Online retailer Zappos has grown astronomically since launching 10 years ago. CEO Tony Hsieh talks about superior service, corporate culture, and the science of happiness.

Tony Hsieh (“shay”) has good reason to be smiling lately. He’s the face behind a billion-dollar business. His company has gone through the roof in the decade since it started with his mission to be the leader in customer service and also to sell shoes — lots of shoes. On July 22 of this year, he wrote the employees of Zappos to say, “This is a big day…” The open letter announced that the company was being acquired for $887.9 million by Jeff Bezos’ online giant, Amazon. By Hsieh’s description, acquisition “doesn’t really convey the spirit of the transaction.” It’s more like “Zappos and Amazon sitting in a tree…”

After Hsieh finished at Harvard with a computer science degree, he sold his online advertising company, LinkExchange, to Microsoft for $265 million. That was in 1998, when he was 24. Zappos was just one of several online projects he helped bankroll through his next company, Venture Frogs. Now with 1,600 employees, 500 of whom are in the call center, Zappos is unlike a lot of companies in this economy — they are hiring. Tony’s advice to companies still getting to the one billion mark is that there’s a huge potential advantage in putting the right fundamentals in place while you’re still small(er).

Although the always-on toll-free number is prominent on every page of the company’s Web site, customer service is not the top priority for Zappos. Corporate culture is. Tony says getting the corporate culture right results in customer service falling into place, along with everything else. Instead of being a department, customer service is the company. To ensure the right attitude about things, prospective employees are asked, on a scale of 1 to 10, how lucky they believe they are. Every new hire gets four weeks of “customer loyalty” training. Do your job well at Zappos, and you have a good chance of being honored with your own personal random-acts-of-kindness parade through the office.

Tony Hsieh is not in this for the short haul. He describes the window he’s looking through as being “really long-term” and is open to new directions for the company, like (among other things) an airline. He talks here about what happiness means to him and to Zappos and how it will figure into his upcoming book.

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1. Jeff: When you talk about Zappos having a long-term philosophy, how long is “really long-term” and how does this kind of perspective demonstrate itself at companies like Zappos and Amazon — particularly in such a turbulent and uncertain economy in the short term?
Tony: Many companies think only one quarter ahead, or one year ahead. We like to think about what we want our brand and culture to be like 10 or even 20 years down the line. In general, with a 10- to 20-year timeline versus a three- to five-year timeline, relationships are much more important. What you do after taking someone’s money, such as customer service, matters much more than what you do to get their money, such as marketing.
2. Jeff: There is a reluctance among your competitors to follow some of the things you do to “deliver WOW through service” like a 24/7 toll-free number, free shipping, free return shipping, surprise upgrades to overnight, and non-sales based performance goals for reps. What do your competitors say about why this won’t work for them?
Tony: I don’t really pay attention to what competitors are saying. We just listen to our customers. But I’m sure they are paying attention to our competitors, so the information eventually gets to us in the form of our customers telling us what they want.
3. Jeff: By the latest count, you have 11 million purchasing customers, four million of whom purchased in the last 12 months, and 75% of whom are return customers on any given day. Where do you see room for the greatest improvement?
Tony: Our goal is for Zappos to eventually become a household name, so the greatest opportunity is from increasing our total number of purchasing customers. But both of these areas are equally important to us.
4. Jeff: You describe part of the corporate culture at Zappos as including “a little weirdness.” What does that look like?
Tony: If you check out our blogs, you’ll see plenty of examples of our culture, including creating fun and a little weirdness. Our belief is that everyone is a little weird. This is more a fun way of saying that we recognize and celebrate everyone’s individuality and we want people’s true personalities to shine.
5. Jeff: Another idea you talk about often is “the science of happiness” being at the core of your business philosophy. What makes it a science?
Tony: Different cultures, religions, and philosophers have different beliefs about what happiness is, but when I refer to the science of happiness, I’m referring to actual research that has been done in the field of positive psychology. For example, one thing that has come out of the research is that people are very bad at predicting what will actually make them happy in the long term.
6. Jeff: Why do you think that is? Do you have any theories about why they’re bad at it? Are they just overly optimistic, short-sighted, or superficial?
Tony: I think it’s because people don’t realize that our brains are designed to detect what’s different, as in positive or negative. A positive difference brings happiness, but at some point, what’s changed becomes the new norm, so there needs to be ongoing progress. Winning the lottery is a positive difference in the short term, but a year later, the wealth you’ve gained is the new norm, so even those people’s happiness levels generally go back to where they were before.
7. Jeff: Zappos has to be one of the highest-profile early adopters of social media tools. How have social networks like Twitter translated to the bottom line and how do you quantify the impact they’re having?
Tony: We don’t really look at Twitter as a marketing vehicle, so we don’t look at how it translates into the bottom line. What we care about is being able to connect with our customers on a more personal level. We do that through the telephone as well as through Twitter. Nobody writes about the telephone because it’s not an interesting news story, but we believe it’s actually one of the best branding devices out there.
8. Jeff: With your relatively quick growth, being able to scale your technology and other resources must have been a big consideration. Where have you found the tools that allow you to do this?
Tony: We’ve generally developed our own tools internally.
9. Jeff: An area I’m personally interested in is making effective presentations, and you’re always rated off the charts as a presenter. I’ve found there are some bad habits, like reading the slides or being overly didactic rather than conversational, that need to be replaced with good habits by presenters. Are there any habits you have to break when you’re creating or delivering a presentation?
Tony: The most important lessons I’ve learned from public speaking are to only speak about topics you are passionate about and to tell personal stories. Those two things are more important than anything else in terms of what the audience will respond to. If you are talking about something you are truly passionate about, your passion will take over and you will no longer be nervous, you won’t need to read from the slides, and you’ll naturally be conversational.
10. Jeff: If you were to write a book about Zappos, I would expect it to be about creating happiness, both for your customers and employees. Is there any other theme or title that comes to your mind?
Tony: Actually I am currently working on a book, and the working title is Delivering Happiness. We’re trying to figure out a subtitle, but I’m thinking about something along the lines of How to Combine Profits, Passion, and Purpose.

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