Leading@Google: Tony Hsieh

Uploaded by AtGoogleTalks on 19.07.2010

>>Ming: Welcome to another Leading@Google talk. The Leading@Google series is getting
interesting folks from outside to speak on interesting topics involving leadership and
reaching out to the community. My name is Ming. I'm the Jolly Good Fellow of Google
and I'm honored today to introduce a friend, a better Jolly Good Fellow, a Jollier Gooder
Tony Hsieh. Tony is the CEO of Zappos and the author of this book, "Delivering Happiness."
In 1999, at the age of 24, even younger than me right now, Tony sold LinkExchange, the
company he co-founded to Microsoft for 265 million dollars.
[audience member coughs]
He then joined Zappos as an advisor and investor and eventually became CEO, where he helped
Zappos grow from almost no sales to over one billion dollars in annual sales, while simultaneously
making Fortune's magazine's list of Best Companies to Work for. In November, Zappos was acquired
by amazon.com, in a deal valued at 1.2 billion dollars.
Tony is a huge inspiration for me. One of my goals in life is to create happiness in
the workplace by doing it from bottom up, but while Tony does it from top down as CEO
and he does it systematically and he does it in a way that is very profitable for his
company. His example is deeply inspiring for me and I hope he will become a model for all
the CEOs in the world. And with that, please welcome Tony Hsieh.
>>Tony: Thank you. So, everyone can hear me ok? I wanna take a quick survey first. How
many of you have actually purchased from Zappos before? Oh, wow. So normally when I do this
survey, the ratio is about two to one, women to men, and a lot of guys that I ask say they
themselves personally haven't, but their significant other or wife has and so I was actually giving
a tour of our headquarters in Las Vegas and, and we actually give tours to the public,
so next time any of you are in Las Vegas, we'll pick you up in a Zappos shuttle from
the airport, give you a tour and then drop you off at your hotel afterwards.
It's a lot of fun and I'll give the information later on on how to get a tour, but anyways,
I was giving a tour to an executive from one of the major record labels and I asked him
the exact same question, and he said no, he personally hasn't shopped from Zappos, but
he suspects his wife has because these white boxes would show up at his doorstep and then
they'd disappear and he wasn't sure if she was returning them or exchanging them or what
was going on. And every time he asked her, she refused to answer what was, answer him
and tell him what was going on.
So, anyways, we went through the ground floor of our office and that's where our merchandising
team is and then we went upstairs to our customer loyalty team, which is our name for our call
center and, and he sat down next to one of our call center reps and forced her to pull
up his wife's account.
And he discovered that she had spent over 62 thousand dollars in, in his lifetime, so—
Audience Member: Wow.
Tony Hsieh: Yeah. Hopefully we weren't instrumental in any divorce proceedings or anything.
So, before getting into Zappos, I wanted to talk a little bit about what led me to Zappos.
And the story actually begins with pizza. In college, I was running a pizza business
with my roommate, we were, probably had three or four hundred students in our dorm. We were
on the ground floor and we were responsible for investing in the ovens and we hired the
workers, set the menus, and occasionally, I was making the pizzas myself as well.
And this guy named Alfred, who's now our CFO and COO at Zappos -- this is actually how
we met was over pizza. He would stop by every night and order this large pepperoni pizza
from me. And for me it wasn't actually that weird 'cause he, I remember late nights there'd
be ten of us at a Chinese restaurant somewhere and he would literally finish everyone's leftovers.
And we had nicknames for him like, "Human Trash Compactor," or "Monster," and so, but
then sometimes he would stop by a few hours later and order another large pepperoni pizza
from me. And I was just thinking, "Wow. This boy can really eat."
Well, I found out several years later, he was taking the pizzas upstairs and selling
them off by the slice. So--
that's why he's our CFO and COO today at Zappos. So, after the pizza business, the same roommate
I was running it with -- his name is Sanjay -- he and I got together and formed a company
called LinkExchange.
This was back in 1996 during the early dotcom days and we grew that company to about a 100
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 ended up selling the company and it's because the company culture
just went completely downhill.
And I remember when it was just five or ten of us it was kind of like your typical dot-com
back in the day. We were working around the clock, sleeping under our desks, had no idea
what day of the week it was, trying to remember to shower every few days and -- but it was
a lot of fun. And as we were growing, we had friends that were on trips across the country
on vacation and they would stop by and hang out for a day or two and then we'd hire them
and they never made their way back home.
And that got us to about 15 or 20 people and then when we got to 20 people, it was still
a lot of fun, but we ran out of friends.
And so, we started hiring people that had all the right skill sets and experiences,
but they weren't necessarily good for the culture. And there wasn't any one hire that
made the culture go downhill, but just slowly over time, by the time we got to a 100 people,
I, myself, dreaded getting out of bed in the morning to go to the office and that was kind
of a weird feeling 'cause this was a company that I had co-founded and felt like I had
lost control of the culture and if I felt that way wondered how all the other employees
So, that's really what drove us to sell the company to Microsoft and after selling the
company, Alfred and I got together and we formed an investment fund and we invested
in probably about twenty or so different Internet companies and Zappos just happened to be one
of them. But over the course of a year, I realized that for me, investing was really
I felt like I was sitting on the sidelines and not really involved and, and I really
missed being part of building something. And so within a year, I joined Zappos full-time
and I've been with Zappos ever since. I'm sure many of you have heard, last July, Amazon
announced they were acquiring Zappos and that deal officially closed in November, but actually
it's very different from most deals that Amazon has done. In most of their deals, the plan
is to acquire the company and then integrate it into Amazon.
For this, as a pre-conti-, condition for even talking about the, the scenario, we told them
we wanted to remain independent and continue to grow the Zappos brand and our culture and
our way of doing business our way. And so, they've actually, they've stayed true to their
words so we're pretty happy with that and basically, instead of flying once a quarter
to the Bay Area for board meetings, we now fly once a quarter to Seattle.
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 have a saying. We say that we're a service
company that just happens to sell shoes. And we actually sell a lot more than shoes now;
we sell clothing, even beauty products, kitchenware, houseware. And our whole goal is that we're
hoping ten years from now, people won't even realize we started out selling shoes online.
We really just want to build our brand to be about the very best customer service and
we've grown from basically no sales in 1999, to -- in 2008 was the first time we hit a
billion dollars in gross merchandise sales and we're continuing to, continuing to grow.
In Q1 of this year, our net sales were up almost 50% year over year, previous year.
And the number one driver of all that growth has been through repeat customers and word
of mouth. So, our whole philosophy is, "Let's take most of money we would have spent on
paid advertising or paid marketing, and instead, invest in the customer experience and let
our customers do the marketing for us." And we've, we're thinking 20 or 30 years from
now, we've even had customers email us and ask us if we would please run an airline or
the IRS and--
you know, we're not gonna do either of those things this year, but--
you know, 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 we look to for inspiration sometimes is Virgin. They're in a whole bunch of different
businesses: music, airlines, and so on. The difference is the Virgin brand is more about
being hip and cool whereas we just wanna be about the very best customer service. So,
in any given day, about 75% of our orders are from repeat customers. And when people
ask us, "So, what does it mean to give great customer service?" Well, these are some of
the questions we think about.
We think about what customers expect and then what they actually experience and so when
you go to our website, I'm sure as many of you know, we offer free shipping both ways.
So a lot of customers will order ten different pairs of shoes, try them on with ten different
outfits in the comfort of their living room, and send back the ones they don't like or
don't want. And we encourage that type of behavior.
We've actually found that customers with higher return rates, maybe on a per order basis,
are less profitable, but on a, in terms of actual dollar basis, end up being more profitable
than customers that never return anything at all because they end up being more comfortable
with the process and trying out new products they wouldn't normally try out if it wasn't
free shipping both ways.
We think about what are the stories that they'll tell each other and so a lot of our investment,
actually what we found is on a lot of other ecommerce websites, most of their investment
is on what happens in order to get the customer's credit card number, whereas we really focus
on what happens after we get the credit, credit card number from the customer.
And there's a lot of different things we do. We run our warehouse 24/7, which actually,
is not the most efficient way to run a warehouse. The most efficient way is to let the orders
pile up and then the picker has higher picking density when walking around the warehouse.
But we're not trying to maximize for efficiency of the warehouse -- we're trying to maximize
for the customer experience.
And our warehouse is located about 15 minutes from the UPS hub in Louisville, Kentucky,
and because of that and because we also do surprise upgrades to overnight shipping for
most of our loyal repeat customers, a lot of our customers order as late as midnight
Eastern and then their shoes show up on their doorstep eight hours later.
And that creates that whole "wow" experience and, and emotional impact that causes them
to remember us for a very long time and tell their friends and family about us. We also
have a 365 day return policy for people that, I guess, have trouble committing or making
up their minds--
and we also have our one eight -- you know, most websites it's very hard to find contact
information. It's usually buried five links deep and maybe it's an address that you can
email 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's funny 'cause sometimes I'll be speaking at advertising or branding conferences and
there's a lot of discussion about consumers being bombarded with thousands and thousands
of marketing messages every day. How do you get your message to stand out or how do you
get your brand to stand out?
And, as kind of low-tech and unsexy as it may sound, our belief is the telephone is
one of the best branding devices out there. Cause you have the customers undivided attention
for five to ten minutes. And what we found is if we get the interaction right, that's
something that customers remember for a very long time. And so, we've also done studies
when we've found that customers that do, do come in contact with us end up buying more
frequently and spending more money.
So, we're actually trying to figure out how do we get more customers to call us. And it
may seem weird for, for, for an Internet company to really want customers to contact us through
the phone. Most of our phone calls actually do not result in orders.
Only about 5% of our overall sales volume is through the telephone and, but, customers
call for all sorts of different reasons. Maybe it's their first time going through the returns
process and they just need a little help stepping through how to print out that free return
label. Or maybe they have a wedding this weekend and they just want some fashion advice and
we have some customers that call us, I think, just 'cause they're lonely and--
we'll talk to them as well. We run our call center very differently from most call centers.
Most call centers are, again, a, g-, focusing on efficiency, viewing that as in the lens
of expense minimization, whereas for us, we really view it through a branding lens. What
can we do to really build the Zappos brand to be about the very best customer service?
And what we found is that, on average, every customer does call us at least once sometime
during their lifetime. And if we get that interaction right, it's something they remember
for a very long time and tell their friends and family about and that's really what drives
a lot of our growth. So, we don't have scripts; we don't measure call times.
Most call centers are all about how many customers can each rep talk to, which translates into
how quickly we can get the customer off the phone. In fact, our, I just found out, got
an email yesterday. Our longest phone call was 7 1/2 hours long, from last week I think.
And, I'm not sure how the bathroom situation worked out for them, but--
but, we -- and in fact, if someone calls and is looking for a specific pair of shoes, if
we're out of stock of their size, everyone's trying to look on, at least, three competitor
websites. And if they find it there, direct the customer to the competitor. And, obviously,
we lose that sale, but we're not trying to maximize for every single transaction.
We're trying to build a lifelong relationship with our customers. So, for all this about
building our brand to be about customer service, customer service is actually not our number
one priority. Our number one priority is company culture. And our whole belief is that if we
get the culture right, then most of the other stuff, like delivering great customer service
or building a long-term enduring brand or business will just happen naturally on its
own. So, there's a lot of stuff that we really invest in on the culture side and it starts
with the hiring process.
When we hire people, we actually do two completely different sets of interviews. The first set
is kind of your standard stuff that the hiring manager and his or her team will do -- interview
for fit within the team, relevant experience, technical ability and so on. But then we do
a second set of interviews done by our HR department, purely for culture fit. And they
have to pass both in order to be hired.
So, we've actually 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 a culture fit, then we
won't hire them. And the reverse is true, too. Even if someone is a superstar at their
specific job function, if they're bad for our culture, we'll fire them just for that
reason. And our performance reviews are 50% based on whether the employee is living and
inspiring the core values of the company, which is essentially a formalized definition
of our culture.
The other thing that we do is everyone that's hired into our headquarters in Las Vegas,
it doesn't matter what position, goes through five weeks of training. One week is in Kentucky
later on where our warehouse is; they do all the warehouse functions, picking, packing,
shipping, receiving and so on. But the first four weeks, they go through the exact same
training, same training as our call center rep and we go over company history, the importance
of company culture, our philosophy about customer service, and then you're actually on the phone
for two weeks taking calls from customers.
And the reason we have everyone, regardless of what department they're eventually gonna
end up in, do that is because if we're serious about building our brand to be about the very
best customer service, then customer service shouldn't just be a department. It should
be the entire company. And during that process, we, we, it's an additional betting period
for us because it's pretty hard to fake an attitude for that long a period of time and
there's actually been people that had, we've had to let go during that process because
they felt customer service was beneath them and this is all before they actually started
their actual job.
The other thing we do is, at the end of the first week of training, we make an offer to
the entire class. And the offer is this: We will pay you for the time you've already spent
training plus a bonus of $2000 to quit and leave the company right now. And that's a
standing offer until the end of training and then we actually extend it a couple months
after that and up it to $3000.
And the reason we do that is we want, and you know, Las Vegas, there's plenty of other
call centers. Starting pay is $11 an hour and we don't want someone that's there just
for a paycheck. We want employees that are there because they really believe in the long
term vision of the company and really feel like this company culture is one that they
want to be a part of and contribute to. And only about two or three percent of people
end up taking the offer.
When we first started this offer a few years ago, it actually started out at a hundred
dollars and we keep upping the offer. It's now at $2 or $3000 dollars because we feel
like not enough people are taking the offer.
But our original intention was actually to weed out the people that would've probably
left the company or been fired six or nine months down the road anyways. But what we
found was the biggest benefit to it is actually from the people that don't take the offer
'cause they still have to go home over the weekend, talk to their friends and family
and ask themselves, "Is this a company that I really believe in and want to commit to?"
And when they decide to turn down the easy two or three thousand dollars, when they come
back to the office on Monday, they're that much more engaged and passionate and committed
and by far, that's been the biggest benefit of doing that.
The other thing we have is something called a Culture Book, which I'll give instructions
later on for how to get one for free, but it's something we put out once a year and
we've done it for I think six years now, and we ask all our employees to write a few paragraphs
about what the Zappos culture means to them. And except for typos, it's unedited. So, it's
like when you go to Amazon, customer reviews of a product, these are essentially employee
reviews of the company.
And it's also, it's organized by department so you can see how the warehouse culture might
be slightly different from the accounting culture and I'll make that freely available.
We also train everyone on how to use Twitter. If you go to twitter.zappos.com, there's a
link where you can see the 500 or so Zappos employees that are active on Twitter and there's
another page where you can see in an aggregated page of all, all the employees' tweets together.
So, that can also give you a pretty good sense of our culture.
So, for the next several years at least, the way we're thinking of the Zappos brand is
internally, we refer to it as the three Cs; clothing, customer service and culture. And
this is essentially based on the life cycle of the customer.
So customers that have never heard of Zappos have no idea what we do. We want them to know
that we have a great selection of clothing and footwear and other product categories.
Once they know about that, then we want them to know that we're all about the very best
customer service. And that's not something that, so much we tell them, as they experience
when they call our call center or experience that surprise upgrade to overnight shipping,
or see how easy the free return shipping is.
And once they know that we're all about the very best customer service, then we want them
to know about our culture and our core values, 'cause that's really the platform that makes
everything possible. So, we've actually had customers tell us that when they get that
perfect pair of shoes or perfect outfit, that Zappos is happiness in a box. So, whether
it's the happiness that employees, that customers feel when they get that perfect outfit or
the happiness that customers feel when they experience great service or have a great customer
experience, or the happiness that employees feel from being part of a culture where the
core values of the company match their own personal values, the thing that really ties
all these things together that we realize is that Zappos is really just about delivering
happiness, whether it's to customers or employees and we apply that same philosophy to vendors
as well. And so, hence the title of my book that just came out.
So, I wanted to talk about two books. When, when you come on the tour, you'll, first thing
you'll see in our lobby is the Zappos library. And we have about 30 or 40 titles there. And
it's not a lending library; it's actually a giving library. The books are freely available
to employees and to visitors alike, but two of the titles that we really, really, that
I, and also that I personally really like are "Good to Great" by Jim Collins, and "Tribal
Leadership." And, in fact, we partnered with the authors of "Tribal Leadership" to the
audio version is actually available for free to download from the Zappos website. And,
in fact, we even teach classes on both of these books at Zappos.
And the reason why I find both of these books interesting is because the authors did their
research and looked at what separated the great companies, in terms of long term financial
performance, from just the good ones. And, they found that there were two important ingredients
that the great companies had that the good ones, or mete-, mediocre ones generally didn't
have. And they were actually surprised by what the, what they found through the research.
[audience member coughs]
And the first ingredient that they found the great companies had was they all had very
strong cultures. And, so we formalized the definition of our culture into ten core values.
And the difference is, a lot of, especially larger corporations have, they might call
them core values or guiding principles or, or so on.
The problem is usually they're very lofty sounding. They kind of read like a press release
that the marketing department put out and maybe you learned about it on day one of orientation
and then it becomes this meaningless plaque on the lobby wall. For us, we actually wanted
to come up with committable core values and by "committable", we mean we're willing to
hire or fire people based on them, independent of their actual job performance.
And when you use that criteria, it's actually a pretty hard list to come up with. And we
actually spent a year coming up with it. It wasn't just a few high-level executives spend
a weekend at an offsite and came up with the list. Instead, this was about five years ago,
I emailed the entire company and just asked them, "What should our core values be?" Got
a whole bunch of different responses back and then we went back and forth for a year
and then finally came up with our list of ten core values. So, this our list of ten,
you can actually, if you do a Google search for Zappos Core Values, you, it should be
the first thing that pops up.
The other actually interesting litmus test for when we were trying to come up with our
core values, and in general, to, to think about for any company that's thinking of core
values, is if you do a Google search for any one of these individual core values, on almost
every one of them, Zappos is the number one result or, or on the first page and for almost
any other companies, if you search for their core values, they're nowhere to be found if
you search for them one at a time.
So, we actually have interview questions for each and every one of these. Probably the
one that trips us up the most in the hiring process is the last one, "Be humble," 'cause
there's a lot of really smart, talented people out there that are also egotistical. And for
us, it's n-, it's just not a question. We just won't hire them, but it's one of those
things that is actually, probably the hardest to have an interview question for 'cause we
can't say, "How humble are you?" And they say, "I'm the most humble person in the world."
But, one way we actually test for this is, I talked about how we'll pick you up from
the airport in a Zappos shuttle and give you a tour. Well for candidates, a lot of them
are from out of town. Do the same thing, pick them up in a Zappos shuttle, give them a tour
and then afterwards they'll spend the day interviewing. At the end of the day of interviews,
the recruiter will actually go back to the shuttle driver and ask how he or she was treated.
And if, if they weren't treated well, it's not even a question. It doesn't matter how
well the day of interviews went, we won't hire that person. And so, number three, I'll
give some examples. "Create fun and a little weirdness." One of our interview questions
is, "On a scale of one to ten, how weird are you?"
And if you're a one you might be a little bit too straight laced for the Zappos culture;
ten, maybe a little bit too psychotic for us.
But, really, it's not so much the number that we care about; it's how they answer 'cause
our belief is that everyone is a little weird somehow 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 personalities to come out and shine in the workplace.
There's so many people where they're a different person in, at home on weekends versus when
they're inside the office and people in corporate America leave a little bit of themselves,
or in a lot of cases, a big part of themselves at home. And we really would strive to create
an environment where people are just comfortable being themselves. So, instead of worrying
about work/life separation, it's about work/life integration, where it's just the same person
and not only are you comfortable being yourself, but when you connect with your coworkers,
it's not just coworker relationships, but true friendships that end up forming where
you would choose to hang out with these people even if you weren't working at the same company
And so, for example, for managers, we actually encourage them to spend 10 to 20 percent of
their time outside the office with their team and whoever they work with. And, initially
the reaction we get back, especially from people from other companies is, "Well, you
know, that sounds fun, but is it really working?" I, there's an endless list of things to do,
but then we go back and survey the managers that have done it, and we ask them how much
more productive and efficient is your team because communication is better, there's higher
levels of trust, people are willing to do favors for each other 'cause they're doing
favors for friends, not just coworkers.
And the answers we get back, in terms of increased productivity, range anywhere from 20% to 100%
more productive, so kind of worst case scenario, you're breaking even and having more fun with
Number four, "Be adventurous, creative and open-minded." One of our questions for the
interview 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 because their bad luck
and they'll bring bad luck to Zappos
and that's not good for us.
But this was actually inspired by a research study I'd read about a few years ago where
they actually asked that exact same question to a random group of people, got answers all
over the board, and then afterwards they had the subjects do a task. And the task was to
go through a newspaper and count the number of photos that were in that newspaper and
when they were done, give the answer to the researcher. 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 headline you can stop.
The answer is 37."
Plus, collect an extra $100. And, what they found was that the people that considered
themselves unlucky in life generally didn't notice the headlines. They went through the
task at hand and, and eventually came up with the right answer. And the people that considered
themselves lucky in life generally stopped early and made an extra hundred dollars.
So, the takeaway is that it's not so much that people aren't inherently lucky or unlucky,
but luck is really more about being open to opportunity beyond just how the task or situation
presents itself. And so that's why we ask that question for core value number four.
One of our other core values is about being open and honest and we really embrace transparency
whether it's with our customers, with our employees, or with our vendors. So, for example,
with our customers, we, last quarter, we have a quarterly all hands meeting and last quarter
we actually live streamed that on the Internet for, to the public.
For employees, we have this monthly newsletter called, "Ask Anything," where it's literally
that. They can ask -- employees can ask about financials or what brands we're gonna carry,
or really any question we want and we'll get the right person to answer that question--
[audience member coughs]
and then compile it all with the questions anonymously and then send it out as a newsletter
to our employees once a month.
And with our vendors we have an extranet. We work with about 1500 different brands and
they can all log in to our extranet, our back end system, and view the exact same information,
our own buyers and merchandisers can see. So they can see on hand inventory, what sales
are, profitability, mark downs and so on. And when we first opened this up to them,
their response was great. "Love all this extra information, but aren't you worried the information
is gonna get in the hands of competitors?"
And I'm sure, realistically, that some, some of the information probably does make its
way into the hands of competitors at some point, but on the flipside, we now have an
extra 1500 pairs of eyes helping us co manage our business and they're not on our payroll.
And a lot of times, they'll catch stuff that our own buyers or merchandisers might miss
because our merch-, buyers and merchandisers have portfolios that are anywhere from 20
to 30 brands, so they may miss that one style that's taking off and our, and our brand partners
are really just focused on this and logging in several times a day, reading the nightly
email re-, reports and it really just makes them a true partner in the business.
So this is a common reaction we get, "Happy for you, Zappos. You have this great culture,
but, you know, the stuff you do would never work at my company." And what's interesting
is that the, from the research that was done in "Good to Great", what they found was that
it actually doesn't matter what your core values are. So, I'm not up here trying to
say, "Other companies should adopt the Zappos culture and core values," because, in most
cases, that would probably not be the right choice, the right decision for another company.
But what I am saying is that having core values that you actually commit to, mat-, is what
matters. It's not what the core values are, themselves. And what they found was the most
important thing, in their research, was that you had a strong culture, that you had alignment
throughout the organization; that's where the real power comes from. And when we rolled
out our core values, it was actually one of those things that even myself kind of resisted
inis-. initially, because it felt like one of those big corporate things to do.
But what we found was when we really committed to them and truly committed, meaning, willing
to hire and fire people based on them, willing to do performance reviews based on them, what,
within a relatively short period of time, we f-, the entire organization really changed,
and when it became integrated in our language and our default way of thinking and it empowers
every single employee to really make decisions for themselves.
They just need to ask, "What's our long term vision and is this more in line with our core
values or less in line with our core values?" And it also enables employees to call each
other out for, whether, even if they're in different departments or if it's a front line
employee calling out a VP. So, we found that it's been hugely, hugely powerful and really
is what enables us to scale our culture. And the, part of it is the only way a culture
can scale, most companies as they get bigger, the company culture goes downhill over time.
Not only do we not want that to happen, but we want it to get stronger and stronger. And
the only way that can happen is if every employee views as part of his or her job description,
living and inspiring the culture in others.
And so, one analogy I like to think of sometimes is like, when you watch the Discovery Channel
and over the Serengeti or whatever, there's 50 thousand, a flock of 50 thousand birds
flying and if you take a step back, it looks like this one giant organism that's flying
in unison. And the reality is, there is no head bird that is leading the group, but what
there are, are various -- every bird has pretty much the same DNA and they have very simple
instructions in their, encoded in their DNA, like, stay this many in, inch-, this many
number of inches away from the bird on the right, this many from the left, and, and so
on. And when they all follow those same rules, they're able to flock together.
And so, analogously, at the core values are like the DNA that enables the birds to f-,
f-, function as a unit, whether it's ten birds or 50,000 birds and that's really how we're
thinking of how we're gonna scale the company culture at Zappos. I'm not, I'm gonna make
this presentation available, but, sometimes w-, the reaction that we get from other, other
companies is, "Ok, you're an Internet company. Special rules apply to you."
And the reason why I included those other stories in there are because that one of them,
for example, is the Atlanta Refrigeration Company in Atlanta, Georgia. They do refrigeration
repairs out in the field and so, in some ways, you can't think of a more opposite company
or industry than Zappos and they came through our offices and then, actually, went through
our Zappos insights program where they, we helped them figure out their core values and
how to build their own strong cultures. And then they went back and within a relatively
short period of time, their customers are happier, their employees are happier. It's
really neat actually seeing the before and after pictures and their profits and revenues
are up.
So, it's just pretty cool seeing the same concepts apply and work in other industries.
So, going back to Good to Great and Tribal Leadership, and, and talking about how they
were, two important ingredients that separated the great companies from just the good ones.
First one was culture and the second one was that, and this again, I think, surprised the
researchers, was that the great companies had a vision that had a higher purpose, beyond
just money or profits or being number one in a market. And kind of the irony there is
that by not making profits, the number one priority of the company, or the higher purpose
of the company, it actually enabled these companies to make, generate more profits in
the long term.
So, sometimes when I speak at entrepreneur conferences, I get asked, "What's a good market
to go into where I can make a lot of money?" And my response to them is, "Instead of thinking
about where you can make a lot of money, think about what are you so passionate about doing
that you'd be happy doing it for ten years, even if you never made a dime, and that's
what you should be doing." And kind of the ironic thing is the money will actually follow.
So, we've all heard of craigslist, he, he didn't set out to, to make money. He was passionate
about the community and now it's one of the top trafficked websites on the Internet. So,
I like to say, "Chase the vision, not the money." There was a movie that came out, a,
I think a couple years ago called "Notorious". I think it only lasted a week in the movie
theater, but I saw it and--
in it, Biggie Small is also known as Notorious B.I.G., is, well, Puff Daddy says to Biggie
Smalls, "Don't chase the paper, chase the dream."
I just wanted an excuse to put this picture up here.
Anyways, so if you're an entrepreneur, say, think about what would you be so passionate
about doing that you'd be happy doing it for ten years even if you never made a dime from
it? And if you have employees, think about what's the larger vision and greater purpose
in the work beyond just money or profits or being number one in a market?
And there's a lot of consultants and books that talk about how to motivate employees
and you know, they work to a certain extent and there's different ways you can motivate
employees. You can motivate them through incentives; a lot of companies do that. You can motivate
them through recognition. A lot of corporate America motivates through fear, but our belief
is that there's a huge difference between motivation and inspiration.
And if you can inspire your employees through a vision that has a greater purpose beyond
just money or profits or being number one in a market and if you can inspire your employees
by having and committing to corporate core values that match their own personal values,
then you can accomplish so much more and you don't really need to worry about the motivation
part of it.
So, this a look at how the Zappos brand has evolved over the years. In 1999, our, our
vision was, "Let's just have the largest selection of shoes online." And, and then about four
years into it, we sat around and asked ourselves, "What do we want to be when we grow up? Do
we want to be about shoes, or do we want to be about something more meaningful?" And that's
when we decided we wanted our brand to be about the very best customer service. And
when we did that, like, some-, it kinda surprised us what happened.
Suddenly, once we communicated that to our employees, we found that employees were suddenly
a lot more engaged and passionate about the company. And when customers called, they could
sense that the person on the end of the phone wasn't there just for a paycheck, but truly
wanted to pro-, provide great service. And when vendors came and visited our offices,
we found that they wanted to stay longer, come more frequently, because that enthusiasm
wore off onto them, rubbed off onto them.
And then in 2005, was when we rolled out our core values and decided not only do we want
culture to be important, but we, in fact, want it to be the number one priority of the
company 'cause if we get that right, then the customer service will come naturally as
a by-product of that. And in 2007, we started asking ourselves, "Ok, what do we mean by
great customer service?"
There's lots of different ways to do, give great service. Amazon has, is a customer centric
company as well, but they have a different approach. They're more about high-tech and,
and removing friction, whereas we really wanted to do the more human, have the more human
connection, so we're more high-touch instead of high-tech and really developed that personally
emotional connection with them. And then 2009 was when we took a step back and realized
that really, the thing that ties all this together is just about delivering happiness,
whether it's to customers or employees or vendors as well.
So, I wanted to tell another pizza story and this actually happened a couple years ago
in Santa Monica, California. I was speaking at a Skechers sales conference and it was
a long day. And at the end of the day, we decided to go bar-hopping in the Santa Monica
area and, 'cause I, I'd never done that before, and, I mean, I've gone bar-hopping, but not--
bar-hopping in the Santa Monica area before. And so, I think there were three of us from
Zappos, three people from Skechers; one of the brands that we work with. Went to the
first bar, ordered a round, someone ordered a round of drinks and then, because it had
been a long day, someone ordered a round of shots and so we took the shots and drank the
drinks and then went to the second bar and someone else ordered a round of drinks to
pay back for the first round of drinks and then someone else ordered a round of shots
to pay back for that first round of shots. And you can't waste alcohol, so we took the
shots and we finished the drinks and then we went to the third bar. And then, actually
don't remember how many drinks or shots we had after that--
but what I do know is that last call is 2 AM in California, and lights went on and we
started heading back to the hotel room and, and one of the girls from Skechers was talking
about this pepperoni pizza that she craving and asked if we wanted to go on, in on it.
And we said, "Yeah, that sounds great, you know, we'd been drinking, pretty hungry."
And she's like, "Oh, I cannot wait." She's like, "Go order the room service. Like, I
checked it out on the room service menu before we left. It was on page 17, it was the second
item down and when it comes I know it's gonna be hot so I'm not gonna let it burn the roof
of my mouth. I'm gonna, like, smell it first--
and let the odors go in." And it was only a five minute walk, but it seemed much longer
than that because she would not stop talking about --
the pepperoni pizza. So anyways, we finally end up in the hotel room and she's all excited.
She calls room service and then ten seconds later, she hangs up the phone all dejected.
And I ask her, "What's wrong?" And, apparently, at that hotel they don't serve hot food after
11 PM. And so, she was really dejected and, and sad and so to try to cheer her up, I say,
"Did you know in college, I used to make pepperoni pizzas?" And she looked at me and was like,
"That's so not helpful right now."
And then the three of us from Zappos were like, "Oh!" And, you know, we were more than
a little bit inebriated, we said, "Call Zappos! Call Zappos! We'll take care of you. We're
all about the best customer service." And--
in our minds that really was the funniest thing ever and, and so she actually took us
up on our dare and put the phone on speakerphone, called Zappos and the rest of us are in the
background trying not to make noise, but trying to laugh as quietly as possible. And the rep
said, "Thanks for calling Zappos, how can I help you?" And the Skechers girl says, "Oh,
thank goodness you answered. I'm in Santa Monica right now and been eyeing this thing
on room service menu, page 17, item number two, pepperoni pizza, but they don't serve
hot food after 11 PM. What kind of hotel does not serve hot food after 11 PM? Is there anything
you can do for me?"
And so, first there was an awkward silence--
and then the rep said, "You know you called Zappos, right? We--
sell shoes, we sell clothes, we don't sell pizza, yet."
And the Skechers girl said, "Yeah, but I heard you're all about the very best customer service."
And the rep said, "Ok, hold on."
And put us on hold for two minutes and then came back and listed the five closest places
in the Santa Monica area that were still open and delivering pizza at that hour.
Now I, I hesitate a little to tell this story, cause I don't want all of you to start calling
Zappos and --
ordering pizza, but obviously, we don't have a process or procedure for late night drunk
pizza orders, but--
but, I think it's just a fun story 'cause if you get the culture right and make sure
everyone understands the long term vision of the company, you don't need a process and
procedure for everything. And these types of situations, these stories, are just created
automatically, literally, for us, thousands and thousands of times every single day and
that's how we've really built our brand. So, --
>>memberfemale1: Did you get the pizza?
>>Tony: Well, we, sh-, it was, it was 3 AM by that time, so we, we did not actually end
up ordering the pizza, but, but she actually went back and put together this care package
for the rep. And so the rep is very happy now.
But now she's a customer for life and has probably, she's told that story, I'm sure
many, many times. And, and, and that's really what -- these are the types of things that
we think about. Like, wh-, where the stor-, where does the story begin and where does
it end? And, for us, the story doesn't end when we get the credit card.
It's really just this ongoing lifelong relationship with, with customers. And, and we're really
think of ourselves as being in the stories and memories business and, or experience and
emotions business. And so that's what eventually led us to really think about building the
brand to be about happiness or delivering happiness.
So, wanted to take a step back from all this business talk and actually have you guys think
about this question, "What is your goal in life?" And, and so whatever your actual answer
is, think about that. And what's interesting is that if you actually asked different people
this question, you'll get all sorts of different answers. Some people will say, "To grow a
company." Some people will say, "To get a great job." Or, "Get a boyfriend/girlfriend."
And then, ask yourself, "Why?" So, whatever you had as your goal in life, ask yourself
why and then people will come up with different answers: retire early, make money, find a
soul mate. And then ask yourself, "Why?" again and people will come up with the next set
of answers, but if you keep asking yourself "why?" over and over again, what's interesting
is that, eventually, everyone ends up with the same answer.
And that's whatever their goal in life is, whatever they're pursuing, they believe will
make them happier. So, a couple years ago, having nothing to do with Zappos, I started
reading books and articles and so on about this field of research that's essentially
about the science of happiness. The formal name for it is Positive Psychology. And it
actually didn't exist prior to 1998, so I'm not talking about -- go to the self-help section
of a bookstore and read books that say, "Think Positive" and you'll be happy.
I'm talking about actual research that's been done and prior to 1998, almost all of psychology
was about looking at people that had something wrong with them and then figuring out how
to make them more normal. But, almost nobody bothered to study how do you look at normal
people and make them happier. So, just more as hobby and, and everything, I thought, "Oh,
that's pretty interesting."
And so I started reading books and articles on the topic and one of the consistent things
that has come out of the research is that people are very bad at predicting what will
make them happy in the long term. Most people think, "Once I get X, then I'll be happier."
"Once I achieve X, then I'll be happy," when the research shows that's not true.
There's studies of lottery winners, for example. You look at their happiness level right before
winning the lottery, and then look at their happiness level a year later. And a year later,
it's the same or maybe even a little bit lower than it was right before they won the lottery.
And the reverse is true as well. There's people that have become unexpectedly blind and you
look at their happiness level a year later. And a year later, it's actually right back
to where it was before they became blind.
So, I thought this was interesting and then started thinking about it, both for my own
personal life, but also for business as well, because if people are bad at predicting what
will make them happy, then us, for us trying to build a brand around customer service,
isn't just as simple as asking customers what do they want 'cause they may not know. And
same thing for employees, if we're trying to build a culture with a lot of happy employees,
you can't always just ask employees what it is that will make them happy because they,
what the research has shown is that people are bad at predicting what will actually make
them happy.
And for our business and yours as well, there's a lot of science behind, a lot of the stuff
we do. We look at conversion, customer acquisition metrics, repeat customer behavior and so on.
And I don't know what the right percentage is, but if the ultimate goal is happiness,
then what percent of your time do you want to spend studying and learning about the science
of happiness? How much happier could you be and how much could that potentially help your
business, whether it's in dealing with employees or customers or vendors?
A lot of people go through decades trying to get to this ultimate destination of happiness
and then when they get there, realize it's either very short lived or maybe not even
there at all. What if by studying the science of happiness and the research that's already
been done, just reading up on it a little bit, you can kinda maybe skip some of the
steps and just go straight to the happiness part of it.
So, I thought that was interesting. So, I just wanted to share a few different frameworks
that are kind of Cliff notes version of what I thought was interesting from the stuff that
I've read about.
And the first framework is that happiness is really just about four things: perceived
control, perceived progress, connectedness, meaning the number and depth of your relationships
and vision or meaning -- being part of something bigger than yourself. And what's interesting
is that you can not only apply this to your own life, but you can apply it to business
as well.
So, for example, for perceived progress, in our merchandising department, we used to hire
employees entry level and then give them all the training and mentorship and so on. They
get certified and then they'd get a promotion 18 months later and then they get another
set of training and certification and then 18 months after that, they'd get a promotion
to become a buyer, which within Zappos is a pretty big deal. So, it took 'em three years
to become a buyer.
Well, instead of giving a promotion every 18 months, we changed it a few years ago so
that we gave smaller promotions every six months. And even though nothing had changed,
they still had to go through the same certification and mentorship and training and so on, except
we found that, and it still took them exactly three years to become a buyer, but we found
that because there was this ongoing sense of perceived progress, that employees were
much happier and it cost the company nothing to do that.
Another framework is Maslow's Hierarchy. There's a great book called "Peak" by Chip Conley,
P-E-A-K, where he actually condenses this into three levels and applies it to employees
and customers and investors as well. And so, for example, for employees, the three levels
of the pyramid are in terms of what they think of their work, whether they think of it as
a job versus career versus calling. And our whole goal at Zappos is to move them up the
pyramid, to think of their time at Zappos as a calling. And we still want employees
at Zappos ten years from now and the only way that's gonna happen is if we provide all
the training and mentorship and so on--
[audience member coughs]
so that they feel like they're growing both personally and professionally and so we offer
a lot of different classes.
We have 30 or 40 different courses now and they're not just professional courses. There's
also, for example, one on the science of happiness that, that helps them with their personal
growth as well. And the last framework I wanna share was three different types of happiness:
pleasure, engagement and meaning. The first type I like to call the "rock star" type of
happiness because it's about always chasing the next high and it's great if you can sustain
The problem is it's very hard to sustain, unless you're basically a rock star. And it's,
it, what the research has shown is out of these three types of happiness, a sort, as
soon as your source of stimuli goes down, goes away, your happiness level just drops
right back down to where it was before.
The second type is called "flow." There's a book by the same name and it's about those
moments, and we've all experienced this. For some people it might be while running; for
other people it might be painting, but it's about when you're so into something that you're
doing that three hours pass by, but it seems like only 20 minutes have passed by. And other
attributes that, that are associated with this, are that you lose a sense of self-consciousness
or even self, because you're so into what you're doing. And professional athletes refer
to it as "being in the zone" where peak performance meets peak engagement.
And kind of the strategy there is just notice when it happens and then either change who
you hang out with, your friends or your environment or your job or where you live to try to have
that type of occurrence happen more frequently. And what the research has shown is that this
is actually the second longest lasting type of happiness. And the third type is about
being part of something bigger than yourself. And so, that might mean, for some people,
volunteering for their favorite charity, for example. And what the research has shown is
this is actually the longest lasting type of happiness.
So, what I thought was interesting is most people go through life chasing after the first
type, thinking, "Once I can sustain it on an ongoing basis, which is pretty much 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 purely on the data from the research, the proper
strategy should be "focus on the third type of happiness first, and then layer on top
of that the second type, and then the first one, which is really just icing on the cake."
So, some books that I recommend. Probably the one that's made the biggest impact in
my life over the past five years is "Happiness Hypothesis." The author looks at a whole bunch
of different religions, philosophers and, and, and, and religions, philosophers and
cultures from different time periods, and each of them has a different belief as to
what happiness means or how to achieve it. But then what I found was interesting was
that he compares their beliefs to actual scientific research that's been done and he either agrees
or disagrees with different parts of their beliefs.
You can email me, tony@deliveringhappinessbook.com, or tony@zappos.com will work as well, for
a copy of this presentation. Also, the culture book I talked about, be happy to send out
for free. It's actually on backorder, I think, a couple weeks right now, but as soon as it
gets in we'll send it out to you. Now, next time you're in Las Vegas, if you come for
a tour, Monday through Thursdays, tours.zappos.com, and just wanted to end with -- the research
has shown that great businesses are the ones that are able to combine profits, passion
and purpose.
And what I thought was really interesting, and this was kind of a weird "aha" moment
for me when I took a step back, was that the research from the Science of Happiness is
about being able to combine pleasure, passion and purpose. So, in a weird way, it's almost
like, what makes for great businesses almost like a fractal of what makes sense for individual
happiness and this is really what we're trying to achieve at Zappos, and what we're hope,
what I'm hoping that the book will, that just came out, will help other businesses, is really
think about happiness as a business model.
And just want to leave you guys with thinking about what percent of your time do you want
to spend learning about the science of happiness and how can learning about it really help
yourself personally, your business or your brand? And if the research shows that businesses
that have a higher purpose actually are able to achieve more long term profits and if the
research shows that for you, personally, if you have a higher purpose then that actually
leads to more happiness. Then think about what is your business, your company's higher
purpose and what is your own higher purpose? And I'm not up here trying to sell more shoes,
if, through this presentation, you've been inspired to focus more on making customers
happier by really thinking more about the customer experience or customer service or
you've been inspired to really make employees happier by focusing more on company culture
or you've just been inspired to make yourself happier by learning a little bit more about
the science of happiness, if any of those things have happened, then I'll have done
my part in helping Zappos achieve our higher purpose, which is all about delivering happiness
to the world. Thank you very much. [applause]