I just didn't look forward to going to the office. The passion and excitement were no longer there. That's kind of a weird feeling for me because this was a company I co-founded, and if I was feeling that way, how must the other employees feel? That's actually why we ended up selling the company.
Financially, it meant I didn't have to work again if I didn't want to. So that was the lens through which I was looking at things. It's basically asking the question, what would you want to do if you won the lottery? For me, I didn't want to be part of a company where I dreaded going into the office.
We invested in 20 or so different Internet companies.
Nick left a message saying he wanted to start a company that sold shoes online. I didn't think consumers would buy shoes sight unseen, and Nick didn't have a footwear background. It sounded like the poster child of bad Internet ideas.
But right before I hit Delete, Nick mentioned the size of the retail shoe market - $40 billion. And the more interesting thing was that 5 percent was already being done through mail order catalogs. That intrigued me. Initially, I was just an adviser. But I got sucked in
Over time, it became clear that Zappos was the most promising and the most fun. Eventually, I decided to join the company full time, and I became the CEO.
We sat around one day talking about what we wanted the Zappos brand to represent. We decided to be about providing the best service. We said, ‘We're a service company that just happens to sell shoes.'
We had to control the entire customer experience. We expanded the warehouse to 77,000 square feet and stopped having manufacturers ship directly to customers. It was a scary time - drop shipping was 25 percent of revenue, and we gave it up all at once.
We thought about going under every day, until we got a $6 million credit line from Wells Fargo. It's now $60 million.
We made the decision to actually lock all the doors so everyone has to go through the front-entrance reception area, even though that means you might have to walk all the way around the building. The reason for that is to create this kind of central hub that everyone has to pass through to help build community and culture.
From the outside, it looked like it was a great acquisition, $265 million. But most people don't know the real reason why we ended up selling the company.
The company culture just went completely downhill. When it was starting out, when it was just 5 or 10 of us, it was like your typical dot-com. We were all really excited, working around the clock, sleeping under our desks, had no idea what day of the week it was. But we didn't know any better and didn't pay attention to company culture. By the time we got to 100 people, even though we hired people with the right skill sets and experiences, I just dreaded getting out of bed in the morning and was hitting that snooze button over and over again.
We decided that if we get the culture right, most of the stuff, like building a brand around delivering the very best customer service, will just take care of itself.
I basically sent an email out to the entire company, asking them what our values should be, and got a whole bunch of different responses. The initial list was actually 37 long, and then we ended up condensing and combining them and went back and forth and came up with our list of 10.
Some days we have 50 tours. A lot of people have heard of Zappos, but not until the tour do they see how our culture is so unique and different, and how that drives branding and customer service.
You've gotta love the game. To become really good, you need to live it and sleep it.
We interview people for culture fit. We want people who are passionate about what Zappos is about - service. I don't care if they're passionate about shoes.
They need the relevant skill set and experience and so on. But far more important is, are they going to be good for the culture? Is this someone we would choose to have dinner or drinks with, even if they weren't working for Zappos?
Today, we actually do two separate sets of interviews. The hiring manager and his or her team will interview for the standard fit within the team, relevant experience, technical ability and so on. But then our H.R. department does a separate set of interviews purely for culture fit. They actually have questions for each and every one of the core values.
If you're a 1, you're probably a little bit too strait-laced for us. If you're a 10, you might be too psychotic for us. It's not so much the number; it's more seeing how candidates react to a question. Because our whole belief is that everyone is a little weird somehow, so it's 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 shine in the workplace environment, whether it's with co-workers or when talking with customers.
If you had to name something, what would you say is the biggest misperception that people have of you? What's the difference between misperception and perception?
I think it's a combination of how self-aware people are and how honest they are. I think if someone is self-aware, then they can always continue to grow. If they're not self-aware, I think it's harder for them to evolve or adapt beyond who they already are.
We're hoping five years from now the vast, vast majority of all hires will actually be entry-level, but we'll provide all the training and mentorship so that, over a five- to seven-year period, they can become a senior leader within the company. That will help protect our culture and also give all the employees a growth path professionally.
Table selection is the most important decision you can make. It's okay to switch tables if you discover it's too hard to win at your table.
If there are too many competitors - some irrational or inexperienced - even if you're the best, it's a lot harder to win.
Act week when strong, act strong when weak. Know when to bluff.
Help shape the stories that people are telling about you.
For Zappos, we just want our brand to be about the very best customer service and customer experience, which is why we've stayed away from the ‘easy money' of having other 3rd party sellers on the Zappos.com site. Because we can't control the customer experience as well when dealing with 3rd party sellers.
While it's true that we're in many of the same product categories, we don't really think of Amazon as a competitor. Wal-Mart and Nordstrom are both in many of the same product categories, but nobody thinks of them as competitors. Amazon is really more about being a market place where you can find the best value. There are many 3rd party sellers offering products on Amazon.com.
I started to notice similarities between what was good poker strategy and what made for good business strategy, especially when thinking about the separation between short-term thinking (such as focusing on whether I won or lost an individual hand) and long-term thinking (such as making sure I had the right decision strategy).
It's a long term game. You will win or lose individual hands or sessions, but it's what happens in the long term that matters.
Play only with what you can afford to lose.
Go for positive expected value, not what's least risky.
The guy who wins the most hands is not the guy who makes the most money in the long run. The guy who never loses a hand is not the guy who makes the most money in the long run.
Always be prepared for the worst possible scenario.
Make sure your bankroll is large enough for the game you're playing and the risks you're taking.
Don't play games that you don't understand, even if you see lots of other people making money from them. Figure out the game when the stakes aren't high.
I realized that, whatever the vision was for any business, there was always a bigger vision that could make the table bigger.
I'd rather spend money on things that improve the customer experience than on marketing. We run the warehouse 24-7; it's not very cheap or efficient, but it allows us to get the shoes out more quickly. We have a 365-day return policy with free shipping both ways.
Obviously if you are returning every single shoe you order, then we're losing money on that specific transaction. But our hope is that it'll still be such a great experience for you, that you'll tell your friends and family about Zappos. So rather than feel bad about it, instead just think spread the word about Zappos and think of that as your way of paying us back for the extra expenses.
The telephone, as low tech as it may sound, is also a great way of really connecting personally with customers. So that's actually why we're very different from most web sites that try to hide contact information.
We actually have our 1-800 number on every single page of our web site because we actually want to talk to our customers and when customers talk to us for five to ten minutes we have their undivided attention and that's really the best opportunity to brand ourselves as a company that unlike most companies, actually wants to take care of our customers.
We have to untrain employees' bad habits from previous call centers, where they're trying to be more efficient by minimizing the time they talk to the customer. If someone is looking for a specific shoe and we happen to be out of stock, we have employees direct those people to competitors' sites.
It doesn't happen very often, but if there is a quality issue with a brand or a specific style, we usually hear about it pretty quickly from our customers and then we'll manually check all the product we still have in our warehouse for either that brand or that style.
It's always a tough balancing act, but basically we take our financial goals and work backwards from there. We try to deliver the best customer service and customer experience we can while still meeting those financial goals.
Have fun. The game is a lot more enjoyable when you're trying to do more than just make money.
I think the biggest lesson I've learned is that there is a lot more hidden talent and potential in your employees than you think. It's just about building the right culture and figuring out how to unlock all of that talent, which isn't always an easy thing to figure out.
In a poker room, I could only choose which table I wanted to sit at. But in business, I realized that I didn't have to sit at an existing table. I could define my own, or make the one that I was already at even bigger. (Or, just like in a poker room, I could always choose to change tables.)
The #1 driver of our growth has been through repeat customers and word of mouth. We still have financial goals to make, we just choose to invest more in customer service than in paid advertising.