““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
Zappos's Tony Hsieh
To begin to understand the grand experiment that is Tony Hsieh’s life, read two books. One is his own Delivering Happiness, a Path to Profits, Passion and Purpose, which explains not only how he built Zappos and his previous company but also his philosophy of over-the-top customer service. (The book debuted at No. 1 on The New York Times’ bestseller list and stayed on the list for 27 weeks.)
The second book, Edward Glaeser’s Triumph of the City, reveals the philosophical underpinnings of Hsieh’s latest venture: the $350 million remaking of downtown Las Vegas (not the Strip!) into a re-energized and productive urban environment. This book so captivated Hsieh (pronounced shay) that he and a group of like-minded civic boosters decided to put its claims to the test in an underperforming city. “Basically,” he told me, leaning forward intently, “it’s the opportunity to help build a city from scratch.”
Rebuilding a city might not be such a daunting task for Hsieh, considering what he has already accomplished. At age 22, he started LinkExchange, a company that took advantage of a then new-fangled invention called the World Wide Web. Two years later, he sold that business to Microsoft for $265 million and became a venture capitalist, until boredom drove him to focus on transforming a little online shoe company called shoesite.com into Zappos.
Hsieh was instrumental in adding the second “p” to the company’s name (its founder, Nick Swinmurn, had suggested Zapos, after the Spanish zapatos for shoes) and also taking it to the next level on the Web. Zappos might have remained yet another struggling online retailer had Hsieh not applied his views about employee happiness and what he calls “WOW” customer service. The idea is to wow customers not only with a 365-day return policy and free domestic U.S. shipping but with service reps who will go to extreme lengths to satisfy caller requests. Customers have been known to receive assistance with a wide range of non-apparel-related requests–everything from pizza delivery to obtaining concert tickets. This customer service approach has played a role in the massive growth of the company, which Amazon.com purchased in 2009 in a deal valued at more than $1.2 billion.
Where did the concept for WOW service come from?
Zappos was founded in ’99 and I got involved as an advisor and investor about two months after it started. I had sold LinkExchange and set up a fund. We invested in about 20 Internet companies and Zappos happened to be one. I realized that for me investing was kind of boring. Of all the companies we had invested in, Zappos was the most promising and the most fun, and so I ended up joining Zappos full time within a year. Originally the focus was just, “let’s sell a lot of shoes,” but service and company culture were important because at my previous company, the culture had gone completely downhill.
The culture at Link Exchange wasn’t working?
We didn’t know any better. It was a lot of fun in the beginning and then we didn’t pay attention, and not everyone we hired was good for the culture. Zappos did not want to repeat the mistake. It wasn’t until 2003, about four years into it, that we all asked ourselves, “What do we want to be when we grow up? Do we want to be about shoes or do we want to be about something more meaningful?” That’s when we decided to build the brand to be about the very best customer service and customer experience.
Our hope is that 10 years from now people won’t even realize we started selling shoes, and in fact today we sell a lot more than shoes. We talked about how one day there could be a Zappos airline that’s about the best service. In the back of my mind, that influenced me to get involved with JetSuite [as an investor]. In 2009, we realized that customer service is about making customers happy and company culture is about making employees happy.
There is now a movement called Delivering Happiness…
One of the JetSuite jets is painted [with the phrase] “Delivering Happiness.” There are all these sister businesses that are intertwined. There’s Zappos, there’s JetSuite, there’s Delivering Happiness, and now there’s a downtown project. You can check out downtownproject.com, and that’s all about our efforts to help revitalize downtown Vegas.
How did you get interested in downtown?
We’ve been looking for a place to build a campus because we’re spread across three buildings. Because culture is so important to us, we want to find a place where we can put everyone under one roof and also have land to expand. By the time we move, we’ll probably have about 2,000 employees in Vegas and originally we were thinking Google or Nike or Apple–they have great campuses, so let’s have all the amenities inside and try to create this paradise for employees. We realized that none of those campuses really integrate with the community. There’s an area called Fremont East [in Las Vegas] that a number of Zappos employees including myself naturally started gravitating to. There’s no gaming, everyone is very friendly, community focused. I’ve never been to any [other] city where the bar owners hang out in each other’s bars, which is pretty cool. It’s already got that vibe that’s a good fit with our culture.
Triumph of the City looked at cities and why some thrived and some didn’t. From a mathematical perspective, it’s all about combining. You need two ingredients, enough residential density and street-level activities, like a coffee shop or yoga studio, for the residents to run into each other. And you need at least 100 to 200 residents per acre, and magic naturally happens in terms of collisions. It’s similar to our philosophy here. In all the buildings everyone goes in and out through one front door. We purposely force everyone to go through the front door to increase the number of serendipitous interactions amongst employees. That helps build culture and it’s a similar principle for building cities. You get the residential density and then accelerate serendipity, and these collisions start happening, and that’s when people share ideas across industry and run into each other and have those conversations.
Are you personally investing in the downtown project?
I and a few other people are funding different small businesses. If you want to, say, run that yoga studio, you need to be super passionate about it. From the Zappos employee perspective, instead of waiting 40 years when you retire to run that doggie day care that you’ve always been passionate about, why not do it now? You’ll have the funding for it, and it’s in the context of this larger project to help revitalize downtown Vegas and you have a built-in customer base because everyone here is friends with each other.
The goal is to have 100 to 200 of these small businesses and that’ll provide the street-level activity. We need to build up in order to get to that magic number of 100 to 200 residents per acre. We’re investing a lot into education, and we also want to help contribute to the tech startup ecosystem here and help fund tech startups. There’s a lot of momentum on all this. Normally, city revitalization projects take 15 to 20 years, but we think we can do it in five because everyone’s aligned and moving in the same direction. The downtown vibe is almost like the anti-Strip.
One of the goals for downtown is we want to help contribute to the ecosystem that will ultimately benefit Zappos and our culture. We want to help turn downtown into a place where you have everything you need to live or play within walking distance and make it into the most community-focused large city in the world. The funny thing is, it’s going to happen in the place you would least expect it. I think downtown is going to be one of the most important things we do for the company but it’s also going to be really important for the city.
Do you use JetSuite airplanes to bring people to see the new downtown?
On several occasions, we’ve flown people [to see it on a JetSuite Phenom 100] and [when we offer to do so] they’re like, “OK, I can do it next week,” instead of nine months from now.
So they don’t put it off.
Right. It’s been great as a recruiting tool.
Did you buy a Phenom 100?
No, I invested in the company. And I’m on the board of JetSuite. There’s a Facebook page. If you go to facebook.com/jetsuiteair, every day it lists the empty legs for the next day. I think it’s $500, but as a Zappos benefit, if employees are the first to bid on one of the empty legs, they get a flight for free. It’s a really cool employee benefit.
How did you learn about JetSuite?
I originally was a customer.
Was that your introduction to business aircraft?
No. I do a lot of speaking around the country, so sometimes the only way for me to get to a speaking event on time is through private aircraft. We’ve tried brokers…we didn’t know anything about how the industry worked. There’s a lot of variance in the experience.
Did you have a bad experience with charter?
There was one time when I needed to fly from Miami to someplace and the pilot was nowhere to be found for an hour. I was late for that event [because] the pilot was literally M.I.A. in MIA [Miami International Airport]. The first time I flew JetSuite, I hadn’t heard of the company but the pilots were above and beyond friendly and the jet was clean and so I started looking into it because of such a good experience as a customer. Then I reached out to Alex [Wilcox], the CEO. To me it really felt like it was the Zappos of private air travel.
Do you see opportunities to get some culture going at Jet Suite?
I think of it as like a Southwest Airlines or JetBlue of private aviation and there’s an opportunity to build a brand, and it’s so much cheaper than going through the higher-end options.
Does it ever get scary, all these big changes that you make happen?
No, I thrive on it. I get bored very easily and if nothing was changing…I wouldn’t be with Zappos. The thing that’s been exciting and fun about Zappos is it’s always evolving. For the past several years we’ve had something we refer to as the three Cs, which is clothing, customer service and culture.
Clothing is how customers get introduced to Zappos.
Right, and it doesn’t make sense to talk about company culture or customer service till they know what we sell. And then we want them to know we’re all about delivering the best service and then we want them to know about our company culture and core values because that’s the platform that makes all that possible. So those are the three Cs and now we’ve added a fourth, which is community.
You encourage your employees to take risks.
We empower all our call center reps to do whatever it takes to make the customer happy. The worst-case scenario, maybe one out of 10,000 times an employee compensates a customer for a thousand dollars more than is reasonable. Then we’ll just deal with it afterwards in terms of coaching, which is very different from most call centers where they have to seek supervisor approval. That makes the employee feel disempowered and pisses customers off.
You value transparency, too.
We’ve always been about transparency, whether it’s to customers or employees or vendors. We do a quarterly all-hands meeting where employees can ask whatever questions they want and then we live stream that to the public. As part of transparency for reporters we tell them, “Walk around, talk to whoever you feel like.” We don’t say, “You can only talk to this person in PR or this person that’s a VP.”
Obviously you encourage your employees to grow and learn.
We want them to still be employees 10 years from now. That’s only going to happen if they continue to grow personally and professionally. We have a life coach on staff to help them achieve their personal goals and all sorts of training and mentorship.
What about yourself? Are you continuing to grow and learn?
A while ago, I knew nothing about cities and was never interested in urban design. What keeps me excited is that there’s always new stuff to learn.
CEO Files Résumé:
NAME: Tony Hsieh
BORN: Dec. 12, 1973
EDUCATION: B.A., computer science, Harvard University
POSITION: CEO, Zappos.com
PAST ACCOMPLISHMENTS: Cofounded LinkExchange, an Internet advertising cooperative, that Microsoft bought for $265 million two years later. Authored Delivering Happiness, a Path to Profits, Passion and Purpose, a No. 1 bestselling book.
TRANSPORTATION: JetSuite Embraer Phenom 100s
PERSONAL: Lives in Las Vegas, Nevada. Single. Enjoys watching movies and reading in his little spare time. Favorite movie is Pretty Woman. Favorite books include Good to Great, Tribal Leadership, Peak, Triumph of the City and Great by Choice.