The birth of Zappos:
Nick Swinmern’s idea was far from complicated! But to investors, it was rather stupid. The business of selling shoes online in the 2000s was ambitious and they began to question the need for buying shoes online. After all, why would you buy shoes before trying them on? After encountering the valley of death, Nick’s only hope was Tony Hsieh’s venture fund. After intense negotiations, and shedding light on the scale of the American shoe industry, Tony finally bought a stake in ShoeSite.com. Yes! That was the name Nick had come up with at the time, and Tony promptly changed it to Zappos.
This decision laid the foundation of a company that Amazon would later acquire for a whopping 1.2 billion dollars. But the performance and mind-boggling revenue isn’t the only reason why the company was acquired. With the help of Tony Hsieh, Zappos had successfully developed a unique company culture that sparks innovation and individuality while maintaining productivity. But this came later; far ahead, after Tony had eliminated a few hurdles. In the first few months, Tony had to deal with the boring old workplace, which he aimed to fix, along with improving sales, as they barely reached 1.6 million. To do so, he was crowned the CEO of the company. This is where the real story starts!
Changing customer service and inventory:
Fortunately, the company had survived the dot-com crash and started 2003 with 70 million in sales. Although that may sound impressive, they were barely making any profit. This was mainly due to the same problems that were beginning to raise their ugly heads. If you’ve ever ordered from Zappos after 2015, you know that the customer service is top-notch! It feels as if customer service is the heart of the company; not just an option on the side.
Additionally, their staff provides an at-home experience, as they converse without the use of scripts. However, this wasn’t always the case. Only 5% of their sales came from customer service and Tony believed that instead of investing in marketing, investing in customer service was a better idea. Furthermore, to implement better customer service, Tony had to contact VAs, from India and the Philippines. However, he ended up wasting a huge chunk of his time, as the VAs couldn’t seem to comprehend American slang and brand names. Therefore, he had to spend more time and money to build a team, composed of only Americans. Moreover, he was forced to shift the entire company from San Francisco to Las Vegas, due to rising prices. A bold move indeed!
Hiring people was also getting to his nerves. Let’s be fair, who’s willingly opting for a career related to customer service? As a solution, Tony came up with another mind-blowing idea! He would train his interns for 5 weeks and pay each of them around $2000 for leaving because he disliked workers who only chased their paychecks.
After the first hurdle was dealt with, Tony immediately ran into a second one! Manufacturing is a huge part of the e-commerce game, and Zappos was on the losing side. The shoes were drop-shipped from the manufacturers. The problem was that they were unevenly littered throughout the U.S, and delivering items took ages! To iron this situation, Tony had to swiftly build his warehouse operation, where he could house the stock. Brilliant! Another problem down.
Improving employee relations using Holacracy:
Other than boosting morale and focusing on the work environment, Tony implemented an idea called Holacracy. Think of a corporation as a democratic nation. The citizens still have to follow the rules made by the higher authorities, while still holding power at an individual level. In a holacracy, every employee’s voice has value and they have the right to implement their ideas. This sparks innovation by allowing ideas to flow without any restriction. In simple words, Tony wanted his employees to act as entrepreneurs, and use Zappos as a medium to implement their ideas!
“In a holacracy, instead of hiring a person to fill a pre-defined role (such as that outlined in a job description), people opt to take on one or more roles at any given time and have the flexibility to move between teams and roles if they have skills or insights that would prove beneficial to the organization,” says Investopedia.com. Head over to their website to obtain the formal definition.
Of course, this idea arrived with conflicts! Many times, the managing team wouldn’t see eye to eye with the employees. As a solution, Tony ordered everyone working under him to quit their jobs if they didn’t agree with his reforms!
Sold to Amazon:
In the wake of 2008, Zappos had more than 1 billion in sales. However, everything (good or bad) meets its end at some point in time. Although their sales were strong, their expenses were at an all-time high. The 2008 crash was also a whole new challenge that Tony was too exhausted to deal with. In the end, Zappos was sold to Amazon for no less than 1.2 billion dollars!
If you wish to know more about Tony Hseih, I recommend reading ‘Delivering Happiness’