads.

How do you keep those core values alive as a force in people’s day-to-day lives?

In part, that’s about integrating them into our hiring and firing, as well as our performance review process. But the power of it really shows up when those values become part of everyone’s everyday language, because then it becomes your default way of thinking, and you have that alignment across the entire organization.

To pick another from the list, you talk about “growth and learning.” How does that play in your culture?

We want our employees to think of their work, not as a job or even as a career, but as a calling. We want them to still be here ten years from now. And the only way that’s going to happen is if they feel they are growing, both personally and professionally.

We have a training team we call the Pipeline Team that offers all sorts of classes and training and mentorship.

Our vision is that one day, nearly all our new hires will be entry-level, and we’ll provide them with all the training and mentorship they need to grow and learn and, within five to seven years, become senior leaders within the company.

This also serves to protect our culture, because then we don’t need to worry about bringing in someone for a higher-level position from outside the company who could potentially do a lot of damage to the culture.

It almost sounds as though, for you, culture for its own sake is as much or even more of a goal than for its bottom-line results.

The great thing is, it’s both. You see this, for example, in Jim Collins’s Good To Great, or in Tribal Leadership [by Dave Logan, John King and Halee Fischer-Wright]. We actually provide the audiobook version of Tribal Leadership as a free download on our website.

Both these books look at what separates the great companies from the merely good ones, in terms of long-term financial performance, and they both identify two important ingredients. The first is having a vision or higher purpose that is meaningful, and not just about profits, revenue or being number one in your market. The second is having a strong culture, which revolves around a strong and clearly defined set of core values. These are both things we strive to do.

So having a strong culture is not only personally satisfying, it’s actually good business, as well.

Zappos’ approach is often described as a “loyalty business model.” How do you create loyalty?

Most organizations try to incentivize employees with bonuses or pay raises. But look at all the HR studies and you find that once employees’ basic needs are met, earning more money is usually #4 or #5 on the list. What’s more important to them than money is what kind of relationship they have with their direct manager, and whether they believe in the company’s vision.

There’ve been studies that show a high correlation between employee engagement and employee productivity. And one thing that correlates with employee engagement is how many friends you have at work, and whether you have a best friend at work. That all plays back into the creation of the culture.

We really put a lot of focus on culture. When we train new managers, we encourage them to spend ten to twenty percent of their time outside the office, hanging out with the team, whether it’s at a dinner get-together, an afternoon hiking, or whatever. We don’t care about the details of what they do; the important thing is that they do it together. It’s about building up those personal connections.

Sometimes new managers are surprised at this, especially if they’ve come to Zappos from other companies. They don’t see how that’s really going to work, how it’s going to add to the productivity of the company. After they’ve participated for a while, we ask them, “Now that you’ve done it, how much more productive is your team?” And they tell us that communication is better, there’s a higher level of trust, people are willing to do favors for each other—because it’s a favor for a friend, not just a coworker—and yes, the team is measurably more productive.

How much more? The answers we get range anywhere from 20 percent to 100 percent more productive.

So it looks counterintuitive, at first, like you’re putting your energy into something that’s not about the company.

Right—but it’s about building up relationships. Again, this is one of those things that is good business as well as being something that feels right. At worst, you break even—and even then, you’re having more fun!

We apply that same philosophy to our vendors and to our customers.

When customers call our Customer Loyalty Team (which is what we call our call center), we don’t have scripts, we don’t have call times, we don’t teach our people to try to upsell. Instead, we want our employees to have a conversation with you, just like talking with a friend, and to try to develop that personal connection.

You offer new employees a cash bonus to quit, which strikes me as one of the most gorgeously counterintuitive things I ever saw. How does that work?

Everyone who is hired at our headquarters, no matter for what position, goes through the same training as our call center reps. It’s a four-week program. We go through our company history, the importance of company culture, our philosophy about customer service, and so forth; and then you’re actually on the phone for two weeks, taking calls from customers. Everyone goes through this program.

At the end of the first week, we make an offer: “We’ll pay you for all the time you’ve worked, plus a cash bonus of two thousand dollars, to quit and leave the company right now.”

We continue to offer that as a standing offer throughout the training period.

So I could go through the entire training, all four weeks, and then take the two grand and leave?

Right—actually, I think we just extended it even beyond that time.

Why do we do this? Because we don’t want people who are here just for a paycheck. We want people who truly feel this is the right culture for them, and who really believe in our long-term vision.

When we started this policy in 2007, about 3 percent of our new hires took the offer. In 2008, we noticed that fewer than 1 percent were taking the offer—so we raised it. Actually, it started out at a hundred dollars, but we keep raising the offer because not enough people are taking it.

You’re worried that you’re not paying people enough to quit. I love it. That’s an unusual business problem!

What’s really interesting is something we did not expect.

Originally, we did this simply because we wanted to weed out those people who were not committed. But we’ve discovered that the biggest benefit actually comes from the people who don’t take the Quit Now Bonus—because they have to go home for the weekend and think about it. They talk to their friends and family, and go through a whole process of deciding whether or not this is a company they genuinely believe in and want to commit to.

Once they decide not to take the offer, they’re that much more committed and engaged.

Do you see your experience as being an anomaly in our world, or do you see Zappos as being indicative of a direction more and more people are following?

There are definitely a lot of companies, large and small, from huge corporations to one- and two-person operations, that are strongly interested in building a genuine vision and a culture with core values.

In fact, we’ve launched a service to help other companies develop along those lines, called Zappos Insights. If you go to ZapposInsights.com, there’s a monthly membership, where companies can subscribe. We have videos from all our different departments, and you can ask them questions. If you have a recruiting question, for example, then our head of recruiting will answer that question on video, and it then becomes available to everyone else.

We’ve also recently started doing Zappos Insights live events, which has generated a lot of interest. People come to Las Vegas and we step them through the whole process in a two-day seminar.

We also offer tours of our offices here in Las Vegas Monday through Thursday. Go to Zappos.com/tours and you can sign up right there. It’s a fun tour that takes an hour to an hour and a half. We’ll pick you up in a Zappos shuttle, give you a tour, then drop you off at your hotel.

Many of our readers are not W-2 workers but 1099 business owners. As an independent businessperson, what steps do I take to create a cohesive culture of my own, within my network of independent reps?

I think a big part of it is being selective. Having a group of independent reps is a lot like having a volunteer organization, and typically most volunteer organizations just accept whoever volunteers.

Here’s what I would say: figure out what are the values you want the organization to have, and then make sure that you’re actually screening people so that their personal values match those values.

One thing that also might interest your readers is our Culture Book, which we put out once a year. We ask all our employees and even our vendors to write a few paragraphs about what the Zappos culture means to them. Except for typos, it’s unedited, so it includes the good and the bad, and you get a pretty good sense of what goes on here.

We’re happy to offer that to your readers for free. [The book normally goes for $21.95—Ed.] All they need to do is email their physical mailing address to me, CEO@Zappos.com, and we’ll send that out to them.

You just fulfilled your #1 value: you wowed me.

 

Zappos Vision

Our goal is to position Zappos as the online service leader. If we can get customers to associate the Zappos.com brand with the absolute best service, then we can expand into other product categories beyond shoes. And, we’re doing just that. Here is our vision:

• One day, 30 percent of all retail transactions in the US will be online.

• People will buy from the company with the best service and the best selection.

• Zappos.com will be that company.