SXSWi: Zappos Rocks, AT&T fails

Zappos CEP Tony Hsieh's Keynote at SXSW

I’m currently at SXSWi hanging out with the entire internet. One of the absolute highlights of the event so far was the keynote by Zappos CEO Tony Hsieh.

Quick Zappos overview: since launching in 1999 the company has grown from zero revenue to over $1Bn in 2008, and became synonymous with great customer service for selling shoes and other items online. It was ranked 23rd on Fortune’s best 100 companies to work for in 2009, has great search and other online presence, and was recently a sponsor of the Celebrity Apprentice.  Also,  Zappos is currently doing a promotion with Magnify.net in showing videos of how people react to their newly arrived Zappos white box (disclosure: my friend Ari Greenberg of Magnify was one of the key contributors in launching this initiative). I also chatted with Tony at one of the other events and he invited me to visit their HQ in Vegas next time I’m in town, which I’ll definitely do.

Tony’s talk was great. In a nutshell, he tried to show what separates Zappos from others, and you have to admire the guts and commitment by Tony and other Zappos leadership for taking the more demanding path to success. This is the kind of one-in-a-million culture that business schools love writing cases about.

There’s a lot you can write about the Zappos culture and strategy, but here are some key points that really stuck with me. It’s a bit of a long list, but I feel all of these are relevant when you try to understand the Zappos culture. Practically all of them cost Zappos a lot of extra time, money, and effort, but make it so unique and ultimately build long-term value:

• Surprise upgrades to overnight shipping : despite the high costs, Zappos occasionally surprises its customers with free overnight shipping, to achieve what Tony calls the ‘wow’ factor.
• Recommend other stores when they’re out of/not carrying a certain item, to make sure their customers always find what they need.
• Phone number everywhere: once again, instead of trying to keep down call center costs by making it harder for people to reach a live person, Zappos has its phone numbers on every single page. And they answer the phone very quickly, I checked.
• Zappos gave up its send-thru biz (having other vendors sell products through Zappos.com), despite the fact that it contributed 25% of their top line revenue at the time. This tough decision enabled the company to focus on their core strategy of creating a great customer experience.
• No up-sell at call center: Zappos employees do not try to upsell clients over the phone, they just give good customer service.
• Return policy: customers can return items up to 365 days after their purchase, and they are encouraged to order several sizes and colors, and return the ones that didn’t fit or they didn’t like.
• Free shipping and return shipping on all orders.
• Sharing their inventory info with vendors: despite the risk of having their data leaked to competitors, Zappos shows vendors the inventory status of their products. This helps put several more eyeballs on inventory changes, allows the vendor to take more responsibility on the inventory of their products on Zappos, and therefore helps Zappos stay well-stocked and cash-in on upcoming trends, while keeping management costs down.
• Training and quitting bonus: At Zappos, every new employee (even in corporate) is trained in all the key functions like customer service and warehousing, and then gets $2,000 offer to leave (on top of the salary earned during training, to encourage those who are a bad fit to leave early).
• Twitter: of the 700 Zappos employees in Las Vegas 400 are on twitter, with the blessing and encouragement of the company, so they can socialize with each other and allow customers to learn more about Zappos. Also, Zappos offers open access to journalists to interview any employee. As Tony puts it, today every company is transparent even if they don’t yet realize it, since any disgruntled employee or customer can instantly get an audience of millions. Why not just embrace it and be open about everything.

These are pretty unique practices that many other companies would cringe to even think about. That’s why Tony’s long-term thinking is so refreshing. Instead of looking at the symptoms that influence profitability, Zappos takes a holistic approach that tries to create a company that is healthy and strong at its core — where vision and culture come first (and the profits then naturally follow).

Anyone here in SXSW can see a huge contrast with some other companies, for example the complete AT&T fail in Austin, where 3G, edge, and even voice and SMS reception are spotty at best.

Live illustrations drawn during the keynote

Tony also recommended to the audience do what truly makes you happy. He suggests to ask yourself what would you be happy doing for next 10 years even if you wouldn’t make a dime. That should be your career choice. And finally, great point about luck:

According to Tony, luck is partly the result of open-mindedness and looking beyond what’s right in front of you. He mentions a study that asked subjects if they considered themselves lucky or unlucky, and then paid them to count the number of ads in a newspaper. Some of the ‘articles’ in the paper clearly laid out the answers in the text and gave subjects other bonuses for noticing. The subjects who in the preceding survey described themselves as unlucky mostly didn’t notice the info in the articles. They just counted ads and reported their findings. Those who considered themselves as lucky happened to also be more curious, paid attention to the articles, and therefore noticed the answers and got better compensated. So according to Tony, if you keep your eyes and mind open, luck will have an easier time finding you.

As someone who has witnessed some great and some lacking business cultures over the years, and as someone who is now raising a little Jack Russell Terrier puppy (one of the most demanding and stubborn dog breeds), I completely agree with Tony’s philosophy. There are no shortcuts in life. If you do what’s right over what’s easy, and take the thorough and more demanding route, ultimately you’ll achieve long lasting success. Rock on guys!