Great Monday //

An interview with zappos CEO Tony Hsieh.

In tough times every CEO takes a hard look at what his or her company could be doing better to weather the storm. Some cut jobs, others stop advertising, and still others try to innovate their way through. Those are all reasonable tactics, but what if they could’ve avoided the crisis in the first place? How do you build an unshakable business foundation from the start?

Every business has a critical, overlooked, underutilized asset—its people. The old employment model says: I pay you money, you do the work, end of story. While money is a key commodity and motivator in our economy, it isn’t the only reason we work. There’s more, and Zappos.com CEO Tony Hsieh has built his business around this more-than-sound assumption.

I had the opportunity to spend a few days at online shoe retailer Zappos.com’s Las Vegas headquarters and saw in person what makes the company who is setting the gold standard in service tick.

The answer? Focus on culture and the rest falls into place.

Culture may be a surprising answer considering all the CEO clatter out there about things like eco-innovation and the triple-bottom line, but after my time at Zappos I’m a believer—culture is the key to sustainable growth in business.

I got a chance to dig a little deeper into their culture, ask Tony a few questions about how sales are holding up, and the future of Zappos now that on-line behemoth Amazon has acquired them. Below is our conversation.

——–

JL: First, how do you define culture?

Tony: It’s a combination of making sure that everyone understands our vision of having the Zappos brand be synonymous with the very best customer service, as well as making sure we hire people that are a fit for our company culture. Our culture is defined by our 10 core values:

1. Deliver WOW Through Service

2. Embrace and Drive Change

3. Create Fun and A Little Weirdness

4. Be Adventurous, Creative, and Open-Minded

5. Pursue Growth and Learning

6. Build Open and Honest Relationships With Communication

7. Build a Positive Team and Family Spirit

8. Do More With Less

9. Be Passionate and Determined

10. Be Humble

JL: Zappos took 7 years to become profitable, and still now only earns about 5% profit. One rumor is that it’s because you invest so much back into the business, particularly the culture. I agree it’s important for businesses, but cultivating a great culture seems expensive—what kind of return do you see? How do you justify it to your investors?

Tony: Like any other business, we still have financial goals we need to meet in order to keep our shareholders and board of directors happy. Our approach has been to maximize the amount we invest in the customer experience and our company culture while still meeting our financial goals. There are always things we can do to make our customers happier…for example, in theory we could offer same day delivery for every customer. But it wouldn’t make sense from a financial perspective, so we don’t do that.

JL: I’ve got a theory, so tell me if I’m right or not. Because you’ve built such a strong culture, you’ve been able to avoid the worst of the recession. Have you felt a pinch on sales as people move to cheaper retailers?

Tony: For our own customers, we’ve noticed many of them migrating to less expensive brands, but they’re still purchasing from us,too. On any given day, about 75% of our orders come from repeat customers.

JL: There’s a phrase thrown around quite a bit at zappos: Focus on culture and the rest falls into place. When did you realize this was the core tenet by which you wanted to run your business?

Tony: We stumbled into it accidentally. In the early days of the company (we were founded in 1999), we were unable to raise funding so we weren’t able to spend a lot of money on expensive marketing campaigns. As a result, we were forced to focus more on our existing customers. What we found was that the more we invested into customer service and the customer experience, the more loyal they were, and the more we grew from word of mouth.

Today, we take most of the money we would have spent on paid marketing or advertising and invest it into the customer experience instead. We realized that the only way we could deliver great customer service was if we had happy employees, and our belief is that culture plays a very big role in the happiness of employees.

JL: For companies out there who want to improve their corporate culture what would you recommend they do first?

Tony: I don’t think the Zappos culture can or should be cloned, but I do think the idea of being transparent and running a business based on core values and a meaningful vision that’s not just about money or profits can work for any organization. It doesn’t really matter what the core values are, as long as the entire organization commits to those core values. The most important thing in any large organization is alignment.

JL: On you’re blog you write “we want the Zappos brand and business to be about … delivering happiness, whether for customers (through customer service) or for employees (through company culture).” I thought you sold shoes–how can you make money delivering happiness?

Tony: Every great brand that exists ultimately is about one or more human emotions. There are plenty of companies that sell shoes, but if you ask customers how they feel about those companies as compared to Zappos, you’ll find that customers will feel very differently about those companies versus Zappos.

JL: Amazon just acquired Zappos a few days ago. They’ve committed to support the Zappos brand and culture (clearly Amazon CEO Jeff Bezos is in awe of what you’ve been able to do in regards to providing the gold standard in customer service). Any indication that they’d like you to help them get some of that zappos magic?

Tony: The deal hasn’t closed yet, so it’s too early to tell.

JL: Fair enough. Thanks for you time, Tony. Good luck and continued success on your mission to bring happiness to your employees and customers.