For a long time, Tony Hsieh, chief executive officer of Zappos.com Inc., the giant shoe and apparel Web site, was driven to make money.
This story first appeared in the June 4, 2010 issue of WWD. Subscribe Today.
A lemonade stand, selling greeting cards, garage sales, a newspaper route, re-creating photos on buttons and selling them — he did it all as a kid. He even tried to grow a worm farm by pouring eggs on it to fuel reproduction. The worms either drowned or got eaten by birds.
While a student at Harvard University, he resold McDonald’s hamburgers and pizza at a profit and opened a campus grill. At age 23, he cofounded LinkExchange, an Internet advertising cooperative, and a few years later sold it to Microsoft for $265 million. He formed an investment fund that led him to Zappos, first as an investor and adviser and, eventually, ceo. Last year, the company merged with Amazon.com in a deal valued at $1.2 billion.
Ultimately, the pursuit of money opened his mind to priorities beyond the almighty dollar. “A lot of people figure it out well before I did, that following your passion is a lot more important. Part of it was that just the idea of starting something new became exciting on its own,” said Hsieh.
Here, Hsieh, 36, talks about his new book being released Monday, titled “Delivering Happiness: A Path to Profits, Passion and Purpose” (Hachette Book Group), in which he writes about his personal evolution and how Zappos grew into a $1 billion company by establishing a corporate culture rooted in delivering service that impresses customers, embracing change and fostering a work together-play together spirit among employees.
WWD: In the book, you say that the merger with Amazon will enable Zappos to grow faster. Has there been much impact so far and how so?
Tony Hsieh: The deal closed Nov. 1, but the answer is yes. Basically, we think of Amazon as being the replacement to our board of directors and as a giant consulting company with free access for us. It’s up to each [Zappos] department to decide how much to tap into that. Some departments have a quick phone call once a quarter; others share lots of information. Definitely, overall we are moving faster than ever. We are looking at their warehouse technology. There is a lot of sharing on that. We run our warehouse differently. Ours is specifically designed for footwear.
WWD: Usually in a merger, one of the entities takes control. Yet you write that Zappos would operate as an independent subsidiary. Have things played out that way?
T.H.: Yes. This is very different from most of their acquisitions. We have a document of five tenets. One recognizes that our culture is [the reason] we got to where we are and that they will seek to protect it. We make our own decisions except when legally required to do otherwise. An example of that is we can’t be forthcoming with our financial numbers, which is more of a function of becoming part of a public company. I am pretty happy. They have kept up to their promises. Jeff Bezos [Amazon chairman, president and ceo] hasn’t even visited our headquarters yet. We see him once a quarter for two hours. It’s the equivalent of a board meeting.
WWD: What kind of year do you foresee?
T.H.: Most of our business is still concentrated on footwear, 80 to 85 percent. But we are making a big push in other categories. The biggest is apparel, which is 10 to 15 percent. For Q1 of 2010 versus Q1 of 2009, we were up almost 50 percent. Historically, we basically went from no sales in 1999 to over $1 billion in 2008. We have always been a fast-growing company. We are looking to see economies of scale as we grow.
WWD: How much will apparel represent, as a percentage of the business, in the future?
T.H.: That’s an example of where we can’t be forthcoming.
WWD: Customer service is the number-one priority and a core element of the Zappos culture. What are the most important elements of customer service and what’s often overlooked in the online world?
T.H.: Most Web sites really focus on how to get to the point where customers give you their credit card. For us, the most focus is on what happens after you have the credit card information. It’s in our warehouse operations making sure customers get their orders as quickly as possible and that the orders are accurate. And then it’s things like surprising our most loyal repeat customers with upgrades on shipping. So when they’re expecting [a delivery] to take a week, it’s on their doorstep eight hours later. It really just comes down to the different ways we can really wow our customer — setting good expectations up front and exceeding them so it creates an emotional impact so the customer tells their friends and family about us.
WWD: Do most companies care about corporate culture or is it typically an intangible?
T.H.: Most companies don’t actively think about culture or manage to it. If you just let the culture happen, then it goes downhill.
WWD: While you say customer service is king, others in retailing would say product is king. Is that because you are not really a merchant?
T.H.: If anything, I am the antimerchant. I used to wear the same pair of shoes for two years until they had holes and then I’d buy the same shoes again. But we have a whole team of about 100 who understand the magic part of buying product. To me, it’s all voodoo magic. I understand the science part. We do say customers buy from us for our combination of service and selection. We have well over 100,000 styles [representing] close to one million stockkeeping units.
WWD: In your book, you almost take the tone of a preacher, discussing self-improvement, dissecting the elements of happiness and citing core business values as the path to long-term profitability. Are you on a mission?
T.H.: I guess our approach isn’t so much to tell other companies or people what to do, but more to let people know what works for us and what hasn’t worked for us. But companies with a higher purpose than just profits actually end up driving better financials in the long run compared with companies that solely focus on profits, which hurts you in the longer run. That’s supported by research. It’s not just hypothesis. It’s like in high school where the guy who tries too hard to get the girl usually has a harder time than the guy who doesn’t.
WWD: What was the deal with the worm farm?
T.H.: I talk to a lot of other entrepreneurs. There are lot of things they did [in their youth] like raising snails or, instead of a lemonade stand, sold cookies. What’s interesting is it’s really more about being willing to keep trying things, and if you try enough times, eventually you will get lucky. The actual process of launching a book has been pretty exciting. We have a team of 15 working part-time on it, like a mini start-up. I am trying to juggle between the book launch, Zappos and sleep, and sleep is losing.
WWD: You wrote that moving Zappos to Las Vegas from San Francisco enabled the company to get customer service employees, but did it have anything to do with your love for the game of poker?
T.H.: No. Ironically, after moving, I’ve played a lot less. Part of it is because it’s always there. I guess in some ways, anything is just less special when it’s always available.