Tony Hsieh, CEO of Zappos at Online Market World

The Thursday morning keynote at Online Market World featured Tony Hsieh, CEO and Founder of online shoe merchant Zappos. To be fair, Tony does not consider Zappos to be a shoe company. They are a customer service company.

Zappos is well known through out the e-commerce industry (and the broader populous) as have world class customer service. The are focused not on the transaction, but on the life time value of the customer. Tony’s keynote explored the building of a company culture that lives up to these ideals.

Prior to founding Zappos, Tony owned a pizza place. Alfred Lin was a regular customer. He would always order a whole pie. Tony and his employees all thought he was just a big eater. Occasionally, however, he would buy a second pizza just an hour or two after the first. No one can eat that much. So Tony asked Alfred about it. It turned out that Alfred was taking the pizza up to his down and selling it by the slice for a huge profit.

Alfred is now the CFO of Zappos.

Some quick facts about Zappos:

  • Founded in 1999
  • 1600 Employees
  • Half of employees are in the headquarters in Las Vegas.
  • Half are at the warehousing and shipping facility in Kentucky.
  • On any given day, 75% of orders are to repeat customers.

Most customers are “surprise”-upgraded to overnight shipping. My wife and I have each purchased a pair of shoes from Zappos, and this happened with both orders.

The call center is called the “Customer Loyalty Center”. There are no scripts and no up-selling. Reps are encouraged to provide “above and beyond” customer service.

The warehouse runs 24/7. This is actually an inefficient system when compared to batch processing. Zappos is not maximizing for efficiency, but for customer experience.

They inventory all products; there is no drop shipping. They did drop ship early in their life. However, by the time the fees came in, dropping didn’t save much, and the drop-shipping generally didn’t have enough focus on the customer.

Every new employee receives five weeks of culture, core values, customer service and warehouse training. They believe that brand and culture are the same thing.

Not everyone makes it through the five weeks of training. Some people aren’t passionate about customer service and/or don’t buy into the culture.

After the first week of training, and offer is made to each trainee. They can take the pay for the time they’ve been there, plus another $2,000 to quit. This offer stands until the end of the fourth week. Anyone who has not bought into the culture is likely to take the money and run.

About one person in every training class takes them up on the offer. Tony feels this number is actually too low, and has thus been increasing the payout over time.

Interviews and performance reviews are 50% based on core values and culture fit. The hiring manager interviews for talent and ability, and the HR department interviews for culture fit. A candidate must pass both.

Tony next told the story of a lady who ordered shoes for her husband. She was surprise upgraded, so they showed up the next morning. Tragically, her husband had been killed in a car wreck the night before. So, she called to return the shoes. The customer service rep handled the return, just like any company would. However, after the call, she took it on herself to send the widow flowers. The widow told the story about it at the funeral. Zappos gained another forty customers for life.

You can’t set policies for this sort of thing. They happen too rarely. But the reps must be empowered to address them. This can only come from the culture.

Tony got visibly choked up when telling this story. I’m a jaded old direct marketer, but really felt myself pulled into the story. It was quite compelling.

Next, Tony talked about the process of changing from a company that sells shoes to a company about providing service. The increased buy-in from the employees was clear and powerful.

He is often asked at entrepreneurial meetings for good ideas for companies to start. He says it’s not about the product, but rather the passion. “Chase the vision and not the money,” he informed us.

Another lesson is that customers who buy on price are not loyal. The next time they’re looking to buy, if your competitor is a dollar cheaper, they’ll buy from him.

He also recommends that you by as transparent as possible. “Be real, and you have nothing to fear,” he promised us. Authenticity is huge for building a brand. The company has an “Ask Anything” policy with its employees, and they share as much as possible with vendors. This results in thousands of extra eyes watching the business.

The definition process for Zappos’ core values took over a year. They surveyed all employees. The key concept is that the core values must be “committable”. You must be able to fire people for not buying into the core values. If they are too lofty, you will end up making compromises.

Finally, Tony said that if you get the culture in a company right, most of the other things will just happen.

In closing, here are Zappos official 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 Communications
  7. Build a Positive Team and Family Spirit
  8. Do More with Less
  9. Be Passionate and Determined
  10. Be Humble

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