“The best businesses are really ones that can combine passion, profits, and purpose.”

Zappos | E-commerce Retailer

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Tony Hsieh has managed to create just such a company with Zappos. In this article, we will look at, 1) what is Zappos?, 2) products, 3) business model and key components, and 4) learning from Zappos’ success.

WHAT IS ZAPPOS?

The Company

Zappos.com is well respected and established retailer of shoes and clothes. The company is headquartered in Las Vegas, Nevada. Within ten years of establishment, it was acquired by Amazon.com and is one of the largest online shoe stores in the world.

History of Zappos

In 1999, Nick Swinmurm reached out to Tony Hsieh and Alfred Lin with the idea of an online shoe store. He was met with skepticism because the notion appeared to be a somewhat unusual one at the time. Swinmurm remained convinced of the potential of his idea and convinced the others by highlighting the fact that the US footwear industry is a $40 billion market and 5 percent of this market is being served through mail order catalogs. He eventually managed to get Hseih and Lin on board with a $2 million investment through their investment company, Venture Frogs.

The company began its journey as an online store called ShoeSite.com. This name became Zappos in only a few months. The new name was a version of Zapatos which is Spanish for shoes. The name was kept generic to allow the company to expand beyond shoes at a later time. The company started to formalize and excited Hseih into coming on board as a Co-CEO. By 2001, the company had earned revenues of $1.6 million.

During the same year, the company increased sales by close to four times and brought revenue up to $8.6 million. To keep up with growing sales, the company opened its own fulfillment center in Kentucky. The company managed costs by spending minimal amounts on marketing and advertising, instead relying on word-of-mouth to raise brand awareness. The encouraging growth till this point set the stage of future goals to be set. Hsieh and the rest of the team looked to the future as far as 2010 and set a few targets for themselves. These included achieving $1 billion in sales and a place in the Fortune’s list as one of The Best Companies to Work for.

With sales reaching $70 million in 2003, the company made strategic decision to discontinue drop shipping. Drop shipping is the method where the company does not manage and hold inventory itself but instead transfers orders directly to a manufacturer or a wholesaler who takes on the responsibility to ship the items onwards. Though this was about 25 percent of the revenue, the company decided to make this decision to create more focus around superior customer service. A customer centric company which promised and delivered a superior user experience could not be created without control over this user experience.

By 2004, the risky decision paid off and the company made $184 million in gross sales. The first round of investment was received at this point which added $35 million to the company’s assets.  By 2007, the company had reached $840 million in sales and had expanded substantially to include a variety of fashion products.

The Amazon Buy Out

The Amazon sale was announced in 2009, which was a deal worth $1.2 billion. After establishing that Amazon would be open to letting the company operate independently and maintain its culture and integrity, the deal was negotiated. The one major change was to close down the Kentucky warehouse and let Amazon handle part of the order fulfillment and customer experience.

PRODUCTS

Zappos products

© Zappos

The company began operations as an online retailer for shoes and this continues to be about 80 percent of the company’s business. The store sells popular brands such as Nike, Ugg Boots, Aldo, and Steve Madden. There are close to 50,000 varieties of shoes including niche items such as narrow or wide shoes or difficult to find sizes.

The company expanded to other fashion items such as clothes, handbags, eyewear, watches and children’s items in 2007. These items make up 20 percent of store sales. The business is expected to grow in this direction in the coming years given the size of the overall clothing market.

BUSINESS MODEL & KEY COMPONENTS

Zappos has been created on a loyalty business model and relationship marketing. The loyalty business model used company resources to work towards establishing and increasing customer and stakeholder loyalty. The idea is that this loyalty will help meet and exceed company objectives and goals. The chain of events in this model would include a good quality product and excellent service that creates customer satisfaction. This leads to customer loyalty and recall which leads to repeat customers which then leads to profitability.

The company has been successful in its goals as about 75 percent of the business comes from repeat buyers. The main source of the company’s rise to success has been these repeat customers as well as the word of mouth recommendations developed by these loyal and satisfied customers. The established reputation for excellent quality of service has spread through these customers and Zappos has worked to strengthen this reputation through continued support and assistance that often extends beyond any established company policies and rules.

The Zappos USP

With the increasing popularity of online shopping, the competitive arena is full of similar businesses vying for the customer’s attention and their business. In this situation it becomes even more important to establish, develop, and maintain a unique selling proposition that sets you apart from your competition. For Zappos, this differentiating factor has been a concentrated focus on the best customer service that can be offered for an online business. The company continues to offer free domestic shipping on all orders with no minimum order amount or any other caveats. In addition, they continue to offer free and hassle free returns to their customers. This takes away any apprehension a customer may have about making a shoe or clothing purchase online without being able to try on or feel the product. According to Hsieh,

“If we’re serious about building our brand to be about the very best customer service and customer experience; then customer service shouldn’t just be a department – it should be the entire company.”

Customer Service Secrets That Made Zappos Successful

Building A Customer-Focused Culture

LEARNING FROM ZAPPOS’ SUCCESS

Zappos Culture

One of the goals the company management set for themselves during early stages of the business was to be counted among the top places to work at. The company has managed to achieve this by creating and reinforcing a unique company culture that is a bench mark for other companies. The company believes that culture is a reflection of the brand itself. If the employees are not a reflection of this then the customers are bound to pick up on it. The company also believes that employees need to be happy which can only be if they are inspired rather than just motivated. Employees should always look beyond their own job description and want to do their job and beyond this job. To achieve this, the employees need to feel empowered, feel like they are making progress and that their work holds meaning.

The implementation of the key features of this culture may appear strange and somewhat harsh in parts, but they all collectively work towards the strengthening of the culture. Zappos wants all its employees to fit into the very well defined though unorthodox culture of the company. Here are some of the methods Zappos uses for culture preservation.

Hiring and Firing

Many companies hire employees too fast but are reluctant when it comes to asking the wrong people to leave. Zappos uses the opposite strategy. Applicants and employees at different points in their Zappos tenure are offered between $2000 and $4000 to leave the company, giving them a way out if they are not comfortable or settled. Beyond this, if a person stays but does not settle then they are asked to leave without hesitation.

Job Interviews and Performance Reviews

A substantial portion of a job interview deals with questions regarding the company’s culture and how the applicant would fit into it. The HR department works towards determining whether an applicant’s personality matches the company values. Performance reviews for existing employees are based entirely on their ability to fit into the company culture.

Core Values

Zappos has ten core values aren’t created by management or forcefully memorized by employees. Instead they are based on the traits that their best employees display.  The ten values are:

  1. Deliver WOW through service
  2. Embrace and drive change
  3. Create fun and a little weirdness
  4. Be adventurous, creative and open-minded
  5. Pursue growth and learning
  6. Build open and honest relationships with communication
  7. Build a positive team and family spirit
  8. Do more with less
  9. Be passionate and determined
  10. Be humble

These values are part of everything the company does including the interview process. For example, all potential employees are asked to rate themselves on a scale or weirdness from 1 to 10. The content of the answer is less important that the explanation of it. Values differ from company to company and their relevance is the reason they become successful. Says Hsieh.,

“We’re not out there saying other companies should adapt the Zappos culture. We’re just saying….if you want to build a company for the long-term you should have values and a strong culture and in most cases probably not the same values as Zappos. The research has shown that the power comes from the alignment, by having values and a point of view and beliefs and passion for whatever it is that you stand for.”

Transparency

The company tries to take on both positives and negatives about the culture. Employee and public tweets are shared unedited on the website and an annual culture book is published with employee opinions about the company.

Customer Service

Because customer service is the core of the company’s culture and ethos, all new employees take a turn answering phone calls in the call center as part of their training. Even the CEO spends time over the holidays taking customer calls. There is no maximum time limit on phone call durations and employees may actually direct customers to a competitor if what they are looking for is not stocked.

When Culture Is Everything – A Brief Lesson From Zappos

Lessons for Entrepreneurs

The Zappos CEO Tony Hsieh has managed to create a unique company with a unique culture. There are many lessons that entrepreneurs and even corporates can learn from him.

  • Being Passionate Increases the Chance of Success: An entrepreneur needs to be passionate about what he sets out to sell. If the focus is more on the money that can be earned than this can become a roadblock to success. A passionate belief in what you set out to do means you will want to work harder to achieve your goal as well as inspire and motivate others to do the same. Any hurdles that come along will be easier to overcome if passion is your driving force
  • Understand What Motivates People: People are more likely to be invested in a company which inspires them instead of offering bonuses or increased salaries. Zappos actually offers employees money to quit. This helps clear out those people who are only in it for the money.
  • Learn from Your Mistakes: Hsieh feels that his first company was not something he was happy with. He feels that an attempt to build the company culture came too late. Though sold successfully, he learnt from the mistakes he made there and did things differently with Zappos.

 

  • Focus on the Customer rather than the Product: It is a common mistake to become fixated on the product being sold in a sort of tunnel vision and focus to shift completely away from the customer. Hsieh wanted his company to be an excellent service provider that happened to sell shoes. It wasn’t about the shoes, since he feels more passionate about customer service than the shoes themselves and that is how it should be.
  • Talk to Employees: Happy employees are productive employees. The best way to understand what makes employees happy is to have a clear line of communication with them and continue to talk to them. This sounds simple but can have incredibly positive effect. Some things that have resulted from direct employee conversations include a full time life coach and free lunches.
  • Treat Company Values as More than Just Slogans: The ten core company values at Zappos provide guidance for all decisions be it strategic or day to day operational. New employees are asked questions to assess their potential to fit in with the values while existing ones are reviewed based on their ability to align with the established values.
  • Provide Support to Staff: It is important to fully support employees that work according to the core values of the company. This is how it is done at Zappos. Customer support calls that last for hours are a good example of how employees are supported in their fulfillment of the customer service ethos.
  • Understand what Makes you Happy: It is important to understand what makes you, the entrepreneur happy. In some cases, a person may be happy setting up a new firm but not interested in developing it. In the case of Tony Hsieh, he realized that his heart was not in the venture capital business but rather he was excited by the idea of building up a fledgling business.
  • Be an Enabler: Many entrepreneurs are so invested in their business that they have trouble letting go and not micro managing. Tony Hsieh thinks differently. He believes that as an entrepreneur, it is important to enable people to perform at their best and realize their potential to the fullest rather than be bogged down by a stifling company culture.
  • Relationships Build Opportunities: The focus of building relationships should not be immediate gain but rather to develop the relationship itself. Sometimes, small connections can lead to bugger opportunities in the future.

There are many lessons to be learnt from the Zappos story for entrepreneurs in terms of the business itself and its passionate CEO.

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1 comment

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Seeing the massive success of Zappos, the lesson to learn are;

1- More and more should be spend on Human resource.

2- People are not just people, but they are more than People.

3- Change is essential, adopt it. Or otherwise you will be another Nokia.

4- Innovation.

5- All ideas are important.

6- Customer is more or less god of the organization.