Building A Zappos-Like Culture, Not Just A Business – with Joseph Michelli

How do you build a Zappos-like culture in your company?

Joseph Michelli is the author of The Zappos Experience – 5 Principles to Inspire, Engage and WOW. He’s here to teach us how to build a culture, not just a business. Why? To make more money, retain your customers, and decrease your advertising costs.

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About Joseph Michelli

Joseph Michelli is a business consultant who focuses on improving the customer experience. He’s also the author of The Zappos Experience.

Raw transcript

Mixergy’s audio transcription is done by Speechpad

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Hi everyone. My name is Andrew Warner, I’m the founder of Mixergy.com, home of the ambitious upstart, and home of the place where the camera is cutting my head off today.

How do you build a Zappos-like culture at your company? Joseph Michelli is the author of this book right here, let me hold it up in front of the camera, “The Zappos Experience: Five Principles to Inspire, Engage, and Wow”. Joseph, when we say the Zappos-like culture, what’s the point of building a culture, what’s the benefit to me and my entrepreneur audience?

Joseph: That’s an absolutely great question, because entrepreneurs are saying, “Let me just get to business, let me just do the business”, and frankly, I’m an entrepreneur so I get that. Culture sounds like a bunch of core values and some old guy sitting around smoking cigars. The answer to the question is, that you want to make more money, you want to retain your customers, you want to decrease the overall advertising cost that you have. Do you want customers to be repeat business, or do you want them to be transactions?

That’s the reason for culture, because with it, you define all the perimeters of your business that are going to help you, facilitate that for your customers.

Andrew: I tend to think of culture as something that you do when you take a trip to Europe and enjoy yourself, but not something that really helps a business. Give me an example of how the right culture will help grow a business.

Joseph: Well Cultural anthropologist would talk about it a little differently, they do talk about it being maps and meaning. So, how can culture help you grow a business? Well you got to help your people understand what it means to be your business, as opposed to why aren’t they just working down the street at a competitor. So what’s the why of your business?

Simon Sinek had a great TED video out, that talks about the importance of telling people why you exist, they’re not going to follow you to do your how and what, so you’ve got to give them the why. I think that’s one of the strength of Zappos is they’re giving their people a why.

Andrew: OK. You’ve talked to a company called Results Fitness, they really took the Zappos experience to heart, and implemented a lot of what’s in your book, and a lot of what we’re going to be talking about here. What happened to them, what did they do, and then what happened to them as a result of it?

Joseph: Rachel Cosgrove actually went over to Zappos and was training on business development, culture development. She went through their bootcamps, and as a result of it came back and revamped her core values, revamped her training material, revamped her selection criteria, revamped the way they talk about success and talk about stories of customer service. Doing all of that, she ended up with greater customer retention, and in the fitness membership world that’s pretty huge. They also attract customers with greater ease without marketing budgets.

She’s now actually doing training to companies on how to do the same for it. So she’s got a business line that’s a spinoff, kind of training the fitness industry on the same kinds of concepts. And she’s now got a new book coming out. So, it kind of speaks volumes to how you can get an idea, travel it through your business, and then have a whole new set of product lines that come out of it.

Andrew: She took a gym, and because she changed the culture, and we’ll talk a moment about how she changed it and how she got the message out about what her culture is, she was able to increase retention. And at gyms that’s a huge number, I mean, that’s a huge goal, because if you increase retention, it means you don’t have to . . . it means your revenues go up directly.

Joseph: Absolutely. Directly. And, frankly, gym retention is an issue because people buy the membership and then don’t come in. So, there was also a lot of engaging customers into an experience so they utilized your services, which was a key element of maintaining retention, right? So, it’s one thing to have a customer, but if they’re not regularly utilizing your services, the likelihood of them being lured away goes significantly higher or they don’t even see the utility of your offering.

Andrew: All right. And you’re just not a guy on the outside who is just reading about Zappos, you actually got into the business. Tell me about the research and then I’ve got to ask you a question about bottom line. How do I measure the results of this and, of course, this whole interview for the person who is listening in the audience, is going to be about tactic-specific actions that you can take if you want to embrace it. But, first, I’m imagining you in the audience are thinking, ‘What do I get if I do this. And who is this guy to tell me that he understands it?’ So what is your relationship to Zappos?

Joseph: Well, I’ll just give you my quick who is this guy. I started working in business consulting around customer experiences. I’ve worked with the Pike Place Fish Market in Seattle, written a book about them. That’s where they throw fish, a weird experience. Worked with Starbucks, wrote a book about them. Worked with the Ritz Carlton, wrote a book about them. And travel internationally. And, every time I go in, and I say, “You know what? We’ve got to change your culture. We’ve got to focus on creating a true service culture.” People say, “Well, what am I going to get for investing in this thing.” So, it’s the same question you’re asking. It’s the right question to ask.

The answer is, the relationship with Zappos is one where I spent about a year and a half of my life working with this company, understanding the ins and outs of how they create a craveable experience where 75% of the customers, every single day, is a repeat customer. How they’re spending so little on advertising and marketing, and when they do it’s very strategic. It’s what I call just in time advertising. Since they sell a lot of shoes, you’re going to see shoe bins in airports, so when you’re thinking shoes they’re going to put their image in front of you. But, they’re not doing wholesale advertising.

They don’t have to spend as much in advertising because they have word of mouth. Because they have the Twitter traffic. Because they have a brand cachet where customers go out and tell stories to other customers. Which is a form of business currency in the social media. So, the answer is, this is a business that has outlasted what most people could have ever imagined. Selling shoes online. You know, yes, on selling kitty litter online. That was going to work. That was Pets.com’s concept. They spent billions in advertising. I mean, literally, the spend on their Super Bowl ads alone. And they’re a dot com phenomena. Zappos is the real service deal. And that’s why it should matter.

Andrew: It’s true. We tend to think that the only way to really build a solid new business is to build a new type of business online, meaning things like Dropbox, which change the way that we interact with technology. And here’s a company that basically says, we’re not going to create a new kind of Dropbox, a new kind of cloud-based service. We’re going to create a new shopping experience. Similar to the old, but a lot more people and culture focused. All right. I mentioned that the gym Results Fitness actually created a culture book. Can you tell the audience what a culture book is, and what does it mean that this company created it?

Joseph: Well, part of the issue of their culture is to be transparent and humble, so Tony Hsieh, among other things, he’s the CEO of the company, has said, you know what, we want to create a great experience for our employees so that you can create a great experience for customers, and the culture should support that. So we’re going to put a culture book out and you can tell us anything you want to say about how the culture is for you. Cause culture is defined by the people who actually live in it. Not defined by something that sits on somebody’s wall, somewhere. So the people who live in it get to say every year what their culture means to them, whether it is good, bad, or ugly. Uncensored, other than . . . they don’t even edit for typos in the thing. They produce this book, they publish it every year, and it’s just an honest testimonial. And it’s now used as a pretty good marketing tool. And it’s used as a great attraction tool, because if you’re a new hire, you ask for the culture book, you get a sense of what it’s really like to work there from the people who do.

Andrew: So, Robert Richman, you talk about him in the book. He’s the guy who works at Zappos Insights, the portion of Zappos that’s spreading the culture and message of Zappos to other companies and showing them how they can live it. I was at his a place once where Tony spoke, and Tony says, hey anyone can even get this book and it’s a culture book and it looks beautiful and my wife actually emailed them and said, I’d like to see this book. They sent her the book. First of all they paid for the book, they paid for the shipping and it wasn’t just a slouchy book, we’re talking about glossy, beautiful, heavy book, expensive to ship, expensive to make, time consuming to put together.

How do you know that that is going to translate into her buying enough shoes that it will actually pay off for them? The reason I ask is not so much that I care about Zappos and I know my audience doesn’t care about Zappos, but we care about if we pay attention to Zappos and try to follow their lead, how do we know that it’s all going to pay off? In that example, how did they know in that book is going to translate to my wife buying enough shoes?

Joseph: Straight up? They don’t. I mean, there’s your real honest answer. They don’t know that that’s going to be the translator. What they know is that their company is defined by certain core values, one of which is a transparent communication and that openness of communication is embodied in that book. It is a decision that drives it. Ultimately they trust that their values are the right values for them and that if they live those values they will differentiate themselves from companies that do not.

By living their values we’re talking about them right now. You and I are talking about them right now. How much is the value of you talking about them? Huge to the decision makers and influences that you have. Far greater. Is it tangible? No. At some level in business it is a matter of trust. It’s trust in your people, it’s the trust that the customers give you and it’s trusting your own judgment to do the right thing in the absence of absolute verifiable data.

Great entrepreneurs are doing it every single day. We’re making decisions without having all the data. We’d love to think we do. Tony doesn’t have the full data on the value of the culture book.

Andrew: I’m so glad you said that because it disarms me for the rest of my interview and also disarms for the rest of my interaction with Zappos. Maybe arms isn’t the right word. I come from a world where if you spend a dollar online, you do it online because you know that there’s a way to track whether that dollar is going to come back with friends, and if it doesn’t you cut that ad spend and if it does you inflate it.

Everything about the Zappos story I try to squeeze into that. Even in my conversation when Tony came on to do an interview I kept asking him how do you back into it and he said, I just don’t know, and I thought maybe he was hiding something. You just brought up a great point. You can’t directly connect. You have to do it based on trust and if you’re gong to pay attention to this whole process you can’t sit down with a calculator and a pencil and try to back into an ROI.

Joseph: Plus, if no one requests the culture book then you’d better stop making it. It’s not working for what you’re trying to have it be. But if there’s a high demand for it, now the question is, can we track the people who buy it? I bet that we can correlate your wife’s spend with that if we want to get down to it. There may be a few bean counters out there trying to do it at Zappos and I don’t discourage people from trying to monetize their decision, but if it was a break even proposition would you keep doing it?

How would you know at a break even because that’s the one that matters more to me. Losing it is obvious, we can it. What if its break even, why do we keep doing it? Those are the harder questions to answer because if it’s a clear profit winner, easy to figure too. For me, if it’s break even and it’s right for my culture and it fits my values I’m going to keep doing it.

We give away, at the end of doing public speaking, we give away free rice, little packets to people, we give money to people who support us, in their name, their share name. I have no idea if people say you know, you sent us this coupon, we’re doing good in the world in feeding hunger I’m going to buy them again. I kind of believe that doesn’t really make a difference. I think it’s what I believe, it’s what I value and I think people respect folks to value things.

Andrew: All right. Let’s talk about the principles. You’ve outlined five principles in the book. We’re going to talk about each one of them here with an example to illustrate it and the first one is, actually what is the first one? I’ll let you introduce it.

Joseph: It’s to serve a perfect fit. It’s knowing who you are and finding the right people to do it with you.

Andrew: All right. You’ve got an example, actually we’ve got several examples that we can talk about. How about the 37 different, actually can you tell us what it is before I jump into the example?

Joseph: Sure. Zappos took its time to figure out what it’s culture was, who they were, what made them successful there and so based on that they then do every business decision through those values including putting out a culture book for example.

Andrew: How do you do that? How do you figure out what your values are as an entrepreneur, as a business person?

Joseph: Well thankfully you don’t do it the way the old business stodgies do it. You don’t go to some retreat somewhere and have a facilitator sit on a mountain or copy other people. Enron had as one of their core values, open communication, well we know that that was a corporate lie. Zappos did it the right way, they went out and they sent an email to all their employees. When you’re like 10 people or 5 people in a small business you probably already hired people that were like you because their friends of friends and there’s an affinity thing, but at some point you get to scale and you can’t just keep trying to find people just like yourself and interview everybody as a CEO. So, then you have to start relying at Head Hunters, and they got to know what’ the right DNA for your company.

So, Tony sent out an e-mail to his existing body of employees and said, look, we’re growing, we want to keep this thing the way it is, so what makes somebody successful here. And I love that question because it’s really not what do you want to aspire to be from a value space perspective. We must already be that, some, for us to be working here and working together well. So, what is it about us that makes us successful. And he got this list, tons of descriptors, ferreted through the descriptors, came up with a very different sounding list of qualities, you know it’s not just, we have integrity, that’s my favorite one. Like, any business wouldn’t value that. But many don’t, really. They have things like, being a little weird. That’s a part of the value structure there. So, and that’s true, if you look at Zappos, it’s a bunch of ragtag, really smart people who really weren’t the most popular kids in high school. But they were brilliant and they came together in these community that’s rocking the business world right now.

Andrew: So, it’s sending out an e-mail and communicating with the people who are already part of the team and saying, what makes us who we are, what is it about you that drew you to this place and this place that drew you to it. Let me ask you this. I’m now staring at your Skype, people aren’t going to know this picture, but, I’m staring at your Skype photo which just looks great.

Usually when I stare at people’s Skype photos, in addition to the video, it’s just a head shot, mine is just a head shot. You are sitting on a stack of your books, really look slick, you’re wearing a suit and sneakers and every time I see your photo it stands out to me, like even, I don’t think it will come across well on camera so I won’t even bother showing it, but if you guys get the book, look at the back of it, or even if you’re at the bookstore, look at the back flap. Even that photo’s different, you’re wearing a suit, no tie, sneakers. What’s your culture? What message am I picking up on here that I’m having a hard time articulating?

Joseph: Yeah, no, it is a relaxed approach. I mean, I think one of the true things, I feel old, particularly looking at you man, you’re like scary young and it’s exciting to see the future of business in people like yourself. You know, I’m 51, I don’t really have to do this any more, and so I’m pretty casual in my skin. I can wear a Nehru jacket, I can wear tennis shoes, I work out of my office, I look right out at St. Petersburg here in the bay. I mean, I have a relaxed life and I think business should be for joy and it should be to make a difference. I made my money. So, I don’t really have to do the neurotic thing anymore.

Andrew: How’d you make your money?

Joseph: How did I make my money? Writing books and speaking.

Andrew: So, there’s good money in writing books and speaking?

Joseph: Absolutely.

Andrew: More in the speaking part or more in writing?

Joseph: Oh, both, I mean it’s all three, consulting has been huge for me so I go internationally and I help businesses build these experiences and build these cultures and deliver service. So, that’s been huge. But writing books has been terrific. I don’t know that it’s going to be in the next generation but I am certainly glad I was where I was in the book writing phenomena and talking to people about leadership and service is really huge.

Andrew: There’s a story in the book, going back to “Serve a Perfect Fit”, about Dave, the COO of Atlanta Refrigeration. Can you tell me a little bit about him and what he got out of the Zappos experience?

Joseph: Yeah, it was a family business, they had plateaued, they were making really good money but they had plateaued in that business and he had to go back and he had to take an existing set of values. Unlike an entrepreneur who can kind of poll his people and come up with the first draft of values. This guy had to kind of turn the ship from a generation of legacy values and he did it. He did what Tony did and told his people and cleaned up his values and came up with a much more actionable, relevant values.

Then he did what Zappos does, which is screen everybody and make sure they live those values and he believed fundamentally that it’s easier to find people with talent than it is to find people with character. And so, he looked for people who had those value character dimensions, and when you’re going out and servicing heating and air conditioning, which is a lot of what his industry was, those people are in people’s home and they may be really good technicians, but if they’re really swarmy, you know, it really kills your brand. So he went more for the, we’ll teach a lot of the technical skills, let’s find people who are really good and have the talent for service. And so, he switched that around, you can see the numbers in the book, it’s astronomical jump in their business success. It’s a real dollar story. And people like going to work a lot better and they like the community that is the work place today compared to what it used to be.

Andrew: You say, not only is weirdness a core value of Zappos, but they will ask interviewees when they hire them to rate themselves on a scale of 1 to 10 on a scale of weirdness. Beyond the interview process, I could see screening for people who don’t have our values, how do you, once you have people, make sure that they live up to those values and that they still have those values?

Joseph: Well, that’s great, you know, clearly Zappos does it even beyond what we’re talking about. You know, you have to do a cover letter, a video cover letter before you can get a position. So they’re looking to see if you’re either too weird or too little weird. So everything is about that in the beginning.

The real answer to your question is, you were charged. Every single employee should be charged with being a defender of culture. That’s your primary job, you don’t let people in here that are going to contaminate the very thing you got going, and they got that message clearly going at Zappos. So if I were an entrepreneur today I’d say “Look this is the magic sauce that makes us who we are, we can’t let people in here who are imposters, who are trying to get through our filters. Then if you’re living here, and you’re not living up to it every year, we’re going to evaluate you.

Did you make a contribution to our culture? Show us what you’ve done to really expand our values and make it a better place from a values perspective, to work.

Andrew: Show us what you’ve done, that shows that you’re weird?

Joseph: Show us what you’ve done to increase the value of weirdness to our culture. I mean, bad weirdness is weirdness that’s not going to be competitive, right, it’s going to make you strange. Good weirdness is the kind that makes you zig when others zag, it’s what we talked about in branding, you know. The credible, relevant and unique and endurable aspects of weirdness. So, show us what you’ve done that’s been unique, that’s not just blazay and vanilla, that has made this place better? Then prove it, show me.

Andrew: Show me. I love that. We’ve got a very “show me, prove it” type culture here at Mixergy. I always want everyone to come up with examples to prove their numbers, to prove that their ideas work, as you’ve seen. They also, after they hire someone, they train them, and they offer them $4,000 now, to leave?

Joseph: Yeah, it’s now $4,000, because the economy is so bad that people would stick around, even if they’re not right for the culture, so they had to up the offer, so people would be more likely to get out. So the $4,000 goes like this: you’ve been hired, we’ve filtered you through, we made sure that you have your values, everybody has been involved in protecting it, the guy who picked you up from the airport to bring you to the interview, is giving data as to whether or not you really are humble, which is one of their values, and if you’re just a little weird or you’re too weird, all those things.

We’re getting feedback from everybody. You made it in, you’ve gone through a month long orientation, everybody goes through it, the new hired CFO, the new hired employee, first time job. Everybody goes through a month of orientation to weeks of which is actually serving people. Wow, what a concept we’re going to have you do the very thing we claim is so important in the organization, no matter where you are.

After we do all that, we give you the offer, you know, Zappos gives you the offer. They say $4,000 you got a month to take it, because you know you’ve gone through orientation, but you haven’t been on your work site, so you might not feel as good about it when you get to your work site, you have a month, after you’ve been on your work site. So, here’s what it comes down to, if you don’t think, when you look in the mirror, you say “am I a fit, am I really these values or did I really kind of shine it? Is this going to work for me, is this the right kind of culture for me?” Then you have the $4,000 to leave.

Now, only .01% I think now are taking the offer, and it’s really not that big of a financial outlay. What it is, is a symbolic litmus test, you’re really looking in the eyes of that person who’s giving you the offer and saying “no, I commit, to be a part of this culture, it’s right for me.” All your co-workers are going, “you know, our company is willing to pay people not to contaminate the gene pool here.”

Andrew: I see, I can see how I would appreciate that as an employee. So, first thing, if I’m listening in the audience, the first thing I would do, is I would say “All right, what are my values, what is it that I stand for?” maybe talk to my fellow employees, talk to my customers, talk to my users, identify it, and then screen out people who don’t have it, and find more ways to bring in more people who do have those same values.

The second principle you say is what?

Joseph: Well there’s several second principles. Make it effortlessly swift, is the linear next principle, and that has a lot to do with just getting people to try and appreciate from that Harvard Business Review article about a year ago, where they said “stop trying to delight your customers”, this gets right down to it.

Before you start getting into all of the emotional bells and whistles, and trying to create personal emotional connections with customers, you better dang well be able to get it to them fast, and you better get it to them right, and it better not take a lot of their effort, to get their needs met. So this whole principle looks at, you know, upload speeds of their website, it looks at delivery speeds of the product, it looks at what they do to idiot-proof the delivery to make sure you really get the product that you ordered. So it’s all of that and a bag of chips.

Andrew: By the way, you were right, I keep referring to points and principles as steps, and steps isn’t always the right way to talk about things, it’s not like there’s step one, step two, and after that you just keep going and then at the end of it, boom, you’re Zappos. It’s just an understanding of principles that got them where they are, that we can all appreciate and learn from and build our businesses based on. I’m surprised that speed is so important, you know. Humility, an understanding of your culture, and then speed, and yet it comes up over and over again.

Of course we hear about it, in Google we hear about it, and other companies, but when it comes to customer service, why is speed so important?

Joseph: Because we all feel like we don’t have enough time. You know, so time is the driver for every human being. So, get it to me faster than the other guy did it, it really is a competitive advantage in the world in which we live. But I make a big distinction between speed and service velocity and for me the velocity is speed plus positioning. Not just speed, because if you go fast in the wrong direction and you make a mistake fast, then that’s going to cost the customer more effort. Which then works against you and actually gets graded down. So, if you gave me the bum’s rush and you got me in and out quickly but you gave me the wrong thing, then you don’t get credit for speed.

Andrew: I see.

Joseph: And then, Zappos get that to you.

Andrew: I see. And talking about those restaurants that as soon as you sit down they quickly take your order, they don’t fully pay attention because they’ve got to turn the table around, they slap whatever they want on the table without listening to your small adjustments and then they give you the bum’s rush so they can get someone else in.

Joseph: That’s it.

Andrew: Tony Shea got a hundred thousand dollar credit from UPS. Why did he get it and what did he do with it? I think this will help people understand how important speed is to them.

Joseph: Yeah. It was a credit back off of something. I’m not even sure they know how they got it, it was a credit back up to some purchase, so UPS said, well, you over paid us a hundred thousand dollars. So, boy, you know, you and I would be what, Bahamas maybe? I’m not even sure where I’d go with the hundred thousand windfall. But Tony, put it back and said, OK, well, instead of giving us back the actual cash, why don’t you just upgrade the next x numbers of customers from regular delivery to overnight.

Now, I mean, we could say the guys a billionaire so, duh, no biggie to him. He wasn’t a billionaire at the time though, and I think he becomes a billionaire because he says what’s the value proposition that’s going to cause conversation and blow people away. And he didn’t even tell people about it. Other people in the organization ultimately blew the whistle on him for me. But, it really speaks to the DNA and it says a lot to your leaders that if that’s what you’re going to do, that’s what, watch your feet and watch your wallet, because that’s what everybody else is going to watch too, in your organization. You could tell them anything, I value customer service, and then we don’t spend a dime on helping improve the quality of this service experience. You know, Tony did.

Andrew: And he knew, if I’m understanding you right, that word would spread. How do you know that word would spread? You’ve given me a great interview over here, you were generous in the pre-interview conversation, helped me understand where we were going and you understood my outline and the stories that I needed. I can’t imagine that when this is over, even though this is changing my business day, not just a small portion of it but the most significant portion of it. I can’t imagine going and telling somebody, but, you know, we all, how did he know that people would talk?

Joseph: We need to talk, I mean, our lives are about stories. I mean, it’s currency. If you think the only currency that you exchange in your business is money and cash register time, the truth of the matter is, story is a big part of your currency. It is what keeps people loyal, the more they talk about you the more likely they’re going to re-purchase from you. The more they talk about you the more they’re going to tell their friends about you, which is the advocacy dimension of business that we’re looking for. So, for me, I’m going to talk about you too because frankly I am excited when a twenty year oldish person is reading books and actually reads them at an interview. You know, the flip side from the experience of an Andrew and the interviewee is that nobody read our book, you know, they got five talking points we get asked the same questions over and over and over. Well, tell us about Zappos, you know. We’re like, thank you for reading the book. So, I’ll going to go tell some people.

Andrew: I appreciate it. I’m actually in my thirties, it’s all the lighting here, here check this out.

Joseph: When I think that’s something about you about being a twenty-something, you’re thirties, it’s the lighting. Yeah, now with the lighting, oh my gosh, I’d get working on that.

Andrew: It’s just a little light bulb that Regis gives me here in the office. There’s a story in your book, by the way, you’ve been interviewed a lot, when an Andrew says, in your book, is it less powerful than if you were to say, In the Zappos Experience, you say. Is it natural if I as an Andrew were to say in The Zappos Experience and just refer to it that way throughout the book or does that feel like me constantly referring to you as, Joseph tell me about this?

Joseph: Well, I’m going to hell, my publisher would love it if you said The Zappos Experience and if I introduced every experience with The Zappos Experience.

Andrew: I see.

Joseph: It’s mechanical, it’s not authentic. Say what feels right and I think, again, people are going to get a read of you and they’re going to stay with you because you’re real and they’re real and they’re going to stay with me if I’m not hocking my book here, let me show you my book, here’s the Zappos, you know, it’s, that’s a different generation of business.

Andrew: So, in The Zappos Experience, there’s a story about a customer who bought $600 worth of shoes just to figure out the right fit. I am actually doing that this weekend, I want to get a nice new vest. I bought five or seven of them off of Amazon, I hope to keep them all but at times, I’ve done that just so I can find the one that fits well. How do companies deal with that? First of all, is that a good thing?

Joseph: Well, for Zappos it’s a piece of cake because it’s a full priced item, everything is, there’s no discounting so it’s already built into the fact that they haven’t reduced the price. That’s why they can send it to you and have you send it back both ways on the shipping side, where most businesses don’t do that. They try to fight on the price line on the margins and then they don’t have the ability to provide any enrichment service experience. And for some population they only want the cheapest thing and it’s not a good thing to get into too much service enhancement and giving people all the, you know, that product inventory control. But, for other businesses it is and from the consumer stand point it’s a terrific thing and it’s the way it should be. Consumers should have choice and we shouldn’t be trying to control the customer experience, we should let customers have their experience and we should find ways to deliver it profitably.

Andrew: Third principle, step into the personal. What does that mean?

Joseph: Oh, it doesn’t matter what you’re doing, it could be personal or it could be really robotic. I could do this interview with scripted answers, you could have scripted questions and we could intellectually really gratify people but there wouldn’t be any real connection that’s formed and I think that that denies us being truly human. So, Zappos knows that you can call up for an order, let’s say you call in an order, you might be at an airport and really to make it personal I got to get this thing done before you get on the flight and I’m really personally connected to how urgent it is for me to get this order done. That’s a personal connection.

Maybe you’re about to get married and the shoes you’re about to buy are about your wedding and now you might want the person on the end of the phone to really be celebrating this event with you and really helping you choose the perfect product for you. And so, it depends on where you’re coming from as a customer, but I need to enter that space, authentically connect with you where you’re coming from. And if I can do that in a 30 second call, better, if it takes two minutes, so be it, if it takes four hours, that’s what we’re going to do, you know.

The goal is to say, particularly if you have all the other systems in place, is to make sure that everybody else gets their calls through. Then we’re going to make that personal connection and that’s just the Zappos decision. They don’t limit the call times of the people who talk to you on the phone, for example, they create their business metrics to support that opportunity.

Andrew: So, interesting how many companies I’ve talked to that will not respect that, that if I say, hey, I ‘m about to get on a plane but I absolutely have to adjust my minutes on my phone just so I can make phone calls when I land, they want to take their time and it’s your fault and they’re going to punish you for having put it off till the last minute instead of accept that this is where you are and come through to help you. I understand in those situations that the person at the other end of the phone is bringing out their personal story and asking for help. Right now, Joseph, I’d like to do the same thing for you, and I’d like to be able to do it for other interviewees. How do I figure out where you’re coming from? How do I look for those opportunities where I could fully step into the moment that Joseph is in and give him something that’s us.

Joseph: You’re doing it. Right after off script right, I mean you’re not on script. I mean, there isn’t a question that asks the very thing you just asked, not on your screen. I’m betting.

Andrew: No.

Joseph: Tell me, right? So, that’s where you do it, you do it in the moments where you trust that this is a departure that connects and allows us to make a point that’s going to help connect for my customer because I’m not your customer, in the end I’m a vendor to you, sort of sourcing the people who are viewing this. So, you have to make a connection for me so you get the most out of me so you can leverage for them. I think in this case, my question would be, what do you need to get out of me that’s going to be most helpful to the person who you know is watching your screen.

So, I would worry less about my experience because you’ve already connected and I think you do a fine job of trying to get it back to them. To get it back to them, if I’m in that audience, I’m an entrepreneur, I am constantly thinking about where did my customer come from and where are they going after this transaction. And if I start not just thinking about providing in the moment but the next stage of the customer journey, I am a mile ahead of the average business whose so transactional. So, clearly, if I’m talking Ritz-Carlton where I’ve written a book about them, we’re thinking about when you’re checking out, where are you heading next. Can we put a bottle of Gatorade, if you had a Gatorade in your car when you pulled up at valet, that valet has been empowered with $2000 of authority if he needs to use it, to go out and buy a different Gatorade cold so that when you’re a mile and a half down the road, you look down, you see you’re cold orange Gatorade, you go, holy moley, they weren’t just taking care of me at it, momma packed me a drink. And that nurturance aspect is what separates Ritz-Carlton from a Motel 6.

Andrew: I’m also understanding the value of having the financial cushion to be able to do it, you know, when you look to beat your competitors on prices, you could never afford to buy the Gatorade, let alone to hire the right person who can think about the Gatorade.

Joseph: Well, and sometimes it’s not even the margin though. I mean, like, if you just sent a thank you note, you had in any lull time you sent a quick thank you note, thanks for buying our product, hand written, boom. That’s not very expensive and it’s a competitive advantage. And so, I think we can use money as a reason not to. I think the real challenge is not to get into limbo in pricing, so that you’re not at a commoditized zone. The problem with being a commodity and going cheap price, is those customers are fickle, they’re going to, they’re never going to be loyal, they’re going to go to whoever plays lower. That’s not a long-term game. If somebody distributes faster, quicker, cheaper, you are hurting. So, you got to think about enriching the experience as cheaply as you can.

Andrew: In the section on stepping into the personal, you tell the story that first introduced me to Zappos, I never heard of these guys before a woman named Zaz Lamar?

Joseph: Mm-hmm, yeah.

Andrew: Can you tell her story? Because I think that’s really touching and maybe some people will recognize it.

Joseph: Oh my God, fire woods crazy, you want to talk about doing very little and making a whole bunch. You want to monetize this one for me, buddy. You know, this is a flower delivery story, it’s a lady who should have gotten her shoes back within a specified period of time, she basically advised Zappos she was going to be sending them back a return, they never got the shoes back, so they kind of did a little reminder call. She basically didn’t get them back still.

And so, they did one more reminder call and they determined in the second reminder call that the reason she never got them back was because there had been a death in her family, she’d been dealing with the cancer, I think, of her mom, and ultimately she just said to the person on the call, look, I really promise you, I’ll try to get them back as soon as I can. I know I’m outside of my promised bandwidth of return, but I’ve gone through all this personal stuff. So, the call center person makes a personal connection and says, hey, look, we want a customer for life, we don’t just want these shoes back, let’s catch her where this person is and it will be important to them.

And she sends out some flowers and she had the UPS person actually pick up the order right at her door instead of making the woman go out and have to bring them to the UPS store. So, this gets online and oh my goodness, you thought that they bought her a cruise around the world. I mean, for a bouquet of flowers and the extension of a human offering of compassion instead of you order to get your stuff in like you promised, they got millions of dollars of advertising free and here you and I are talking about, here you get brand awareness, we know you might buy shoes from them. You know, who knows how much that story brought you into a willingness to form a purchase relationship with the brand.

Andrew: I should say, I also bought shoes from them.

Joseph: Well, you got them on? I mean, let’s see.

Andrew: Today, no, but.

Joseph: The guy wants to show proof. Probably the shoes I have on.

Andrew: Today, no.

Joseph: Alright, go on.

Andrew: I have, actually, when I first met Tony, soon after I did, soon after I heard that story I asked him to come on Mixergy and do an interview and he agreed.

Joseph: He’s a billionaire who was on your show, you know. That was a billionaire.

Andrew: Yeah.

Joseph: Yeah.

Andrew: Yeah, so a long time ago, he came on and soon after that story. And he told me that, you know, our customer service people are empowered to be on the phone and do whatever it takes to really help a customer, if we don’t have a shoe, we’ll even, I always ask for examples and he gave that example, if we don’t have a shoe that a customer’s asking for, customer service will tell the customer where to find it online.

And I said, let me see that and I conferenced in customer service and I got customer service on the phone and I said, I’m looking for Crocs or something in a weird color and the woman clearly didn’t have it and she did go online and she actually thought through to help me find it on another website, which was absolutely stunning. Absolutely stunning.

Joseph: I sat there and I actually saw them send the link of Shoes.com to somebody.

Andrew: Shoes.com they were sending them to?

Joseph: Yep. Let’s go one step further, they didn’t only find it, they actually sent the link to make it easier for you to just click through and buy it immediately. So, are you going to go to Shoes.com the next time, are they going to treat you like that or are you going to go to Zappos. Our grandparents dealt with this, think about it, our grandparents who said the butcher said not the veal today, I would not do the veal today, tomorrow the veal, today not so much the veal. And frankly, that’s what we’re looking for, somebody who’s looking out for us, somebody who cares about us as much as they care for us.

Andrew: You know what though, I once had a place, I walked in and I said do you have a bagel with cream cheese? They said, we ran out but the store across the street has it, across the street and down a little bit. So, I went across the street and down a little bit and I discovered this great deli and I kept ordering not just that one bagel but every other bagel in the future and you do have to, beyond, you do have to beyond making that introduction be able to back up the need for people to come back or have a product worthy of having people come back. And that takes a lot of guts to be able to say, I have this.

Joseph: And they keep coming, see the issue for Zappos, it’s probably a transient not having it in stock kind of phenomena, if you’re talking the bagel story, if there’s a continued demand for a certain bagel and you’re sending people down the street, you might want to think about getting the bagel. You know, I mean, there’s an operational issue there in servicing the needs of your clients.

Andrew: Right. And you know what, actually, when I was on with Tony and I made that phone call and it actually lived up to what he said, I didn’t know how to process it. I actually thought I was a terrible Andrew because you and I hadn’t had the conversation we had at the beginning of this interview. I said, I didn’t know how to get at what software he has that tells him that there’s a return on that investment.

Joseph: Yep.

Andrew: And, because I couldn’t get him to reveal that secret sauce, I was a bad Andrew and maybe all of interviewing was going to suck because people will never reveals their secrets. Now, I’m understanding that sometimes you have to talk to someone else that gets that guest better than even they get themselves.

Joseph: I love Tony, but he’s a hard interview anyway. I mean, to be honest with you, he’s so thoughtful, so deep, fairly introspective. He, in many ways, isn’t’ the wacky guy that you think of, he can be that at times.

Andrew: I don’t sense him as weird at all.

Joseph: No, but kind of weird in the intellectually, entrepreneurial sense, weird. You know that really, focused weird, of entrepreneurs that we can get sometimes. I think what you’ll find is he’s independent of the fact that he can be a challenging interview.

The thing you’re trying to get at, is beyond quantifiable, now we can quantify it, there’s a great book called Service Economics, that looks at, you know, how can you predict incomes based on outflows of service value. But in the end of the day, the judgment calls on these things are fairly objective, because they are multi-factoral, you can’t just link it one linear correlation. It would be too easy of a game of business if all we had to do is move around correlations.

Andrew: I’m looking at your book “The Starbucks Experience”. Here’s the question I’m trying to accumulate, and I’ll get right at it, how do you do it, Joseph? How do you go into a company and figure out the essence of what makes them so good, considering the companies themselves often have a hard time doing it?

Joseph: Well that’s the advantage of being from the outside, if you get too close to anything, you can’t tell what you have. I think the advantage that we have, is that we have the basic heart for trying to tell the authentic story, and a positive story. We’re not dissecting why something blew up, we’re more about, what can we learn from the things people do well. So I think because we have the right intention, it’s pretty obvious to us, if you talk to enough people at all levels of an organization, over time these truths keep coming up over and over again. So, you can’t miss them, really.

Andrew: I see. So you’re saying that just by having conversations, those things will pop out?

Joseph: It’s true, I mean I think that’s what happens in interviewing, that’s the whole point of doing an interview. That’s why you do what you do, is so that people can get the essence of what makes Zappos great. What makes Zappos great, is that they know their values, they select against those values, they make all their business decisions varied against those values, even in the absence of empirical data at times, and they trust that they’re doing the right thing.

They make it effortlessly swift, they teach their people that it’s important to create loyalty through personal emotional connections. That’s what should teach people today, and you’re trusting that you’ll find the right questions at the right times to get to the truth.

Andrew: I’m hearing that there are alarms going off in the background, are you good for another 10 – 15 minutes?

Joseph: Oh yeah, I’m totally good.

Andrew: What about this? I’m reading the Steve Jobs book right now by Walter Isaacson, and you hear how the flare-ups are just, he’ll sit down for lunch, and order four different glasses of orange juice, because he doesn’t really trust that the first one was homemade and the second one is not this, and the third one is not that. Anyway, for a long time, people thought that the reason he was so successful is because he was willing to berate people, and speak his mind. The reason that they thought that is because that’s the characteristic that stood out the most, it was the loudest most visible portion of who he was, and it was harder digging underneath and figuring out who he is, you’re able to do that. How do you get beyond that one shocking thing, to see what’s really effective?

Joseph: Yeah, I think where there’s smoke there’s fire, right. I think we get really lost in both the smoke, well mostly in the smoke and we don’t get to where the fire is. For him there was a lot of bluster and smoke, and a lot of intimidation. I loved the book as well, and I thought it was just such an insight to some corky qualities. Where the real fire was for him was in exacting nature of excellence, and the non compromise, particularly around the user experience, and the simplification and the sleekness of that experience. I think, it is a willingness to not just take the sound bite society we live in and look for the thing that’s going to be most cool and edgy, but look for the thing that is more enduring.

What’s going to endure about Apple is not his flare-ups, you know, it really isn’t. That makes great headlines.

Andrew: Yeah, and it is easy to look for that. If you would have found a dirty bathroom at Zappos, or a heater that wasn’t working at Zappos, you would have been able to say that they treat their people with dirty bathrooms, and they save money by not heating them in the winter, and that’s how awful of a company Zappos is, and more people would have written about it, frankly, and then write about the Zappos experience where you find the good part of who they are.

Joseph: What I love is the reviews in my book that say “he wasn’t critical enough for the company, and so we missed the ability to fully learn from them.” And I do get that you have to tell stories of where they screw up, like in this book. We tell about how they made a pricing error on their sister site called 6pm, where everything was marked at $49.99. So you could buy these Ferragamo shoes at $49.99 and so what did they do? I mean that was stupid and it cost them, really millions of dollars.

They said, we’re honoring all of those purchases, and here an adequate service recovery would be simply to say, we screwed up, it was a pricing thing, you know when you were buying them as a consumer that you were getting too good of a deal, we’re going to give you a $20.00 discount next time, but we’re canceling all the orders that we had at the time that we had the computer pricing glitch. I think that’s a story of a screw up, but it’s also a story of standing behind your commitment to your customer. So, it’s a win, it’s a positive story. It’s like all of, interviewing, like our weaknesses’ and our strengths. But I think we can all learn from that. Would we have done the same? Or would we have just come up with a coupon service recover?

Andrew: I kind of like the coupon service recovery. But, now you’re forcing me to really re-evaluate myself.

Joseph: And, if your values, you know, is it consistent with your values? And is it consistent with the promise to the customer and what’s it going to cost you in terms of a customer saying you don’t really live up to your 100% guarantee?

Andrew: What about what it says about what I say to myself? You know, I want to feel like I’m really living the life that I admire, I don’t want to read about Tony Shea and Zappos and say, oh these guys are great people, and then go and just be an ordinary person. I want to aspire to be like that and I want to actually be like that on a daily basis and it’s in those little decisions that you decide, or you reaching for something great or just hanging out and admiring other people who are doing great things.

Joseph: I love people like Howard Schultz. I love people like Tony Shea. I get to experience them because they make those decisions. And I write about them and I’ll write about you someday, so just keep going, stay the, keep going.

Andrew: I will keep going.

Joseph: We’ll get the book.

Andrew: I’ve got nine minutes left but two more principles to go. Principle number four, stretch beyond shoes.

Joseph: Yeah, all brands are elastic, their allowed a certain bandwidth by consumers and consumers will tell you what you can be and what you can’t be. Zappos has stretched into a variety of different other product lines because consumers said so. They’ve said, we want clothing that matches our shoes, we want service from a clothing online provider that matches the service you provide us on our shoes, please start selling clothes. Now it’s about airlines, we want you to enter the airline space and Tony just bought a pretty big interest in private jets, recently and I think you’re going to see kind of a Zappos airline and in the private jet/concierge space pretty soon. Cause they’re a service company that just kind of chooses their product.

They also stretch their people, they do have a true sort of Zappos University as I call it. They have a pipeline between your entry level skills and the skills necessary to be a true leader, department leader in your organization. They’ve called out what those skills are. Some of them are book learning. They’ve produced their own courses on the skills that they need, some of them are going out in the community and doing more volunteering or networking and they teach, they map it out. You want to be a leader, you’ve got to learn these things, you’ve got to do these things and you’ve got to behave these ways into the community. So, that’s all done and then we go into, you know, our final principle, which has a lot to do with play. And it is has a lot to do with play and work aren’t antithetical, it’s a principle that says by playing hard you can produce greater profits. You shouldn’t play and do nothing, you should play to do more.

Andrew: One of the first things that a software engineer is handed when he’s hired is…a nerf gun.

Joseph: A nerf gun, that’s a software engineering. Yeah, those guys are crazy over there. Wacky.

Andrew: Why?

Joseph: Because they have to attack. They’re misunderstood. They’re a very misunderstood breed and they have to be on the attack. And so, and they often are isolated from the full totality of the business so it allows them to socially engage through play other parts of the organization, get to know people, through war, warfare.

Andrew: So, other than the fun-loving spirit, or in addition to the fun-loving spirit and the cha cha lines that we keep hearing happen in the middle of the office at Zappos, we’re talking about a company that wants to win.

Joseph: Oh, fierce, yeah, they got a little Steve Jobs in them in terms of wanting to win. I think it’s cause, I think I told you earlier, where their the kids in school who weren’t the most popular. I think they really want to show look, you don’t have to be tattoo free to win. You don’t have to wear a three piece suit to win. You have to be smart and passionate and you have to be on a team of people who want to do something great. You do that, you win. And so, they’re all into it. Definitely, Tony Shea is not a non-competitive person.

Andrew: And the metric that he uses is what? Is it revenue, is it market share, is it how many new products?

Joseph: All of it, revenue, market share but ultimately the emotional engagement of customers, because as in Drucker I’m going to use an old, really old guy, you know, Drucker said we’re not in business to create a profit, we’re in business to create a customer. It is through customers that we create profit. If you don’t care about the customer and you only care about the profit, the profits will last ephemerally and the customer’s will last forever and they’ll go somewhere else.

Andrew: How do you measure happiness though? I mean, if you can measure profits and that’s why it’s easy to focus on it and spend more time on it, but the light along the way is hard to gauge.

Joseph: Well, after every transaction their sending out an e-mail asking you key questions, they should be pretty good indicators of one, if you ran a service organization, you know on a scale of zero to ten, would you hire the person who served you today? If you’re not happy with them you’re not going to say I want to steal them from Zappos. Could we have done anything else to make your experience better, question. Not just assuming that we did everything that made you happy, what could we have done to make it better, question. And then the final one is the net promoter score. It will always be an indicator of your likelihood to refer this to a family or friend and that’s a pretty good indicator of, at least a general concern for whether the company’s going to be around in the future.

Andrew: All right, guys, I can’t squeeze in anymore, if you see, if you’re watching the video, audience, and you see my eye go to the right it’s because I’ve got a ton of notes and a lot of stories that we didn’t get to and a lot of details on these principles that we didn’t get to but if this is the kind of thing that you want to implement in your business, if this is the kind of culture and the kind of thought process that you want to bring to your company, the book is The Zappos Experience, there it is, I’m holding it up and I’ll let you go get it.

Joseph: If you want, we have two chapters of it for free and they just go to my website, I’m not trying to traffic my website so much, it’s just josephmichelli.com, there’s a download tab and then you can hit the Zappos thing, you get the first and last chapter for free and then you can decide if it’s right for you.

Andrew: That’s the way that I like to decide, I want to live with the book and see not just if the content is right for me, but is the guys writing style right for me, is he keeping me engaged before I get any further I want to know that. So, josephmichelli, isn’t there also a Zappos Book website, or you’d rather they just go.

Joseph: Yeah, no, this site, this is better, they only, I think, just give you one chapter, so this gives you the two, so josephmichelli.com/downloads, I think you’ll find it there.

Andrew: So, all right, josephmichelli.com and thank you all for watching. Bye.

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  • http://www.facebook.com/emmet.gibney Emmet Gibney

    The link to Zaner Group in the sponsors section takes me to a Forex trader website.  Do you have another website link to check out?

  • Anonymous

    It looks like there was a misspelling in the transcript, which has been updated now. The link for ZehnerGroup is http://zehnergroup.com

  • http://www.fitrilla.com Geo Rockwell

    Wow, great interview.  Awesome questions Andrew.

  • http://twitter.com/TechEntrprnr Tech-Entrepreneur.me

    Great info, it’s a big challenge for entrepreneurs (specially tech guys like myself) to master other roles that need more soft skills, but that are very necessary for starting a company and creating a culture around it! You can check more on my thoughts at my blog :) http://tech-entrepreneur.me/

  • http://mixergy.com Andrew Warner

    Thanks for stepping in with this before I caught it!

  • http://mixergy.com Andrew Warner

    Sorry. I goofed. I didn’t check it carefully before hitting post.

    Here it is: http://zehnergroup.com

  • http://mixergy.com Andrew Warner

    Are you sure this is the best way to promote your site?

    It irritates lots of people but will generate few clicks.

  • http://twitter.com/TechEntrprnr Tech-Entrepreneur.me

    Hi Andrew, I’m actually quite new to the whole blogging world, so I didn’t think that it’d be that irritating. I did quite enjoy the content and I’m not only looking to promote my site, but to check out other cool sites about the topics I like to post about, hopefully learn a lot and meet new like-minded people. I’ll keep posted!

  • http://mixergy.com Andrew Warner

    Thanks!

  • http://mixergy.com Andrew Warner

    It doesn’t come across well when you put your url in a comment. People feel like you’re spamming. Plus, check out your server logs and you’ll see that you hardly got any traffic.

    By the way, I don’t fault you for adding your url. I wish I had a better way to reward comments here.

  • http://twitter.com/TechEntrprnr Tech-Entrepreneur.me

    Thanks for the comments! I’ll be checking out your other posts

  • http://mixergy.com Andrew Warner

    Hit me up if I can help.

  • Azzam

    The link for Joseph Michelli below his picture is broken since it is missing the http://. 

    Interesting interview.  Not a company owner but work in the marketing team for a decade[s] old offline company and making some wave with subtle changes.  Influenced from Tony Hsieh and Seth Godin.  I think Joseph Michelli is a new hero in this arena from me [you already there Andrew :) ] due to some phrases that he used in the interview that resonated with me which I find difficult expresses but see that he had been able to express linguistically so will head over to his site to check out his stuff.  

  • http://mixergy.com Andrew Warner

    Thanks!

  • http://www.ownpages.com Deven

    I read this interview, followed some of the links, read the first 2
    chapters, read some of the reviews of the book on Amazon. All I got was a
    tiresome web of hagiographies. E.g. 2 of the top reviews at Amazon were
    by people that have written hundreds of reviews, virtually all rated 5
    star! Would they really be doing that as a hobby?

    There is no critical analysis available at all on the Zappos story,
    which at this points seems like a normal full price / full service
    model. There is no comment on why and when this works, as opposed to a
    low price  / low service model, like Walmart maybe? Could it be that
    only part of Zappos’ excess margins go to providing good service; the
    other part going to PR and kool aid?

    The examples given are weak and questionable. So in the UPS refund case,
    Zappos used it to upgrade delivery for some customers. But why did they
    wait for an accounting error to trigger the upgrade? How did the error
    make those customers more worthy of good service? How was the refund
    different from other monies in Zappos’ bank, which could equally well
    have been used to upgrade delivery?

    There are many other questions left unasked:

    1. Do they agree with all customer requests? May we have examples of when they refuse?

    2. How do they track attempts to game their system?

    3. What percentage of revenue is spent on service?

    4. Does this model work only where there is no clear price point available for goods? e.g. works for shoes, but not for toothpaste?

  • http://mixergy.com Andrew Warner

    I wish I could access your curiosity before I record my interviews.

    In the past, I tried doing blog posts announcing upcoming guests and asking the audience for info on them and suggestions for questions, but it didn’t get a strong enough response.

    I wonder if it’ll work now, because my audience is bigger.

    Or if there’s another way to get input.