Tony Hsieh: Company culture is #1 priority

CEO of Zappos.com argues for the importance of having company culture and values as top priorities

Tony Hsieh, CEO of Zappos.com, just finished up his keynote presentation at Vator Splash May in San Francisco, CA right now with some invaluable advice for all kinds of entrepreneurs. Zappos, an online shoe, clothing, and accessory store that recently also started selling electronic devices, was acquired by Amazon.com for $1.2 billion last year. The company is recently only showing signs of success. In the first quarter, Zappos saw 50% year-over-year growth. Here are the key takeaways from his talk:

--Hsieh began his hour with an anecdote. In college, he and his roommate started a pizza business after purchasing ovens, hiring workers, designing menus, contacting suppliers, etc. One guy they knew used to buy pizzas regularly at night and, eventually, he started even buying two. Hsieh eventually realized that the guy hadn't just been eating the pizzas himself, but taking them upstairs to sell by the slice. An inspiring story for any entrepreneur.

--In 1998, two years after co-founding LinkExchange, an online advertising service, Hsieh sold the 100-employee company to Microsoft for $265 million because the company culture had gone downhill. He began to dread going to the office of a company he was responsible for creating, so culture became very important to him and his future company, Zappos.com

--Amazon's $1.2 billion acquisition of Zappos, which closed in November, was unique in that Zappos remained independent. According to Hsieh, "We wanted to continue growing the Zappos brand our way. We wanted to keep our business going our way." Once again for the CEO of Zappos, it comes down to culture and values.

--Zappos is similar to Virgin in that neither has any problem entering niches that seem completely unrelated to the company's original product. Virgin is in movies, music, and airlines, while Zappos started with shoes and now sells whole varieties of clothes as well as electronic devices. Whereas Virgin's vision is about being cool, however, Hsieh says Zappos' vision is about providing the best service.

--The philosophy of marketing at Zappos comes down to word-of-mouth fueled by great customer experiences. Hsieh said, "Let's take most of the money we would have spent on paid advertising and put it in the customer experience." For Hsieh, the customer experience begins with the actual look and feel of the Web site. Company policy comes next, and Zappos' 365-day return policy is probably one of the most amazing company policies around. Also, in direct opposition to most sites on the Web, Zappos puts its 800-number for 24/7 customer service at the top of every page of its site.

--Hsieh is all about the phone centers. Tossing out the idea of giving customer service agents scripts to read or demanding that they upsell, Zappos wants to "build the company brand one phone call at a time. We're not trying to maximize transactions, we're trying to build a lifetime relationship with our customers." Hsieh says that some agents tell jokes to make customers feel comfortable or another might bond over dogs after hearing a bark come through the phone line. Though only 5% of sales come from telephone calls, every customer will call on average at least once--that's a lot of opportunity to bond with your customer base.

--So at Zappos, culture is the number one priority, even during the hiring process. They have a whole second set of interviews specifically to find out how a prospective employee would fit into the culture of the company, regardless of qualifications or skills. Everyone goes through a four-week training process, learning about the company history, culture, philosophy, and even working at the call center for two weeks talking to customers. Interestingly enough, Zappos will offer trainees their training pay plus an additional $2000 if they quit the company right then and there; the idea is that only people truly invested in the company and what they're doing will stick around. In 2007, 3% of people took the offer. In, 2008, 1% did. And last year, everyone turned it down.

--Two books from the Zappos library specifically spoken highly of by Hsieh: "Good to Great" by Jim Collins, co-author of "Built to Last" and "Tribal Leadership: Leveraging Natural Groups to Build a Thriving Organization" by Dave Logan, John King, and Halee Fischer-Wright.

--For a company to have a strong culture, Hsieh said a company must have committable core values, whatever those values might be. For Zappos, it is providing excellent customer service. These are the traits they look for in prospective hires:
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

--The most interesting was perhaps #6 above. "Companies are becoming more transparent whether they like it or not," explained Hsieh. "We're all connected." For this reason, the company has little qualms about disclosing financial information to customers and vendors, even though that introduces the risk of letting competitors see that data. For Hsieh, openness should come first.

--Bottom line: "Figure out what your company values are and commit to them, meaning that you are willing to fire and hire people based on those values.

Stay tuned to VatorNews for a write-up of the second keynote at Vator Splash, to be delivered by Gurbaksh Chahal, founder and CEO of gWallet.