Surprising Customers with Amazing Service

I interviewed Tony Hsieh, the CEO of Zappos, to find out how he took a little online shoe company and made it into a billion dollar a year online retail success story.

Tony Hsieh

Tony Hsieh

Zappos

Tony Hsieh is the CEO of Zappos, an online show and clothing shop.

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Full Interview Transcript

Andrew: You’re about to listen to my interview with Tony Hsieh. He’s a guy who took an online shoe company and turned it into what it is today, Zappos.com, a billion-dollar a year in sales business. I asked him how he did it. And one of the things he told me he does is take good care of his customers and his employees. Now, how many times do you hear people say that? I hear it all the time. So I tested it.

At the end of this call, I conferenced in his customer service number, the number that you see on his website, I conferenced it in to see what the experience was like. You’ll get to hear that. I also talked to him about how he uses social media to grow his company. And you’ll hear me talk about different tools including Twitter. Twitter, if you don’t know what it is, it’s a way to chat with the world, to send text messages out to the world.

So here it is, my interview with the CEO of Zappos. I’m Andrew Warner. I’m the founder of Mixergy.com and I do interviews to learn how to build knockout internet companies. Here’s my internet with Tony.

Tony, let’s get right into it. The first question I have for you is about LinkExchange. That’s the company that you sold before you started Zappos, am I right?

Tony: That’s right. I was one of the cofounders. It was myself and a college roommate. We started it out of our apartment back in March of ’96 and ended up selling the company to Microsoft in November of ’98.

Andrew: For I got $265 million here in an article that I saw on line–is that about right?

Tony: Yeah.

Andrew: Wow. I remember LinkExchange back from the old days, but for anyone who doesn’t know what LinkExchange did, can you talk a little bit about that company?

Tony: Sure. Our main product was a cooperative advertising network. By the time we sold the company to Microsoft, there were about a million websites participating in our network. The way the whole network worked is that if you–this was back in ’96 when it was considered kind of prestigious to have banner ads showing up on your website. The problem was if you ran a hobby site or if you were a small business, there really wasn’t a way for you to promote yourself through banner ads or to sell banner ads.

So what we did was anyone could join the network. As soon as you joined the network, we would give you a piece of code that you would put on your website. That would cause banner ads to randomly start showing up on your site. For every two ads that you were shown that were displayed on your site, you would earn one credit. With that one credit, you would get your site advertised somewhere else on the network.

So, at the end of the day, for example, if we were displaying 10 million ads across the entire network, 5 million of those were ads that were being exchanged amongst the members. We had extra inventory of 5 million that then we would turn around and sell to companies like Toyota, for example. So, basically, Toyota was funding with this cooperative advertising network that was a free service to all the members.

Andrew: Why did Microsoft bury that service after they bought it? It seemed like they were really gung ho about it and they were excited about acquiring your company, but it disappeared. What happened?

Tony: It was interesting. We actually had a few different companies interested in buying the company. Most of the other companies were interested in the network itself and the advertising possibilities, but for Microsoft, they were actually more interested in the small businesses that were in the network. I think it was roughly about a third of the one million members were small businesses. They wanted that list of small businesses to jump start their small business network, which I think originally was called bCentral and then it got renamed Microsoft Small Business and I’m not sure what the name is today.

Andrew: I remember that. LinkExchange became a part of that. You also had another service. I think it was called–this is just on memory right now. But I think it was called SubmitIt.com?

Tony: Yeah. We actually had a number of different services. So our whole goal at LinkExchange was to help website owners promote their site, maintain their site, update their site and so on. So Submit It was one of the sites, one of the services that we offered. It was actually a company that we acquired and then rolled into the LinkExchange suite of offerings. But we also had things like a web counter and a tool for checking the HTML on your site and so on.

Andrew: I think Submit It and sites like that were almost a license to print money. If I remember right, what Submit It did was it took your website and submitted it to the hundreds of different search engines that were around at the time. It probably cost you just a few thousand bucks to develop something like a Submit It, and you did it once and then you sold the service for $50 or $100. Some people were selling it for $500. I don’t remember what SubmitIt.com itself sold it for. But I remember that was just incredible business to be in at the time.

Tony: Yeah. I think Submit It was actually a free service.

Andrew: Was it?

Tony: I can’t–this was so long ago, so I don’t actually remember all the details. But I think it might have been a free service, and then there were certain enhancements that you could decide to purchase if you wanted.

Andrew: I see. Okay. So you sell the business. What do you do right after you sell the business? Do you have to work for Microsoft for a year or so before you get to move on?

Tony: They wanted me to work there for at least a year to a year and a half. So there were a lot of financial incentives for me to stay at least a year, between a year and a year and a half. I actually ended up just walking away from all that. I was only there for about five months after the acquisition.

Andrew: So you walked away from the all the financial incentives they gave you then?

Tony: Right.

Andrew: Okay. You were, what, 24, 25 years old at the time?

Tony: Yeah, I think around that.

Andrew: What were you looking to do next? Did you want to take a vacation and enjoy your youth, or did you have the idea that you would move on and start another company after that?

Tony: Yeah. Well, the reason why I walked away was just because it seemed like there was so much potential in the internet. It was just getting started. So I actually formed a small investment fund with someone that I knew from college and also had worked at LinkExchange with. His name is Alfred Lin, and he’s actually the CFO and COO of Zappos today. He and I formed an investment fund.

Basically, the people that put money into the fund were ex-LinkExchange employees. We went around and invested in about 20 or so different internet companies. Zappos just happened to be one of them. But over time, it became clear that Zappos was both the most fun and the most promising. So, pretty much within a year, I ended up joining the company full-time.

Andrew: Okay. And the entrepreneur that brought you into Zappos, is it Nick Swinmurn?

Tony: Yeah, Nick Swinmurn. He started the company in June of ’99, and I got involved about two months later, in August of ’99 originally, just as an investor and kind of part-time advisor.

Andrew: How does he find you?

Tony: I think he just randomly found our number somehow and just called us up and left a voicemail.

Andrew: And you as an investor would take calls like that and respond to them and consider the businesses that came to you that way?

Tony: Yeah. We actually originally weren’t interested because the idea of selling shoes online just seemed like it was a difficult thing to make happen. But he actually threw out a statistic that made it pretty interesting, which was that at the time, footwear in the U.S. was about $40 billion a year and about 5% or $2 billion was already being done by paper mail order catalogs at the time. So, in our minds, the web would at least surpass that.

Andrew: A lot of people were thinking that way at the time. I remember the thinking was applied to Pets.com, that pet food is this giant business. If you can only get one percent of it online, then you end up making a killing. Why was shoes different in your mind?

Tony: Well, I think what we had going for us was that it was already being done by mail order, $2 billion a year, whereas I don’t think pet food, any that was significant was being done by mail order.

Andrew: You’re absolutely right. I just missed that one vital piece of information. Okay. So the site was named ShoeSite.com at the time, and from what I see here in my notes, you invested half a million dollars in ShoeSite.

Tony: Initially. Well, actually there were a number of different rounds of investment. So our philosophy was don’t make a big investment. Instead, just put in enough money so that the company can run for a couple months and try to achieve its next goal and then put in more money at that point for another few months. So that’s pretty much how we operated for the first few years.

Andrew: How did you end up going from an investor to the CEO?

Tony: I don’t think there really was like a sudden day or turning point. It was more just one of those things where we just slowly got sucked in and just ended up spending more and more time with the company.

Andrew: And you said that one of the reasons that you moved into the company was that it was more fun. How was it more fun, or how was it fun at all to run a shoe company?

Tony: I think it really was–I’m not a shoe person, so for me it’s not about the shoes. It’s more just about the people in the startup environment and just facing a different challenge every day and everything being really fast moving and making decisions quickly and sometimes they’ll be the wrong decisions, but then changing course if they are the wrong decision very quickly. I think all of that is very exciting for me.

Andrew: One of the things that I like about internet companies is they seem to scale so well. In shoes or anything that you have to ship out, there’s a lot of work that goes into it.

Tony: Yeah, definitely. Right there in our warehouse, we actually have two warehouses in Kentucky. Combined, they’re about the size of 17 football fields. There’s a little over 4 million pairs of shoes in there right now. So definitely, the challenge of managing the inventory is something that I personally wouldn’t be able to do, but we have a great team of people on our merchandising and that’s what they do.

Andrew: I’ve got a punch of articles here in front of me. In one of them, you were talking about how you were worried about going under every day until you got a credit line.

Tony: I wouldn’t say every day. There were definitely several points in the company’s history prior to when we did get our credit line where we were sure if we were going to make the next payroll or not. Then right before getting the credit line, there were definitely challenging moments when we only had so much in the bank, but we owed all these vendors a certain amount of money.

So we would basically pay half the vendors one week and then the next week pay the other half. So it was kind of a careful balancing act. But once we did get the line of credit from Wells Fargo, then we were able to continue to get more inventory in order to support our growing sales. So that was a big turning point for us.

Andrew: Were you personally concerned at the time? You had a sale under your belt and you cashed out. The worries that you had, were they about your reputation? Were they about losing all your money and being poor? Were they about losing this baby that you loved? What were they about? What was going through your mind and through your gut before that turned around?

Tony: I think it really was just about the possibility of losing something that everyone internally knew was going to work. It was just a matter of getting–we were seeing it and hearing it from our customers and seeing how fast we were growing. The challenge with a business that actually sells products is that as sales grow, you need to grow your inventory as well.

So it was more at the time just cash flow problems, but we knew fundamentally the business was working and that the customers were buying shoes online and telling their friends about the service and coming back more and more often. So, internally everything was heading in the right direction and it was just not having enough financial flexibility because we were so bootstrapped at the time.

Andrew: All right. Well, this might be an ignorant question to ask, but you said you got about a quarter-million dollars from the sale. Obviously you weren’t the only founder of the company. You had cofounders and you had investors, but couldn’t you just take money out of your pocket and put it into the business?

Tony: Well, actually, I did do that just over the course of the business, but it got to be a point where I didn’t personally have enough liquid assets in order to keep funding the company.

Andrew: Who do you turn to when you have issues like that? Is there somebody in your–are you married? Do you turn to your spouse? Do you turn to Nick, the cofounder at the time? Do you turn to Alfred, who you’ve known for a long time?

Tony: Yeah, it was probably mostly Alfred at the time. At the time, he was still not an employee of the company. So he was viewing it more from an outsider’s perspective. So it was good just getting that third-party perspective.

Andrew: Well, you’re known for customer service. One component of that is free shipping both ways. How did you come up with that, and can you tell me a little bit about what difference and what impact it made on your company?

Tony: Yeah. It’s pretty much like all the other stuff that we’ve done that’s very customer focused. All the ideas really come from our customers. So, when we first started, it wasn’t free shipping both ways and we heard from our customers buying shoes online is kind of scary. What if it doesn’t fit and I’m out of money if I have to ship it back?

So, from that, we tested out offering free shipping both ways and found customers really respond well to that and were more loyal and told more friends about us. The same thing with our return policy–it used to be 30 days and then we made it 60 days and then 90 days and now our return policy is 365 days.

Another example is we used to just ship everything ground. Then when we could afford it, we would do a surprise upgrade for most customers to three days. Then as we got bigger, then we would do a surprise upgrade to two days. Today, we actually do a surprise upgrade to most customers to overnight shipping. Again, those are just ideas that came from customers and employees.

Our whole thinking is we’re always thinking to ourselves, “What can we do to improve the customer service or the customer experience?” We would much rather spend money on the customer experience than on marketing or paid advertising. So people do ask, “Is the free shipping both ways really expensive or is the surprise overnight shipping really expensive?” The answer is yes, it is really expensive. But we really view those as our marketing dollars, put it into the customer experience and let our customers go tell their friends and do the marketing for us.

Andrew: How do you measure that? You’re in the direct mail business. The best part of being in the direct mail business is that everything is measurable. But how do you measure the effect of good customer service?

Tony: I think it’s pretty hard to measure any single thing. So part of that is because the payback isn’t immediate.

Andrew: Right.

Tony: Right now we run our customer loyalty team, which is what we call a call center, 24/7 and we have a 1-800 number. In theory, we could shut down our phones and never answer a single phone call and from a profitability point of view, I think the profitability would be great for the next several months. I don’t think we would really see a negative effect of not answering our phones until maybe one year, two years, maybe even three years down the line.

I think the same thing goes for all the other things that we’re doing. If we decided tomorrow to change our return policy from 365 days back down to 30 days, that’s going to have a significant impact on sales. But I think what’s important is what we’re building for the long-term and that’s really just that our brand is about the very best customer service. By really investing as much as possible into the customer service and the customer experience, I think that’s what’s going to keep the company moving forward. But the payoff is really always at least two or three years down the line.

Andrew: Is it just gut instinct, then, where you say, “My customer service people are telling me that people are worried about this issue, I’m going to find a way to solve it. It will cost me money. I don’t know if I can get my money back, but I’m going to trust that it adds to customer experience, so I’ll do it?”

Tony: Well, yeah. I guess the thing that takes a little bit of gut instinct is just figuring out–we have an endless list of ideas for things that would improve the customer service or customer experience. So part of it is just gut instinct, deciding out of this list of 100 possible things that we can decide to do, we can choose to do maybe five or ten of them, which five or ten should we choose? But regardless of which five or ten we choose, I think the idea is that we always want to be doing more and more for our customers.

Andrew: Let’s see what else we have here. Vegas, why are you in Vegas?

Tony: So the company originally started out in San Francisco. We moved the company to Las Vegas about four and a half years ago because our fastest growing department was our customer loyalty team, which is our call center. In San Francisco, it’s really hard finding people that want to do that as a career. Part of that is because of the high cost of living in the Bay Area.

In Las Vegas, there are a lot of other call centers. It’s a 24/7 city. We actually explored a few other locations such as Phoenix, Kentucky, Oregon. But in the end, we decided on Las Vegas because we thought it would make our existing employees the happiest. Out of about 90 employees that we had in San Francisco at the time, about 70 ended up moving with the company to Las Vegas.

Andrew: Where did that belief that if you take care of your people, they’ll take care of the business? Is it something you read? Is it a way that you wished you were treated when you were an employee?

Tony: Well, one of the things about LinkExchange, my previous company, was that when it was five or ten people, it was a lot of fun. We were working around the clock, sleeping under our desks, had no idea what day of the week it was. It was just very exciting to just be in the office every day.

The problem is we didn’t know any better to pay attention to company culture as the company grew. So we hired all the people with the right skill sets and experience, but by the time it was 100 people, it just wasn’t a fun place to work at anymore. I didn’t enjoy going into the office, which was kind of a weird feeling for a company I had cofounded.

So, with Zappos, we want to make sure that we don’t make that same mistake again. So the number one focus and priority for the company is actually company culture. Our belief is that if we get the culture right, then most of the other stuff, like great customer service, will just happen on its own.

So it’s not so much about taking care of employees as it is about just making sure it’s a great culture that gets stronger and stronger as the company gets bigger and bigger, as opposed to what normally happens is the culture goes downhill as the company gets bigger. So the byproducts of having to create culture is that employees do feel taken care of and they’re happy and customers are happy and it just becomes this kind of virtuous cycle.

Andrew: How do you keep them from taking advantage of you?

Tony: It’s not just that. We’re trying to just give everything to employees, and the culture also isn’t dictated by me. It’s every employee’s responsibility. So, if employees see another employee trying to take advantage of something, then the expectation is for them to speak up. It is their responsibility as well.

Andrew: So now on to social media–I keep hearing that you’re one of the best users of social media. In fact, the reason that you and I met is Tara Hunt in one of my first interviews talked to me about Zappos and how you’re an example of how everyone else needs to use tools like Twitter. When did you pick this stuff up?

Tony: I first learned about Twitter at 2007’s SXSW. I just found that it was a great way to keep in touch with what was going on at the conference. And then after the conference was over, I came back and introduced it to my friends. There was probably a group of 20 or 30 of us where we were just using it amongst our small group. So I had been using it for about a year and saw how great it was for keeping in touch with my friends.

I especially liked how it really allowed me to keep in touch with my friends that were in San Francisco since I was living in Vegas now. So, then about a year after using it, we decided to roll it out and introduce it to the company in general. The primary motivation for that was really to help our company culture. It would be great for our employees to get to see each other in a different light, know what they’re up to outside the office.

So today we actually have a little over 400 employees using Twitter. Then the other great byproduct from all of that was that we now have customers that are following myself and other employees. So those customers now feel like know us better. We’re not some faceless corporation. We’re actual real people.

Andrew: I asked people on my website and actually on Twitter if they had any feedback or if they had any questions for you to Twitter it over to me. Michael DeRouche, his question was, “Do you have any instances when it’s not a good idea to let your employees engage in social media on behalf of the company?” Any time when somebody’s embarrassing you?

Tony: I think it just comes down to whether you trust your employees and your culture. If you don’t, then it’s probably not a good idea for them to be saying what they want. But for us, we don’t provide any specific guidelines for what employees can and can’t Twitter. We actually aggregate all the employees’ tweets onto a page that we link to from our website.

So, if you actually go to Twitter.Zappos.com, the first page you’re at will just be any mention of Zappos throughout the Twitter world and then there’s a link near the top that you can click on that shows all the employees of Zappos that are using Twitter and then there’s another link that shows what they’re actually saying. So, by reading through that, you can also kind of see the conversations happening between our employees.

We don’t give specific guidelines. We just say use your best judgment. Every employee knows that company culture is important and so is providing great customer service and so is the Zappos brand. So we basically trust employees to do the right thing.

Andrew: What about if one of them is going out drinking with his buddies and he’s starting to talk about drinking on his Twitter account or going to smoke pot with a friend on a couch somewhere while watching TV and Twitters that? Does that represent Zappos poorly? Is that something that’s a concern at all?

Tony: Well, I think probably doing anything illegal would–I think pretty much everyone would agree that’s not good for the brand. If it’s just they’re out at a bar drinking, we encourage them to speak openly about it.

Andrew: Okay. And Twitter wasn’t your first use of social media, right? I know before Twittering, for example, you used blogs.

Tony: Yeah. So we actually have a blog site. If you go to Blogs.Zappos.com, there’s actually a lot of content there because all of our different departments post different things. By actually reading through the blogs, there are photos and articles and videos, and some of it is fun and silly stuff. But just by reading through it, you can actually get a pretty good glimpse into what our company culture is like.

Andrew: Anything else that you’re using and getting good results from?

Tony: We do have a presence on Myspace and Facebook. But I would say out of all the social media options out there, Twitter is really our main focus.

Andrew: Tara told me about some of the results that you got from Twittering. She said you Twitter your everyday stuff, you Twitter some work stuff, you Twitter some contests. Does Twitter help you get people to come over to Zappos.com or participate in a contest on the site?

Tony: Yeah. We do get some of that. But I guess relative to the total number of customers we have, it’s probably pretty small because right now I think I have around 9,000 or 10,000 followers on Twitter, but in terms of our entire customer base, we have over 8 million customers. So, percentage wise, it’s pretty small.

I think what Twitter–for us the primary motivation for getting involved with Twitter was for employees and company culture and even for customers, we don’t really think of it in terms of trying to drive more sales. It’s really just about developing a more personal connection and emotional connection with our customers and most likely our existing customers. So it’s the same thing for the telephone. It’s not unique to Twitter. The reason why most websites, it’s pretty hard to find contact information, let alone a 1-800 number, whereas we put our 1-800 number on the top of every single page of our website.

The reason is because we actually want to talk to our customers and when customers call us and we found that on average every customer calls us at least once, sometime in their lifetime, that’s really our opportunity to shine and show that we are different. We have the customers’ undivided attention for five to ten minutes. During that five to ten minutes, they can see and feel that we are not like other companies.

It’s not just someone that is reading the script and unhappy working at some large call center. It’s actually a happy employee on the other end that really cares about you and is a real person and doesn’t have a script and is empowered to just give the very best experience in customer service. I think once people experience that one, whether it’s by telephone or through Twitter, that’s what hooks them emotionally for life because there’s just so few companies out there that actually care about the customer. Most companies really care more about making a quick buck.

Andrew: And I would feel that if I just made a phone call, just calling in would let me feel your full corporate culture?

Tony: Yeah. Or if you call in multiple times, you’ll get–I think part of it is you’ll get in touch with different people and each person has a different personality and you’ll see that you’re not all just reading from the script. They’re just doing what feels right for them for developing a connection with you.

So sometimes there are better opportunities than others for us to really show that we care and we are about customer service. One example is if you call in and you’re looking for a specific pair of shoes and let’s say we’re out of stock in your size, everyone is trained to look at, at least three competitor websites and if they find the item in stock in your size to direct you to that competitor. We’ll lose that sale, but we’re not trying to get as much money as possible out of every single phone call. We’re just trying to provide the very best customer service and develop that lifelong relationship with our customers.

Andrew: Wow. I’d like to try that, actually. If I call up–do you guys carry Crocs, for example?

Tony: Yes, we do.

Andrew: Okay. Finding a pair of a shoes that you don’t carry is going to be tough.

Tony: It might be that we–probably the easier thing is to look for something that we do carry, but if we’re missing a size to ask for that size and see what happens. The other thing is you can call in, just ask something that isn’t related to even necessarily a shopping experience on our site. Everyone is just instructed to be as friendly as possible. If they’re able to help you out, they’ll help you out.

Andrew: So, if I just call about something that’s off topic, they’ll be there, they’ll help me out?

Tony: Yeah.

Andrew: All right. You know what? I’m calling you on Skype. At the end of this conversation, let’s try conferencing in and see what happens.

Tony: Okay.

Andrew: All right. But one of the first things that you said about Twitter is it’s not about sales. You’re not increasing your customer base by Twittering. You’re letting them know you’re a real person and that everyone else at Zappos is a real person. What else should people who are trying to emulate you and emulate your social media success, what else do they need to know about Twitter and all these tools that are out there?

Tony: I don’t think it’s necessarily there’s any one tool that’s better than the other. I think what’s important is that whatever tool you decide to choose, that you actually are passionate about it and would use it anyways for yourself personally. You’re not trying to do it in order to just help your company. So I think that’s the most important thing.

Where some companies are challenged is they try to get on Facebook or Twitter, but it’s something that they never would use themselves anyway, so then they start using it in a way that seems very unnatural or seems like it’s some company trying to use it as a marketing vehicle. People are quick to pick up on that.

Andrew: I see what you’re saying. I’ve seen that too. Or maybe it comes across as a constant infomercial.

Tony: Yeah.

Andrew: Are there any other tools you think people should take a look at before I move on to questions from people on Twitter?

Tony: Those are the ones that we looked at, but we’re always, when we hear about a new tool or service, we’ll explore it and see if it’s something that kind of resonates with any one of us, our philosophy internally is just if someone is passionate about something, then just we let him or her just run with it. So, there may be something new that comes up next week that someone else was passionate about inside of Zappos and we’ll just let him run with it.

Andrew: I think it was soon after Google acquired Blogger, there was a Google employee that was blogging and blogging pretty openly about, I think, his work at Google and he was let go. That’s not the kind of thing that would happen at your company. At your company, if somebody discovers a new tool and wants to start exploring it and even talking about the company, you’d encourage that?

Tony: Yeah, as long as it’s not confidential information. If someone starts blogging about everyone’s salaries, then we might let that person go.

Andrew: Tony, before I move on, why are you even taking my phone call? You didn’t ask me how many people are listening to this. You don’t know if I have an audience of five people, if it’s just me hoping somebody will listen or if we’re going to reach out to a broader community that’s going to help you out. You’re spending an hour of your day talking to a stranger on the phone and letting me record it and put it online. Why are you doing that?

Tony: I think one of the cool things about being involved with Twitter or just social media in general is that you end up learning in a relatively short period of time like who is good at being a filter for certain things. So, for this, it was just because Tara Hunt referred. I’ve known Tara for I think about a year or so now. She’s helped us out a lot. She’s come visit our offices. I try to help her out whenever I can.

Andrew: Her interview, by the way, that I posted up on Mixergy is still the most popular interview, most popular conversation I’ve had. She was talking to me about how to use social media online. As I said, she used you as an example. Everything that she said I think anyone who’s starting an online business can use right away and start seeing results from. It’s all really liberating.

She talks a lot in the same direction that you do about don’t try to measure it. Don’t try to measure what others can give you every time you try to help them out. Don’t try to measure what you’re even doing. If I’m asking you so many suspicious question, it’s because I feel like I’m a numbers person. I feel like I got into business because I want to know where I stand.

Now Tara is telling me that it’s about social capital. It’s about how much you help people. It’s about these unmeasurable fuzzy feelings and connections. You’re telling me the same thing. It just makes me wonder. How can you build such a big business without having clear numbers?

Tony: Well, we need both. So it’s not like we don’t measure our–we do measure our efficiency in the warehouse, for example. We look at how much it costs to ship an item, what percent of customers ship items back to us. At the end of the day, we still need to run a business and make sure the numbers work.

But I think the difference is that part of what we believe has gotten us from zero to–this year we’re on track to do over $1 billion in gross merchandise sales. We believe that’s been driven primarily by our repeat customers and word of mouth. That’s all because of our customer service. What makes our customer service so special is our employees and what gets employees really engaged is our culture. So that’s a lot of things that are along that chain, but we really believe the foundation of everything is just company culture and then on top of that customer service.

Andrew: Okay.

Tony: Those are hard things to measure.

Andrew: Yeah. It’s working. I’m telling you. My girlfriend loves your website. I see her talk about the experience to her friends. I keep noticing how effective what you’re doing is. So, that was Ethan Bailey Twittered that over to me also. He had the same question I did. He kept asking about metrics. Another question that I got was from Magento. Do you know Magento? They’re an ecommerce open source software.

Tony: I don’t, but maybe our developers do.

Andrew: What Magento wants to know is your site is bullet fast, how are you able to do it?

Tony: Well, speed we found is always very important for an ecommerce site. We do a number of things. We work with Akamai for kind of the last mile delivery. We also have internal caching on our site and there’s also database caching and so on. I don’t know all the technical details of how we do everything, but I will say that the speed of our website is something that we pay a lot of attention to. It’s very important.

Andrew: By the way, I noticed your website doesn’t have the Web 2.0 look at feel to it. How much work did you put into the design? How important do you think design is?

Tony: Our website has just been a very constant evolution. We’re making changes to it on literally a daily basis just based on feedback from our customers. So, I don’t think we really ever just sat down and said, “Okay, let’s design a site.” It’s really been, “Now let’s add this feature because a customer asked for it,” or some customer said it would be good if we had this additional button, so let’s add that. So, actually our site today is just the result of lots and lots of evolution over the years.

We actually are in the process of launching a new site. It’s called Zeta. We’re calling it internally Zeta, Z-E-T-A. So, if you want to take a look at it, you can go to Zeta.Zappos.com to take a look at our new site that’s in progress. The reason for that is because our current site was originally designed for just footwear and the new site is really designed to handle multiple product types now that we’re expanding into handbags, clothing, even electronics and cook wear.

Andrew: And the name will still be Zappos. Zeta is just your beta version of the upcoming site.

Tony: Yeah, eventually it will switch over to our main site.

Andrew: Gotcha. Okay. And Eric Stephens, who I interviewed recently about user experience and what’s called listening labs, where you sit down with a potential customers and you watch them use your site and your competitors’ sites, he said that Zappos has incredible user experience. He wanted me to ask you what kind of–do you sit down with people and watch how they use your site? What kind of user experience testing do you do?

Tony: We actually just started doing that for our new site, for Zeta. But for our existing site, it really was just based on phone calls or emails from customers.

Andrew: So, with the new site, you bring people into your office, you watch them as they use your site or you’ve outsourced that to somebody else?

Tony: We’ve only done it once so far, but yeah, we brought people into our offices.

Andrew: How was that?

Tony: I’m actually not sure because it was just done within the last week or two. So, I think there was some feedback from it. But I actually don’t know how much of that feedback we ended up implementing.

Andrew: Well, that’s the last of my questions. Before I see if I can use Skype to conference in customer service, is there anything else that I should know about Zappos, what makes you guys great, how you’re getting all kinds of attention?

Tony: Well, as I mentioned, for us, we really believe that our competitive advantage is our company culture. I really believe that in the long-term, culture and brand are just two sides of the same coin. Your brand might lag your culture, but at some point, it’s going to catch up, especially as the world becomes more and more transparent, whether companies like it or not. So, that’s another reason why we focused so much on company culture.

Actually, one thing that your listeners might be interested in is we have something called a culture book that we put out once a year. We ask all our employees to write a few paragraphs about what the Zappos culture means to them and except for typos, it’s unedited. So, you read both the good and the bad.

So it’s kind of like analogous to customer reviews on websites, except it’s basically like employee reviews for the company. So that will give you a good glimpse into our culture, so will going to our blogs website, Blogs.Zappos.com. Or if anyone is in Las Vegas or when they’re next in Las Vegas, we actually give tours every day. That’s probably the best way to catch a glimpse into our culture.

Andrew: Wow. The culture book, you said, is available on Blogs.Zappos.com?

Tony: Yeah. Sorry. So the culture book, if anyone wants a copy, can just email CultureBook@Zappos.com with a mailing address and we’ll get one out to you.

Andrew: All right. That’s one of the things that you do to cultivate your culture. What else do you do to keep it going? It seems like culture is something that most companies just allow to happen. But you’re actively cultivating it. What are you doing to do that?

Tony: A lot of things. Part of it is just in our hiring process. We do actually two sets of interviews for everyone that’s hired. One is the standard set that hiring manager and his or her team does for technical ability, fit within team, experience and so on. But then our HR department does a separate set of interviews purely for culture fit. They have to pass both in order to be hired. The reverse is true. If someone, they might be performing their individual job function perfectly well, but if they’re bad for the culture, then we’ll fire them just for that reason alone.

Andrew: Okay. Let’s try it. Let’s see if I can use Skype to call customer service. Is there a question that you think I should ask that would give me a good sense of what you guys do?

Tony: I think you should ask whatever you’d like.

Andrew: Whatever I’d like.

Tony: I’m curious what they’ll say.

Andrew: All right. Let’s see if I can hit conference, will it allow me to do it.

Customer Support: Thank you for calling Zappos.com.

Andrew: Are you on the phone with me, Tony?

Tony: Yeah.

Andrew: Okay.

Customer Support: Welcome to Zappos.com. It’s customers like you that make us a success. My name is Derek from our customer loyalty team.

Customer Support: And my name is Rawenna from our CLT team. To place a new order, press one.

Customer Support: If you received a call from our order verification team, press two.

Customer Support: For assistance with our return process or to request a return label, press three.

Customer Support: Now, if you’re still on the line and listening to us, here are some other fun options.

Customer Support: To hear the Zappos joke of the day, please press four.

Customer Support: To hear our special guest, the one and only Gladys Knight, please press five.

Customer Support: For all other inquiries, please stay on the line and someone will help you shortly.

Customer Support: For quality assurance, this call may be monitored or recorded.

Customer Support: Thanks for choosing Zappos.com.

Customer Support: Have a great day.

Andrew: I like that. I like having the two voices on there.

Tony: Yeah. So, we rotate that with different employees.

Giovanna: Good afternoon. Thank you for calling Zappos. This is Giovanna speaking. How can I help you?

Andrew: Giovanna, first of all I should say that I’m recording this. Everything that goes out on this number gets recorded. Is that okay?

Giovanna: Sure.

Andrew: Okay. Thanks. So, I heard a little bit about the Zappos culture. I was wondering–well, first of all, do you Twitter?

Giovanna: Personally, I don’t. Would you like to speak with my supervisor on this?

Andrew: I’m okay speaking with you if you’re comfortable with it.

Giovanna: Actually, no, I don’t Twitter. I haven’t used that as of yet.

Andrew: All right. Let me ask you this then. I was thinking of buying Crocs and I don’t see my size on your website. Is there another way for me to get the Crocs?

Giovanna: If you don’t see the size on our website, what I can do is place you on a notification list for it if you want and we can let you know as soon as those come back into stock. If they do come back in, we’ll shoot you an email, let you know. It would back order it for you, but it will place you on the list for receipt of that email.

Andrew: I see.

Giovanna: Plus I can also help you if you’d like for me to look for someplace else, I can do that as well.

Andrew: What do you mean by someplace else?

Giovanna: At another website, if we don’t have it, we can also help you look for it someplace else, if you’d like.

Andrew: You’ll do it with me right now on the phone, you’ll Google it, you’ll find the shoes and I can go and buy it from somewhere else and you lose the business?

Giovanna: Yeah, we actually do that. That’s one of the things we do on a regular basis.

Andrew: Wow. Giovanna, do you know Tony Hsieh? I’ll tell you why. He’s on the phone with me right now. We’re doing an internet show. He was telling me that at his company, people Twitter and if I try to buy a pair of shoes at Zappos.com and it’s not available, that you guys will help me find it somewhere else. I said, “Let me see if this actually works,” and it really does. You really will help me find it somewhere else.

Giovanna: Absolutely.

Andrew: Tony, what do you think? You’re on the line. What do you think of this?

Tony: Yeah. I think it’s something that all our reps know that we’re just about the very best customer service. So I think that’s about it.

Giovanna: Wow.

Andrew: Wow. How long have you been working at Zappos, Giovanna?

Giovanna: I’ve been working at Zappos probably going on two years now.

Andrew: Do you know about the culture book? Are you published in it?

Giovanna: I think I am in it this year.

Andrew: I’m going to email and ask for a copy of the book so I can read it.

Giovanna: All right.

Andrew: Thank you for letting me do this little experiment. I know for you and for Tony this is ordinary stuff, but I wanted to see it for myself. I wanted to see if I really could get you to help me out by converting to somebody else’s customer and you’re willing to do that and that’s probably why you never lose customers.

Giovanna: Absolutely. That’s what I’m here for. I’m here to help.

Andrew: Wow. Thank you.

Giovanna: All right. I didn’t expect this, but you know, thank you for calling. It’s a pleasure.

Andrew: Thank you. Thank you for taking the call. Tony, I don’t know how to undo Skype over here, how to disconnect one call and not the other. Why don’t we leave it right here? Thanks for letting me interview you. I’m going to edit this, put it up on the website and I think people are really going to be excited to hear how Zappos started, how it great. I know the entrepreneurs and startups that are listening to this are going to love the social media ideas you just gave us. Thanks so much for doing this call.

Giovanna: No problem. Was there anything else I can do to help you today?

Andrew: No. This helps me a lot. Thank you.

Giovanna: All right.

Andrew: Thank you both. Thanks, Tony.

Tony: Thank you.

Andrew: Bye.

Tony: Bye.

Giovanna: Bye.

Here are some of the things I learned from our conversation. Download the full interview to learn more directly from Tony.

Shocking customers – Doesn’t every company say that they have great customer service? When Tony told me about the level of service that Zappos gives its customers, I tested it by conferencing in the phone number on his web site. When I asked for a pair of shoes that they didn’t have in stock, the woman I spoke to offered to find it for me somewhere else. I was shocked, but if you listen to Tony’s voice at the end of that test, you’ll hear that he didn’t find it extraordinary at all. That’s just how his company operates.

Surprise – Tony told me that Zappos tries to surprise its customers by giving them more than they expect. For example, they’ll routinely ship an order using a faster delivery method that the customer paid for. Can you imagine how excited customers get when they receive a package sooner than they expected?

Social Media – Zappos encourages its people to use tools like Twitter (see them). I tried to understand how many extra sales they got from it, but Tony taught me that’s not the way to look at it. He’s doing a billion dollars in sales, the few orders he gets from Twitter won’t impact his bottom line. But the connection with his customers is priceless. Social media, for Zappos, is about letting the world know that there are real people behind the online brand.


  • Andrew, great interview! We had the pleasure of speaking with a few of their UI designers and engineers about their new site design (http://zeta.zappos.com), features, marketing strategy and what’s next for them. Look for them to improve their service and customer loyalty programs over the next year even more!

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  • Sean Comeaux

    Alex, Thank you for this insightful interview, it was highly informative. As a serial entrepreneur myself, Tony Hsieh has long been one of my heroes. In fact, for my most recent endeavor, I was being interviewed for my local college’s 'Entrepreneurship program' whereby a group of our cities top Entrepreneurs will be walking us through the process of launching our business from start to finish in 16 weeks. All the while introducing us into their network of contacts and resources from legal to marketing so we can continue to be successful afterwords. In my initial interview for the program (since they were only picking 15 out of the almost 70 that applied) they asked me what my passion was for the product I was selling (I sell a niche category of high-end women’s apparel online). They kept searching for the reason I got into the product alone. I leveled with them that it was not at all the product but the process that I love. I was ELATED to hear Tony say the same thing, “I'm not a shoe person so for me it’s not about the shoes; it's more just about the people and the start up, y’know, environment and just, y’know, facing a different challenge every day and everything being really fast moving and y’know making decisions quickly and sometimes they’ll be the wrong decisions but then changing course if they are the wrong decision very quickly. So I think just all of that is just very exciting for me.” While it could have been a little more eloquent, I knew exactly what he was saying. He's a serial entrepreneur who loves starting businesses and making them work. I am driven by that same force. Great interview, Mr. Hsieh is a brilliant person whom I aspire to be only half as successful as. Thank you again Alex.

  • Sean Comeaux

    Alex, Thank you for this insightful interview, it was highly informative. As a serial entrepreneur myself, Tony Hsieh has long been one of my heroes. In fact, for my most recent endeavor, I was being interviewed for my local college’s 'Entrepreneurship program' whereby a group of our cities top Entrepreneurs will be walking us through the process of launching our business from start to finish in 16 weeks. All the while introducing us into their network of contacts and resources from legal to marketing so we can continue to be successful afterwords. In my initial interview for the program (since they were only picking 15 out of the almost 70 that applied) they asked me what my passion was for the product I was selling (I sell a niche category of high-end women’s apparel online). They kept searching for the reason I got into the product alone. I leveled with them that it was not at all the product but the process that I love. I was ELATED to hear Tony say the same thing, “I'm not a shoe person so for me it’s not about the shoes; it's more just about the people and the start up, y’know, environment and just, y’know, facing a different challenge every day and everything being really fast moving and y’know making decisions quickly and sometimes they’ll be the wrong decisions but then changing course if they are the wrong decision very quickly. So I think just all of that is just very exciting for me.” While it could have been a little more eloquent, I knew exactly what he was saying. He's a serial entrepreneur who loves starting businesses and making them work. I am driven by that same force. Great interview, Mr. Hsieh is a brilliant person whom I aspire to be only half as successful as. Thank you again Alex.

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