085: The Triple Win

In This Episode: What makes a business work? I mean in the sense of the triple win: employees being happy, the customers being happy, and the owners making a decent return, or better!, on their investment. I’m going to tell you about a guy who applied Uncommon Sense, and figured it out.

085: The Triple Win

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Transcript

Welcome to Uncommon Sense, I’m Randy Cassingham.

One of the buzzwords of the Internet era is “serial entrepreneur.” You might think of Elon Musk, who I talked about in Episode 72, along with Bill Gates and Warren Buffet. In 1995 Musk co-founded a web software company called Zip2, which was bought out four years later by Compaq Computer for $307 million.

He started the first fully online bank, x.com, a year later, and merged it with Paypal, which helped that company grow like crazy, and two years later Paypal was bought out by eBay for $1.5 billion. And then Tesla, SpaceX, the Boring Company, and more. That’s one heck of a serial entrepreneur.

He’s now the second-richest man in the world, and although he’s obviously very good at what he does, and does wonderful things for the world, he’s often thought of as difficult to work for. Even kind of a jerk. I think that’s also true of the number-one richest, Amazon’s Jeff Bezos. Obviously good at what he does, but definitely not thought of as a fun, easy-going boss.

Tony Hsieh was a good boss, and a serial entrepreneur. Born in Illinois, he graduated Harvard with a degree in computer science in 1995, so he came on the Internet scene shortly after Musk, starting an online advertising network called LinkExchange in 1996. It was obviously a good idea: by 1998, the company was bought out by Microsoft for $265 million.

085: The Triple Win
Hsieh in 2009.

With that windfall, he and a friend from Harvard started a venture capital firm to incubate new business ideas. And with that firm, in 1999 he bought into a company called ShoeSite.com. Not surprisingly, they sold shoes.

Hsieh almost turned the company down for his incubator. Really: who wants to buy shoes without trying them on first? Then the founder got his attention: he mentioned that in the U.S. alone, footwear is a $40 billion-a-year market, and 5 percent of that was already being sold by mail order catalogs — you know, printed on paper and mailed?! People do buy shoes without trying them on first, if the company does it right. Hsieh was so intrigued by it all he not only provided funding to the start-up, he agreed to come on board as CEO to run the company.

His venture capital company’s co-founder, his friend from Harvard? That was Alfred Lin: he also jumped in to work at the company, as both the chief financial officer, and chief operating officer.

In their first year they made $1.6 million in sales. By 2009, they hit $1 billion in sales — and Amazon bought them out for around $1.2 billion. Oh, and along the way Hsieh had changed the company’s name, to Zappos, reflecting the Spanish word for shoes, zapatos.

Not that business commentators always agreed Hsieh’s methods were smart. Kai Ryssdal, the host of the Marketplace show on NPR, said when he visited the company’s Las Vegas headquarters, there was a “sizeable group that’s standing around chit-chatting. There’s a party down the hall that’s been going on for an hour. How does all this affect … day in and day out, selling shoes?”

Hsieh wasn’t perturbed: he said socializing among co-workers was critical to the company’s success. Managers needed to bond with their teams, and team members needed to bond with each other, because that leads to “higher levels of trust. Communication is better, people are willing to do favors for each other because they are doing favors for friends, not just co-workers.”

Which is not to say Hsieh’s methods were perfect — and he certainly wasn’t. Go back to Episode 72, which I mentioned a couple of minutes ago, about three other successful entrepreneurs. Its title is, “Not Perfect”. I’ve seen a couple of recent references to Hsieh’s reckless behavior, including allegations of out-of-control drug use. I don’t know how much of that is true.

Anyway, Amazon’s Bezos did something smart when he bought Zappos: he kept Hsieh on as CEO, which he agreed to do even though he personally made at least $214 million from the sale to Amazon, not even counting what his venture capital company made on the deal. He was clearly still having fun.

The employees were having fun working there, too. He paid them well because he wanted them to be happy to work at the company. “We thought that if we got the culture right,” he said, “then building our brand to be about the very best customer service would happen naturally on its own.”

The triple win of happy employees, happy customers, and a profitable business: that’s an ambitious goal. Not many CEOs can pull it off, in large part because most CEOs don’t try to.

Because the company paid well, and was known as a great and fun place to work, Zappos got to really pick and choose who they hired, making sure every employee was a good fit within that culture. Because for every job opening, they got about 100 applicants.

And here’s where it gets really interesting, and delves deeply into the realm of Uncommon Sense: after an employee had finished training and settled in to the job, they got what Hsieh called “The Offer”. It’s an intriguing offer: if they wanted to quit, right then, right now, the company would give them a $1,000 bonus. If you’re a business owner or manager you probably think that sounds crazy, but it’s actually brilliant.

In a company where “Culture is everything,” and that culture is responsible for having great employees, happy customers, and billions in sales, you don’t want an employee who doesn’t buy in to that culture: they don’t really fit in. When you have an employee who doesn’t buy in to how the company runs, and how all the other employees work, then you made a mistake in the hiring process, and you don’t want that employee there.

As a friend of mine who is a very successful entrepreneur likes to say, “The easiest way to change a company’s culture is to change who works there.” So if the employee took “The Offer” — they accepted the bonus to quit — Hsieh considered that money very well spent, because if someone who didn’t truly buy in stayed on the job, they could damage the company culture, which makes the company run so well. So much so that later, “The Offer” was doubled to $2,000.

My successful entrepreneur buddy? Last I heard he was doing it in his company too.

Amazon not only didn’t make Zappos stop doing it when bought the company, they started doing something similar within Amazon itself.

So, how did Hsieh define the company culture? He sat down with employees and asked them to describe what they thought the values of the company culture was, getting several dozen suggestions good enough to write down, and then he distilled that list down to 10 core values:

  • Deliver “Wow” Through Service
  • Embrace and Drive Change
  • Create Fun and A Little Weirdness
  • Be Adventurous, Creative, and Open-Minded
  • Pursue Growth and Learning
  • Build Open and Honest Relationships With Communication
  • Build a Positive Team and Family Spirit
  • Do More With Less
  • Be Passionate and Determined, and
  • Be Humble.

Which sounds a lot like Hsieh’s philosophy for his own life. Culture was so important to Hsieh that every year they’d publish a Culture Book that talked about how Zappos was run. They’d send it out free — a printed book — to anyone who asked. I did ask once, and I sure wish I knew where that books is! Hsieh also wrote a book that became a number-one best seller, and its title is the two-word summary of what he did with his life. It’s called “Delivering Happiness”.

Wouldn’t you like to be a friend with someone like that?! That kind of mindset spreads: it’s infectious to the people who surround him.

Culture really isn’t all that hard, if the founder thinks about it. I used to frequent a restaurant when I lived in Boulder, Colorado, and one of the reasons I was a frequent customer was their culture. If you were eating and you needed something, like a drink refill, you didn’t ask a passing server to please tell your server you needed something, that passing waiter or waitress would take care of your need right then and there themselves.

And you probably actually didn’t even need to flag them down to ask: as they were walking by it was part of their job to briefly check every table and see if the customers needed anything. Most restaurants? The servers are careful to not make eye contact so you can’t flag them down and ask for a refill. I’ll bet you’ve seen that many times.

I was so intrigued by the operation of that restaurant that one day as I was leaving, I spotted the owner. I asked him, do the servers pool their tips or something? They’re so attentive to everyone, not just their own tables. No, he said. It was just their company culture. He hired people who enjoyed being servers and were good at it. And the restaurant thrived. And, yes, I tipped well because the service was great. Win, win, win.

Unfortunately they were bought out by a big chain, TGI Fridays. After trying it one time, I realized their chain culture had taken over how things worked, and that was the last time I was ever there. The contrast was so massive, I couldn’t help but feel let down.

085: The Triple Win
Tony Hsieh (Photo: Zappos)

After 21 years of running Zappos, Tony Hsieh finally retired this summer — at 46 years old. Sales are now in the multiple billions per year.

For Thanksgiving, Hsieh went to Connecticut to be with family. He stayed at the home of a friend, another former Zappos employee, and on November 18, that house caught on fire in the middle of the night. The guest rooms were in the basement, and Hsieh was trapped there. Firefighters had to physically break in from outside, and by the time they got to him he was unconscious from smoke inhalation and burns. Nine days later, he died, two weeks before turning 47.

Hsieh leaves an amazing legacy behind. So many company founders are billionaires by truly exploiting workers, such as only letting them work part time so the company doesn’t have to give them benefits, or even paying so little they have to go on food stamps to buy enough food for their families. Oh, and buy that food from us and we’ll give you a little discount!

How does that encourage happy, hard-working employees who delight customers? It doesn’t.

Why don’t the employees go somewhere else that pays better? They can’t, since most of the other companies are doing the same thing. And do you know what we now call those squeezed-like-a-turnip workers who can barely pay their rent? “Essential employees.”

Tony Hsieh didn’t play that game: he paid the everyday customer service people well, because customer service is key to making Zappos profitable. It’s their culture. The rest of the employees were paid well too, like the people who ship the shoes out: you want them to do a great job, not sabotage shipments because their pay sucks compared to the customer service people.

So let’s push this again into the realm of Uncommon Sense: what’s the legacy of other billionaire founders going to be? Bill Gates saw the light and is working full time at giving his billions away to make the world a better place, and studying each sector he’s funding so he understands it fully, and can be sure the money goes a long way toward doing good. That’s a lot of work, but it sounds like the most interesting work in the world, even if he’s not getting a salary.

Business tycoons from generations ago became known by a term that clearly spells out what society as a whole thought of them: “Robber Barons”. It’ll be interesting to see, a generation from now, what society calls the Internet billionaires. They still have time to shape their legacies, rather than being known for big wins for them, and lose, lose for employees and even customers. Let’s see if they’re smart enough to get going on turning that around.

The Show Page for this episode is thisistrue.com/podcast85, which has links, including to Hsieh’s book, and a place to comment.

I’m Randy Cassingham … and I’ll talk at you later.

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1 Comment on “085: The Triple Win

  1. Thanks for this story (I read the transcript). The “Offer” is simply genius. Very sad news about the passing of this man. His life story must include the dark side to be complete, but I doubt it will overshadow the essence of his life, which I think was to create.

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