Interview with Tony Hsieh

Posted by Goodreads on June 6, 2010
Tony Hsieh Three years after graduating from Harvard, 24-year-old Tony Hsieh sold his first company, LinkExchange, to Microsoft for $265 million. The entrepreneur then turned to a fledgling online shoe retailer named Zappos.com—at a time when nobody thought shoes could be sold on the Web. As CEO, Hsieh nurtured his second start-up into a billion-dollar-a-year business, and Amazon acquired the company for $1.2 billion in 2009. What's the secret behind such blinding success? Hsieh shares his winning philosophy in his first book, Delivering Happiness: A Path to Profits, Passion, and Purpose, and reveals that the last thing he thinks about is money. He talked shop with Goodreads CEO Otis Chandler.

Otis Chandler: Why did you write this book?

Tony Hsieh: Originally it was just one of those things to check off—like running a marathon. I thought it'd be cool to write a book one day. It actually has evolved quite a bit since the original idea.

A big goal for the book is to spread the message that it is possible to make employees and customers happy and drive profits and long-term financial growth. Which I think is pretty different from 50 years ago, when most companies had to choose between making employees and customers happy versus making more money. We live in an age where we are so connected, and information travels so quickly, that it actually is possible today. Really one of the big goals of the book is the title: Delivering Happiness. Beyond just Zappos employees or Zappos customers, we're really hoping that this type of mentality will spread to other people and other companies.

We created ZapposInsights.com, where we share everything we do. There we help [companies] figure out their own core values that are right for their company.

OC: A key tenet of the book is the idea that money alone does not bring happiness. You proved your belief in that tenet when after selling LinkExchange, your first company, to Microsoft for $265 million, you reinvested your cut of the sale into keeping Zappos afloat in the early 2000s. Not many people would have taken such a risk. What inspired you to spend all of your savings on Zappos?

TH: It ultimately came down to deciding whether I really believed in the team we had at Zappos and whether it could grow into something meaningful. It wasn't just me. Fred Mossler [Zappos Senior Vice President] quit a great career at Nordstrom; he had a kid and another on the way and had just bought a house. He took the leap of faith because he believed in Zappos, so in some ways he was actually risking a lot more than I was. That was basically his entire life. It came down to a leap of faith.

OC: Let's talk more about making customers happy. I love your philosophy of emphasizing customer service, and I've tried to make it a focus for Goodreads. How did you come up with this philosophy? And can it extend to every kind of business or is it unique to e-commerce?

TH: I think it can be extended to most industries—basically any business with repeat customers. It actually wasn't until four years into Zappos that we decided to build our brand around customer service. It started as, "Let's have the largest selection of shoes." But then we went through a hard time during the dot-com crash and we couldn't raise funding, so we accidentally stumbled into it because we didn't have money to spend on marketing. We had to think about how to get existing customers to come back to us more and more often.

OC: How does technological change impact customer service?

TH: Companies have become more and more transparent, whether they like it or not. If someone had a bad customer service experience 50 years ago, they could tell their neighbors and that was about it. No one else would find out about it. Whereas today they put it on Twitter or in a blog post, and overnight it can be read by millions of people. The reverse is true, too: If a company provides really great service, that reputation can spread very quickly, which is what we've found at Zappos. So it's exciting to be living in a time where it's actually possible for the good guys to win.

OC: Zappos customer service has encountered some unusual scenarios. What is one of your favorite stories?

TH: There are literally thousands of stories being created every day. It's hard to think of just one. We don't advertise this, but if you need to exchange a pair of shoes, you can call our customer loyalty team (our name for our call center), and we will lend you the replacement pair, free of charge, before we get back the original pair. What we ask is that you send back the shoes within a couple weeks. With one of our customers, a couple weeks had passed and we hadn't gotten the original pair back, so one of our reps called to give a friendly reminder. It turned out that it had completely slipped her mind because her mom had just passed away. The rep took it upon herself to send flowers, and the woman was so touched that a company would actually care enough to do that. At the funeral a couple days later she told her 40 or 50 closest friends and family members about what had happened. So now not only is she a customer for life, but so are those other 40 or 50 closest friends of hers.

OC: That's an amazing story.

TH: Then she ended up blogging about it, and it got picked up by consumers, but we had no idea that she was a blogger or anything like that.

OC: Beyond keeping customers satisfied, your book details how you've focused on building a great employee culture at Zappos. Can you describe that process? What are some examples of culture-building projects?

TH: We have ten core values that are a formal definition of our culture. We didn't actually roll them out until five years ago, and once we committed to them and integrated them into everything we do, it made a huge difference. It provided a common language and way of thinking for all of our employees.

A lot of companies have core values or guiding principles, but the difference is that in most companies these values are very lofty sounding and read like a press release put out by the marketing department. Maybe their employees learn about it on day one of orientation, but then it just becomes this meaningless plaque on the lobby wall. We wanted to come up with committable core values. And by committable, I mean we are actually willing to hire or fire people based on whether they are living up to those core values or inspiring these values in others—independent of their specific job performance.

For the hiring process we do two sets of interviews: the hiring manager and his/her team will interview for the standard fit within the team, technical ability, relevant experience and so on, and then our HR department does a separate set of interviews purely looking for culture fit. They have to pass both in order to be hired. We have interview questions for each and every one of our core values. So we've passed on a lot of really smart, talented people that we knew could have an immediate impact on our top or bottom line, but if they aren't a culture fit we just won't hire them. The reverse is true as well. We'll fire people even if they are performing just fine from their job function perspective, but if they aren't good for our culture, it won't work.

OC: Can you give an example of a core value and how it has helped build the culture?

TH: One of our core values is to be humble. There are a lot of smart, talented people out there who are also very egotistical. At most companies, if they interviewed someone like that the conversation afterwards might be that this person was a little annoying, rubbed you the wrong way, but he's going to add a lot of value to the company so we should hire him. Whereas for us, that's not even a question. We just won't hire that person. We are willing to walk away from the short-term profit that that person could bring for the long-term health of our company and culture.

OC: How do you determine whether an applicant is humble?

TH: Because we are located in Las Vegas, a lot of our candidates relocate. When they fly in for an interview, we have a Zappos shuttle that picks them up from the airport, and they come to the office to get the tour and spend all day interviewing. Then we drop them off at their hotel afterwards. Most candidates think that the interview process begins when they sit down in the conference room, but our recruiting team actually circles back to the shuttle driver to ask, "How were you treated?" If the shuttle driver answers badly, that is an instant no hire.

OC: I love stories like that. You also describe the amount of time spent training and mentoring employees and giving them "forward progress," which is one of your four keys to happiness. Can you describe what that training program looks like?

TH: It's always evolving. It's called our pipeline team, but it's basically our training team. Our vision of five years from now is that we want the vast majority of our hires to be entry-level, but we provide training and mentorship so that they can become a senior leader within the company within five to seven years. We do that for two reasons: 1) An employee is going to stay with us if they feel like they are continuously learning and growing both personally and professionally. 2) It's very scary and risky to hire someone at a senior level from the outside who could potentially do a lot of damage to our culture. We've actually experienced that many times in the past. So if anything, we are super gun-shy about that. If instead we grew our own leaders and managers, then the culture is never really at risk.

OC: I am intrigued by "connectedness"—another one of the four tenets of the happiness framework. You describe your close group of friends as a "tribe." Can you explain why connectedness is so important?

TH: Research on the science of happiness over the past 12 years has found that connectedness, meaning the number and depth of your relationships, is probably one of the biggest contributors to personal happiness. It also has a lot of relevance in business. There are plenty of studies that show a link between employee engagement and productivity, and one of the best predictors of employee engagement is whether they have a best friend or many friends at work. It may seem like "soft" stuff, but it ultimately does translate into long-term financial benefits for the company.

OC: When you hire, you must try to find people who could be friends with the current employees.

TH: Yes, and it actually comes very naturally, because essentially we hire people whose personal values match our corporate core values at Zappos. When that happens, people are naturally friendly to each other. When I interview people, my biggest criteria, besides relevant experience and so on, is, "Would I want to hang out with this person even if we weren't working together?" Most people when they leave the Zappos office, leave to go hang out with other Zappos employees. When we do orientation for new managers, we encourage them to spend 10 to 20 percent of their time outside the office with one another, whether it's dinner or hiking or happy hours. [Our managers] say there are higher levels of trust, and communication is better. Increased productivity and efficiency of their teams ranges from 20 to 100 percent. So worst case scenario, you break even and have more fun doing it.

OC: In Delivering Happiness, you write about your love of poker and the similarities between poker and business. What's the best round of poker you've ever played?

TH: Here's one of my favorite things to do: If I'm one of the last people to bet, and if there are a lot of bets and raises before mine, say four or five people, I will actually reraise and put in a bigger bet if I have a really bad hand and I just have low cards. The logic being that if four or five other people are all betting really aggressively, probably all of the high cards are all out there, so chances are the rest of the deck has more low cards than normal. So I did that once playing against a relatively famous poker player and ended up winning. I guess I really enjoy doing counterintuitive stuff.

OC: Do you prefer counterintuitive decisions in business as well?

TH: Basically I try to do the opposite of what everyone else in the industry is doing.

OC: So you were a Harvard computer science grad. Do you have any advice for young CS majors who are just graduating?

TH: I guess I'd say to anyone who is graduating, regardless of what major, is think about what you'd be so passionate about doing, that you'd be happy doing it for ten years, even if you never made any money at it. That's what you should be doing.

OC: Good advice. Zappos has an extensive library, and you encourage employees to read. We love book recommendations at Goodreads, so we'd be interested to know what books have particularly influenced you and your thinking.

TH: In my book I talk about Good to Great: Why Some Companies Make the Leap...and Others Don't and Tribal Leadership: Leveraging Natural Groups to Build a Thriving Organization. We actually partnered with the authors of Tribal Leadership, so the audio book is available to download for free from the Zappos Web site. Peak: How Great Companies Get Their Mojo from Maslow by Chip Conley is another great book. And Made to Stick. Those are all great books.

OC: What was the last good book you read?

TH: I started reading Your Mind at Work, and that's definitely one that I'm looking forward to when I have more time. I skimmed through it, and I want to have more time to read it carefully from beginning to end.

OC: What's next for you? Will you remain at Zappos or start another venture?

TH: Well, that's the cool thing about not having the Zappos brand be about shoes. We are internally thinking about the Zappos brand being the very best customer service and customer experience. We really can go into any industry where service makes a difference. That's most businesses. We probably won't ever get into the paper clip manufacturing business, but a Zappos airline? Maybe 20 to 30 years from now. I get bored easily, but the really cool thing is that the brand we are trying to build at Zappos allows me to do things like ZapposInsights.com. It's not something that would obviously come out of online footwear retail, but when you think of Zappos as being a brand that is about delivering happiness, then ZapposInsights.com makes perfect sense.

Comments Showing 1-9 of 9 (9 new)

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message 1: by Natalie (last edited Jun 09, 2010 08:49PM) (new)

Natalie SJ Mercury News columnist Chris O'Brien writes today about the culture Hsieh created at Zappos, Hsieh's recent article Why I Sold Zappos in Inc. magazine, and the circumstances of the sale of Zappos to Amazon and concludes by wondering: Could Zappos have planted the seeds of a revolution? What a shame we'll never know.

I am not so pessimistic . . . if Zappos is truly independent from Amazon as Hsieh relates, perhaps the best aspects of its unique company culture will continue to be honed by the next gen Zappos, as well as be picked up and emulated at Amazon and elsewhere as interest grows surrounding Tony Hsieh's Delivering Happiness A Path to Profits Passion and Purpose ?

I don't know if a company can change the world, but I am a firm believer that a book can!


message 2: by Jason (new)

Jason Oh, Ellis. God how I love you so.

I always enjoy reading interviews with Ellis, who interestingly enough seems to contrast very sharply with his provocative, often outlandish and twisted characters. He's quite down to earth (we met in person once at a signing in Miami), and gives the most insightful and clear-headed responses. Even when confronted with stupid questions, he answers with grace and respect.

He's our generation's Joan Didion or Fitzgerald.


message 3: by Nora (new)

Nora Novak I will be attending his book signing Wed. June 16 at Largo at the Coronet! Can't wait to read Imperial Gardens


message 4: by Rene (new)

Rene I can't wait. How do I get a copy now??


message 5: by Nora (new)

Nora Novak I don't know if it's out yet


message 6: by Phil (new)

Phil hunh?


message 7: by Phil (new)

Phil i have seen nothing but ho hum reviews of this chap. i am reading the lovely bones after seeing the movie and cognitive surplus by ray sharkey...i have an iPad and a KOBO now so am going nuts


message 8: by Puji (new)

Puji Ohhh,,thank very much for your information,,love you so much


message 9: by Vivian Tenorio (new)

Vivian Tenorio I love Tony and the things that he has done with Zappos.


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