Business: Business and Life Lessons From Tony Hsieh, former CEO of Zappos
I had a “holy shit” moment when I ordered from Zappos for the first time.
This happened over a decade ago. I chose the slowest shipping option to save money.
I expected the shoes to arrive in 7 to 10 business days.
My shoes arrived the next morning.
Keep in mind that this was years before Amazon made 2-day shipping the standard.
There were other little things I noticed about Zappos as a customer.
- Other companies hid their customer service phone number to save on costs. Their phone number was boldly on the top of every page.
- I called their customer service and expected the agent to be overseas. Nope. She was located in Las Vegas.
- Most companies had a 30-day money-back guarantee. They had a 365-day money-back guarantee.
Zappos set the standard for customer service on the internet. Because of their initiatives, the rest of the eCommerce world had to step their game up.
Their former CEO, Tony Hsieh, was the heart and soul of the company.
For those of you that don’t know, Tony Hsieh passed away last week at the age of 46.
I usually don’t pay too much attention when a celebrity passes away. But Tony’s death felt different. I lost a big brother that I never had a chance to meet.
I read Delivering Happiness in 2010. It was the first biography I’ve ever read. While I researched and went over my notes, I didn’t realize how many of my personal philosophies were based on his.
I didn’t want to just share a picture of him on social media. Tony spent so much of his life sharing his wisdom. The best way to honor him would be to keep his teachings alive.
The following are some of the best lessons that I learned from Tony Hsieh.
The Value of Customer Service
“To WOW, you must differentiate yourself, which means do something a little unconventional and innovative. You must do something that’s above and beyond what’s expected. And whatever you do must have an emotional impact on the receiver. We are not an average company, our service is not average, and we don’t want our people to be average. We expect every employee to deliver WOW.” – Tony Hsieh, CEO @ Zappos
Every company wants to have great customer service, but none of them are willing to do what it takes.
Zappo’s is known for their customer service. That wasn’t a deliberate strategy at first. They were broke and couldn’t afford marketing.
The levers to business growth are simple:
- Increase new customers
- Increase average order value
- Increase repeat purchases
They couldn’t afford to market to get new customers. Their inventory was limited, so it was difficult to increase the average order value.
They realized that improving their customer service would encourage existing customers to come back.
Now “good” customer service isn’t simply answering emails faster.
Tony’s goal was something called the “wow effect.”
It’s when there’s a huge difference between what the customer expects and what actually happens. This difference causes a flood of positive emotions. The positive emotions lead to word of mouth advertising and repeat purchases.
Here are several ways that they “wow’ed” their customers:
- They’d upgrade people to free overnight shipping.
- They staffed warehouses 24/7. This isn’t cost-efficient from a logistics perspective. But this meant they could fulfill orders a few hours earlier.
- They put their customer’s happiness over their own profits. If the customer wanted a shoe where their size was out of stock, the agent would stop and research. If they found it available on a competitor’s website, they’d tell the customer to buy it there.
- One woman had ailing feet. She ordered 6 different pairs of shoes and returned them all. Zappos sent “get well” flowers to her.
Yes, these things cost money. But it worked so well that they didn’t need to spend as much money on marketing as their competitors did.
75% of their orders came from repeat purchases. Great experience means people are more likely to refer their friends.
A few years ago, I went to a workshop for some business training. The material was good, but I couldn’t help but think about how little effort they put into it. I spent several thousand dollars for the workshop, and they didn’t hook us up with lunch.
Later on, I launched my Super Affiliate Intensive workshop. I was motivated by Zappo’s philosophy of the “wow” effect. I sat down and brainstormed all the little things we could do to give people a “wow” experience.
This lead to:
- I figure everyone’s nervous when they’re flying in the first night. We had a welcome party at the hotel bar. We also had a goodbye party on the final night.
- The events were held at a nice hotel. Every lunch and dinner was catered.
- We had goody bags that included copies of Cashvertising, USB sticks, etc.
- A binder full of slides, notes, etc.
We calculated that giving the “wow effect” cost me an extra five figures for each event. I didn’t care. I did it because I wanted to elevate from a workshop to an unforgettable weekend experience for people.
You don’t have to spend a ton of money to deliver the wow effect. Here’s a story from this weekend.
I ordered a succulent from Etsy the other day and had a wow experience.
The plant was carefully wrapped. She included a handwritten note thanking me for supporting her business. She threw in a few stickers of succulents.
I’m going to buy all my succulents from her from now on.
My fiance is into Korean skincare. One of her favorite websites, Sokoglam, offered her a Zoom consultation with a skincare expert. She learned so much about her skin, and is now a loyal fan of their website.
The online shopping experience is becoming more commoditized. We go online and 1 click whatever we want from Amazon.
Going the extra mile for your customer is one way to stand out in a crowded world.
The Similarities Between Poker and Business.
After selling LinkExchange to Microsoft for $265 million, Tony started getting heavy into poker. He spent an entire summer diving deep into poker strategy and analysis. What he found fascinating was the similarities between good poker strategy and good business strategy.
Here are some of the highlights he shared:
1. Don’t confuse the right decision with the individual outcome.
It’s possible to make the wrong decision and have a good outcome.
It’s possible to make the right decision and lose.
Imagine if you were dealt AA pre-flop. This is the strongest pre-flop hand in poker. The guy has 10 10. The outcome? He got lucky with a 10 on the river giving him Triple 10’s.
You would win 81% of the time.
You made the right decision, but it was the wrong outcome. The worst thing you can do is to change your future behavior based on that.
This happens all the time in the real world. It reminds me of survivorship bias or anecdotal evidence.
I used to work in a gas station. Every day people would come in to buy scratch off tickets. One of my regular customers paid $1 and won $100.
That’s an example of a wrong decision with a good outcome. You think he walked away with his winnings? Nope. That’s how they get you. That encouraged him to play the lottery even more. He thought he was lucky.
He eventually spent several thousand dollars over the summer before he stopped. He didn’t make his money back.
2. Table Selection
Table selection is choosing which table you’re going to sit down and play it. This is the most important decision you can make in poker.
Would you rather play at a table with 9 mediocre tourists who are drunk or play at a table with 9 fresh aspiring poker pros?
This applies to choosing which markets you want to be in.
Think about Goldilocks…it has to be just right.
You want to make a pet training program focused on raising tigers. The market is too small.
You want to compete with Amazon and Walmart by offering the lowest prices. That might be too competitive. That’s like voluntarily sitting at a table with Phil Ivey and Daniel Negreanu when you don’t have to. And on top of that, you don’t have the right bankroll for that table.
Tony realized that business had several advantages when it came to table selection. He could create his own table aka create his own market. It reminds me of what Cameo did.
A poker table has ten seats. In business, you can increase the size of the table. He entered the existing shoe market and made the table even bigger. Poker is a zero-sum game.
3. Don’t play games that you don’t understand, even if you see lots of other people making money from them.
Tony dabbled for a bit in day trading and stocks. He hated it because he didn’t understand it. He didn’t have an edge. And he realized that with trading, he wasn’t building anything.
An example from my own life is real estate. I’ve been getting pressured to buy real estate from my parents and other people for the past few years.
Are people making money from real estate? Yep. It’s a great investment for the right person.
Not me though. I’m not “handy.” I don’t have an edge in it.
Could I learn it? Sure. At what cost, though? I rather spend that time and energy getting stronger at the things that I’m already good at.
I could invest $150,000 in a house with the goal of renting it out. A better option? I could invest that money into online businesses where my skills can contribute to growing it.
This reminds me of bright shiny object syndrome. When you’re jumping around from one business to another, you’re not going deep.
Going deep is how you build unique knowledge.
Don’t Outsource Your Core Competency
Zappos started off by drop shipping from brands in America.
A customer would make an order.
Zappos would send a message to the shoe company.
The shoe company would send the shoes directly to the customer.
The problem? This was the late 1990’s. Not many retailers had the ability or the desire to dropship.
This meant Zappos didn’t have a complete selection of shoes. They certainly didn’t have many shoes that customers actually wanted.
It would take years to build some of these relationships with the shoe companies. They figured out a “hack.” They could buy a local shoe store that wasn’t doing too well. Doing that would mean they “grandfathered” into many of the relationships with larger brands.
Their office lobby pretty much became a shoe store to make it official.
Next, they pivoted from a dropshipping model to holding inventory. They partnered up with a company called eLogistics to handle their warehousing.
It was a disaster.
They were losing 5-figures a day because the salesmen oversold what their company could actually do. Tony and several employees moved to Kentucky for several months to build their own warehouse.
“We learned that we should never outsource our core competency. As an e-commerce company, we should have considered warehousing to be our core competency from the beginning. Outsourcing that to a third party and trusting that they would care about our customers as much as we would was one of our biggest mistakes.”
So many companies want to outsource different parts of their business. You can work with a 3PL to handle your fulfillment. You can work with different agencies to handle your marketing. You can hire headhunters to recruit your employees for you.
Figure out what your core competency is and keep it in house.
Getting the Culture Right
Culture’s such a buzzword in the tech world.
It’s not a set of values that the top executives brainstorm on a company retreat. Culture isn’t catered lunches, and bring your dog to work day.
It’s a set of shared values, goals, and attitudes of an organization. It’s how you treat each other on a daily basis.
Tony realized the importance of culture when he was building LinkExchange. They hired the smartest people they could find. Not all of them were a great culture fit. It was obvious that some people were only there for the money.
It created a toxic environment for him, where he dreaded coming to work. He knew there was a problem when he hit the snooze button seven times one morning.
At Zappos, he wanted to develop and protect the culture at all costs.
One thing that Zappos is amazing at is filtering out people who aren’t a great culture fit.
You have to pass both a technical test and a culture test. They don’t want assholes working at the company. Zappos is based in Las Vegas. They have a lot of people flying in to interview, and they’ll get picked up at the airport.
Everyone thinks that the hiring test starts once you sit down in the office. What actually happens is the chauffeur is taking notes on how you’re treating them. Someone that treats a driver like shit isn’t someone that they want to hire.
Everyone that gets hired at Zappos goes through the same 4-week training program. This involves two weeks of customer service at the phones. This means helping pack the boxes. It doesn’t matter if you’re a Vice president!
And finally, there’s the famous $2,000 test.
Every potential employee goes through 4 weeks of intense training. After that, they get the offer.
The offer is $2,000. They’ll pay you $2,000 to quit.
Tony believed this is the best way to filter people out. If someone is overwhelmed by the experience, then this gives them an easy way out.
It reminds me of dating. Some people have “tests” to see if the person is a suitable mate. Tony had this because he wanted to find a suitable employee.
Resumes and interviews can only go so far. You can see how competent they are during the training.
But an offer like this? It’s the final test to see if you’re a good culture fit.
So my question is, what kind of culture do you want to build at your company?
How are you going to filter for it?
Are You Willing to Do What it Takes?
You can’t be good at everything. Strategy is about making deliberate decisions on what you’ll be great at, and what you’re willing to sacrifice.
Zappos has some of the best customer service in the world. Can you name a single memorable ad from them? I can’t. Not investing in marketing allows them to put more resources into customer service.
Costco’s strategy is low prices. That means their warehouses are ugly. Their website is horrible. Those decisions contribute to low prices.
Noma was awarded the best restaurant in the world 4 times. They had 2 Michelin stars. They had a waitlist for months. Then he shut the restaurant down.
Why would the owner do such a crazy thing?
“Routine can be comforting, but it’s also a killer for your creativity,” Redzepi says over lunch at Restaurant Barr, which now occupies the original Noma site. “It was time to change, not just the physical address but shedding off the old routine, moving into something new, building a small urban farm.”
In Remembrance of Tony Hsieh
I did a lot of research for this article. I skimmed through Delivering Happiness again, read a dozen articles, and watched every speech of his that I could find on YouTube.
It didn’t occur to me how much of an impact he had on my thinking. I read Delivering Happiness when it first released back in 2010.
I looked up to Tony because I didn’t have a lot of Asian-American role models. Yes, there are Asians in technology, but most of them tend to be behind the scenes as developers.
Here was Tony as the face of a billion-dollar company. To me, he was the Bruce Lee of entrepreneurship.
For the longest time, I believed becoming wealthy was the key to happiness. That’s how society trained me to think. It’s that mentality that pushed me so hard to succeed in affiliate marketing.
And then I became a millionaire at 24. I was slightly happier because I didn’t have to worry about debt anymore. But it wasn’t this life-changing thing I expected it to be. Then I read up Delivering Happiness.
Whoa, here’s something who went through the same thing. Obviously with way more money though.
That led me to a journey to studying happiness itself. Reading the book gave me the courage to pursue my dream of living in Asia for a few years.
Thank you Tony. Thanks for being unapologetically weird. Thanks for showing me you can build a brand while remaining humble. Thanks for showing everyone the need to find a higher purpose in life than just making money.