Ep509 - Tony Hsieh | Delivering Happiness: A Path to Profits, Passion, and Purpose
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Welcome to the Talks at Google podcast, where great minds meet. I'm Emma, bringing you this week's episode with former entrepreneur, venture capitalist, and CEO of Zappos, Tony Hsieh. Talks at Google brings the world's most influential thinkers, creators, makers, and doers all to one place. Every episode is taken from a video that can be seen at youtube.com slash talks at google.

Tony Hsieh visits Google to discuss his book, Delivering Happiness: A Path to Profits, Passion, and Purpose. Back in 1999, Tony Hsieh sold LinkExchange, the company he co-founded, to Microsoft for $265 million. He then joined Zappos as an advisor and investor, and eventually became CEO.

In 2009, Zappos was listed as one of Fortune magazine's top 25 companies to work for and was acquired by Amazon later that year in a deal valued at over $1.2 billion on the day of closing. In his book, Tony shares the different business lessons he's learned in life, from operating a lemonade stand and a pizza business, through Link Exchange, Zappos, and more.

He shows how using happiness as a framework can produce profits, passion, and purpose in business and in life. Originally published in July of 2010, here is Tony Hsieh delivering happiness. Welcome to another Leading a Google talk. The Leading a Google series is aimed at getting interesting folks from outside to speak on interesting topics involving leadership and reaching out to the community. My name is Ming. I'm the Jolly Good Fellow of Google.

And I'm honored today to introduce a friend, a better jolly good fellow, a jollier gooder fellow if you would, Tony Hsien. Tony is the CEO of Zappos and the author of this book, Delivering Happiness. In 1999, at the age of 24, even younger than me right now, Tony sold Link Exchange, the company he co-founded, to Microsoft for $265 million.

He then joined Zappos as an advisor and investor, and eventually became CEO, where he helped Zappos grow from almost no sales to over $1 billion in annual sales. Wow, simultaneously making Fortune magazine's list of best companies to work for. In November, Zappos was acquired by Amazon.com in a deal valued at $1.2 billion. Tony is a huge inspiration for me.

One of my goals in life is to create happiness in the workplace, but I do it from bottom up. But while Tony does it from top down as CEO, and he does it systematically, and he does it in a way that is very profitable for his company. His example is deeply inspiring for me, and I hope he will become a model for all the CEOs in the world. And with that, please welcome Dr. Tony Hsieh. Thank you. Thank you. Thank you.

Thank you. All right. So everyone can hear me OK? I want to take a quick survey first. How many of you have actually purchased from Zappos before? Oh, wow.

So normally when I do this survey, the ratio is about two to one, women to men. And a lot of guys that I ask say they themselves personally haven't, but their significant other or wife has. So I was actually giving a tour of our headquarters in Las Vegas. And we actually give tours to the public. So next time any of you are in Las Vegas, we'll pick you up in a Zappos shuttle from the airport, give you a tour, and then drop you off at your hotel afterwards. It's a lot of fun.

I'll give the information later on on how to get a tour. But anyways, I was giving a tour to an executive from one of the major record labels and I asked him the exact same question. And he said no, he personally hasn't shopped from Zappos, but

He suspects his wife has because these white boxes would show up at his doorstep and then they'd disappear and he wasn't sure if she was returning them or exchanging them or what was going on. And every time he asked her, she refused to answer him and tell him what was going on. So anyways, we went through the ground floor of our office and that's where our merchandising team is and then we went upstairs to our customer loyalty team, which is our name for our call center.

and he sat down next to one of our call center reps and forced her to pull up his wife's account. And he discovered that she had spent over $62,000 in his lifetime. So yeah, hopefully we weren't instrumental in any divorce proceedings or anything. So before getting into Zappos, I wanted to talk a little bit about what led me to Zappos. And the story actually begins with pizza.

In college, I was running a pizza business with my roommate. We probably had 300 or 400 students in our dorm. We were on the ground floor, and we were responsible for investing in the ovens. And we hired the workers, set the menus. And occasionally, I was making the pizzas myself as well.

And this guy named Alfred, who's now our CFO and COO at Zappos-- this is actually how we met, was over pizza-- he would stop by every night and order this large pepperoni pizza from me. And for me, it wasn't actually that weird because he--

I remember late nights, there'd be 10 of us at a Chinese restaurant somewhere, and he would literally finish everyone's leftovers. And we had nicknames for him like human trash compactor or monster. But then sometimes he would stop by a few hours later and order another large pepperoni pizza from me. And I was just thinking, wow, this boy can really eat. Well, I found out several years later

He was taking the pizzas upstairs and selling them off by the slice. So that's why he's our CFO and COO today at Zappos. So after the pizza business, the same roommate I was running it with, his name is Sanjay, he and I got together and formed a company called Link Exchange. This was back in 1996 during the early dot-com days. And we grew that company to about 100 people and then ended up selling the company to Microsoft in 1998.

But what a lot of people don't know is the reason why we ended up selling the company. And it's because the company culture just went completely downhill.

I remember when it was just five or ten of us, it was kind of like your typical dot-com back in the day. We were working around the clock, sleeping under our desks, had no idea what day of the week it was, trying to remember to shower every few days. But it was a lot of fun. And as we were growing, we had friends that were on trips across the country on vacation, and they would stop by and hang out for a day or two, and then we'd hire them and they never made their way back home.

And that got us to about 15 or 20 people. And then when we got to 20 people, it was still a lot of fun, but we ran out of friends. And so we started hiring people that had all the right skill sets and experiences, but they weren't necessarily good for the culture.

And there wasn't any one hire that made the culture go downhill, but just slowly over time, by the time we got to 100 people, I myself dreaded getting out of bed in the morning to go to the office. And that was kind of a weird feeling because this was a company that I had co-founded and felt like I had lost control of the culture. And if I felt that way, wondered how all the other employees felt. So that's really what drove us to sell the company to Microsoft.

And after selling the company, Alfred and I got together and we formed an investment fund. And we invested in probably about 20 or so different internet companies. And Zappos just happened to be one of them.

But over the course of a year, I realized that for me, investing was really boring. I felt like I was sitting on the sidelines and not really involved. And I really missed being part of building something. And so within a year, I joined Zappos full time and I've been with Zappos ever since. I'm sure many of you have heard last July Amazon announced they were acquiring Zappos and that deal officially closed in November.

But actually it's very different from most deals that Amazon has done. In most of their deals, the plan is to acquire the company and then integrate it into Amazon. For this, as a precondition for even talking about the scenario, we told them we wanted to remain independent and continue to grow the Zappos brand in our culture and our way of doing business our way.

they've actually they've stayed true to their word so we're pretty happy with that and basically instead of flying once a quarter to the bay area for board meetings we now fly once a quarter to seattle so most people when they hear about zappos

Think of us as an online retailer of shoes because that's how we started. But internally, we have a saying, we say that we're a service company that just happens to sell shoes. And we actually sell a lot more than shoes now. We sell clothing, even beauty products, kitchenware, houseware. And our whole goal is that we're hoping 10 years from now, people won't even realize we started out selling shoes online. And we really just want to build our brand to be about the very best customer service.

And we've grown from basically no sales in 1999 to in 2008 was the first time we hit a billion dollars in gross merchandise sales and we're continuing to grow. In Q1 of this year, our net sales were up almost 50% year over year the previous year. And the number one driver of all that growth has been through repeat customers and word of mouth.

So our whole philosophy is let's take most of the money we would have spent on paid advertising and paid marketing, instead invest it into the customer experience and let our customers do the marketing for us. And we're thinking 20 or 30 years from now, we've even had customers email us and ask us if we would please

run an airline or the IRS. And we're not going to do either of those things this year, but 20 or 30 years from now, I wouldn't rule out a Zappos Airlines that's just about the very best customer service and customer experience.

So one brand we look to for inspiration sometimes is Virgin. They're in a whole bunch of different businesses, music, airlines, and so on. The difference is the Virgin brand is more about being hip and cool, whereas we just want to be about the very best customer service. So on any given day, about 75% of our orders are from repeat customers. And when people ask us, well, what does it mean to give great customer service? Well, these are some of the questions we think about. We think about what customers expect,

and then what they actually experience. And so when you go to our website, I'm sure as many of you know, we offer free shipping both ways. So a lot of customers will order 10 different pairs of shoes, try them on with 10 different outfits in the comfort of their living room, and send back the ones they don't like or don't want. And we encourage that type of behavior. We've actually found that customers with higher return rates

maybe on a per order basis are less profitable, but in terms of actual dollar basis end up being more profitable than customers that never return anything at all because they end up being more comfortable with the process and trying out new products that they wouldn't normally try out if it wasn't free shipping both ways.

We think about what are the stories that they'll tell each other. And so a lot of our investment actually-- what we found is on a lot of other e-commerce websites, most of their investment is on what happens in order to get the customer's credit card number, whereas we really focus on what happens after we get the credit card number from the customer.

And there's a lot of different things we do. We run our warehouse 24/7, which actually is not the most efficient way to run a warehouse. The most efficient way is to let the orders pile up and then the picker has higher picking density when walking around the warehouse. But we're not trying to maximize for the efficiency of the warehouse. We're trying to maximize for the customer experience.

And our warehouse is located about 15 minutes from the UPS hub in Louisville, Kentucky. And because of that, and because we also do surprise upgrades to overnight shipping for most of our loyal repeat customers, a lot of our customers order as late as midnight Eastern, and then their shoes show up on their doorstep eight hours later. And that creates that whole wow experience and emotional impact that causes them to remember us for a very long time and tell their friends and family about us.

We also have a 365-day return policy for people that, I guess, have trouble committing or making up their minds. And we also have our one--you know, most websites, it's very hard to find contact information. It's usually buried five links deep and maybe it's an address that you can email once. Whereas for us, we take the exact opposite approach. We put our 1-800 number on the top of every single page of our website because we actually want to talk to our customers.

And it's funny, because sometimes I'll be speaking at advertising or branding conferences, and there's a lot of discussion about consumers being bombarded with thousands and thousands of marketing messages every day. How do you get your message to stand out, or how to get your brand to stand out?

And as kind of low-tech and unsexy as it may sound, our belief is the telephone is one of the best branding devices out there because you have the customer's undivided attention for five to ten minutes. And what we found is if we get the interaction right, that's something that customers remember for a very long time. And so we've also done studies where we found that customers that do come in contact with us

end up buying more frequently and spending more money. So we're actually trying to figure out, how do we get more customers to call us? And it may seem weird for an internet company to really want customers to contact us through the phone. Most of our phone calls actually do not result in orders. Only about 5% of our overall sales volume is through the telephone.

But customers call for all sorts of different reasons. Maybe it's their first time going through the returns process and they just need a little help stepping through how to print out that free return label. Or maybe they have a wedding this weekend and they just want some fashion advice. We have some customers that call us, I think, just because they're lonely. Yeah.

We'll talk to them as well. We run our call center very differently from most call centers. Most call centers are, again, focusing on efficiency, viewing that in the lens of

expense minimization, whereas for us, we really view it through a branding lens. What can we do to really build the Zappos brand to be about the very best customer service? And what we found is that on average, every customer does call us at least once sometime during their lifetime. And if we get that interaction right, it's something they remember for a very long time and tell their friends and family.

about and that's really what drives a lot of our growth. So we don't have scripts, we don't measure call times, most call centers are all about how many customers can each rep talk to which translates into how quickly can you get the customer off the phone. In fact, I just found out, got an email yesterday, our longest phone call was seven and a half hours long from last week I think and I'm not sure how the bathroom situation worked out for that one.

But we and in fact if someone calls and is looking for a specific pair of shoes if we're out of stock of their size everyone's trying to look on at least three competitor websites and they find it there direct the customer to the competitor and

And obviously we lose that sale, but we're not trying to maximize for every single transaction. We're trying to build a lifelong relationship with our customers. So for all this about building our brand to be about customer service, customer service is actually not our number one priority.

Our number one priority is company culture. And our whole belief is that if we get the culture right, then most of the other stuff like delivering great customer service or building a long-term enduring brand or business will just happen naturally on its own. So there's a lot of stuff that we really invest in on the culture side. And it starts with the hiring process.

When we hire people, we actually do two completely different sets of interviews. The first set is kind of your standard stuff that the hiring manager and his or her team will do, interview for fit within the team, relevant experience, technical ability, and so on. But then we do a second set of interviews

done by our HR department purely for culture fit. And they have to pass both in order to be hired. So we've actually passed on a lot of really smart, talented people that we know can make an immediate impact on our top or bottom line. But if they're not a culture fit, then we won't hire them. And the reverse is true too. Even if someone is a superstar at their specific job function, if they're bad for our culture, we'll fire them just for that reason.

and our performance reviews are 50% based on whether the employee is living and inspiring the core values of the company, which is essentially a formalized definition of our culture.

The other thing that we do is everyone that's hired into our headquarters in Las Vegas, it doesn't matter what position, goes through five weeks of training. One week is in Kentucky later on where our warehouses, they do all the warehouse functions, picking, packing, shipping, receiving, and so on. But the first four weeks, they go through the exact same training as our call center rep.

And we go over company history, the importance of company culture, our philosophy about customer service. And then you're actually on the phone for two weeks taking calls from customers. And the reason we have everyone, regardless of what department they're eventually going to end up in, do that is because

If we're serious about building our brand to be about the very best customer service, then customer service shouldn't just be a department. It should be the entire company. And during that process, it's an additional vetting period for us because it's pretty hard to fake an attitude for that long a period of time. And there's actually been people that

And we've had to let go during that process because they felt customer service was beneath them. And this is all before they actually started their actual job. The other thing we do is at the end of the first week of training, we make an offer to the entire class. And the offer is this: We will pay you for the time you've already spent training plus a bonus of $2,000 to quit and leave the company right now.

And that's a standing offer until the end of training. And then we actually extended a couple months after that and up it to $3,000. And the reason we do that is because we want, you know, in Las Vegas there's plenty of other call centers. Starting pay is $11 an hour. And we don't want someone that's there just for a paycheck. We want employees that are there because they really believe in the long-term vision of the company and really feel like this company culture is one that they want to be a part of and contribute to.

And only about 2 or 3% of people end up taking the offer. When we first started this offer a few years ago, it actually started out at $100 and we keep upping the offers now at $2,000 or $3,000 because we feel like not enough people are taking the offer. But our original intention was actually to weed out the people that would have probably left the company or been fired six or nine months down the road anyways.

But what we found is the biggest benefit to it is actually from the people that don't take the offer. Because they still have to go home over the weekend, talk to their friends and family, and ask themselves, is this a company that I really believe in and want to commit to? And when they decide to turn down the easy $2,000 or $3,000, when they come back to the office on Monday, they're that much more engaged and passionate and committed. And by far, that's been the biggest benefit of doing that.

The other thing we have is something called a culture book, which I'll give instructions later on for how to get one for free. But it's something we put out once a year, and we've done it for, I think, six years now. And 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 it's like when you go to Amazon, customer reviews of a product, these are essentially employee reviews of the company. And it's organized by department, so you can see how the warehouse culture might be slightly different from the accounting culture, and I'll make that freely available. We also train everyone on how to use Twitter. If you go to twitter.zappos.com, there's a link where you can see the 500 or so Zappos employees that are active on Twitter.

And there's another page where you can see an aggregated page of all the employees' tweets together. So that can also give you a pretty good sense of our culture.

So for the next several years at least, the way we're thinking of the Zappos brand is internally we refer to it as the three Cs, clothing, customer service, and culture. And this is essentially based on the life cycle of the customer. So customers that have never heard of Zappos have no idea what we do. We want them to know that we have a great selection of clothing and footwear and other product categories. Once they know about that, then we want them to know that we're all about the very best customer service. And that's not something that

So much we tell them as they experience when they call our call center or experience that surprise upgrade to overnight shipping or see how easy the free return shipping is and once they know that we're all about the very best customer service then we want them to know about our culture and our core values because that's really the platform that makes everything possible. So we've actually had customers tell us that when they get that perfect pair of shoes or perfect outfit that's Zappos' happiness in a box.

So whether it's the happiness that customers feel when they get that perfect outfit, or the happiness that customers feel when they experience great service or have a great customer experience, or the happiness that employees feel from being part of a culture where the core values of the company match their own personal values, the thing that really ties all these things together that we realize is that Zappos is really just about delivering happiness, whether it's to customers or employees

We apply that same philosophy to vendors as well. And so hence the title of my book that just came out.

So I wanted to talk about two books. When you come on the tour, first thing you see in our lobby is the Zappos Library. We have about 30 or 40 titles there. And it's not a lending library. It's actually a giving library. The books are freely available to employees and to visitors alike. But two of the titles that we really, really-- and also I personally really like are Good to Great by Jim Collins and Tribal Leadership.

And, in fact, we partnered with the authors of Tribal Leadership to, the audio version is actually available for free to download from the Zappos website. And, in fact, we even teach classes on both of these books at Zappos. And the reason why I find both of these books interesting is because the authors did their research and looked at what separated the great companies in terms of long-term financial performance from just the good ones.

And they found that there were two important ingredients that the great companies had that the good ones or mediocre ones generally didn't have. And they were actually surprised by what they found through the research. And the first ingredient that they found the great companies had was they all had very strong cultures.

And so we formalized the definition of our culture into 10 core values. And the difference is, you know, a lot of, especially larger corporations have, they might call them core values or guiding principles or so on. The problem is usually they're very lofty sounding. They kind of read like a press release that the marketing department put out. And maybe you learn about it on day one of orientation and then it becomes this meaningless plaque on the lobby wall. For

For us, we actually wanted to come up with committable core values. And by committable, we mean we're willing to hire or fire people based on them, independent of their actual job performance. And when you use that criteria, it's actually a pretty hard list to come up with. And we actually spent a year coming up with it. It wasn't just,

a few high level executives spent a weekend at an offsite and came up with the list. Instead, this was about five years ago, I emailed the entire company and just asked them what should our core values be. Got a whole bunch of different responses back and then we went back and forth for a year and then finally came up with our list of 10 core values.

So this is our list of 10. If you do a Google search for Zappos core values, it should be the first thing that pops up. The other actually interesting litmus test for when we were trying to come up with our core values and in general to think about for any company that's thinking of core values is if you do a Google search for any one of these individual core values on almost all of them, Zappos'

the number one result or on the first page. And for almost any other companies, if you search for their core values, they're nowhere to be found if you search for them one at a time. So we actually have interview questions for each and every one of these.

Probably the one that trips us up the most in the hiring process is the last one, be humble, because there's a lot of really smart, talented people out there that are also egotistical. And for us, it's just not a question. We just won't hire them. But it's one of those things that is actually probably the hardest to have an interview question for because you can't say, how humble are you? And they say, I'm the most humble person in the world. But

But one way we actually test for this is, I talked about how we'll pick you up from the airport in a Zappos shuttle and give you a tour. Well, for candidates, a lot of them are from out of town, do the same thing, pick them up in a Zappos shuttle, give them a tour, and then afterwards they'll spend the day interviewing. At the end of the day of interviews, the recruiter will actually go back to the shuttle driver and ask how he or she was treated. And if they weren't treated well, it's not even a question. It doesn't matter how well the day of interviews went, we won't hire that person.

And so number three, I'll give some examples. Create fun in a little weirdness. One of our interview questions is, on a scale of one to 10, how weird are you?

And if you're one, you might be a little bit too straight-laced for the Zappos culture. 10, maybe a little bit too psychotic for us. But really, it's not so much the number that we care about. It's how they answer. Because our belief is that everyone is a little weird somehow. And this is really more just a fun way of saying that we really recognize and celebrate each person's individuality. And we want their true personalities to come out and shine in the workplace. There's so many people where they're a different person

at home on weekends versus when they're inside the office and people in corporate America leave a little bit of themselves or in a lot of cases, a big part of themselves at home. And we really strive to create an environment where people are just comfortable being themselves. So instead of worrying about work-life separation, it's about work-life integration where it's just the same person

And not only are you comfortable being yourself, but when you connect with your coworkers, it's not just coworker relationships, but true friendships that end up forming where you would choose to hang out with these people even if you weren't working at the same company together.

And so, for example, for managers, we actually encourage them to spend 10% to 20% of their time outside the office with their team and whoever they work with. And initially, the reaction we get back, especially from people from other companies, is, well, that sounds fun, but is it really working?

There's an endless list of things to do. But then we go back and survey the managers that have done it, and we ask them, how much more productive and efficient is your team? Because communication is better. There's higher levels of trust. People are willing to do favors for each other because they're doing favors for friends, not just coworkers. And the answers we get back in terms of increased productivity range anywhere from 20% to 100% more productive. So kind of worst case scenario, you're breaking even and having more fun with it.

Number four, be adventurous, creative, and open-minded. One of our questions for the interview is, on a scale of one to 10, how lucky are you in life? One is, I don't know why bad things always seem to happen to me. And 10 is, I don't know why good things always seem to happen to me.

Well, we don't want to hire the ones because they're bad luck and they'll bring bad luck to Zappos and that's not good for us. But this was actually inspired by a research study I'd read about a few years ago where they actually asked that exact same question to a random group of people, got answers all over the board, and then afterwards they had the subjects do a task.

And the task was to go through a newspaper and count the number of photos that were in that newspaper. And when they were done, give the answer to the researcher. But what the participants didn't know was that it was actually a fake newspaper. And sprinkled throughout the newspaper were these headlines that would say things like, if you're reading this headline, you can stop. The answer is 37 plus collect an extra $100. And what they found was that the people that considered themselves unlucky in life

generally didn't notice the headlines. They went through the task at hand and eventually came up with the right answer. And the people that consider themselves lucky in life generally stopped early and made an extra $100. So the takeaway is that it's not so much that people are inherently lucky or unlucky, but luck is really more about being open to opportunity beyond just how the task or situation presents itself. And so that's why we asked that question for core value number four.

One of our other core values is about being open and honest. And we really embrace transparency, whether it's with our customers, with our employees, or with our vendors. So for example, with our customers, we have a quarterly all-hands meeting.

And last quarter we actually live streamed that on the internet to the public. For employees, we have this monthly newsletter called Ask Anything, where it's literally that. Employees can ask about financials or what brands we're going to carry or really any question we want. And we'll get the right person to answer that question and then compile it all with the questions anonymously and then send it out as a newsletter to our employees once a month.

And with our vendors, we have an extranet. We work with about 1,500 different brands. And they can all log into our extranet, our backend system, and view the exact same information our own buyers and merchandisers can see. So they can see on-hand inventory, what sales are, profitability, markdowns, and so on. And when we first opened this up to them, their response was great. Love all this extra information, but aren't you worried the information is going to get into the hands of competitors?

And I'm sure realistically, some of the information probably doesn't make its way into the hands of competitors at some point. But on the flip side, we now have an extra 1500 pairs of eyes helping us co-manage our business. And they're not on our payroll. And a lot of times they'll catch stuff that our own buyers or merchandisers might miss because

Our buyers and merchandisers have portfolios of anywhere from 20 to 30 brands, so they may miss that one style that's taking off. And our brand partners are really just focused on this and logging in several times a day, reading the nightly email reports, and it really just makes them a true partner in the business. So this is a common reaction we get. Happy for you, Zappos. You have this great culture, but the stuff you do would never work at my company. And

And what's interesting is that from the research that was done in Good2Great, what they found was that it actually doesn't matter what your core values are. So I'm not up here trying to say other companies should adopt the Zappos culture and core values, because in most cases, that would probably not be the right choice, the right decision for another company.

But what I am saying is that having core values that you actually commit to is what matters. It's not what the core values are themselves. And what they found was the most important thing in their research was that you had a strong culture, that you had alignment throughout the organization. That's where the real power comes from. And when we rolled out our core values, it was actually one of those things that even myself kind of resisted initially, because it felt like one of those big corporate things to do.

But what we found was when we really committed to them and truly committed, meaning willing to hire and fire people based on them, willing to do performance reviews based on them, within a relatively short period of time, the entire organization really changed when it became integrated in our language and our default way of thinking. And it empowers every single employee

to really make decisions for themselves. They just need to ask, what's our long-term vision? And is this more in line with our core values or less in line with our core values? And it also enables employees to call each other out, even if they're in different departments or if it's a frontline employee calling out a VP. So we found that it's been hugely, hugely powerful and really is what enables us to scale our culture.

And part of it is the only way culture can scale, most companies as they get bigger, the company culture goes downhill over time. Not only do we not want that to happen, but we actually want it to get stronger and stronger. And the only way that can happen is if every employee views as part of his or her job description living and inspiring the culture in others.

And so one analogy I like to think of sometimes is like when you watch the Discovery Channel and over the Serengeti or whatever, there's 50,000, a flock of 50,000 birds flying. And if you take a step back, it looks like this one giant organism that's flying in unison. And the reality is there is no head bird that is leading the group. But what there are, are various, every bird has...

pretty much the same DNA and they have very simple instructions in their encoded in their DNA like stay this many number of inches away from the bird on the right, this many from the left and so on. And when they all follow those same rules, they're able to flock together. And so analogously, the core values are like the DNA that enables the birds to

function as a unit that whether it's 10 birds or 50,000 birds. And that's really how we're thinking of how we're going to scale the company culture at Zappos. I'm going to make this presentation available, but sometimes the reaction that we get from other

other companies is, okay, you're an internet company, special rules apply to you. And the reason why I included those other stories in there are because one of them, for example, is the Atlanta Refrigeration Company in Atlanta, Georgia. They do refrigeration repairs out in the field.

And so in some ways you can't think of a more opposite company or industry than Zappos. And they came through our offices and then actually went through our Zappos Insights program where we helped them figure out their core values and how to build their own strong cultures. And then they went back and within a relatively short period of time, their customers are happier, their employees are happier. It's really neat actually seeing the before and after pictures.

and their profits and revenues are up. So it's just pretty cool seeing the same concepts apply and work in other industries. So going back to good to great and tribal leadership, talked about how there were two important ingredients that separated the great companies from just the good ones.

First one was culture. And then the second one was that, and this again I think surprised the researchers, was that the great companies had a vision that had a higher purpose beyond just money or profits or being number one in a market.

kind of the irony there is that by not making profits the number one priority of the company or the higher purpose of the company, it actually enabled these companies to generate more profits in the long term. So sometimes when I speak at entrepreneur conferences, I get asked, what's a good market to go into where it can make a lot of money? And my response to them is, instead of thinking about

where you can make a lot of money, think about what are you so passionate about doing that you'd be happy doing it for 10 years

Even if you never made a dime, and that's what you should be doing. And kind of the ironic thing is the money will actually follow. So we've all heard of Craigslist. He didn't set out to make money. He was passionate about the community, and now it's one of the top traffic websites on the internet. So I like to say chase the vision, not the money. There was a movie that came out, I think a couple years ago, called Notorious. I think it only lasted a week in the movie theater, but...

But I saw it and in it, Biggie Smalls, also known as Notorious B.I.G., is, well Puff Daddy says to Biggie Smalls, "Don't chase the paper, chase the dream." I just want an excuse to put this picture up here.

Anyways, so if you're an entrepreneur, say, think about what would you be so passionate about doing that you'd be happy doing it for 10 years, even if you never made a dime from it. And if you have employees, think about what's the larger vision and greater purpose in their work beyond just money or profits or being...

number one in a market. And there's a lot of consultants and books that talk about how to motivate employees. And they work to a certain extent. And there's different ways you can motivate employees. You can motivate them through incentives. A lot of companies do that. You can motivate them through recognition. A lot of corporate America motivates through fear.

But our belief is that there's a huge difference between motivation and inspiration. And if you can inspire your employees through a vision that has a greater purpose beyond just money or profits or being number one in the market, and if you can inspire your employees by having and committing to corporate core values that match their own personal values, then you can accomplish so much more and you don't really need to worry about the motivation part of it.

So this is a look at how the Zappos brand has evolved over the years. In 1999, our vision was let's just have the largest selection of shoes online. And then about four years into it, we sat around and asked ourselves, what do we want to be when we grow up? Do we want to be about shoes or do we want to be about something more meaningful? And that's when we decided we wanted our brand to be about the very best customer service. And when we did that, it

it kind of surprised us what happened. Suddenly, once we communicated it out to our employees, we found that employees were suddenly a lot more engaged and passionate about the company. And when customers called, they could sense that the person on the end of the phone wasn't there just for a paycheck, but truly wanted to provide great service. And when vendors came and visited our offices, we found that they wanted to stay longer and come more frequently because that enthusiasm rubbed off onto them.

And then in 2005 was when we rolled out our core values and decided not only do we want culture to be important, but we, in fact, want it to be the number one priority of the company. Because if we get that right, then the customer service will come naturally as a byproduct of that.

And in 2007, we started asking ourselves, "Okay, what do we mean by great customer service?" There's lots of different ways to give great service. Amazon is a customer-centric company as well, but they have a different approach. They're more about high tech and removing friction, whereas we really want to do the more human, have the more human connection, so we're more high touch instead of high tech.

and really develop that personal emotional connection with them. And then 2009 was when we took a step back and realized really the thing that ties all of this together is just about delivering happiness, whether it's to customers or employees or vendors as well.

So I wanted to tell another pizza story, and this actually happened a couple years ago in Santa Monica, California. I was speaking at a Skechers sales conference, and it was a long day, and then at the end of the day, we decided to go bar hopping in the Santa Monica area, because I'd never done that before. I mean, I've gone bar hopping, but not bar hopping in the Santa Monica area before. And so I think there were three of us from Zappos, three people from Skechers, one of the brands that we worked with,

went to the first bar, someone ordered a round of drinks, and then because it had been a long day, someone ordered a round of shots. And so we took the shots and drank the drinks and then went to the second bar and someone else ordered a round of drinks to pay back for the first round of drinks. And then someone else ordered a round of shots to pay back for that first round of shots. And you can't waste alcohol. So we took the shots and we finished the drinks. And then we went to the third bar and then

I actually don't remember how many drinks or shots we had after that. But what I do know is that last call is 2:00 AM in California. And lights went on, and then we start heading back to the hotel room. And one of the girls from Skechers was talking about this pepperoni pizza that she was craving and asked if we wanted to go in on it. And we said, yeah, that sounds great. We've been drinking, pretty hungry. And she's like, oh, I cannot wait.

to go order the room service. I checked it out on the room service menu before we left. It was on page 17. It was the second item down. And when it comes, I know it's going to be hot, so I'm not going to let it burn the roof of my mouth. I'm going to smell it first and let the odors go in. And it was only a five-minute walk, but it seemed much longer than that because she would not stop talking about it.

the pepperoni pizza. So anyways, we finally wind up in the hotel room and she's all excited. She calls room service and then 10 seconds later, she hangs up the phone

all dejected. And I asked her, what's wrong? And apparently at that hotel, they don't serve hot food after 11 p.m. And so she was really dejected and sad. And so to try to cheer her up, I say, oh, did you know in college I used to make pepperoni pizzas? And she looked at me and was like,

That's so not helpful right now. And then the three of us from Zappos were like, "Oh." And we were more than a little bit inebriated. We said, "Call Zappos. Call Zappos. We'll take care of you. We're all about the best customer service." And in our minds, that really was the funniest thing ever. And so she actually took us up on our dare.

the phone on speakerphone called Zappos and the rest of us are in the background trying not to make a noise but trying to laugh as quietly as possible. And the rep said, thanks for calling Zappos, how can I help you?

And the Skechers girl says, "Oh, thank goodness you answered. I'm in Santa Monica right now and been lying this thing on the room service menu, page 17, item number two, pepperoni pizza, but they don't serve hot food after 11:00 PM. What kind of hotel does not serve hot food after 11:00 PM? Is there anything you can do for me?"

First, there was an awkward silence. And then the rep said, you know you call Zappos, right? We sell shoes. We sell clothes. We don't sell pizza yet. And the schedule drill said, yeah, but I heard you're all about the very best customer service. And the rep said, OK, hold on.

and put us on hold for two minutes, and then came back and listed the five closest places in the Santa Monica area that were still open and delivering pizza at that hour. Now, I hesitate a little to tell this story because I don't want all of you to start calling Zappos and ordering pizza, but obviously, we don't have a process or procedure for

late night drunk pizza orders. But I think it's just a fun story because if you get the culture right and make sure everyone understands the long term vision of the company, you don't need a process and procedure for everything. And these types of situations, these stories are just created automatically, literally for us, thousands and thousands of times every single day. And that's how we've really built our brand. So

Well, it was 3:00 a.m. by that time, so we did not actually end up ordering the pizza, but she actually went back and put together this care package for the rep, and so the rep is very happy now. But now she's a customer for life, and probably she's told that story, I'm sure, many, many times.

And that's really what, these are the types of things that we think about, like where does the story begin and where does it end? And for us, the story doesn't end when we get the credit card. It's really just this ongoing, lifelong relationship with customers. And we really think of ourselves as being in the stories and memories business or experience and emotions business. And so that's what eventually led us to really think about building the brand to be about happiness or delivering happiness.

So I wanted to take a step back from all this business talk and actually have you guys think about this question. What is your goal in life?

And so whatever your actual answer is, think about that. And what's interesting is that if you actually ask different people this question, you'll get all sorts of different answers. Some people will say to grow a company. Some people will say get a great job or get a boyfriend, girlfriend. And then ask yourself why. So whatever you had as your goal in life, ask yourself why. And then people will come up with different answers.

The answer is retire early, make money, find a soulmate, and then ask yourself why again. And people will come up with the next set of answers. But if you keep asking yourself why over and over again, what's interesting is that eventually everyone ends up with the same answer. And that's whatever their goal in life is, whatever they're pursuing, they believe will make them happier.

So a couple years ago, having nothing to do with Zappos, I started reading books and articles and so on about Zappos.

this field of research that's essentially about the science of happiness. The formal name for it is positive psychology. And it actually didn't exist prior to 1998. So I'm not talking about go to the self-help section of a bookstore and read books that say think positive and you'll be happy. I'm talking about actual research that's been done. And prior to 1998, almost all of psychology was about looking at people that had something wrong with them and then figuring out how to make them more normal. But almost nobody bothered to study

How do you look at normal people and make them happier? So just more as a hobby and everything, I thought, oh, that's pretty interesting. And so I started reading books and articles on the topic. And one of the consistent things that has come out of the research is that people are very bad at predicting what will make them happy in the long term. Most people think, once I get X, then I'll be happier. Once I achieve X, then I'll be happy. When the research shows, that's not true.

There's studies of lottery winners, for example. You look at their happiness level right before winning the lottery and then look at their happiness level a year later and a year later, it's the same or maybe even a little bit lower than it was right before they won the lottery. And the reverse is true as well. There's people that have become unexpectedly blind and you look at their happiness level a year later and a year later, it's actually

right back to where it was before they became blind. So I thought this was interesting and then started thinking about it both for my own personal life but also for business as well because if people are bad at predicting what will make them happy, then

For us, trying to build a brand around customer service isn't just as simple as asking customers what do they want because they may not know. And same thing for employees. If we're trying to build a culture with a lot of happy employees, you can't always just ask employees what it is that will make them happy because what the research has shown is that people are bad at predicting what will actually make them happy.

And, you know, for our business and yours as well, there's a lot of science behind a lot of the stuff we do. We look at conversion, customer acquisition metrics, repeat customer behavior, and so on.

And I don't know what the right percentage is, but if the ultimate goal is happiness, then what percent of your time do you want to spend studying and learning about the science of happiness? How much happier could you be and how much could that potentially help your business, whether it's in dealing with employees or customers or vendors?

A lot of people go through decades trying to get to this ultimate destination of happiness and then when they get there realize it's either very short-lived or maybe not even there at all. What if by studying the science of happiness, in the research that's already been done, just reading up on it a little bit, you could kind of maybe skip some of the steps and just go straight to the happiness part of it. So I thought that was interesting. So I just wanted to share.

A few different frameworks, a kind of Cliff Notes version of what I thought was interesting from the stuff that I've read about. And the first framework is that happiness is really just about four things. Perceive control, perceive progress, connectedness, meaning the number and depth of your relationships, and vision, meaning being part of something bigger than yourself.

And what's interesting is that you can not only apply this to your own life, but you can apply it to business as well. So for example, for perceived progress in our merchandising department, we used to hire employees entry level and then give them all the training and mentorship and so on. They'd get certified, and then they'd get a promotion 18 months later. And then they'd get another set of training and certification. And then 18 months after that, they'd get a promotion to become a buyer, which

within Zappos is a pretty big deal. So it took him three years to become a buyer. Well, instead of giving a promotion every 18 months, we changed it a few years ago so that we gave smaller promotions every six months.

And even though nothing had changed, they still had to go through the same certification and mentorship and training and so on, except we found that, and it still took them exactly three years to become a buyer, but we found that because there was this ongoing sense of perceived progress that employees were much happier and it cost the company nothing to do that.

Another framework is Maslow's hierarchy. There's a great book called Peak by Chip Conley, P-E-A-K, where he actually condenses this into three levels and applies it to employees and customers

and investors as well. And so, for example, for employees, the three levels of the pyramid are in terms of what they think of their work, whether they think of it as a job versus career versus calling. And our whole goal at Zappos is to move them up the pyramid

think of their time at Zappos as a calling, and we still want employees at Zappos 10 years from now. And the only way that's gonna happen is if we provide all the training and mentorship and so on so that they feel like they're growing both personally and professionally. And so we offer a lot of different classes. We have 30 or 40 different courses now, and they're not just professional courses. There's also, for example, one on the science of happiness that helps them with their personal growth as well.

And the last framework I want to share was three different types of happiness, pleasure, engagement, and meaning. The first type I like to call the rock star type of happiness because it's about always chasing the next high. And it's great if you can sustain it. The problem is it's very hard to sustain unless you're basically a rock star.

And what the research has shown is out of these three types of happiness, as soon as your source of stimuli goes away, your happiness level just drops right back down to where it was before. The second type is called flow. There's a book by the same name, and it's about those moments, and we've all experienced this. For some people, it might be while running. For other people, it might be painting. But it's about when you're so into something that you're doing that three hours pass by, but it seems like only 20 minutes have passed by.

And other attributes that are associated with this are that you lose a sense of self-consciousness or even self because you're so into what you're doing. And professional athletes refer to it as being in the zone where peak performance meets peak engagement. And kind of the strategy there is just notice when it happens and then either change

who you hang out with, your friends, or your environment, or your job, or where you live to try to have that type of occurrence happen more frequently. And what the research has shown is that this is actually the second longest lasting type of happiness. And the third type is about being part of something bigger than yourself. And so that might mean for some people volunteering for their favorite charity, for example. And what the research has shown is this is actually the longest lasting type of happiness.

So what I thought was interesting is most people go through life chasing after the first type, thinking once I could sustain it on an ongoing basis, which is pretty much impossible, then I'll worry about the second type and then if I ever get around to it, then I'll worry about the third type. When based purely on the data from the research, the proper strategy should be focused on the third type of happiness first and then layer on top of that the second type and then the first one's really just icing on the cake.

So some books that I recommend, probably the one that's made the biggest impact on my life over the past five years is Happiness Hypothesis. The author looks at a whole bunch of different religions, philosophers, and religions, philosophers, and cultures from different time periods. And each of them has a different belief as to what

happiness means or how to achieve it. But then what I found was interesting is he compares their beliefs to actual scientific research that's been done and then either agrees or disagrees with different parts of their beliefs.

You can email me, [email protected] or [email protected] will work as well for a copy of this presentation. Also the culture book I talked about, happy to send out for free. It's actually on back order I think a couple weeks right now but as soon as it gets in we'll send it out to you. Next time you're in Las Vegas, if you come for a tour Monday through Thursday, tours.zappos.com.

And just wanted to end with, you know, the research has shown that great businesses are the ones that are able to combine profits, passion, and purpose.

And what I thought was really interesting, and this was kind of a weird aha moment for me when I took a step back, was that the research from the science of happiness is about being able to combine pleasure, passion, and purpose. So in a weird way, it's almost like what makes for great business is almost like a fractal of what makes sense for individual happiness. And it

This is really what we're trying to achieve at Zappos and what I'm hoping that the book that just came out will help other businesses is really think about happiness as a business model. And just want to leave you guys with thinking about what percent of your time do you want to spend learning about the science of happiness and how can learning about it really help yourself personally, your business, or your brand.

And if the research shows that businesses that have a higher purpose actually are able to achieve more long-term profits, and if the research shows that for you personally, if you have a higher purpose that actually leads to more happiness, then think about what is your company's higher purpose and what is your own higher purpose. And I'm not up here trying to sell more shoes.

But if through this presentation you've been inspired to focus more on making customers happier by really thinking more about the customer experience or customer service or you've been inspired to really make employees happier by focusing more on company culture or you've just been inspired to make yourself happier by learning a little bit more about the science of happiness. If any of those things have happened then

all have done my part in helping Zappos achieve our higher purpose, which is all about delivering happiness to the world. Thank you very much.