Tony Hsieh, Zappos CEO, at SXSW09

March
14
2009

Tony Hsieh is the CEO of Zappos, who recently broke $1bn a year in revenue. He delivered the opening remarks at SXSW Interactive 09:

Update The Second: Tony has posted his slides on Slideshare, which I’ve embedded here for your viewing pleasure. Enjoy!

Update: Sunni Brown and Marilyn Martin did a fantastic visual note taking session of the talk, which was shared on the SXSW blog. Click through to the full-size image.

Sunni Brown and Marilyn Martins Graphic Recording

Sunni Brown and Marilyn Martin's Graphic Recording

  • Started out selling pizza in his college dorm room
    • Alfred, current CFO, buying pizzas downstairs and selling them off by the slice upstairs
  • Started LinkExchange and sold it to Microsoft
    • Sold it off because the corporate culture started to suck
    • They didn’t know to grow it for culture so they let it grow without supervision
  • Started an investment fund with Alfred and invested in 20 companies including Zappos
    • Turned out to be the most interesting and the most fun
    • Joined within a year and became CEO
  • Outsiders think of Zappos as an online shoe company
    • Really they sell clothing, shoes, cosmetics, etc.
    • They just want to be about the best customer experience online
    • Customers ask them to start airlines, run the IRS, etc.
    • Wouldn’t rule it out… this year.
    • Compare themselves to Virgin
      • They’re about being hip and cool, Zappos is about being the best customer service
  • Recognized for company culture this year, which is a huge accomplishment given the reason they sold LinkExchange
  • 75% of orders on any given day are from repeat customers
    • Take the money they would have spent on new customer acquisition and spend it on existing customers
  • $0 in 2000, $1b in 2008.
  • What is customer service?
    • Customers see the 1-800 number first
      • Actually want to talk to customers
      • At the top of every page
      • Most of the calls aren’t customers calling to make a sale
      • Unsexy and low tech, but the phone is one of the best branding devices
        • Undivided attention for 5-10 minutes
        • If you get the experience right, WoM takes over
    • Free shipping both ways
      • Customers order 10 pairs of shoes, try them on with different outfits, send back 9
    • 365 day return policy
      • For people who have trouble making up their minds or committing
    • Most repeat customers are “surprise” upgraded to free overnight shipping
      • Can order as late as midnight and have them on your doorstep 8 hours later
      • Very expensive, but viewed as a marketing expense
  • Only show items on the website that are physically present on the website
    • Avoids getting an email later that says that the items is sold out
    • Zappos originally would list everything that was in the manufacturer’s websites and pass the order through
    • This was 25% of their revenue at one point
    • Sat down one day and decided that the brand wasn’t just about selling shoes and so this policy wasn’t right for being the best at customer service
  • Call Center not run like most call centers
    • If someone calls the call center and they’re out of stock, CSRs are trained to look up the same shoe on 3 competitors’ websites and direct the customer there to buy it
      • Not trying to optimize every single transaction but to build a lifetime relationship
      • The absolute best way to build a company focused on best service is to focus on the longterm
    • Don’t measure Average Handle Time for calls or have sales-based goals
    • Run the warehouse 24/7
      • Not the most efficient way to do it — normally let orders pile up for a few days then pickers have higher order density
  • The number one goal isn’t customer service, it’s company culture
    • If you focus on culture, everything else happens naturally
    • Two sets of interviews
      • Hiring Manager does the skills tests
      • HR does the culture tests
      • Have to pass both
    • Same for firing
      • Performance reviews are 50% based on culture, 50% on performance
      • Can be fired even though you’re doing a great job but you aren’t doing culture
    • New employees all get the same training no matter what level you’re at
      • 1 weeks of training and classes
      • 2 weeks on the phone taking orders
      • 2 weeks later at the warehouse in Kentucky
    • Offer everyone in training to pay them for their time so far and a $2000 bonus to leave right away
      • Standing offer during the training period
      • 3% took it in 2007, 1% in 2008
      • Started at $100 but not enough people taking it so they keep increasing it
      • Call center staff make $11/hr, so it’s quite a lot of money
      • Biggest benefit wasn’t getting rid of the people who would have left anyway but rather the people who thought about it and decided not to take it and stay
        • Much more engaged than they would have been
  • Put out the Culture Book once a year
    • 500 pages
    • All employees write a few paragraphs about what culture means to them
    • Organized by department
    • Unedited except for typos
    • Give it to prospective employees to decide if they like the culture
  • Twitter has really helped the company culture
    • Learned about it at SXSW in 2006
    • Great for finding parties
    • Used it personally for about a year to meetup with friends
    • Great way to keep up with friends in San Francisco since they’re located in Las Vegas
    • Rolled it out to the entire company
    • Twitter class as part of new employee training
    • 1400 employees, 700 in Las Vegas, a little over 400 on twitter
    • Employees meet up outside of work which really helps culture and trust
    • Social proprioception about your team mates and what they do outside of work
      • One employee just getting started tweeted “I could really use a cheeseburger” and one appeared 10 minutes later
    • twitter.zappos.com
      • See all the 400 people
      • Aggregate all of the tweets
  • A company’s culture and a company’s brand are two sides of the same coin
    • Companies are becoming more and more transparent whether they like it or not
    • A single disgruntled customer or employee can write something that gets read by 1m people
    • Think of the airline industry as a whole
      • Most people will say things like “bad customer service”
      • That’s the aggregated brand of the industry
      • No one airline sets out to have that culture
  • A woman bought a wallet, tried it out, and sent it back
    • Was missing $150
    • Chased her kids around trying to get them to admit to having taken it
    • Got a letter from the warehouse staff who had processed it saying “Thanks for the return! We found $150 in your wallet and thought you might want it back. Thanks for the order!”
    • Could easily have kept it, but they hire for culture in the warehouse too
      • As a result of the focus on company culture, this situation took care of itself
    • Could have put in cameras and strip searches and supervisors
      • Would have been very expensive
      • Take the money and put it into the hiring and training process instead and let these situations take care of themselves
  • Focus for 2009: Owning the three Cs
    • Clothing
      • Get the word out about clothing
    • Customer Service
      • Have them experience the great service experience
    • Culture
      • Make sure they understand that the culture drives everything
  • Customers say “Zappos is happiness in a box”
    • Whether it comes from what’s in the actual box or through customer service or for employees as part of their job
    • Zappos is about delivering happiness to everyone
  • Zappos Culture is ten committable core values (committable means you’re willing to hire or fire based on them). More at Zappos Core Values.
    1. Deliver WOW through service
    2. Embrace and drive change
    3. Create fun and a little weirdness
      • On a scale of 1 to 10, how weird are you?
    4. Be adventurous, creative, and open-minded
      • On a scale of 1 to 10, how lucky are you in life?
      • Based on a research study
        • How lucky are you?
        • Count photos in a newspaper and report the number
        • Hidden headlines throughout saying “Stop now, the answer is 37, tell the researcher you found this and get an extra $100″
        • People who considered themselves lucky found the headline more
    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
  • Can’t make compromises on hiring any one person or it creates a trend toward the bottom
  • Some people say “Great for Zappos! Would never work for my company”
    • Good to Great book: getting everything thinking the same way and feeling the same things gets everyone moving in the same direction and is a multiplicative effect
  • 7 Steps to Brand Building
    1. Decide
      • There are a lot of tradeoffs you have to make to get to a $1b
      • Make this decision early so you’re focused on the long term vision
    2. Figure Out Values and Culture
      • Used to think that “core values” were a big company thing
      • Found that rolling it out made them wish they had done it from day one
      • Do it from day one when you’re only a small number of people
        • What are your personal core values
        • What are the company’s
        • Most important thing is alignment, not what they actually are
      • A year long process at Zappos
        • Asked employees and got 37 in the end
        • Narrowed it down to the core list of 10
      • Don’t have a brand positioning document or set of policies
        • Reporters or job candidates can talk to anyone they’d like
        • Wander around, have something in the kitchen, find me when you’re done
        • Not afraid of what employees would say
        • If they talk to three employees, they’ll get three versions of the story
    3. Commit to Transparency
      • twitter.zappos.com
      • Culture book
      • letting employees walk around
      • Extranet for vendors
        • Work with 1500 different brands
        • All of them can log in and see the same info the buyers can see
          • Inventory, profitability, turn rate
        • Info might get into the hands of competitors, but more importantly they get an extra 1500 sets of eyes who aren’t on payroll who are looking for brands that are trending, etc.
      • Tours and reporter visits
        • Takes about an hour
        • Companies like Southwest Airlines have come for a few days
      • ZapposInsights.com
        • Any entrepreneur can sign up and ask questions about any aspect of the business
        • Question forwarded to the right department who will answer by video
      • Ask Anything newsletter
        • Employees email to an address and ask anything
        • Question forwarded to the right person who answers it
        • Answers published in monthly newsletter
    4. Vision
      • Whatever you’re thinking, think bigger
      • Chase the vision, not the money
        • Notorious B.I.G: don’t chase the paper, chase the dream
      • When employees saw that they were working for something bigger than profits or being the biggest in a category they became much more engaged
      • Vendors and customers on the phone felt that passion
      • When entrepreneurs ask which category they should go for, Tony says to chase your vision
        • What would you do for 10 years if you never made a dime
        • What’s the larger vision and greater purpose in your work beyond money or profit?
      • Big difference between motivation and inspiration
    5. Build Relationships
      • Not networking
      • Be interested rather than being interesting
      • Most of the big things that have gotten Zappos to wear it is are random, lucky things that happened by building relationships and benefiting from them 2 – 3 years later
    6. Build Your Team
      • “If you want to go quickly, go alone. If you want to go far, go together” African proverb
    7. Think Long Term
      • Overnight successes are years in the making
      • It’s been 10 years to grow Zappos to where they are now, though it feels like it’s an overnight success
  • Take a step back: what is your goal in life?
    • Goals: Grow a company, get a great job, relationship, be healthy
    • Why? retire early, make money, find soul mate, run faster
    • Why?! spent time w/family, buy a home, start a family, etc.
    • All boils down to one ultimate goal: HAPPINESS
    • What is the science of happiness?
      • There’s a science here the same way as there is around the best way to run a marathon
      • Lottery winners a year later are at the same or lower happiness levels
      • Science in business behind things like conversion, psych of buying, direct marketing, etc.
      • What if you spent 10% of your time learning about and researching happiness?
    • Some Frameworks:
      • Perceived control
      • Perceived progress
        • Moving up to becoming a buyer over a three year process but in six month chunks so they measure it
      • Maslow’s Hierarchy
        • “Peak” by Chip Conley
        • How do you get employees to get from job to career to calling
      • 3 Types of Happiness
        • Pleasure
          • “Rock Star” Model
          • Very hard to maintain and sustain
          • As soon as source of stimuli goes away, you return to not happy much faster
        • Engagement
          • “Flow” Model
          • Put yourself in situations where you’re in the zone
        • Meaning
          • “Higher Purpose” Model
          • Being part of something bigger than yourself
          • This is the longest lasting type
  • Books:
  • Was at a Sketchers conference a few years ago
    • Similar to SXSW: stuff during the day, drinking and partying at night
    • Went out with a bunch of people from Sketchers
    • Shut down one of the bars and wound up at someone’s hotel room at 3am
    • Someone from Sketchers really wanted a pepperoni pizza and had been talking about it all night
    • Room service wouldn’t deliver after 11pm
    • Tony offered up that he ran a pizza shop in college and knew how to make one
    • She didn’t find that helpful
    • They all said “Call Zappos! Call Zappos!”
    • She called and said “I’m in Santa Monica and I’m really craving a pepperoni pizza and I know you’re all about customer service”
    • Awkward silence and then the rep said “You know you called Zappos and we sell shoes and not pizza yet?”
    • Put her on hold for five minutes and then came back with a list of all of the places that sold pizza that were still serving at that time
  • Email tony@zappos.com for a copy of the presentation and a physical mailing address for the happiness book
  • Email tours@zappos.com for a tour with pickup/dropoff
  • zappos.com/zappos5
    • Collect five of a kind by getting a differently stamped card each day
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    RT @jaygoldman: Tony Hsieh, Zappos CEO, at SXSW09 [link to post]

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  2. [...] culture of service. In a sea of online retailers
    Zappos has stood out with their ability to “deliver
    happiness” that extends past the shoe box and through the
    entire customer experience. The value [...]


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