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Cutting the Community
Facing a difficult economic outlook, Zappos.com handled a critical cutback with astonishing transparency.
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2008 was a crazy year. We experienced some of our highest highs as well as some of our lowest lows, both inside and outside of Zappos. 

Just eight months after giving everyone a surprise bonus, we made the tough decision to lay off 8 percent of our staff. It was one of the hardest decisions we ever had to make. 

Rather than trying to spin the story as a “strategic restructuring,” as many other corporations were doing, we stuck by our core values and remained open and honest, not only with our employees, but with the press as well. 

I sent the following email to all of our employees, and we also publicly posted it on our blogs: 

Date: November 6, 2008 

From: Tony Hsieh 

To: All Zappos Employees 

Subject: Update 

To all Zappos employees: 

Today has been a tough, emotional day for everyone at Zappos. We made the hard choice of laying off about 8 percent of our employees. The layoffs will affect almost every single department at Zappos. In addition, we are also looking at closing some of our brick and mortar outlet stores in Nevada and Kentucky. 

This is one of the hardest decisions we’ve had to make over the past 9.5 years, but we believe that it is the right decision for the long-term health of the company. The rest of this email will explain why . . . 

We feel fortunate that we have Sequoia Capital as an investor who had the foresight to see the ramifications of the tough economic times that lie ahead for all of us. On October 7, Sequoia held a meeting for all of their portfolio companies (including Zappos), with one very clear message: Cut expenses as much as possible and get to profitability and cash-flow positive [status] as soon as possible. 

[…] Fortunately for Zappos, we’re in a much better position than many other companies. Unlike many other companies, we are still growing and already profitable and cash flow-positive. […] However, given the current economic uncertainty, we believe it’s prudent to reduce our reliance on debt financing. 

We’ve decided the right thing to do for the company is to be proactive instead of reactive. We are proactively cutting back some of our expenses today so that we can take care of our employees properly, instead of being reactive and waiting until we are forced to cut expenses. 

Because we are still growing and are already profitable, we do not have to take as drastic a step as most other companies of our size. Last year, we did $840 [million] in gross merchandise sales, and this year we are forecasting to do about $1 billion. However, when we first put together our 2008 plan at the end of 2007, we were expecting our gross merchandise sales to be even higher than $1 billion. 

Because of all this, we are reducing our staff by 8 percent, but because we are being proactive instead of reactive about it, we are able to take care of our employees and offer them more than the standard two weeks’ severance (or no severance) that most other companies are giving. 

We are offering to pay each laid-off employee through the end of the year (about two months), and offering an additional amount for employees that have been with us for three or more years. In addition, […] we decided to offer to reimburse laid-off employees for up to six months of COBRA payments. 

In doing all of this to take care of laid-off employees, we expect that it will actually increase, not decrease, our costs for 2008, but we feel this is the right thing to do for our employees. It will put us in the position of having a lot more financial flexibility in being able to respond to potential changes in the economy in 2009. 

E-commerce growth has slowed compared to its growth rate a year ago, but the good news is that even in this tough economic environment, e-commerce overall is still growing. 

Within the footwear category, we are the online market leader. When times are tough, the strongest players in any market have an opportunity to gain even more market share, even if overall growth may be slower. Historically, we have actually grown faster than the overall e-commerce market, and we anticipate for that to continue in 2009. 

For the rest of 2008 as well as for 2009, we anticipate continuing to grow year over year. Our current forecasts are that we will continue to be profitable and cash-flow positive, as long as we are proactive instead of reactive in managing our business and financials. 

I know that many tears were shed today, both by laid-off and non-laid-off employees alike. Given our family culture, our layoffs are much tougher emotionally than they would be at many other companies. 

I’ve been asked by some employees whether it’s okay to Twitter about what’s going on. Our Twitter policy remains the same as it’s always been: just be real, and use your best judgment. 

These are tough times for everyone, and I’m sure there will be many follow-up questions to this email. If you have any questions about your specific job or department, please talk to your department manager. For all other questions, comments, or thoughts, please feel free to email me. 

After the weekend had passed, I sent a follow up email to our remaining employees, which we also publicly posted on our blogs: 

Date: November 11, 2008 

From: Tony Hsieh 

To: All Zappos Employees 

Subject: Moving forward 

Last week was a tough week for everyone, as we went through the process of laying off 8 percent of the Zappos family. At the same time, it was also heartwarming hearing all the stories of Zappos employees and ex-employees getting together for drinks Thursday night after the layoffs as well as over the weekend. 

The economic environment we’re in right now is unlike any we’ve ever witnessed in our lifetime. These are extraordinary times, and America is not out of the woods yet. Many people expect 2–3 million Americans to lose their jobs before we hit the bottom of our current economic cycle. 

As difficult as times may be, if there’s one thing I’ve learned in life, it’s that things are never as bad as they seem or as good as they seem. In most cases, this perspective usually comes long after a “bad” or “good” event has occurred. 

This is actually the second time we’ve had to do layoffs across the board at Zappos. We’ve been around for 9.5 years, and the first time we had to do layoffs was during the early years of the company, when we laid off about half our staff due to a bad economy and our inability to raise funding. At the time, we still were not profitable. 

However, the layoffs we did in the early days forced the team that remained to become much stronger, and because we did not have a lot of money at the time, it forced us to focus on servicing our existing customers instead of trying to acquire a lot of new customers. Ultimately, it was the catalyst for transforming Zappos from being just about shoes to a company focused on customer service and company culture. It started a domino effect that ultimately made us who we are today. 

Moving forward, we have a similar opportunity. We have the opportunity to make our culture stronger than ever before. It’s something that will require everyone’s involvement and effort, but based on our history, I know it can be done. 

We also have the opportunity to make the company healthier than ever before. As we come up with innovative and creative ways of generating more revenue, profits, and cash flow, we will be prioritizing them based on what will be most beneficial to our company. 

One question that has come up is whether we will be doing another round of layoffs after the new year. There are currently no plans to do so. When we laid off 8 percent of our employees last week, we chose that number because we felt that it would cut our expenses enough to get us through all of 2009, based on our current financial forecasts. As mentioned in my previous email, our layoffs were done proactively to ensure that we would be profitable and cash-flow positive in 2009. 

[…]

We’ve got a busy holiday season ahead, and while everyone will be busy and working hard with their individual jobs, let’s also make a conscious effort to think about how we can help each other out even more than usual—not just within your department, but cross-departmentally and throughout the entire company as well. 

Remember, this is not my company, and this is not our investors’ company. This company is all of ours’, and it’s up to all of us where we go from here. The power lies in each and every one of us to move forward and come out as a team stronger than we’ve ever been in the history of the company. 

Let’s show the world what Zappos is capable of. 

We received a lot of media attention because we had been so public and transparent with our layoffs instead of trying to keep everything quiet. Going through such a dark period of time in the public eye really put our culture to the test. But as with all challenges, our employees figured out how to get through things and move on. 

Looking back now, I’m incredibly thankful and grateful that we all banded together and made sure that we didn’t lose our team and family spirit. It really makes me feel proud of our employees. 

I also hope that we never have to go through anything like that ever again. 

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