Zappos is a weird company -- and it's happy that way — Transcript

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1. 0:00HARI SREENIVASAN:
2. 0:01But first: You might know retailer Zappos for the shoes it sells and its emphasis on
3. 0:04customer service.
4. 0:05What you may not know about is its quirky corporate culture, and why the company is
5. 0:10banking on that for its long-term success.
6. 0:13Our economics correspondent, Paul Solman, reports, as part of his weekly series, Making
7. 0:17Sense, which airs every Thursday.
8. 0:19WOMAN:
9. 0:20Definitely the best port-a-potty experience I have ever had.
10. 0:26PAUL SOLMAN:
11. 0:28From its Porta Party P.R. to its campus in downtown Vegas, Zappos, the online shoe monger,
12. 0:35is devoted to different.
13. 0:36JASON BROWN, Zappos:
14. 0:37Let me give you these three rules about wearing wallflowers, as we like to call them.
15. 0:41PAUL SOLMAN:
16. 0:42Wallflowers?
17. 0:43JASON BROWN:
18. 0:44Wallflowers, because you see we have got the wall?
19. 0:45And we call them wallflowers.
20. 0:46PAUL SOLMAN:
21. 0:47Front desk dress code enforcer Jason Brown gives visitors three options.
22. 0:50JASON BROWN:
23. 0:51First one is to take it off if it holds sentimental value to you.
24. 0:54The next one is to wear it around your head in a bandana, John Rambo-style.
25. 0:57And then the last one is to cut, and it becomes part of the collection.
26. 1:01PAUL SOLMAN:
27. 1:02Thankfully, my tie was deemed passably peculiar and thus spared a spot on the wall.
28. 1:07Amidst decor both seasonal, lanterns for Chinese new year, and longstanding, like the ShoeZaphone.
29. 1:16Tony Hsieh took over Zappos 17 years ago, after selling his online ad network, LinkExchange,
30. 1:23to Microsoft for a cool $265 million.
31. 1:26TONY HSIEH, CEO, Zappos:
32. 1:27What a lot of people actually don't know is the real reason why we ended up selling the
33. 1:31company.
34. 1:32PAUL SOLMAN:
35. 1:33And that is?
36. 1:34TONY HSIEH:
37. 1:35And it's because the company culture just ended up going completely downhill.
38. 1:37I myself dreaded getting out of bed in the morning to go to my own company.
39. 1:41PAUL SOLMAN:
40. 1:42History wouldn't repeat itself, Hsieh vowed.
41. 1:44So, at Zappos, culture comes first.
42. 1:49And that starts with hiring people who will fit.
43. 1:51PAUL BROWN:
44. 1:52I remember coming in, and one of the things was, we're not trying to hire based off of
45. 1:56your education.
46. 1:57We want to hire based off of someone I would want to go have a beer with after lunch.
47. 2:02PAUL SOLMAN:
48. 2:03Well, I would want to have a beer with you, and I barely know you.
49. 2:05PAUL BROWN:
50. 2:06Yes.
51. 2:07I wouldn't have a beer.
52. 2:08We could have a shot.
53. 2:09(LAUGHTER) PAUL SOLMAN:
54. 2:10Zappos' core values are an obsession: embrace change, be humble, create fun and a little
55. 2:16weirdness.
56. 2:22Musician Tyler Williams heard it was harder to get into Zappos than Harvard.
57. 2:26So to be more than a face in the crowd, he sent a video valentine.
58. 2:32And when it earned him an interview: TYLER WILLIAMS, Zappos:
59. 2:34I think one of the craziest questions is they asked, on a scale of one to 10, how weird
60. 2:38are you?
61. 2:39So, I'm a definitely a 10 on that scale, so I was worried I was a little too weird for
62. 2:43Zappos.
63. 2:44PAUL SOLMAN:
64. 2:46Nope, Williams is now a fungineer, the brains behind company galas and other so-called experiences,
65. 2:54like Tutu Tuesdays.
66. 2:56TYLER WILLIAMS:
67. 2:57We — probably at the pinnacle of its popularity, we had 50, 60 people that would wear tutus
68. 3:03on Tuesday.
69. 3:04PAUL SOLMAN:
70. 3:05Another core value, build a positive team and family spirit.
71. 3:09TYLER WILLIAMS:
72. 3:10So, we put these games on the elevator to hopefully …
73. 3:12PAUL SOLMAN:
74. 3:13Ah.
75. 3:14TYLER WILLIAMS:
76. 3:15That was good — to hopefully stop and play the game, have collisions, have conversations,
77. 3:19and get off on the wrong floor, so people would visit different areas that they normally
78. 3:24wouldn't.
79. 3:25PAUL SOLMAN:
80. 3:26Zappos invests lavishly in morale.
81. 3:28Impress a colleague and H.R. will pay you Zollars to redeem for Zappos swag.
82. 3:35Each month, employees can reward a co-worker with a $50 company bonus for going above and
83. 3:42beyond.
84. 3:43And company largess begets acts of random kindness.
85. 3:46LETHA MYLES, Zappos:
86. 3:47I took a picture of a particular bouquet that I liked, and I posted on Facebook, like, oh,
87. 3:52I love flowers.
88. 3:53PAUL SOLMAN:
89. 3:54Letha Myles started in customer service nine years ago.
90. 3:56LETHA MYLES:
91. 3:57The next day, there was a bouquet of flowers sitting on my desk, along with a note saying:
92. 4:01"You make us smile, so we thought we would make you smile."
93. 4:04PAUL SOLMAN:
94. 4:05Birthday balloons abound.
95. 4:06Cubicle self-expression is de rigueur.
96. 4:09But, look, what can the business rationale be for all this?
97. 4:14Why would Amazon pay more than a billion dollars for Zappos in 2009 and then let it spend so
98. 4:20generously for so long just to make its employees happy?
99. 4:24TONY HSIEH:
100. 4:25I think it's pretty hard to give great, amazing service if you're an unhappy employee.
101. 4:29PAUL SOLMAN:
102. 4:30Turns out Zappos' business is service.
103. 4:33It started with shoes, as Amazon did with books, aims to branch out.
104. 4:37TONY HSIEH:
105. 4:38We have talked about one day there could be a Zappos airlines or a Zappos hotel that's
106. 4:44just about the very best customer service and customer experience.
107. 4:47PAUL SOLMAN:
108. 4:48Well-known service, like the 365-day free shipping return policy, managed by customer
109. 4:54service reps who start at $14 an hour and comprise a third of all employees and above-and-beyond
110. 5:04service.
111. 5:05Two flight attendants told me Zappos, when asked, sent pizza to an auditorium full of
112. 5:10new JetBlue hires.
113. 5:12TONY HSIEH:
114. 5:13In fact, we just had our longest phone call ever, which was well over 10 hours' long.
115. 5:16PAUL SOLMAN:
116. 5:17Ten hours?
117. 5:18TONY HSIEH:
118. 5:19Yes.
119. 5:20PAUL SOLMAN:
120. 5:21But what were they talking about?
121. 5:22TONY HSIEH:
122. 5:23I wasn't there, but I think they — they bonded.
123. 5:24PAUL SOLMAN:
124. 5:25So, for you, to hear that somebody spent 10 hours on the phone with a customer bonding,
125. 5:29that's a good thing, not a waste of time?
126. 5:31TONY HSIEH:
127. 5:32That's an amazing thing.
128. 5:33PAUL SOLMAN:
129. 5:34But what's the payoff?
130. 5:35TONY HSIEH:
131. 5:362008 was the first year we hit a billion dollars in gross merchandise sales.
132. 5:38We're doing several times that now.
133. 5:41And the number one driver through all that history has been through repeat customers
134. 5:45and word of mouth.
135. 5:46PAUL SOLMAN:
136. 5:47So, Amazon has kept hands-off, while Zappos proselytizes its happy, weird ways, offering
137. 5:52daily tours and advising companies that want to emulate it.
138. 5:56Now CEO Hsieh can be impish.
139. 5:58TONY HSIEH:
140. 5:59Rachel, do you want me to leave?
141. 6:03Get it?
142. 6:04Leave?
143. 6:05PAUL SOLMAN:
144. 6:06But he can also be seriously controversial.
145. 6:07He's introduced a system called holacracy that, among other things, does away with bosses
146. 6:12entirely.
147. 6:15All Zappos' 1,500 employees now belong to some 500 self-governing teams called circles.
148. 6:21CHRIS PEAKE, Zappos:
149. 6:22We're going to start like we do every holacracy meeting with a check-in round.
150. 6:25Just call out your distractions.
151. 6:27Get here, get ready to process some tensions today and share what you know with others.
152. 6:31WOMAN:
153. 6:32I'm only distracted because I have a super long day of meetings.
154. 6:35WOMAN:
155. 6:36I'm super, super distracted because the application window is open for intern candidates again
156. 6:42for the summer, which means we have thousands and thousands of applicants, in the span of
157. 6:45a week, up to like 5,000.
158. 6:48PAUL SOLMAN:
159. 6:50So-called tactical meetings are run by a facilitator, according to a rigid format, using holacratic
160. 6:55lingo.
161. 6:56CHRIS PEAKE:
162. 6:57Let's move on to triage, you guys.
163. 6:58You can just go ahead and yell those tensions out.
164. 6:59And, Rachel, as our secretary, will go ahead and capture those for you.
165. 7:02PAUL SOLMAN:
166. 7:03In the closing round, kudos for efficiency.
167. 7:05CHRIS PEAKE:
168. 7:06A ton of actions.
169. 7:07We covered seven items in less than a half-an-hour, and we have like a zillion outputs, which
170. 7:12is really great, but, with that, everyone have a great day.
171. 7:15PAUL SOLMAN:
172. 7:16Chris Peake helped with the holacracy rollout.
173. 7:18CHRIS PEAKE:
174. 7:19I would say the best thing about this process is the commitment to action and projects and
175. 7:23the transparency to those.
176. 7:25I would say probably the most challenging, with Zappos' culture, you introduced a really
177. 7:29rigid process within meeting spaces.
178. 7:31PAUL SOLMAN:
179. 7:32Hsieh believes self-management is key to Zappos' longevity, allowing it to grow not like a
180. 7:38top-down corporation, but a city.
181. 7:41TONY HSIEH:
182. 7:42Most companies, as they get bigger, they become less nimble, less innovative, less productive.
183. 7:48Every time the size of a city doubles, innovation or productivity per resident increases by
184. 7:5315 percent.
185. 7:54When you get more people in a relatively smaller area in a city, then you get this crossover
186. 8:01of ideas from different creative types and entrepreneurs and businesses.
187. 8:04PAUL SOLMAN:
188. 8:05But self-organization wasn't for everyone.
189. 8:08So, two years ago, Hsieh offered a liberal severance package to those not sold on the
190. 8:13new structure, in fact, to everyone.
191. 8:16Eighteen percent took buyouts, hiking the firm's yearly turnover rate for 2015 to almost
192. 8:2330 percent, though there's plenty of turnover at customer service firms and plenty in Las
193. 8:29Vegas, period.
194. 8:30But Letha Myles is sticking with it.
195. 8:32LETHA MYLES:
196. 8:33The people who stayed are pretty much saying that they're willing to commit to learning
197. 8:39it and practicing it.
198. 8:40You know, let's still remember, we're friends, we're family, and I think that helps us stay
199. 8:45true to the process.
200. 8:47TYLER WILLIAMS:
201. 8:48It felt like it took the humanity out of it.
202. 8:50But we have worked that back into the process, I feel.
203. 8:54And everybody's voice gets heard, which, usually, in the past, it was just the loudest person
204. 8:59in the room, right?
205. 9:00PAUL SOLMAN:
206. 9:01Williams points out that Zappos is now canine-friendly, because it was deemed safe enough to try,
207. 9:06a key idea in holacracy.
208. 9:09TYLER WILLIAMS:
209. 9:10In the past, that had been shut down multiple times.
210. 9:12And through holacracy, we were able to push that through.
211. 9:17I know that's not a huge deal, but it's a big deal to our employees.
212. 9:19PAUL SOLMAN:
213. 9:20But Hsieh thinks self-management will accomplish something much bigger: saving Zappos from
214. 9:26the fate of most large companies.
215. 9:28TONY HSIEH:
216. 9:29If you look at the Fortune 500 list, which I think came out in 1955 originally, something
217. 9:35like 85 percent, maybe more, are no longer on that list.
218. 9:39The default fate for most companies is actually death.
219. 9:42I want this company to still be around 500 years from now.
220. 9:47PAUL SOLMAN:
221. 9:48This is economics correspondent Paul Solman, still wearing my tie, reporting from Las Vegas.