Zappos — built by Tony Hsieh — to be remembered for its culture

Can a strong culture be the end all, be all for success? Will the company enter a new era with the passing of its iconic leader?

Tony Hsieh’s Zappos (1999–2020)

For 21 years, Zappos was led by a big character and widely admired entrepreneur, Tony Hsieh. As its CEO, he developed a strong culture of going the extra mile to achieve customer loyalty. Tony himself had decided to move the company from its San Francisco base to Las Vegas, in search of finding people who were absolutely committed to providing the best customer experience. Zappos culture was designed to show a strong sense of ownership, a customer-centric commitment from each employee, who proudly calls themselves Zapponian.

Tony Hsieh at Zappos headquarter office, 2016. Source: Fortune. PHOTOGRAPHS BY BRAD SWONETZ

According to 2016 INSEAD case study of Zappos, the company’s strategy of “WOWing” required call center representatives to be on call as long as it takes, to build “personal emotional connections” with each caller. Zappos believed that vendors should be treated with the same mentality and visibility. The company sent employees to meet vendors at the airport for each visit, created an “extranet” to give them complete sales and merchandising metrics.

To build a team true to such strategy, Tony fostered a culture in which Zappos’ employees were encouraged to be members of the “Zappos family”. They hung out with each other, often went to work in pajamas, offered regular tours to the public and took pride in contributing to the company’s core values. These values determined the hiring and firing decisions, and managers reinforced them in monthly performance discussions. Furthermore, facets of this “weird” culture were reflected in the highly selective recruitment process. Though the starting pay for a representative was $11 an hour, in 2013, only 250 were hired out of 25,000 applicants.

Zappos looked for cultural fit when doing job interviews, as Alfred Lin, its former COO described, “We only hire happy people… and you can’t have happy employees without having a company where people are inspired by culture.” All new hires went through the same training regardless of title, and were offered the famous “offer” of $3000 to leave if they were not pleased.

Undoubtedly, Zappos’ idiosyncratic culture was a big part in its success and ultimately its acquisition by Amazon. By 2008, the company posted $635 million in net revenues and sold $1 billion worth of shoes. In 2009, Amazon acquired Zappos for $1.2 billion, while Tony negotiated a deal in which the company remains as an independent operator within Amazon networks.

In 2013, Tony invested heavily in Las Vegas downtown, a project he called “The Downtown Project.” He hoped to attract young entrepreneurs, tech startups, education, and the arts to the area, which in turn would benefit Zappos. While the project successfully created 800 direct job, launched a vibrant new Downtown Container Park community, it also attracted negative press when 10% of the corporate staff was eliminated and three entrepreneurs committed suicide.

Likely to have similar characteristics of the Downtown Project, the new organizational form at Zappo — Holacracy suffers a lack of direction, and structure.

People were encouraged form “circles” of self-management, mentoring and performance review. This change has met substantial setback with the departure 14% of employees.

At the time of the 2016 case study, Tony was so optimistic and committed to the transition of Holacracy that he emailed all employees and offered them a special version of “the offer” to all who felt that “self management, self-organization, and our Best Customers Stratey … are not the right fit.” Facing the departure of 14% of his employees and the uncertain future of Holacracy at Zappos, Tony replied to the press, “The sky is not falling.”

Zappos (2020 — beyond)

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One of two building wraps on Zappos headquarters in downtown Las Vegas Tuesday, Jan. 5, 2021, honoring Tony Hsieh, the late former CEO. Source: Las Vegas Review-Journal. @KMCannonPhoto

At the age of 46, Tony Hsieh died on November 27, 2020 from injuries sustained in house fire that occured nine days before. The news came as a shock to those that have come to admire the wildly successful, and inspiring entrepreneur. He had just recently stepped down as Zappo CEO after 21 years of leadership.

In the aftermath of his passing, we have learned that COVID-10 pandemic only worsened Hsieh’s battles with loneliness, depression, and drug use. Shortly before his death, he moved to Park City, Utah into a $16 million mansion and paid friends and acquaintances to move there as well. Unfortunately, close friends and family cited by Forbes say these followers of Hsieh only encouraged his self-destructive behavior.

While Hsieh’s tragic story is a sad warning to all entrepreneurs aboud founders’ mental health, he was undeniably a lasting legacy at Zappos. The company maintains on its website that since the integration of holacracy in 2014, it has evolve to begin adapting its internal systems to more closely resemble real-world markets.

As reported by Quartz, the company has spent the last several years “quietly” moving away from holacracy. The company institutes a market-based system, in which teams operate like independent small-businesss and manage their own individual profit-and-loss statements.

Once Zappos’ culture was famous and hailed as the company’s competitive advantage as the leading online shoe retailer. With the loss of its biggest leader, time will be the ultimate judge of whether Zappos can maintain growth, quality and competitiveness with an evolved model of self-governing structure.

Resources:

  • Askin, N., Petriglieri, G., & Lockard, J. (2016). Tony Hsieh at Zappos: Structure, Culture and Radical Change. INSEAD case study. Cambridge, Mass.: Harvard Business Review Publishing.

A motivated learner and observer of technological, health and social trends, and a part-time creative writer.

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