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Employing a Community
How Zappos.com became a billion-dollar company—by delivering happiness, an exclusive excerpt from the new book by Zappos.com Chief Executive Officer Tony Hsieh.
For the rest of the June 2010 issue of CRM magazine please click here
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Toward the end of 2003, when the company was still headquartered in San Francisco, we had been having a hard time finding people who wanted to work in our customer service department. Even when we could hire good people, we discovered that most of them viewed customer service as a temporary job, something to bring in some extra money while they were going to school or separately pursuing their real career or calling. 

Part of the problem was the high cost of living, and part of the problem was the culture. Working in a contact center just wasn’t something that people in the Bay Area wanted to do. 

We initially considered outsourcing our contact center overseas, but we remembered a hard lesson we’d learned: Never outsource your core competency. If we were trying to build our brand to be about the very best customer service, we knew that we shouldn’t be outsourcing that department. 

Wherever we decided to open up our contact center, we had to own and run it ourselves. Our original plan was simply to open up a satellite contact center, but as we thought more about it, we realized that action wouldn’t really match our words. To build the Zappos brand into being about the very best customer service, we needed to make sure customer service was the entire company, not just a department. Wherever we decided to build out our contact center—which we had recently named our Customer Loyalty Team (or just CLT)—we needed to move our entire headquarters there. 

We decided that Las Vegas would be best for the company. It wasn’t the cheapest option for us, but we thought it would make our existing employees the happiest. 

Two days later, we held a company meeting and announced that we were relocating our headquarters to Las Vegas. We said that we would move our CLT there first, with the goal of having everyone else in Vegas within six months. 

Everyone in the conference room was in a state of shock. We told everyone to take a week before making any decision. We had about 90 employees in San Francisco at the time, and I had thought maybe half of them would decide to uproot their lives and move with the company. 

A week later, I was pleasantly surprised to learn that 70 employees were willing to give Vegas a shot. In their minds, it was all about being adventurous and open-minded.

Although it seems obvious in retrospect, probably the biggest benefit of moving to Vegas was that nobody had any friends outside of Zappos, so we were all sort of forced to hang out with each other outside the office. It was an exciting time. We were all beginning a new chapter of our lives together and forming a new social network. 

In San Francisco, we had always said that culture was important to the company. Now that we were in Vegas with nobody else to lean on, culture became our number-one priority, even more important than customer service. 

Branding Through Customer Service 

There’s a lot of buzz these days about social media and “integration marketing.” As unsexy and low-tech as it may sound, our belief is that the telephone is one of the best branding devices out there. You have the customer’s undivided attention for five to 10 minutes, and if you get the interaction right, we’ve found that the customer remembers the experience for a very long time and tells his or her friends about it. 

At most Web sites, contact information is usually buried at least five links deep—and even when you find it, it’s a form or email address that you can only contact once. We take the exact opposite approach: We put our phone number at the top of every single page of our site, because we actually want to talk to our customers. And whereas too many companies think of their contact centers as an expense to minimize, we staff ours 24/7. 

In fact, most of our efforts on the customer service and customer experience side actually happen after we’ve already made the sale. We receive thousands of phone calls and emails every day, and we view each contact as an opportunity to build the Zappos brand. Seeing every interaction through a branding lens instead of an expense-minimization lens means we run our contact center very differently than most, not only because it can result in word-of-mouth marketing, but because of its potential to increase the lifetime value of the customer. 

Marketing departments usually assume that the lifetime value of a customer is fixed. We view it as a moving target that can increase if we can create more and more positive emotional associations with our brand through every interaction that a person has with us. 

Most contact centers measure their employees’ performance based on what’s known in the industry as “average handle time,” which focuses on how many phone calls each rep can take in a day. This translates into reps worrying about how quickly they can get a customer off the phone—which in our eyes is not delivering great customer service. Most contact centers also have scripts and force their reps to try to upsell customers to generate additional revenue. 

At Zappos, we’re not trying to maximize each and every transaction. Instead, we’re trying to build a lifelong relationship with each customer, one phone call at a time. 

We don’t limit call times (our longest phone call lasted almost six hours!), and we don’t upsell. We don’t have scripts because we trust our employees to use their best judgment when dealing with each and every customer. 

A lot of people think it’s strange that an Internet company is so focused on the telephone, when only about 5 percent of our sales happen over the phone. In fact, most of our calls don’t even result in sales. But we’ve found that, on average, every customer contacts us at least once during his or her lifetime, and we just need to make sure that we use that opportunity to create a lasting memory. 

Cultivating the Community

Our employees know that our number-one priority at Zappos is our company culture. For example, we have them all walk through a central reception area to get in and out of the building even though there are more convenient doors located closer to the parking lot. The previous tenants had used all the other doors, but we decided to mark all of those for use as emergency exits only. We made this decision as part of our goal to build more of a community by increasing the chances of serendipitous employee interactions. 

In most companies, accessing the computer systems requires a login and password. At Zappos, an additional step is required: a photo of a randomly selected employee is displayed, and the user is given a multiple-choice test to name that employee. Afterward, the profile and bio of that employee are shown, so that everyone can learn more about each other. Although there’s no penalty for giving the wrong answer, we do keep a record of everyone’s score. Internally, we refer to this as “The Face Game.” 

Over time, as we focused more and more on our culture, we ultimately came to the realization that a company’s culture and a company’s brand are really just two sides of the same coin. The brand is just a lagging indicator of a company’s culture.

Core Values 

We didn’t have any formal core values for our first six or seven years. That’s my fault, because it was something I’d always thought of as very “corporate.” 

When we moved the company to Vegas, though, we were hiring a lot of people very quickly due to our rapid growth. An employee finally convinced me it was necessary to come up with a list of core values—essentially, a formalized definition of our culture—for us to continue to scale and grow. For one thing, we needed that list to serve as a guide for managers making hiring decisions.

I started jotting down the things we were looking for. I thought about all the employees I wanted to clone because they represented the Zappos culture well, and tried to figure out what values they personified. I also thought about all the employees and ex-employees who were not culture fits, and tried to figure out where there was a values disconnect. 

I soon realized that I needed to get everyone’s input. We initially came up with 37 values—that makes for a long list, so we started thinking about which ones were the most important and truly represented who we wanted to be. 

Over the course of a year, I emailed the entire company several times and got a lot of suggestions and feedback on which core values were the most important to our employees. 

I was surprised the process took so long, but we wanted to make sure not to rush—whatever core values we eventually came up with, we wanted to be ones that we could truly embrace. 

The commitment part was the most challenging part. As I mentioned in a blogpost (see “What You Are Is Who You Are,” page 42), a lot of corporations have “core values” or “guiding principles,” but they usually read like a marketing-department press release. 

We wanted a list of committable core values that we were willing to hire and fire on. If we weren’t willing to do that, then they weren’t really “values.” 

We eventually came up with our final list of 10 core values—and we still refer to them today. I only wish we’d done it sooner. Over time, our recruiting department developed interview questions for each core value, and we tested our commitment during the hiring process. In fact, new employees are required to sign a document stating that they’ve read the Core Values document and understand that living up to the core values is part of their job expectation. 

Be Humble is probably the core value that ends up affecting our hiring decisions the most. There are a lot of experienced, smart, and talented people we interview that we know can make an immediate impact on our top or bottom line. But a lot of them are also really egotistical, so we end up not hiring them. At most companies, the hiring manager would probably argue that we should hire such a candidate because he or she will add a lot of value to the company, which is probably why most large corporations don’t have great cultures. 

Our philosophy at Zappos is that we’re willing to make short-term sacrifices (including lost revenue or profits) if we believe that the long-term benefits are worth it. 

Protecting the company culture and sticking to core values is a long-term benefit. 

Community Can’t Be Copied

We spent the past several years focusing on improving the customer experience, strengthening our culture, and investing in our employees’ personal and professional development. 

Our sales continued to grow, driven primarily by repeat customers and word of mouth. It felt strange to have gone from the brink of going out of business to such rapid growth over such a short period of time. 

Looking back, a big reason we hit our goal of $1 billion in gross merchandise sales in 2008—two years ahead of our original goal of 2010—was that we decided to invest our time, money, and resources into three key areas: customer service (which would build our brand and drive word of mouth), culture (which would lead to the formation of our core values), and employee training and development (which would eventually lead to the creation of our Pipeline Team). 

Even today, our belief is that our Brand, our Culture, and our Pipeline (which we internally refer to as “BCP”) are the only competitive advantages that we will have in the long run. 

Everything else can and will eventually be copied.


 This article is excerpted from the book Delivering Happiness: A Path to Profits, Passion, and Purpose (Business Plus, 2010), set for a June 7 release. With the book’s campaign, Hsieh—named one of CRM magazine’s Influential Leaders in the 2010 CRM Market Awards—is practicing what he preaches, delivering happiness via the Web (www.deliveringhappinessbook.com) and presences on Facebook (www.facebook.com/deliveringhappiness) and Twitter (@dhbook as well as @dhbookbus, which represented a “Delivering Happiness” bus featured at SxSW in March). He’s also been conducting weekly podcasts from various cities nationwide.   

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