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“The Zappos Experience” Featuring Joseph Michelli
[0:00:00] Interviewer: Hello and welcome to Soundview Live, an interactive conversation that puts to you in
touch with today’s top business authors. My name is Andrew Clancy, Senior Editor for
Soundview and I’ll be your host for today’s event.
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Now for today’s guest. When it comes to companies that dominate the headlines as well
as numerous lists of best companies and best companies to work for, there’s probably a
few names that instantly come to mind. Obviously that one of the companies that you
would think of would be Zappos. The online retailer provides a fascinating study of the
power of great costumer service, outstanding workplace culture and a commitment to
being great by doing good. Our guest today is here to explain how Zappos does it and
how you can do it too. He’s the authors of bestsellers such as Prescription for Excellence
and A Starbucks Experience. Soundview is very pleased to welcome the author of The
Zappos Experience, Dr. Joseph A. Michelli. Joseph, welcome to Soundview live.
Interviewee: Andrew, thanks for having me. This is wonderful. I’m excited to be here.
Interviewer: With that, we’ll let you begin your presentation.
Interviewee: All right. Well let’s imagine that about ten years ago someone came to you and said, “I
got this great idea. If you’ll just put out a lot of money and what you can do is just you
can put shoes online and we’ll sell them online to people and people are just going to
love it. They’re going to love the idea that they can get a wide array of shoes, they don’t
have to go to a shoe store with a limited number of sizes and they’re just going to trust
you implicitly to send them the shoes that they want. They’re going to get the quality
they want, the product they want. It’s going to be terrific.” I mean how many of you
really would have invested money back in the day.
Surely, lots of people put money down on other products online. Let’s take pet food for
example and Pets.com receives an incredible amount of money in its IPO and they had
the soft profit and they were advertising during the Super Bowl and people knew
intuitively that a product like kitty litter would be something people would trust to be
sent to their door and how far wrong could you go unlike shoes.
Zappos really came from a very strange idea with good background at least from the
standpoint of distribution of shoes but it was a brand that was destined to fail. As we
look now ten years down the road and see where Zappos is and we realized that
Pets.com blew up in the dot-gone era. Money and positioning wasn’t all there were.
There were other things who were very important to success in the brand family and
that included the service experience.
We’re going to talk today about five principles to really inspire, engage and allow your
internal customers to bring their vendors along with you to be able to leverage all that
so that the external customer is truly engaged and wowed by whatever it is you deliver
and serve whether that’s kitty litter or shoes.
So with that said let’s take a look at why should we study Zappos. Obviously they had
meteoric success despite the question of all value prepositions of online shoes. They
were sold in case you didn’t know about a year and a half ago to Amazon.com for just
over a billion dollars. Realize the start up came about for – you know it’s really been a
lot of money over time but literally it was just a short amount of money that one
individual had when he realized he couldn’t get the shoe he wanted after traveling all
over a forayed day in San Francisco.
He got the idea, put together a little website, try to court some vendors and ultimately
had not a lot of success until he attracted some venture capital money from Tony Hsieh
and Alfred Lin. They have made some money in an entrepreneurial venture called
LinkExchange which they sold to Amazon. Tony Hsieh was about 24 at the time and his
little LinkExchange Company when it’s sold to Amazon netted about $265 million so he
was using that money to capitalized a variety of different entities one of which we
choose to get involve with was Zappos. As a result of his investments and a lot of hard
work for a lot of people the brand was able to break the $1 billion mark for Amazon
purchase.
In terms of best places to work, Zappos is in the top 10 of Fortune’s best places to work.
[0:05:00]
It’s a list that many American companies have drooled over for a long time. Some
companies have spent an incredible amount of money to be on that list at least in terms
of enriching their workplace experience whether that’s the Googleplex and Lap pools
and Doctors on Sight or a variety of other kind of amenity items that tend to help you
get on that list along with other things. Zappos does not have that rich of a program of
amenities. Most of the way in which figured unto the list is through their efforts with
creating a family environment at Zappos and a very different kind of work place culture.
I think one of the reasons it’s worthy of study is because it has a different kind of
culture. Everybody talks about culture like great service. I mean no CEO would step up
and say we don’t want great service and we don’t want a great culture. But getting from
that vision of what a great culture looks like to actually delivering it and delivering
consistence service across your platform, that’s where Zappos has a lot to teach.
And then finally Zappos has done a fairly good job on the word of mouth side of the
business. Very little of what they do is a result of advertising. They do some just-in-time
advertising like having a shoe bins with their logo in it and some advertising in shoe bins
at the airports and the security lines when you’re just in time thinking about shoe
purchases or shoe related issues but they haven’t spent a lot in the traditional media.
They’ve used social media very effectively particularly Twitter. That is their strong suit in
terms of their responsiveness in communication.
They use their blogs very effectively and they use video blogging and they have
incorporated a culture for grabbing a video camera to see the latest things going on
from one department or another is just core to the way they think about business.
So with that said, we have a why for Zappos. We’re going to talk a little bit about the
who of Zappos and the picture you see two of the who’s, two of the early framers of The
Zappos Experience. That would be Tony Hsieh in the blonde hair and Alfred Lin, the
original CFO in the more brunet shade. Also missing from this picture are Nick Swinmurn
who is the guy who walked around San Francisco looking for his Chucker Boots and
couldn’t find them and opened the early version of the Zappos Online before it was
actually named Zappos with limited funding.
Tony Hsieh is actually just a venture capitalist who got involved in this. He’s really a
serial entrepreneur to be honest and he is a venture capital then got embedded into the
culture of Zappos and really brought it forward and is the current CEO. Alfred Lin was
the original CFO and was a roommate of – was actually a good friend Tony’s in college
and they worked together in making money in LinkExchange then ultimately through
Zappos.
And then they brought Fred Mossler, who goes as just Fred, at Zappos along. In order
for Tony and Alfred to get involved with Nick and bring this idea forward, they required
Nick to have subject matter expert. Nick had to bring along Fred Mossler, who worked
for Nordstrom, in the shoe department. So essentially, this group of people set the tone
for the early culture. They needed to have somebody who knew the shoe business
inside and out, they needed to have the money and they needed to have somebody to
create an idea for an opportunity, which is what by the foundation the most great
businesses in the end.
So these four individuals worked together in the San Francisco Bay area. They attracted
more and more people as they needed to. They lived in fairly small space for the most
part. There was a lot of collective, collaborative, communal work going on there. There
wasn’t a lot of demarcations between work and social life. They worked all the time and
so it just kind of blended together and that culture was one of really affinity, a tight
group of people and friends of friends were referred when work was needed.
As the brand grew and as they had more demand on them, they had to expand. They
ultimately moved to Las Vegas area to Henderson, Nevada and they had to start finding
people, who were like them to be successful in their culture, and that’s when the
Zappos cultural identity starts to really take shape.
So we’re going talk about five key principles as they relate to the book and we’re going
to hopefully connect them to you in some way or another just to kind of give you a little
bit about the book. There is something that are somewhat different because this culture
at Zappos is so rich with experiences. We’re the first that to my knowledge to use QR
Codes throughout a book. So as you go through this book if you have QR technology on
a smart phone you can just point your phone and literally take you to videos throughout
the book. So some things I might reference today in our conversation are videos that are
actually observable through the book.
So let’s take you to these five principles. Serve a perfect fit, make it effortlessly swift,
step into the personal stretch and play to win. These principles should talk a little bit
about culture, they should talk about service delivery, they should talk about growth
aspect of the business and they should talk about a strategy of business that really
hopefully will cause you to think about some other dichotomies we setup between work
and play as we go through this conversation.
[0:10:00]
So let’s start with Serve a Perfect Fit. You know one of the things that became clear to
Zappos is when they started they did not have a perfect fit with their customers. So they
did fit very well on the notion of we are going to be able to get a wide variety of
products more than you could get in your average shoe store. They have that down. But
in the early days, their vision was to be a dominant player with online shoe sales and
they wanted to essentially replace the portion of shoe sales that was going to
catalogues in the traditional catalogue world.
So that was where they were starting and they didn’t really think that they had to do
much more than collect the orders and have enough relationships with vendors that
they could represents those vendors online and then they could let the vendors drop,
ship the shoes to the customers. Well several problems. First up, the
[inaudible][0:11:00] order – the distribution into the [inaudible][0:11:03] order channel
was the way that most vendors should have thought about things.
We’re all that comfortable putting their products online and they didn’t know if online
was just a discount model and they didn’t want to have shelf through to
[inaudible][0:11:14] order stores at one price and then have their product represented
in a significantly discounted price online and they – this is sweating a lot of infinity from
vendors to this notion so they didn’t fit in vendor models very well. They didn’t fit
customer mindset either because as much as I want the distribution I really don’t know
if I can trust somebody to send me shoes and if I get them they’re going to fit me and
what if they don’t fit.
It was really a challenge for them plus they had to rely on vendors to send the products
out to the customers, which was a part of the distrust cycle when there was a third
party needed to actually to be your service arm. Well all this said, Zappos had to really
right fit itself to customers to vendors and the like. So from a vendor perspective they
changed the relationship with vendors from what was traditionally going on.
Traditionally, a shoe company will try to sell their shoes to the distributor and the
distributor would try to have the advantage in negotiating price with the shoes provider.
Zappos said “We’re not doing that. We’re not going to negotiate and play games on
pricing. If you win we win so let’s get transparent.” And they created a new website,
opportunities for the vendors. Let’s say Clark Shoes or Nike, they provided opportunities
for them to see the products sell through directly through their portal. So it wasn’t as
I’m trying to hide from you how much of your units were selling and then every time we
negotiate I’m trying to give the sense that “Uh, you’re killing me here.”
In truth, so they’re trying say, “Let’s win together, let’s succeed together.” So they gave
them real access to data. The vendors became instrumental on helping position
products for greater success from sale. Now from the standpoint of the consumer, they
said we can’t rely on the vendor’s third party drop shipping. We need to but the
inventory ourselves and we need to get that inventory to our consumers as soon as
possible.
We need to set very generous return policies that will allow our customers to feel a fit
with us in terms of the trust that we’ll expend to them. So that’s how Serve a Perfect Fit
went in terms of Zappos’ business model but buy a warehouse in Kentucky next to the
UPS hub. They are primed and ready to go. When they’re shipping products out very
quickly, they’re innovating strategies to make sure that that’s the case.
All of that is going well, the business is growing, they’re needing more and more people
and how are they going to find people like the group that was hanging together in San
Francisco. That became a big challenge for the success of the business as it was growing.
So to address that issue Tony Hsieh did what he really didn’t want to do. I mean he is an
entrepreneur, not a corporate guy by nature so he didn’t want to go to some corporate
retreat, he didn’t want to have a facilitator sitting there and trying to call out what are
the core values that are going to be needed to be successful in Zappos.
But he knew that there was some need to identify and articulate the values of this
business so that they could choose people that met them. So instead of using the
facilitator retreat approach, he sent an email out, which is to show Zappos. He sent an
email out to the existing employees at the time and he said you know we’re asking the
headhunters to bring us employees and they’re just bringing us wrong fit. So how do we
identify who we are so well that it really gives a template for picking people who are
better candidates?
The email basically ask the employees one very simple question, which is what does it
take to be successful at Zappos today and from that he got a flood of email responses.
The CEO just sent an email out to all existing place asking and telling what they think is
to be essential to being successful in the business. He took those ideas, they called them
down, they came up with 10 core values.
[0:15:00]
Now it’s one thing to have 10 core values and it’s another thing to live by 10 core values.
So they took the 10 core values and they made a passionate commitment that these are
exactly accurate to who we are and what it takes to be successful here so let’s filter all
of our business processes to be. And when I talk all I’m talking all. I’m talking looking at
every single touch point in the employee journey, every single touch point in the
customer journey, looking at all your major business processes, looking at all new future
business processes through the lens of 10 core values.
So let’s take a look what they look like on employee journey. So the employee journey
starts before they show up, right? It starts well into the applicant phase or the prospect
phase. So clearly the way the Zappos messages, they message about their core values all
the time but if you were to try to find a job on the Zappos page you have to go to a page
about the core values before you can get to the jobs listing. And essentially, the
language of that page would say look, we know you’re going to want to act like you are
all these things in a bag of chips, but the truth of the matter is if you aren’t these things
this is not the essence of who you are, please do not try to find a job with us.
And even if you could sneak through all of our filters, which would be very, very difficult
you would be miserable so save yourselves some heartburn and time and don’t click
here. So that said, assuming you think you are the values of the Zappos and then you
want to click through, you click through, you look at the jobs and now you can send your
resume and a job that’s related to your skill set but you have to send that resume
attached to a video cover letter.
I’ve posted some of those video cover letters in the book through the QR technology
and URL, but essentially you can see some amazing cover letters of people that have
been presented to Zappos that will help them screen toward or against some of the core
values, which I’ll present to you in just a minute. So assuming we screened, this new
based screen somebody out because essentially they are way extreme on one of the
core values so they don’t seem to demonstrate a sufficient amount of them then you’re
gone.
But if you’re still in the running you go through gauntlet of selections stages and those
selection stages include multiple interviews, the input of the person who picked you up
at the airport because that Zapponian, that Zappos employee who picked you up in the
airport is obligated to defend the culture so they had to give input on hiring. They’re
going to look for whether or not you’d suit some of the core values like being humble
for example or you’re talking all about of yourself on the ride over or do you have a
sense of otherness about you.
Because if not, then, you know if you’re all about yourself, then you’re going to be given
input from the driver who picked you up toward the hiring crew that might be a strike
against you. So if I should say all these people giving you input, you do all these
interviews, you probably go to a happy hour because they want to see if they’d like to
be with you socially and if you really are somebody they’d like to be with a lot of the
time. And through all that you get selected and you have obviously demonstrated your
work regarding a culture fit and you probably have the right skill set or at least you
could be trained to the right skill set.
Now you’re on boarding and this is where it gets really strange. Right? Because the
average on boarding and I’ve been involved in organizations with all [inaudible][0:18:22]
time. Then we’re talking normally about a week, a day of orientation, half day of
orientation, may be a few days of kind of on boarding at most brands. This is crazy nuts.
It’s a total month, a total month of orientation on boarding and in that month you’re
going to be exposed to every single one of these core values, people are going to come
in from all from all kinds of departments, they’re going to talk values, values, values.
You’re going to be told you are to create a project by the completion of this month that
enhances the core values of a company you’re just getting on board with and you’re
also going to be told you are going to serve people by getting on the phone line in our
customer loyalty call center and you’re going to answer calls in real time. Now you’re
saying well, that could be okay for somebody who’s going to in that career track but this
is for everybody.
This is for the CFO who’s currently at Zappos, who came over from Amazon. It’s a month
of him sitting alongside of a new hire who’s going to be taking their job on them at a call
center and humbly, as for their core values, engaging in that entire process equally and
fully and serving customers as part of the journey because if you want to serve a perfect
fit you have to make sure that you’re every single person in your organization
understands the importance of service.
All right. To all that said you get through the process, you’ve done your month-long
training and you are now given the offer. Now a lot of people talked about the offer in
articles but unless you put it all in this context the offer can sound just like a bad idea.
The offer at the end of the four weeks of training you are told, “Look, we’ve evaluated
you carefully against our core values, we think you fit.
[0:20:00]
“We put you through all of this in the last month in terms of being exposed to our core
values, we think you fit. But you’ve experienced us now for a month, do you fit? And if
you don’t, please take $4,000, which is the number currently being used because of the
economy and wanting to make sure there’s enough money there to actually get people
to leave if they’re not a right fit.” They’ll offer you $4,000 to leave. No prejudice. You
will not come back here and work but we’re not going to have a prejudice or referral to
the next employer.
If you don’t fit at Zappos take the $4,000, it’ll get you to your next job and please don’t
contaminate our culture if it’s not a right fit. That’s bold and it’s crazy. Now less than 1%
of the people whoever go through this entire journey ever take it but think about what
it does symbolically. It says to all the existing employees that my company is willing to
put its money where its mouth is when it comes to the importance of culture.
And number two, if I pass up $4,000 to say, I am working here, it’s pretty much a
personal commitment to the fact that I am making a choice, a willful choice to be
employed from this corner of the world trying to affect this kind of positive impact on
society. So that’s the Serve a Perfect Fit concept. As for Zappos, it’s a lot about
understanding the core values of some of which I’ve listed here so my favorite aspects
of them to deliver WOW through service, to create fun and a little weirdness. A kind of
an interesting value, not the kind of thing you normally see when people go out to
retreats. Do More With Less and Be Humble, some of the aspects that are keys as well
as Build a Positive Team and Family Spirit at Zappos.
With that said, let’s move to the second of the five principles of The Zappos Experience
book. It is Make it Effortlessly Swift. It is about the realization that in every way you can
in business, if you can take it a high ground and reduced the amount of effort that your
customer has to go through, your employee has to go through, your vendor has to go
through, if you can decrease effort you succeed at building loyalty.
Now what you’re seeing on the screen is a graph that actually had been part of an
article on a Harvard Business Review last year, which was entitled Stop Trying to Delight
Your Customers and Dixon, Freeman and Toman did the research behind it and
essentially they said if you want win loyalty you can’t think about all the bells and
whistle, you just have to solve people’s problem and you have solve them as easily as
possible for the person who brings the problem to you.
They went on in the article for those of you who are into the metric side of this to
compare something called the Net Promoter Score, which as many we know is a
question of regarding how likely are you to refer this business to a friend or an associate
and that question, which is on the 0 to 10 scale, and people can – anybody who gets 9 or
10 is considered an advocate and people in the 6 and below are considered detractors
and subtract your detractors from your advocates and you end up with a Net Promoter
Score.
Well that score is pretty robust at predicting loyalty and likelihood of repurchase. Now
that is a benchmark number. This particular article used a metric called the Customer
Effort Score and they articulate that it performs as well as not better than the Net
Promoter Score and certainly way better than just asking your customers if they’re
satisfied in terms of predicting whether or not consumers are going to purchase from
you or spend more from you in the future.
Now all that said, and all this academic stuff behind us from a Zappos perspective,
before you worry about anything else in business you should worry about effortlessness
and just making it swift. So I’ve turned that service velocity in the book and I used this
term because service speed just seems wrong to me and you can send stuff really fast to
somebody or serve somebody really fast and it can be the wrong thing. And so serving
fast when you’re serving wrong is not really good, but serving in a trajectory that you
want to serve rapidly is a goal and Zappos has committed itself to do that through
website loading speed.
They’re among the fastest loading website in the industry and there are plenty
comparatives and we talked about that – I talked about that term in the book. They also
do it by really looking at where the user experience breaks down on the online journey
so in a quantitative sense you’re obviously studying pages and seeing where people are
traveling and where they’re not going and where they go from one place to the next and
all that from a web analytics perspective but they do some really qualitative deep dive.
They’re looking at recorded sessions and mouse click movement on the recorded
session so while they’re not voyeuristically looking at your session per se and identifying
if you, they are able to understand qualitatively how people move through the pages,
where they get stuck, where their mouse seems to drift away from the experience.
[0:25:00]
All of that said, they clearly are looking for ways to make user experience as fast as
possible, as easy as possible. They’ve done things it their warehousing in terms of how
they pick inventory, select inventory and accurately make sure the inventory is in a box
to you at a level of redundancy that is extraordinary for the industry and there’s plenty
of descriptions about that. They’ve done much to expedite the delivery to the customer
and reward customer loyalty to even increase expediency so VIP status and guaranteed
overnight shipping is a fairly easy thing to achieve if you’re a loyal customer.
They removed all of the other pain points that they can find in the experience. They
removed obstacles like requiring customers to ship the product back on their own dime
if they didn’t like the product. So long ago in the early generations of Zappos they
decided that we’re going to pay shipping to and from if there’s a problem with the
product. And they do things to make it easier for the customer like let’s say you get your
pair of shoes, they aren’t the size, you call the customer loyalty team members, you say,
“Well this size is too small.” They’ll say, “Please put them on the box to get them back to
us but we will send you out the size larger while we’re waiting.”
They haven’t even received the return merchandise and they’re willing to leverage trust
to send you out your shoes and clearly they managed against the people who abused
that over time but fundamentally they don’t hold the process up to make it more
difficult on customers because of an attitude of distrust. Because they effectively
execute on the operational platform of efficient and the easy product experience they
are now allowed to play in the more enriched space of customer experience, which is
personalizing the experience for the customer but you really can’t do that until you’re
operationally solid on service transaction.
So I don’t want to jump to the notion that you can step into the personal, which is the
third principle of the book until you have made it effortlessly swift. So now we’re in the
world of personal connections and the Zappos brand is built around something called
the PAC, the Personal Emotional Connection. That’s very different, let’s say I called up to
order shoes and I’m in an airport. A Personal Emotional Connection for me maybe that
the call center person says, “Hi, this so and so at Zappos” and I say, “Wow, I need to get
these shoes and I’m about to jump on a plane so can you help me do it quickly?” And
they go, “Yes, let us do it. Let us get these shoes for you and let’s make sure we get it
before the plane goes off.” So what do I need? And they’re in the space of joining you,
connecting with you around your sense of urgency and time pressure.
In another instance, a Personal Emotional Connection might be where I call the call
center and I am just so excited about the fact that I’m going to a reunion in the next
couple of days and I really want to wear some retro of Converse All-stars in a particular
color that means something to me. Wow, this kind of listening to my story and it’s
saying yes, let’s get those shoes for you for that event. And maybe it turns out that as
the call center person or customer loyalty team member is trying to find those shoes,
they can’t find that shoe size in that color for you.
Now a lot of brands, that’s where it just breaks down and they just say, “Well, let me
just get the order anyway and we’ll get them to you as soon as we can.” There’s really
no care about the personal impact of not having the shoes in a timely way. So at Zappos
the alternative is going to be something probably like this. A Personal Emotional
Connection would mean “Bummer, we do not have your shoes. I am sorry that should
have not happen to you. I’m going to help you try to find it. I’m going to go the
Shoes.com, let’s see if we can find this thing.”
They’re going to search for those shoes for you and if they find them on Shoes.com
they’ll send you a link potentially that says, “Here, here are those shoes.” They want to
make it easy for you to get those shoes because you know what you need those shoes
for that event and they might even send a service recovery discount coupon, which will
be very likely redeemed because customers appreciate those who care not only for
them through efficient service delivery, but who care about them and the personal
realities of their lives.
So Zappos is built around that to deliver what they call WOW but they really say,
“Deliver WOW through service or deliver happiness,” so I kind of merged it together and
I call it “delivering WOW full happiness.” To deliver that WOW Full Happiness they do
some strange extreme things too. They are called the call center that have lasted eight
hours and I’ve talked to the customer loyalty team member who took the call and she
said “My battery pack on my headset died several times during the call, I had to take
some bio breaks, but in the end of the call we just stayed on. I talked to this older lady
for a long period of time and she’s kind of like my grandmother and we ended up talking
about all kind of things and how services change.”
[0:30:00]
It turns out the lady never bought anything. Now there’s plenty of people would say
that’s a stupid decision in business to let your call center people to do that and I will not
debate whether it’s a lie to be on the call for eight hours or not but what I can tell that
creates legendary stories and legendary stories attract people to your brand. It
decreases the strain of acquisition of new customers when people are out there talking
about the amazing kinds of service experience that they’ve had.
Zappos employees would send flowers to customers when they found out something,
they’re tragic or untoward has happened in the family. They’d send out flowers fully
authorized by the brand. There are videos that encourage the call center folks to do
video thank you and their handwritten thank you notes at each cubicle so when there’s
time to write a thank you note or something stands out they can do that and to make
unusual personal connections and they even do all kinds of other surprise at the live
events like sending flip flops in the boxes of Zappos’ product that you get just free ones
in partnership with the learning channel or sending red balls inside of your package so
when you open the box they didn’t just deliver shoes, they delivered a surprise, which
can bring a moment of happiness in your day. They recently paid tolls on the
Massachusetts’ turnpike for customers. Just courtesy of Zappos. There you go.
The fourth principle in the book is called Stretch and Stretch bottom line is all about the
ways in which Zappos has been permitted to extend their brand and how Zappos is
committed to one of its core values about driving growth and learning that because of
that core value they have really mastered something I think that a lot of business
resource is struggling, which is how do we develop our talent and how to we really do
effective session planning.
Our succession planning is composed of – succession planning, succession planning. I
don’t think anyone just want to plan to not be around. The bottom line of a Zappos
experience is that they understood that their people were the long term future of the
brand, their people’s ability to deliver this incredible personalized service experience. So
they wanted to make sure that they develop a talent full of people who could move the
brand forward in generations to come. So if you were to go to Zappos you would see
something they call the Pipeline I refer to as Zappos University.
The Pipeline is basically a team that has helped develop curriculum that very much looks
like a university. They have core classes. They have specific classes for various
departments throughout Zappos. So let’s say I get hired on to Zappos and I want to be a
lead buyer for the company. I might have to take a bunch of core courses. Let’s say I
come in through another department, I take a base bunch of core courses some of
which include things like how to set up a Twitter account. And why would your company
want to teach you how to set up a Twitter account? Well if they treat you real well,
guess what. What are you going to talk about a lot? Probably your company.
So there’s a lot of tweeting going on. There’s a lot of that but so one of the courses
might be how to set up a Twitter account, another course might be have business
writing, some basic courses. There’s a core curriculum. Then I would take many of those
courses and then I would also want to start taking buyer specific courses so I would
learn things about the supply chain, I’d learn things about certain product areas.
In addition to those courses about being a buyer, all of which would have been staged
up to move my way to senior buyer, I also have other related parts of my curriculum so I
might have to shadow a buyer, I might have embed in a vendor’s shop for a while, I
might have to involve myself in certain community activities that are going to support
my functions as a buyer.
All of this curriculum was basically designed by asking the question of senior leaders in
various departments. What happen if you weren’t here? What if the entire senior
leadership got wiped out tomorrow? What would you need to have happened so that
the brand will be successful in years to come? And so they looked at all of the skill sets
implicit and explicit that were needed to be unpacked to bring someone on board to
that level and then they developed the curriculums to be in the Pipeline department.
And often it’s a matter of saying, “We really want to help our managers better
understand how take people from a level of just doing a job to really realizing their
calling and so they might read a book like Chip Conley’s Peak and they would then take
the contents of that book, modify it and use it as a direct application within the Zappos
experience through Zappos University or as they refer to it, the Pipeline.
Well just so they’ve expanded their offerings in growth of people they’ve also expanded
their commitment to growing the products and the community around them. It’s
certainly worthwhile if you have an interest to seeing the kind of level of involvement
that Tony Hsieh and Zappos is taking in trying to revitalize downtown Las Vegas. Now
they’re trying to create a more wired dynamic area around city hall where Zappos will
create its future headquarters.
[0:35:00]
So they’re really trying to stretch the community and stretch brand to help the
community in which they live and then finally in terms of product customers are
basically asking them to stretch. We love the shoes, we love the service, could you run
an airline? We love the shoes, we love the service, can we get some pants too so we
could look at our pants and wardrobe with our shoes. They haven’t got into the airline
yet but they certainly have gotten collateral clothing products and you’re seeing a lot of
other product offerings well beyond clothing and well beyond jewelry into household
items and a variety of sports equipment. There’s a broadening of the platform of
influence at Zappos as being allowed by the customers.
The final principle of the book is called Play to Win, and Play to Win is really not play to
play. It is play to win. Zappos is not the soft, gentle “We don’t really want to succeed,
we’re just all having a good time out here.” This is a very, very numbers metric-driven
organization. These people are proud. They are winners and want to stay winners and
they do it in a very playful way though. The reason to play is to either increase the sense
of connection to family or to play to increase productivity. That’s the bottom line.
And so most of the play you see there might be slight little snippets of reenergizing,
opportunities for us to connect together with some affinity or as a reward for
productivity. So the example I like to use a lot is this guy who’s kind of short and so his
team when he was rallying them to get this production number done said to him of all
the – because you’re basically asking “What are you going to want in order to achieve
this incredible big area [inaudible][0:36:55]?”
And they said, “Well, because the culture is set up around this,” they said, “Why don’t
you dress up like a garden gnome if we hit this number and come around spend the day
with us in your garden gnome outfit, go see all your peers in your garden gnome outfit,
have the videographer from Zappos follow you around in your garden gnome outfit.”
And without a heartbeat he said, “yes.” Now, that’s being humble as a leader. It’s
inspiring this team and family spirit and it’s playing to win. It’s being willing to be
vulnerable to be in a state of play to suspend the purpose just because it connects with
people and it allows them to be rewarded for their efforts.
And so that’s the story of Zappos. In fact the first line of the book is a tweet where one
of the Zappos family members said, “I saw Winnie the Pooh running through the parking
lot. Yes, I work at Zappos.” And it’s not unusual for this culture to be weird and playful
but there’s normally a back story behind it, a back story about productivity.
The brand does a lot of things that are unusual in a play state the recreation space, the
reenergizing space gives all employees the authority to decorate their boardrooms. So
you see [inaudible][0:38:09] boardroom or see a boardroom theme like the movie Up
with the tennis balls on the bottom of all the tables and chairs. It’s an amazingly playful
spirit but it does it with a purpose. So they use evidence-based research and they’ve got
nap rooms to show that power naps really do increase productivity and they then afford
people the opportunity to power napping. It is a Play to Win culture along with all the
other aspects covered.
In the end I would suggest to you that Zappos exceed because it has a strong
commitment that I would call love for customers, love for team members, love for
Zapponians and Zappos family members. It’s authentically commitment to the growth
and development of the people that work there. It’s authentically to the growth and
development of the brand and the growth and development of the customer
experience. In the words of Peter Senge Love is nothing more than a commitment to
someone else with growth and development at least as it applies to the world of work.
Beyond that Zappos drive a lot of benefits. It makes it easy for people to work there, it
makes it engaging emotionally and it creates employee advocates to the brand as well
as customers who experience ease, emotional engagement and advocacy as well. And
then again, they not only give the confidence to the customer, the integrity, the pride of
the customer, a little [inaudible][0:39:32] passion from the customer as well. Customers
aren’t just satisfied with Zappos. They feel that Zappos live their values.
Tony Hsieh makes $36,000 a year though he’s a billionaire as a result of his investments
but as the CEO he draws a salary of $36,000. To be humble is part of the family spirit.
He’s available and accessible. He doesn’t have a open door policy as a no door policy. He
lives in a cubicle at work right at the center at the heart of the action and he’s usually
accessible in that cubicle area called The Jungle. People are proud to be associated with
the brand and they have a passion for the brand. There’s a lot of I love Zappos stuff that
goes on in the brand family.
So to close, I’ll always to say to you ultimately Zappos figured out that services as
flawless product as you can have, and your operational excellence delivered exactly as
clients want with great efficiency of ease and then also providing an environment of
caring. That’s also a way they treat their employees and the way they treat their
vendors. As a result of all of that they derive from great benefits from serving well.
Serving well is something that they’re grateful for the opportunity to make a difference
in the lives of those they serve. They’re proud of what they do. They believe that they’re
starting a movement to change the way the world works. They believe they’re setting a
higher standard for service delivery online and elsewhere, and they’re committed to
transforming the service experience as well as the happiness delivery experience at
work and beyond.
Through all of that the service that they give to others has served them well even when
there has been data compromise issue that they faced the commitment of loyalty
through that challenge of being hacked was quite unlike a lot of the brand equity that
other brands lost in relation to similar problems that they’ve encountered in a world
where you’re either been hacked or you haven’t been hacked yet sort of thing.
So if I was to say the Zappos experience is really about the five principles we’ve talked
about but it’s really about a lot of people forging forward with a goal of delivering WOW
full happiness in an engaged environment that serves a perfect fit. Thanks for your time
and attention today. I think I’m ready to take a few questions.
Interviewer: If you have questions for Joseph Michelli, the author of The Zappos Experience, you can
ask him by going to the chat function on your player. It should be on the lower left hand
corner of your screen. If you click private and select leaders and assistants you can type
your question for us as several of you already have, and you click the arrow to send us
your question.
Joseph, I think one theme that I’m seeing from a lot of members of our audience today
and I should remind we have a global audience that’s tuning in with us, the applicability
of some of the principles of Zappos to other industries, other types of companies, non-
profit, can you talk a little bit about how to take some of the essence of what Zappos
does and how it then applies to other industries beyond online consumer goods?
Interviewee: Oh, absolutely, and you know and just so people know about my background, I’ve
worked in a lot of different sectors in the industries and written books about companies
as widespread as Pike Place Fish Market in Seattle, Washington and Ritz-Carlton Hotel
Company and Starbucks and a variety of others. These principles do translate beyond
the online world and they certainly translate beyond geographic boundaries so this says
a global reach application. Now let me tell you what that application is centrally.
First and foremost, I do believe culture eat strategy for lunch and breakfast and dinner
meaning that you can take a strategic position and say we want to increase our
customer service by some metric and we want to bring a team in to help us with
customer service and I’ll tell you that those initiatives are short-lived that they – you
might get some bump and some bounce on the metric but to really sustain a culture of
customer service you have to start inside out.
It is not an outside in sort of strategy and so the inside out is who are we? I mean at a
fundamental level, what is it that we bring to the table that differentiates it, that’s
credible, that’s relevant, that’s unique, that’s durable? What is it that we bring to the
table? And what causes somebody to fit here and not fit somewhere else? I mean it is
really kind of getting to the core of can you take just anybody with the right skill set and
make them successful in your business. And if your answer is yes, then your business
doesn’t have a culture.
You really should be selecting for people who fit the cultural dynamic and the only way
to know that is if you spent some time really doing your introspection in what it is. You
may not like what you see and so there can be some aspirational opportunities to move
yourself into a different needle, but the more aspirational it gets, the less likely you
really are the thing you want to be and the harder it’s going to be to leverage your way
over there.
Zappos is really a story about figuring out who you are first, and then being very
disciplined in your willingness to not let people in who aren’t right, who aren’t right
culturally for what it is that you need to do. Now some people would argue you need a
lot of cultural diversity and surely I’m not talking about cultural diversity in terms of that
ethnicity. I’m talking about not diversity around core values of what it takes to be
successful in your industry. And you will not need a lot of diversity of thought and I can
tell you Zappos is a very diverse group of people but from a values perspective they are
very [inaudible][0:45:06].
[0:45:00]
Interviewer: We’re receiving a lot of questions from listeners about the hiring process, the on
boarding process so let’s go into that a little deeper with a couple of questions from the
audience, one of which is who is the person at Zappos who originated the idea of the
$4000 buyout. Would you mind repeating the percentage of people that have actually
taken it?
Interviewee: Sure, less than 1% and the buyout has grown up over the years and I think Tony started
it at probably – we have to remember back it was at $500 or something. I think he really
was worried that one of the biggest mistakes that they were making is still letting
people in who were still not right for the company and I think he was trying to impress
upon people that he was 100% behind the notion of people not getting in the door if
they weren’t right.
And the way he could symbolize that at some level was to say, “Look, I’m willing to put
my money up here and if – I’m willing to ask the person who’s made it through the
hiring process if they would leave us if I gave them money if they personally knew that
they were a charlatan to this cultural values.” And it’s grown up overtime so the
mount’s going up and it’s changed based on the economy and that’s why that’s $4000
right now because given the unemployment rates people might be more willing to stay
in the job they successfully navigated their way to even though they know in their heart
that this is not – that they’re going to be a bad apple in the organization.
Interviewer: And I’d assume the on boarding process also evolved as the company grew. At what
point, how many employees, someone is asking, were with the company at the point
when they went to a four-week on boarding process?
Interviewee: I would have to go back and look at my timeline so I’m not giving an accurate answer
here. I’m going to hedge the answer by saying I don’t want to give you misinformation.
What I can tell you is that it was a manner of hundreds of employees that were coming
over into the environment in San Francisco and they were not at a four-week on
boarding at that point in time. It was as they scaled up fairly quickly that they saw their
deficits in both the inability to identify their right employee and they built that on
boarding and accculturation process on right about the same time.
So, again, I can’t tell you when they went to four weeks but I can tell you that when they
faced the issue of we’re not getting the right talent coming at the door, they had already
started to do some extended on boarding and they were realizing that the on boarding
couldn’t turn the wrong people into the right culture. So what they had to do is first fix
the way in which people showed up and then they had to make sure that they fit them
in a cultural tradition and then after that they could really make a meaningful offer
because I could offer you that money the day you walked in the door and you couldn’t
really appraise whether or not this is right for you or not.
And one last point on that, they’ve recently changed the offer. In the old days, the offer
was good for you to say that right at the end of the on boarding. Now, they allow you to
extend the offer for the first month on your job. So not only you have gone through the
month of on boarding now and you got a feel for it and you’ve been given the offer. You
don’t have to actually accept or reject the offer until a month into your actual job
position which realized you haven’t been on the job in your division or department
during that first month.
Interviewer: And we’ll do one more question on this subject and I will move on but it’s amazing the
number of people that really want specific details about the on boarding and the
retention. That’s what will end it for this section is the retention rate at Zappos from an
employee’s standpoint how – I don’t know if the data’s available but a lot of people are
asking how long do the average employee stay and what are the retention rates like?
Interviewee: Well I could tell you that in general a call center environment retention rates are not
very good. And in Las Vegas call center environments, they’re not very good because the
community itself is a little on the transient side as compared to other communities and
that’s not saying anything about Las Vegas in terms of the work force. So those
qualifiers in place, Zappos is substantially below the industry averages in turnovers from
both call center and in that regional issue. The exact number has changed and so we in
the book we talked about the number of applicants relative to positions and that is
gone. Even more applicants have gone up since Tony has written his book. I mean these
numbers are so dynamic.
What I can tell you to give you an answer that’s helpful, in the book we give people an
opportunity to be a part of something called Zappos Insights for a month and Zappos
Insights is another stretched thing that happens to Zappos. Because of all the success,
they’ve developed a training department that helped other businesses succeed and take
some of these principles and applications and that’s called Zappos Insight.
[0:50:00]
And so in the book, we give people the opportunities for a one-month free membership
to Zappos Insight and a lot of these tools and data are in that compendium at Zappos
Insights.
I would strongly suggest if you have about the book to at least check out Zappos Insight
and consider being a part of that community for a month or so to learn of the specifics.
Also you can travel to Henderson, Nevada if you are so inclined, do the tour free of
charge to Zappos. And you can also do some additional extended times at Zappos
thanks to Zappos Insights where you’re meeting directly with the HR department and
asking specific questions like the ones you’re asking or maybe they’re interested in
merchandising or whatever. There are opportunities to drill down deeper with the
subject matter expert exactly in Zappos they give you current numbers on those issues.
Interviewer: We only got 10 minutes remaining with Joseph Michelli, the author of The Zappos
Experience. If you have a question for Joseph, you can submit it to us by using the chat
function on your player. You can go to private, then click leaders and assistants. Type
your question into the box then you can click the arrow to send it to us. And again, we
are getting a lot of technical questions from the audience but I think there are ways that
we can answer these that will be beneficial to everyone.
One of which is about Zappos’s decision to maintain a domestic call center versus
outsourcing. The way I think this question is phrased is pretty interesting. Do people feel
more comfortable about a longer wait time if they get a chance to talk to a domestic call
center operator?
Interviewee: Well, yeah, I mean it’s high empirical question and needs to be answered by somebody
much smarter than me but let me answer it at least in this way. Zappos’s commitment
was to always keep the call center locally for reasons I think that meant more about
connecting. I think it was that they could control the cultural experience. They could on
board like they’re doing and if you do a lot of this as a farmed out sort of thing you’re at
the mercy of the culture of the company that does it and you’re just another product in
their tool kits. So I think the bigger issues were those.
Now, there’s a great deal of emphasis placed on a couple of metrics in the call center
that I think are important. One is wait time. They definitely are making sure that people
are not waiting very long whether that’s because of local or otherwise so they are very
committed to wait times and they have very strong metrics and go over objectives and
they nail them. Now, I’m not sure how they do it given that they don’t measure call
length time. So this is one of those complexities of algorithms.
I mean it’s a resourcing challenge to realize if I am the CFO and I’ve been trained on how
to do call center stuff, I mean I have everybody who’s now cross-trained in the
organization who’s capable and I’ll tell you, they scale up that way in a big way come
crunch times around the peak times in online purchasing. So they do some interesting
things but they keep the culture relevant as a living. So you got wait times and they
don’t measure call length times.
They do measure how quickly you get back on call and they also measure how
customers experienced the call and there are some very specific metrics that promote a
score “Would you hire the person who served you today if you ran a service business?”
kind of questions. There’s a lot of richness to how they maintain a quality assurance of a
product that delivers a personal experience. I don’t they could get all that on an agent
feed that’s outside of the house.
Interviewer: Just following up on that idea. Someone brought up a point that I think is relevant to the
conversation when it came time for Amazon to acquire Zappos, was there a debate
about that, about keeping that domestic call center? Was that a major factor in let’s say,
was that a sticking point for Zappos if that was a must keep for it to deal with Amazon?
Interviewee: Yeah, who knows exactly what’s going on in that room. I can just see Bezos and Hsieh
and all those people together, but I think in the end what’s true was that Amazon knew
what it got was Zappos. It got this different product. It’s not a commodity product. It’s
not a discount product. It is a high-quality full service product. Zappos has a sister
product called 6pm that is more on the discount side, not all those service bells and
whistles. So they knew that. To get that out would be really wrong.
Now what could they do? They could interconnect Zappos to Amazon products and they
could do some things that leverage the warehouse’s efficiency. They could make Zappos
better in some ways probably but they didn’t want to make it worse and dumb it down.
And I think the risk they would have is that they could go in and say, “We just want to
take all of the richness of the cultural experience here and we want to try to get it down,
squeeze down to the lowest call center number.” I don’t think the call center is a call
center at Zapppos. But certainly, actually it’s not making money probably in the end but
in a way, it’s the customer loyalty arm of the brand and that’s being thought of
differently.
[0:55:00]
It’s reducing their cost as it relates to advertising in a variety of other consideration.
Interviewer: We have a few listeners that are curious about the notion that obviously no organization
is perfect. Even Zappos has to make mistakes on the service side occasionally. A couple
of people have asked, can you give an example of something where they necessarily
didn’t meet a customer’s expectations and how they’re then recovered from that.
Interviewee: Absolutely. One lady ordered this blue pumps and she kept getting black pumps – three
times. She tried to get this right and she got black pump. Ultimately, it got picked up to
Alfred Lin, the CFO, and now he did all the things and the customer is really nice about
it. She ultimately said, “Look, I know you’re probably a credible organization not trying
to rip me off but you’re just not getting your act together and this is ridiculous and I’m
never going to do business with you again.”
So as far as the customer is concerned she pretty much shut off the final – shut over
about and Alfred did all the classic things, refunded the stuff and done that probably
even before that but ultimately they researched it, they found the company, they found
that the shoes didn’t – there is short period run where they’re wearing that color but
they hadn’t been in a long time. They tracked down a pair in that color and that size
thanks to their vendor relationship and they sent it to her knowing full well along with
the refund that the refund would have been sufficient. The extra mile service was not
necessary and that she may never buy from them again. But they do that a lot.
Another quick one and this is on the 6pm side. They had an accidental computer glitch
that said all pricing was fixed at no more than let us say, $39 so people were buying
things for about six hours and nothing was more than $39 no matter how expensive it
was and rather than just saying, “Woops, we glitched it. Sorry. Here’s a coupon for your
next purchase. We canceled all those orders.” Zappos stood behind it and they said,
“We’re going to honor the pricing because it was our error and not yours and we’ll take
a big hit,” and they did.
Interviewer: There are a couple of questions from the audience about the ways in which some of the
principles with Zappos can be implemented in organizations that have an established
structure because I think some of the sentiment that seems to be coming through in the
questions I’m receiving are about the fact that Zappos’s leadership knew what they
wanted and had this commitment from the beginning. What about if you’re, for a lack of
a better term trying to reverse engineer some of the successes that Zappos has, how do
you go about approaching leadership in your own organization that maybe isn’t quite
receptive to some of the ideas? How do you help make that connection?
Interviewee: Oh, this is just totally awesome question because you know I’ve been in this world too
of working a corporate structure that I felt like “Wow! We’re never going to turn this
ship.” And it’s a bigger, wider turn. It takes a lot more effort but it’s still the same core,
which is at some fundamental level you have to deliver results for the organization. And
if you figure out ways to deliver results and then try to change the way things get done,
people listen to you. If all you do is try to change the way things get done and you’re not
actually making the needle move on the result side, you get discounted.
So I’d say, create a big area audacious goals for the organization that are relevant to
your leaders and as you go about executing those goals and you’re really delivering
against them, increase the amount of fun you have along the way, create opportunities
to deliver those results in a more fun, playful community of light-minded people. And by
that I really mean when you set a goal, go after the goal but let the process that you
used as you go after the goal reflect more of your play to win mindset.
And that then becomes the ability for them to tolerate this a little bit more playfulness if
you will because they’re seeing a deliverable on the backside. I think sending people
copies of books, leaders I’ve definitely dropped books off, the leaders of mine who I just
said. I read this and then something to me. I’m wondering if we could talk about some
of these ideas that how we might implement them here. The book is rich with lots and
lots of let’s look at it. Let’s assess ourselves versus what Zappos does. Let’s figure what’s
relevant for us and what’s not and if we could change just a couple of things a little bit
what would be the things we would change and how could we effectively assure that
that change takes place?
So there is a technology strategy inside of the book that helps you get there but I think
in the end, you have to start with what do we want to achieve for the company and how
do we want to push the envelope a little bit as we go there.
Interviewer: We’re running short on time so I think we’ll take one last question and Joseph, if you
wouldn’t mind, a few people have asked this. Do you think you could close words there
by giving us, from your experience with the company, one defining moment that to you
typifies what Zappos is and what it means from your own personal experience?
Interviewee: Yeah, I think I was at a vendor event that Tony Hsieh had and the vendors came into
town. It was vendor appreciation and Tony Hsieh was out front in this thing.
[1:00:00]
And then you realize this guy is a billionaire. You’d think there’d be a security entourage
around him at this particular moment but there wasn’t. He was just there with the
vendors. He greeted them personally as they came in. He was wearing I think a carnival
outfit because the event was themed in a kind of carnival theme and he was just there
and present with people thanking them for being a vendor.
You can say, “Well my senior leaders aren’t so inclined,” so this obviously will not apply
to me, but are you doing that? Are you inspiring that kind of behavior in leading up?
There are very few people that will demonstrate that level of humility, that level of
graciousness and that can WOW you by their heart of service like someone like Tony
Hsieh and most of the people I’ve met at Zappos.
Interviewer: That was to provide quite an incredible example of what a company can do when it’s
committed to being great by doing good. If you listened to us throughout the course of
this event, you’ll know that it can be done and it can be done in your own organization.
Joseph, thank you so much for being with us today.
Interviewee: It’s an honor, Andrew, thank you.
Interviewee: We thank Joseph Michelli for appearing today on Soundview Live. We’d also like to
thank all of you in our audience for submitting such great questions today. Special
thanks go to Ursula Sharp, the executive producer of Soundview Live. Don’t forget to
look for your follow up email in three to five business days. It will have a link to a replay
of this event as well as a link to download the slides and some additional content.
Join us next week on Thursday, February 23rd at noon eastern for the next installment
of our series. The toughest part of business isn’t achieving success. It’s sustaining
success. I guess next week we’ll help your company break free from the pull of a toned
past. We’ll be joined by Geoffrey Moore, the author of Escape Velocity. This is going to
be a great event for your company’s senior management team. Make sure you get
signed up soon.
Remember, if you’re a Soundview subscriber you can attend Soundview Live for free.
For subscription information to sign up and look through our online catalogue of
archived events is at Soundview’s website Summary.com. Soundview Live is a
production of Soundview Executive Book Summaries, a division of Concentrated
Knowledge Corporation. This program is copyrighted 2012 Concentrated Knowledge
Corporation. This is Soundview Executive Book Summaries, my name is Andrew Clancy.
Thank you and have a good day.
[1:02:26]
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