Tony Hsieh is the CEO of the e-commerce juggernaut called Zappos.Com. He helped to start the company in 1999 as an online shoe store, and it has since expanded to all manner of other goods. Zappos has been profitable since 2006. Last year, it booked US$1 billion in gross sales (20% better than the year before), and in July of this year (2009), it was acquired by Amazon.Com in a deal valued at approximately US$887.9 M.
What makes Zappos different, and what many believe is the reason for its success, is its relentless innovation, top class customer service and its staff of ‘believers’. But how do you get a staff of ‘believers’?
From the start, Hsieh has really cared about making Zappo’s employees feel really, really good – happy. Strangely, this does not mean they start out by getting paid really well. More often than not, Zappos salaries are below market rates – the average hourly worker makes just over US$23,000 a year. Customer service reps start at $11 an hour, warehouse workers at $8.25. Though it covers healthcare 100%, and offers some free food (cold cuts in the cafeteria), Zappos does not offer many of the other perks that are found at other companies – there is no on-site child care, no tuition reimbursement, and no 401(k) match.
So why are Zappos’ employees happy? Well, instead of seeking to buy his employees’ loyalty, Hsieh has somehow managed to establish a corporate culture that challenges our conception of that ol’ tired phrase. Zappos’ 1,300 employees talk about the place with what is seemingly a religious fervor, and the company’s CEO is held with a regard that’s typically afforded rock stars and cult leaders. Most CEOs make their companies in their own image; Hsieh seems to have designed his company to behave the way he wishes he could.
As with many ‘dotcom’ companies, Zappos is ‘quirky’. You may see interviews being held over vodka shots, its bathrooms are plastered with “urine color” charts (ostensibly to ensure that employees are hydrated but also just to be weird and funny), and managers are actually encouraged to goof off with the people they manage.
Hsieh takes his employees out to restaurants and bars, not because he loves nightlife, but because he believes that it sets a good example. “I just want to have a company where people can hang out together,” he says, “and then come in to work the next day and not worry about whether they’ve done something stupid.”
How did he come up with these amazing HR concepts that have seemingly worked? Fresh out of college, Hsieh started LinkExchange, a company that allowed amateur Web publishers to barter for advertising by agreeing to publish one another’s ads. He was just 24 years old, when he sold the company in 1998 to Microsoft for a staggering US$265 million. Despite this success, Hsieh was unhappy; why? “The easiest way to explain it was that going into the office started to feel like work,” he said. More and more he felt that the people he had hired were not committed to the venture’s long-term growth. “The Silicon Valley culture is, ‘I’m going to work hard for four years and make millions of dollars and then retire,’ ” he says. Work, which once had felt liberating, had now become a chore. He thus resolved, that his next company would not be about a short-term payday. It would be about long-term growth, about creating a place to which he and his employees would WANT to come every day.
Zappos initial years were a struggle. Hsieh bankrolled the company until he secured a line of credit with Wells Fargo in 2003. No one had set jobs, no one cared about job titles, and everyone hung out with everyone else after work. The economy was falling apart around them, but somehow, even the struggle was fun for Zappos employees. In 20o2, Hsieh moved the company from San Francisco to Las Vegas – a staggering 70 of the company’s 100 employees made the move with the company. The move made sense from a tax and cost of living perspective, Hsieh also wanted to be in a city where restaurants and stores are open 24/7, in order to accommodate call center reps who work the graveyard shift.
Zappos growth was rapid, but it also led Hsieh to wonder how he could preserve the company’s radical dedication to customer service and its fun, loose work environment. “We always hired for culture fit,” he said, “… but we were growing so quickly that managers who hadn’t been around for very long might not know what our culture was.” Thus, he wrote an e-mail to the entire company asking for help, and he distilled the responses into a list of 10 core values, which included “Be humble,” “Create fun and a little weirdness,” and “Deliver WOW through service.” Then he assigned and collected short essays from every employee on the subject of the company’s culture and published them, unedited, in a book that he distributed to the staff.
Every year, all Zappos employees, both new hires and long-time staff, contribute a fresh essay to the book – which has grown to 480 pages. Hsieh uses it as a way not only to get employees thinking about the meaning of their work, but also to show the outside world what he has built.
Most Zappos employees are familiar with the company’s history. There is actually a four week course that employees can take on the history of Zappos. All new Zappos employees receive two weeks of classroom training. They then spend another two weeks learning how to answer customer calls. At the conclusion of the program, the Zappos trainees are famously offered US$2,000, plus time worked, to QUIT. The practice of course was Hsieh’s idea, and it began in 2005, with a $100 offer. “Our training team had gotten good at figuring out who wasn’t going to make it, and we were thinking, How do you get rid of those people?” says Hsieh. Paying them to quit saves the company money by weeding out people who would jump ship anyway, and allows those who remain to make a public statement of commitment to their new employer.
In recent times, Hsieh has overseen the development of an even more comprehensive Zappos class curriculum. The first course, intended for employees who have been at Zappos for two years or less, involves more than 200 hours of class time (during work hours) and students are mandated to read nine business books. Topics include Using Twitter and Sarbanes-Oxley compliance. Advanced students can take classes in public speaking and financial planning. “The vision is that three years from now, almost all our hires will be entry-level people,” Hsieh said. “We’ll provide them with training and mentorship, so that within five to seven years, they can become senior leaders within the company.”
Another thing that Hsieh has done, is that he has made the company’s long-term plans clear for all his employees to see and know. A sales chart in the lobby informs everyone in the building that the day before, Zappos sold $x.x million worth of merchandise. A computer printout in the hallway notes that there are currently 4.1 million items (mostly shoes) in stock in the company’s Kentucky warehouse.
There is a company library, which is filled with multiple copies of two dozen business and self-help books. Employees are urged to take whatever grabs their fancy. One of Zappos’s core values is personal growth, thus the books are given out to help employees grow with the company.
Zappos is, of course, different too in terms of the actual employee hiring process. Prospective hires must pass an hourlong “culture interview” before being passed on to whatever department they are applying to. Questions include, “On a scale of 1 — 10, how weird are you?” and “What was your last position called? Was that an appropriate title?” If there is a disagreement between HR and the manager doing the hiring, Hsieh personally interviews the candidate and makes the final call. His strategy is to get the applicant into a social situation to see if they can connect emotionally.
It is important to note too that unlike most call center operators, Zappos does not keep track of call times or require operators to read from a script. Staff will often offer unsolicited commentary on a customer’s shoe selections. In his speeches, Hsieh likes to point out that Zappos does not have specific policies for dealing with each customer service situation. Customer service reps are encouraged to make independent decisions — for instance, offering a refund on a defective item — and they are supposed to send a dozen or so personal notes to customers EVERY DAY. They are encourage to make a Personal Emotional Connection with the customer.
During Zappos’ early days, long workdays would often spill into late-night socializing. Hsieh enjoyed this so much that he formalized it: Managers are now required to spend 10-20% of their time goofing off with the people they manage. “It’s just kind of a random number we made up,” Hsieh said. “But part of the way you build company culture is hanging out outside of the office.”
For Hsieh, “… this is not just a company. It’s like a way of life.”
Excerpts for this article were drafted from Max Chafkin’s feature on Zappos which appeared in the May 2009 issue of Inc. magazine.
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