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I Am American Business

Tony Hsieh

Producer Notes

The Zappos.com headquarters is only about a half an hour from the Las Vegas strip. It's in your basic, anonymous corporate park. But once you get inside the building, this is the friendliest company I've ever seen. Everyone's required to wear his or her nametags. And they also have their names hanging above their desks. It's a simple idea, but knowing everyone's name makes the place much more sociable. Of course, the free breakfast, lunch and snacks (ice cream all the time!) helps too. We experienced their extraordinary personal service first-hand when they agreed to dismantle an entire awkward cubicle to give us room to shoot. They moved furniture, gathered shoes and shoe boxes, and then had a great, silly time doing a ballpark worthy cubicle "wave". When have you ever seen a cubicle "wave"? Zappos CEO, Tony Hsieh also has the most unassuming office possible, a cubicle, and right smack in the middle of all of the others. The idea of creating a warm, creative corporate culture seems artificial in most companies. It's more a matter of slogans than spirit. Zappos.com has the real thing.

Video Interview

The "I Am" Q&A

What car do you drive?
I drive a Mazda 6.

What website do you like to visit?
Zappos.com. I also visit Google and Yahoo. Those are probably my favorites.

What was your worst moment in business?
There are so many. I don't know if there is any one moment, but I think just there were a lot of times when we were worried about how to make pay roll the next week and not wanting to disappoint employees, so just having to go through those stresses was pretty bad at that time.

What's your favorite drink?
Grey Goose and soda.

What's your idea of fun?
Going out and watching movies or going to the bar and hanging out with friends.

And at work?
Fun at work? Pretty much every day we try to make work fun, so it can be talking to employees or just going to lunch. Pretty much anything...installing a popcorn machine in the lobby.

What personal weaknesses do you forgive in someone?
I guess almost any weaknesses. It just depends on whether the person wants to improve or not, and as long as they do, then that's great.

What business weaknesses do you forgive?
I would say the same thing. Part of what we believe in at Zappos is helping employees grow both personally and professionally, and as long as someone wants to do that, we try and support them all the way.

What movie star do you like?
I like Julia Roberts.

Who is a business hero of yours?
I would say Howard Schultz of Starbucks.

What personal qualities do you admire in a person?
I would say I admire anyone who is always looking to improve and learn and is open-minded about anything and everything.

What personal qualities do you admire in business?
We pretty much look for the same thing. People that are open minded and want to learn and improve whether it is themselves or in business.

What was your greatest moment in business?
I don't know if there has ever been a single moment that has been great. I think its really just constant small improvements. And, you know, every once in a while it is great to look back and see what has been accomplished in the past year or past seven years.

What's the most unusual thing in your wallet?
Most unusual thing in my wallet is? I guess my Zappos credit card.

What is your dream?
My dream is for Zappos to become a brand name that everyone loves whether it is customers or employees or our vendors or business partners that we work with.

Do you have a motto?
We sort of have a motto. We internally like to say that we are a service company that just happens to sell shoes and now we have added handbags and apparel to that list.

Transcript

CNBC:
Where did you grow up?

TONY HSIEH:
San Francisco.

CNBC:
Was it a big adjustment moving to Las Vegas?

TONY HSIEH:
It's different, but I like it here a lot.

CNBC:
When I read that about how you moved here for the business, I thought that was a really interesting.

TONY HSIEH:
Yeah, about seventy out of ninety employees ended up moving here.

CNBC:
When did your company move down here?

TONY HSIEH:
A little over three years ago.

CNBC:
I was reading that you had a big milestone recently?

TONY HSIEH:
I think it was last August. We hit a billion dollars in gross merchandise sales for the company. We were pretty happy about that. We made tee shirts.

CNBC:
What did it say on the tee shirt?

TONY HSIEH:
They said, "My company has sold a billion dollars in shoes, and all I got was this lousy tee shirt.”

CNBC:
I heard that your first college job was managing a pizza shop?

TONY HSIEH:
Yeah. Actually, I was running a pizza business with a college roommate and sold pizzas to all the people in our dorm. I think one of the things I learned then was really listening to your customers. We originally only sold hamburgers, but customers kept asking for pizza, so we eventually switched to just selling pizza. And, the now, CFO and COO of Zappos was my number one customer at the pizza business, and that’s actually how we met. As it turned out, I found this out later, he was buying pizzas by the pie and then selling them off by the slice, so that’s why he’s CFO today.

CNBC:
Were there any other business lessons that you learned then?

TONY HSIEH:
I guess just learning that growing a business is a lot of hard work and that you need to make your customers happy.

CNBC:
After college, I know you were at Oracle for a while and you quit to start your first business. I assume you had a pretty decent job. Wasn’t that kind of a risky thing to do?

TONY HSIEH:
I guess at the time I was fresh out of college so really didn’t have many obligations, so it didn’t seem that risky at the time, and I really didn’t like having a big corporate job, so it really was just a lot more fun trying to do something from scratch and watch it grow.

CNBC:
When you first decided to start your own business, did you have ideas about what kind of a workplace it should be?

TONY HSIEH:
Not really. Originally, it was out of our apartment, so we dreamed one day of having an actual office. It was called Link Exchange, and actually over time, we grew to about a hundred or so people. And one of the things that we didn’t know to pay attention to at the time was the company culture, so as the company got bigger and bigger the culture kind of deteriorated, and that’s actually why we ended up selling the company. So with Zappos, from day one, we’ve paid a lot of attention to company culture, and in everything we do, the main question we ask is, “How is this going to affect the company culture?” And that goes with our hiring process, our performance reviews, and we judge managers and everyone in the company by what they contribute to the company culture.

CNBC:
How would you define the company culture?

TONY HSIEH:
At Zappos, the company culture means a lot of things. I think a lot of people are surprised when they visit the office to see that we really foster a family atmosphere, and we try not to take ourselves too seriously. We like to have fun, but at the same time also work hard in growing the business.

CNBC:
You have an absolutely remarkable record of sales growth. Can you take us through where the company was when you joined and how far it’s come?

TONY HSIEH:
I joined Zappos about two months after it was started in 1999, and during that year, there were almost no sales. In 2000, we did 1.6 million in gross merchandise sales. In the next year, it was 8.6 million. Then it jumped to 32 million. And then, the year after that was 70 million. The year after that to 184 million and then, the year after that to 370 million. Last year, we did 597 million, and this year we're on track to do about 850 million. So last year, in August, we actually hit a big milestone where we had sold a billion dollars worth of gross merchandise for the lifetime of the company, so we were pretty happy about that.

CNBC:
How many years did it take before you became profitable, and what is your theory about how long it takes to become profitable in any business?

TONY HSIEH:
For us, I guess we’ve always taken the philosophy that any money that we could make, we wanted to instead invest into the growth of the business. And so we were slightly profitable last year, but for the three years before that, we were running the company at close to break even. And while we could have been profitable, we decided instead to spend those profits on things to improve the customer experience because we want the Zappos brand to be about the very best online shopping experience and the very best customer service. So we would do things such as instead of shipping ground, upgrade customers to three-day air. Or, once we could afford it, upgrade them to two-day air. And actually today, we offer free overnight shipping to all of our customers, and it’s free shipping both ways with a 365-day return policy. It wasn’t always like that. We started out with just a thirty-day return policy, and as we could afford it, we wanted to offer more and more to the customer because when you go to a brick and mortar shoe store, typically the sales person will bring out a few pairs of shoes and some might look good in the box, but then when you actually try it on, it’s either uncomfortable or it doesn’t look good on you. You may need to try the next half size up or down. Online, it’s a lot more challenging, which is why in the very beginning, we decided that we really should offer free shipping both ways to our customer to kind of get over that perceived difficulty in shopping online. I think we were the first company to pioneer the idea of free shipping both ways.

CNBC:
Have you heard back from customers how they feel about your shipping policy and your return policy?

TONY HSIEH:
Yes, customers love it! We hear from the all the time. They say that they never thought they would buy shoes online until they learned about our policy and tried it out and see how easy it was to return something. It’s not a long, complicated process. It’s self-serve. You just go online to the website and print out a pre-paid return label, and the rest is taken care of for you.

CNBC:
Can you tell the story of how you became involved with Zappos?

TONY HSIEH:
The founder of the company, his name is Nick Swinmurn, was the one that originally came up with the idea of selling shoes online. And at the time, Alfred, who is now the CFO and COO of Zappos, and I were making investments in a number of different internet companies. I think we invested in about twenty or so different companies. And Zappos just happened to be one of them. But Zappos almost didn’t happen because back in 1999 Nick said he had this idea of selling shoes on the internet, and to us, that just seemed like the "poster child" of bad internet ideas. We thought, "No one would ever buy shoes online." We actually almost deleted his voice mail. And right as we were about to do so, he threw in a little number at the end which was that footwear in the US was a forty billion dollar market and five percent, or two billion, was already being sold by paper mail order catalogues. So in our mind, the internet was going to be at least as big as that. So that’s what caused us to take that initial leap of faith.

CNBC:
How do you feel when you think back on that moment?

TONY HSIEH:
I’m glad that my fingers were a little clumsy, and I didn’t hit the delete button fast enough.

CNBC:
What do you think the message is there for other entrepreneurs?

TONY HSIEH:
I would say that if you really believe in an idea and are passionate about it, then you should go for it. I think historically, almost all the great things out there, all the great ideas or great businesses are ideas that at the time people thought were crazy. You know, people thought that people weren’t going to pay four dollars for a cup of coffee. Yet, Starbucks is huge today.

CNBC:
Were there times at the beginning when you thought you weren’t going to make it?

TONY HSIEH:
I would say there were many times when we thought we were going to go out of business. I think what got us through everything was that we had a really good team together, and we all supported each other. I would say it’s really the company culture that got us through the hard times. And if one person was losing a little faith, we had four or five other people there willing to bet everything on the future of the company.

CNBC:
When you established the Zappos brand, a lot of people were doing websites that had the name “shoe” in it. Can you tell me about why you think that was bad idea and why you picked the name Zappos instead?

TONY HSIEH:
Well, we didn’t want to limit ourselves to just shoes, even though we knew we were starting out focusing on shoes. In the long term, we actually don’t even want people to know that we originally started out with shoes. We want people to associate the Zappos name with the very best service and the very best online shopping experience. And by creating a name that really doesn’t mean anything, it gives us a lot of flexibility as to what other product categories we can add over time. I guess we always thought that we didn’t want to limit our options. And while footwear was a very big industry and still is a very big industry, we definitely don’t want to be only about footwear in the long term.

CNBC:
What do you want the Zappos brand to represent?

TONY HSIEH:
We want the Zappos brand to be about the very best customer service and the very best online shopping experience, and that’s why we offer free shipping both ways, and if you order from us it’s not just free shipping, but it’s free overnight shipping. We run our call center 24/7, and unlike most websites, we don’t hide our 1-800 number. It’s in the top left corner of every single page of our website because we actually want to talk to our customers.

CNBC:
I heard that when you were hiring people to man your call center, you had to "untrain" them? Can you talk about your philosophy of what a call center should be like?

TONY HSIEH:
We run our call centers differently. We actually don’t have scripts, which most call centers do, so we encourage every rep to, using their own individual style, talk to the customer and try to connect with the customer in whatever fits their personality and the customer’s personality. I think most call centers, are measured in terms of things like efficiency or how quickly they get the customer off the phone. And for us, we think that’s a bad way of providing customer service, so we actually don’t measure call times. We tell our reps to do whatever it takes to go above and beyond for the customer. We'll even go so far as if a customer wants a specific shoe that’s not on our website, we’ll actually direct them to competitor’s website, not because we want to make money, because we aren’t, but just because we can be true to our brand of providing the very best service.

CNBC:
Can you talk about what your rates have been on returning customers?

TONY HSIEH:
On any given day, about 75% of our purchases are from repeat customers, and that’s really been how we’ve grown the past eight years. It’s really primarily been from repeat customers and word of mouth. We don’t spend a lot of money on marketing.

CNBC:
How does that make you feel that people are coming back?

TONY HSIEH:
It's great, and that’s really how we measure our success. We don’t necessarily look at the financial numbers first. We look at how happy our customers are, how often the come back, and how often they tell their friends about us.

CNBC:
How do you know they’re telling their friends?

TONY HSIEH:
Oh, when a new customer comes to our website and buys for the first time, we ask them how they heard of us, and the number one thing, aside from the response “internet,” is some sort of word of mouth.

CNBC:
When you talk about having people who can make a connection with the customer, how do you find those people, how do you hire them, and what did you do to create the company culture?

TONY HSIEH:
I guess the main thing is really just to try to look at how the person thinks about life and what their attitude is. We don’t actually care that much about their previous experience. We would rather have someone with no experience but a great attitude and a desire to provide the best service than someone who has ten years experience but doesn’t have that same attitude.

CNBC:
What did your views on customer service have to do with your company's move to Las Vegas?

TONY HSIEH:
The company actually was started in San Francisco, and we moved to Las Vegas about three years ago. The reason for that move was because it was hard finding people that wanted to provide customer service as a career in San Francisco. Most people in San Francisco view that as just a temporary job, whereas Las Vegas has a lot of call centers. It’s a 24/7 city, and because our call center was our fastest growing part of the company, we decided to move the entire company out here. I guess we could have done what most companies do, which is just have a call center open somewhere remote and have headquarters still wherever the headquarters is, but we decided to move here with the company, because if the company was really going to be about customer service, we really needed to be where the customer service was happening.

CNBC:
Has is worked out?

TONY HSIEH:
Yes! Las Vegas has been great.

CNBC:
I heard you’re a poker player?

TONY HSIEH:
I play occasionally when I have time.

CNBC:
Was that a plus moving to Las Vegas?

TONY HSIEH:
I’ve actually played a lot less poker now that I’m in Las Vegas than when I was in San Francisco. I think part of it is just it’s always available, so it’s not as appealing as it used to be.

CNBC:
Let’s talk a little bit about the expansion. Now that your sales are so extraordinary, you’ve started to branch off into more specialized versions of the Zappos site. Can you tell us a little about that?

TONY HSIEH:
We have a few different vertical sites, what we internally call vertical sites right now. We have Running.Zappos.com. We have Outdoor.Zappos.com. We have Wideshop.Zappos.com, and we also have www.Couture.Zappos.com. All of those are specialized websites made specifically for that lifestyle. So if you’re a runner and you are looking to outfit yourself from head to toe, then go to Running.Zappos.com, and not only will you find the footwear, but also the apparel, the running watches, the shorts, whatever it is that you need as a runner.

CNBC:
What is the intention behind doing that?

TONY HSIEH:
It’s really to provide better service for our customers, so each of those websites actually has a different 1-800 number that you can call, and when you call that number, someone who is specialized in that field will take your phone call and be able to go into much more detail than if you call our general website number, and those people are here in the building as well.

CNBC:
Can you talk about how you’ve expanded the brands a lot since the inception of the site?

TONY HSIEH:
When we first started, we only had four brands, and so people didn’t think that was a great shoe store. But now we have over a thousand brands, and it’s not just footwear, but also apparel, handbags and accessories, so it’s a much wider selection than you’ll be able to find anywhere. Our warehouse actually holds over three and a half million pairs of shoes, and that represents over a thousand brands and over a hundred thousand styles, which is actually physically impossible to house in any brick and mortar store.

CNBC:
Are you still trying to increase the number of brands and number of styles?

TONY HSIEH:
We are increasing the number of brands and styles, but we’re not going for just sheer number. It’s really based on what customers ask for. So if we get a lot of requests from customers for a particular brand, then we’ll add that brand.

CNBC:
What are your goals now? What would be your goals for the next how few years?

TONY HSIEH:
I guess a goal for five years from now is for Zappos to be a household brand name that everyone knows. Not just a name that people know, a name that people are passionate about, and I think there are very few brands like that. There are a lot of mass consumer brands, but very few brands that are mass consumer brands and that everyone is passionate about. And we think that if we can provide the very best service and the very best online shopping experience, then hopefully, eventually, everyone will be as passionate about it as our current customers are.

CNBC:
What are some of the things you do to create this corporate culture?

TONY HSIEH:
We have name tags for every employee. If you walk around the office, you’ll see that some of them have decorated their names in different ways. Our network administrators have put in place a project to actually have electronic displays because they’re more technical, but really, we think it’s important to have a family atmosphere at the company, and so we require everyone to wear their name badge so that you can know who someone is if they happen to be coming across the hallway and you haven’t seen them before. We really encourage a lot of interaction outside of the outside, so we have employees that organize golf tournaments or hiking trips or happy hours. Pretty much anything that any employee has a passion for we highly encourage them to share that passion with other employees.

CNBC:
If you were going give an aspiring entrepreneur a pep talk, what would you say?

TONY HSIEH:
I would say two things. One, is if you’re passionate about your idea, then don’t give up. Your passion will fuel you through the hard times. And kind of related to that is to not do something for the money, because there are going be hard times, and if you’re not doing it because you love it, then you’re not going be successful because you’ll give up way too early.

CNBC:
Can you talk about the risk you had to take shortly after starting Zappos and what led the company to take that risk?

TONY HSIEH:
Well, we decided pretty early on that we wanted the Zappos brand to not be about shoes, but to be about the very best service and the very best online shopping experience. So about four or five years ago, we were actually doing a combination of shipping out of our own warehouse and having manufacturers drop ship for us. At the time, the drop ship part of the business was making up about twenty-five percent of our revenue. And we just woke up one day and decided to give that all up. This was still pretty early in the company’s growth, so while we knew it was the right thing to do, it was very difficult for us financially. But if we wanted to be true to our brand about being all about customer service, we knew we had to give it up. So it was actually both the easiest and the hardest decision to make for the company.

CNBC:
Were you personally scared?

TONY HSIEH:
I think we were all a little nervous. It kind of felt like we were all about to jump off a diving board, but we knew we were doing it together, so looking back, it was the best decision we made for the company.

CNBC:
And how did that help you to give the level of service you wanted?

TONY HSIEH:
We turned off drop shipping because we couldn’t control the entire customer experience. Sometimes, one of our drop ship partners might tell us something was in stock, and then we’d find out three days later that it wasn’t. In the meantime, the customer is already expecting it. None of our drop ship partners were running their warehouses around the clock like we were and we are today. It's actually not the most efficient way to run a warehouse, but it allows us to get our orders out to our customers as quickly as possible.

CNBC:
You stumbled upon the idea of Zappos, almost ignored it. How does someone find the big idea? How do they know when they’ve found it and how do they find it?

TONY HSIEH:
I don’t think necessarily that ideas are as important as just making sure that you execute and follow through and constantly work on improving and listening to your customers. For Zappos, the original idea was actually to do a hundred percent drop ship, and not at all about customer service, but we listened to our customers and were constantly tweaking how we were running the business, so the Zappos today is very different from what Zappos was from day one. I think as long as you’re always looking to improve your business and you’re always listening to your customers, the idea might not be so important as, as more just making sure that you’re always doing those things.

CNBC:
Do you think almost any business would have the potential for your kind of growth if they were really listening?

TONY HSIEH:
I think that almost any business can start out very small, and as long as you’re listening to your customers and willing to change your business to adapt to what makes the most sense for the business, then any business can grow into a bigger business. It’s not like one day you have to figure out how to go from where you are to ten times your size overnight, but as long as you’re constantly looking for ways to grow and listening to your customers, then one day it will be ten times the size if you keep growing.

CNBC:
What advice would you give to other companies who admire your customer service?

TONY HSIEH:
I think the advice I would give to other companies looking to improve their customer service is really to believe in it because, and not just have your call center believe in it, but it really needs to permeate throughout the entire company. If the entire company believes in customer service, then the only, the only thing that is gonna happen is you’re going to improve your customer service and eventually provide great service.

CNBC:
Do you think America is particularly receptive to entrepreneurs?

TONY HSIEH:
Definitely, I think that’s part of what’s caused America to thrive as much as it has is. It's looked on as a badge of honor to have been an entrepreneur or to be an entrepreneur, and, at least in Silicon Valley, failing is not a bad thing. It’s kind of a right of passage. In some some countries, if you start a business that might not be looked favorably upon, and if you fail, then you’re kind of blackballed for life as a failure. Whereas in America, if you start a business and fail, that is okay. And if you start a second business and are successful, then a lot of that is because of what you learned from the first failure. And I think that America recognizes that.

CNBC:
What do you think it is about America that makes it possible for people to start a huge business from nothing?

TONY HSIEH:
I think in America there’s a sense of optimism and that anything is possible, and in a lot of other countries, that may not be the case, maybe it's because culturally that’s just how they think about things. Maybe in other countries, you’re supposed to work for a big corporation and that’s viewed as success, slowly working your way up the corporate ladder. In America, you can start a company, and if it’s successful then that’s, in a lot of ways, what’s known as the American dream.

CNBC:
Do you think you’re an example of the American dream?

TONY HSIEH:
I guess so. I hadn’t really thought about it, but for me it’s more just been about my dream. I’ve always enjoyed starting businesses or pursuing new ideas and watching those ideas grow.