How to Build Relationships and Deliver Happiness: The Story of Zappos

Zappos

Photo by bunnicula

In 1999, Tony Hsieh made an investment in a online shoe shop that was then called shoesite.com.  It was renamed shortly thereafter, and today we know it as zappos.com.  The first year wasn’t very pretty, but in year two Zappos started to show some traction.  It ended the year 2000 with $1.6 million in gross sales.  Gross sales continued to climb, and by 2008, they had exceeded $1 billion.  This is an absurd level of sales growth, yet the fuel for this growth was amazingly straightforward. 

Hsieh outlines the story of this growth in Delivering Happiness: A Path to Profits, Passion, and Purpose.  What stands out most about him is his unusual understanding of intangible value – more specifically, his deeper understanding and appreciation of people.  Measuring intangibles is commonly perceived as incredibly difficult.  This is usually because they aren’t Directly available methods.  Things that we can’t immediately quantify make us uncomfortable.  But, there are proven ways of Indirectly measuring any intangible aspect of a company.  And the way in which Hsieh built Zappos would lead most people to believe he had an uncanny grasp of them.  In fact, Zappos was built purely on the intangibles of Culture, Customer Experience, Brand, and Leadership.

At the core of Zappos is a deep understanding of human happiness.  Hsieh’s formula for happiness consists of four parts:

  • Perceived Control: Zappos gave skill set bonuses, and employees could choose the pace at which to earn them.  This gave the feeling of control over compensation.
  • Perceived Progress: Instead of giving one promotion every 18 months, Zappos started giving one promotion every 6 months, for a total of three promotions that had the same net effect as the one promotion.  Employees were much happier due to the ongoing sense of perceived progress.
  • Connectedness (number and depth of your relationships):  Realizing the importance of intra-company relationships, Zappos placed an emphasis on culture.  Hsieh himself noted that the ability to be truly interested in someone you meet, with the goal of building up a friendship instead of trying to get something out of that person, is at the cornerstone of connectedness.  Hsieh found that getting to know someone on a personal level almost always led to a benefit somewhere down the road – usually 2-3 years after first starting to build the relationship.
  • Vision/meaning: The combination of physical synchrony with other humans and being part of something bigger than oneself (and thus losing momentarily a sense of self) leads to a greater sense of happiness.  Zappos harnessed this idea through purpose.

This formula for happiness, in Hsieh’s mind, created the best culture.  And this formula is really an expression of Maslow’s Hierarchy of Needs, which essentially says that self-esteem and self-actualization (being the best version of yourself) are the two most sought after human needs.  For business purposes, Abraham Maslow’s Hierarchy of Needs can be applied to customers, employees, and investors as follows:

  • Customers: Meeting unrecognized needs is more important than meeting desires, and meeting desires is more important than meeting expectations.  At Zappos, an example of meeting expectations would be receiving the correct item.  An example of meeting desires would be free shipping.   And an example of meeting unrecognized needs would be a surprise upgrade to overnight shipping.
  • Employees: Meaning is more important than recognition, which is more important that money.
  • Investors: Legacy is more important than relationship alignment, and relationship alignment is more important than transaction alignment.

While Maslow helped to define happiness (and in turn, culture), culture helped to define customer experience.  Zappos heavily invested time, money, and resources into customer service, which built the brand and drove word of mouth.

The same level of investment was made into employee training and development.  This led to the creation of what Zappos termed a “Pipeline Team.”  It was this talent pipeline that ensured the lasting value of culture.  At Zappos, rather than focusing on individuals as assets, they instead focused on building a pipeline of people as the asset.  The pipeline existed in every single department at varying levels of skills and experience, ranging from entry level all the way up through senior management and leadership positions.   Zappos aimed for almost all hires to be entry level.  This allowed Zappos to provide all the training and mentorship necessary so that any employee had the opportunity to become a senior leader within the company within five to seven years.  In other words, Zappos built Redundancy/Back-up Systems into the organization.

In order to administer this culture-first organization, Zappos leaned heavily on servant leadership.  In other words, the role of the managers was to serve the front line employees – to remove the obstacles that they faced.  This philosophy fed right back in to the maintenance of an established culture.

If Zappos demonstrated anything, it’s that if you get the culture right, most of the other stuff – like great customer service, or building a great long-term brand, or passionate employees and customers – will happen naturally on its own.