Tony Hsieh, CEO of Zappos On Creating & Delivering Happiness

This week’s edition is highlighting a legendary creator, a man who focused on delivering happiness to everyone whether they were employees or customers.

This week’s edition focuses on Tony Hsieh, the man who revolutionized company culture and was a true visionary when it came to delivering happiness to the world. He was a creator in his own right launching multiple businesses, revolutionizing customer service and culture and creating new models for work and life.

Please enjoy this deep dive into a complex individual revered by many across the world for his unending optimism and innate ability to deliver happiness in all aspects of life.

He lived a life of high ambition and ultimate kindness.

Just look at #TonyHsieh on Twitter for anecdotes. Here’s my favorite featuring Tony on the cover of Inc Magazine.

Tony Hsieh was born in Illinois to Richard and Judy Hsieh, Taiwanese immigrants who met in graduate school at University of Illinois. Richard Hsieh was a chemical engineer and his mother was a social worker. The family moved to California in 1978 and that is where Tony grew up and would lay down his roots later. as CEO of Zappos.

Tony is the eldest in his family with two brothers, Andy and Dave. In 1991, he attended Harvard University majoring in computer science. It was then that he started a business selling pizza to the students from his dorm. His best returning customer was close friend and floor mate Alfred Lin.

During his time at Harvard, he would meet Sanjay Madan and the two would become close friends. After graduating in 1995, Tony and Sanjay would start working on LinkExchange. LinkExchange was a popular internet advertising cooperative essentially aggregating links together and organized around a specific theme. They made money by serving banners on pages and collecting revenue thru clicks. Think Craigslist before Craigslist. The service quickly gained traction and popularity which made the co-founders move from their living room an office in the heart of San Francisco.

Within two years, the company grew to 100 employees and was sold to Microsoft for $265M dollars in 1998.

Hsieh himself made $30M from the sale and was just age 24 at the time and just fresh out of college. At the time, the whole world was ahead of him and he now had a big bank account. He quick pivoted to do some investing and he missed being part of a small company (LinkExchange grew to 100+ people before being sold).

In 1999, Hsieh joined full-time at Zappos as the CEO. A business that primarily sold shoes online at the time. Hsieh was fighting an uphill battle. Many people were not interested in buying shoes online because they couldn’t try them on. This was in the early 2000s when people were going in store for most home goods, clothing, etc. Purchasing wearables like clothing, shoes, bags, outfits online was almost unheard of. Furthermore, you had the complexity of the business actually making money and how to manage refunds and customer service.

All of this seemed like a very interesting challenge to Tony and this is where he started his life’s work at Zappos. He knew he was entering uncharted territory and had to make his mark. Hsieh very quickly decided to rebrand the company to a company that is a service company that happens to sell shoes. His goal? To be the best customer service company in the world. He would de-emphasize efficiency for phone calls, letting customers talk hours upon hours at a time with call center agents sometimes even not making an actual sale. The agents had no script and sometimes went down interesting rabbit holes customers would ask about.

One story had a customer call and ask about shoes she saw in a movie. The agent was on call with her for over an hour watching YouTube clips to see what shoe she was talking about, trying to find similar type of product and ultimately the customer never bought a shoe.

In fact, the longest call set a record of over 8 hours on the phone with an agent. You can see more of these interesting agent stories below:

Hsieh quickly emphasized culture at Zappos at the company. He would often let teams self-organize and he was all about changing the way the company does business by doing things that don’t scale but ultimately made employees happier. He was a strong believer that word of mouth is the best marketing tool and banked on the fact that even if the company didn’t make a sale (say on a long phone call), the customer would talk about their positive experience with Zappos with friends and that would be the best form of marketing.

Can you imagine being on an 8 hour call with someone talking about a vast variety of topics and then telling your friend about your positive experience? Another delightful story he talks about is how Zappos would sometimes delight customers by paying for expediting shipping without telling them. For example, Tony tells the story of a customer who had purchased shoes at midnight on a Thursday in New York expecting them to arrive on Monday. And then to their delight, the shoes showed up at 8AM on Friday morning at their doorstep. That positive experience and feeling is scalable through their friend group and routinely set Zappos apart.

The Three Cs to Zappos

It’s also what made Zappos the best place to work for years on end. Hsieh and team preached the Three C’s: Culture, Customer Service and Clothing. At the time they were mainly selling clothing and shoes but this pyramid put things into perspective for employees and the world. Culture is #1 always.

This slide from Tony’s talk at Stanford from 2010 (TEN YEARS AGO) shows his pyramid of hierarchies when it came to building Zappos into a recognizable and respected brand.

Another thing Tony was known for was vision and preaching a practice of being about your vision. Not doing something because it pays or generates profit, but doing something because you have a knack and a passion for it. That passion is what will get you through the inevitable tough times and what will eventually help you make money from it. Tony’s vision for culture was radical at the time. Many companies preached a work-life balance, you go to work for a 9-5PM job and that’s it. After 5PM you come home, talk with friends or spend time with family, rinse and repeat. There was very little fun or even flair to companies. Companies like Microsoft, Intel, even Apple had boring gray cubicles. Some still do. You park your car in a giant parking lot noting what pole you parked at, you go to your grey cubicle which is basically just a box and work. Then you go home. Some people loved that but Tony and Zappos was the antithesis of that. From the beginning, Tony infused the company with his own positive spirit. You can watch his whole talk at Stanford about how he built the Zappos brand here:

Furthermore, he began organizing the company into a holacracy, a system that was started in 2012 and was unheard of in terms of company hierarchy and structure. It led to some inevitable problems eventually but the idea was to have self-management instead of the traditional managerial chain.

You can read more about Zappos’ holacracy system here.

This system was incredibly unique and was vastly different than traditional management styles. But the system itself was not the secret sauce. The secret sauce was how he built company culture of people enjoying each other. He has talked multiple times about how Zappos approached recruiting.

The Zappos Approach to Recruiting

Zappos took quite a unique approach to recruiting. They would have two parts to the interview for a position. First, the technical part, can this person do the job? Ask them to talk about past experiences, maybe technical interview questions, etc and grade on that.

Second, ask about culture. Is this someone I can have a beer with? Is this someone I want to talk about life and my ideas with? Will they give me recommendations for restaurants in a city or for what movies to watch? Many companies in the early 2000s weren’t asking these culture questions. Many companies focused on the first part. If you can do the job, you’re hired. Jobs weren’t seen as something the is infused with your life, a job is a job, not a place to make life long friends and relationships.

Zappos took this a step further. In the 2010s he started offering an incentive during the hiring process. After making a hire (regardless of software or customer support or any role at the company), each employee would go through 5 weeks of training. And after the 2nd week, the person was given an offer. Take $2,000 and walk away from the company or stay through more weeks. And each week thereafter, the offer would go up. After the 3rd week, it went up to $3,000. Then, after the 4th week, up to $4,000.

At a time when most people were making $11/hour in the early 2000s, Zappos wanted people to commit and stay for the culture not just for a paycheck.

This approach to recruiting resulted in about 1% of hires taking the money and walking away but the vast majority of employees then telling their friends about the money they turned down to leave. That innate built-in message of “I turned down $4,000 to leave the company” is quite a sentence to friends and family and more importantly a sentence that solidifies one’s commitment to the company and to the culture.

This emphasis of company culture is what Tony Hsieh became known for and many companies began learning from Zappos about what they needed to do to invest more in making their employees more engaged. But Tony was not just about culture, he also brought some major revenue to Zappos over his time as CEO. In 2000, the company started at $1.6M in revenue and 9 years later, the company reached $1B in revenue.

The stock price has soared over the years and even in the 2008 economic crash, Zappos thrived. At the end of the day, Hsieh’s thesis of putting service first proved true. In fact, he believed in it so much, it eventually became the tagline footnote in 2003.

This also spread to their customer service teams which they called customer loyalty teams which had very unique systems like a 1 year return policy and no upselling built into their service model. The majority of Zappos customer loyalty team (even the name was important to company culture) was from repeat customers. Customers who had made a purchase before and were now inquiring about purchasing another product. Whether that meant it was just an idea to them like someone who called about them forgetting to buy new shoes for their wife or something very difficult to triangulate like a certain pair of shoes an actress was wearing in a movie, the customer loyalty team was on it and ready to help with 24/7 support. You can learn more about Zappos approach to customer loyalty and service here.

Delivering Happiness, the book

Around 2010, Hsieh wrote a book called Delivering Happiness. It’s a great read discussing how he baked happiness into Zappos and started a positivity revolution. He’s the prime example of someone who put doing what’s right ahead of what makes business sense. There are many examples of this from his approach to culture to helping out Las Vegas, Nevada with infrastructure projects after Zappos HQ was made there, thus pouring money back into the local city and economy bettering the lives of his neighbors.

The book is available on Amazon and on Audible - go give it a read or listen. I’ll be listening to his book on Audible starting next week.

In Memoriam

Tony was a visionary and an overall happy human being. He never married and didn’t have any children, but inspired many throughout his different areas in life. Whether it was his life-long passion for poker or going above and beyond for friends, he was always positive, always very well spoken and always focused on delivering happiness. Rest in Peace Tony Hsieh and thank you for reminding everyone that it’s how you make others feel that matters most.

One last thing.

One last story I just recently learned that is awesome and all about the kind of happiness that Tony embodied.

In 2017, Tony reached out to actor Joseph Gordon-Levitt (JGL) upon reading the book A Tiny Book about Tiny Stories. The book was made in worldwide collaboration with artists, writers, designers, videographers, and creatives all over the world contributing to his site and project hitRECord.

Tony reached out directly and loved the collaboration and positive values of the website and the people. Creators getting paid for what they create and people adding on top of great ideas. He quickly became an investor in the project and was an avid supporter of people creating things.

Upon news of Tony’s death yesterday, Joseph Gordon-Levitt and the hitRECord family have put together a project where you can contribute your message whether its an audio note, a selfie video or written about your favorite memory of Tony. Whether you met him personally and spent time with him or read his book or attended a talk or worked for him at Zappos, this project is a worldwide collaboration and collection of Tony memories and I urge you to join me and contribute in any way you can to remember Tony Hsieh.

Thank you for reading and remember be kind, for everyone you meet is fighting an unseen battle. Much love, see you next Sunday.