According to Tony Hsieh, the former CEO of online clothing retailer Zappos, happiness is good for business. Happy employees work harder and more efficiently, and happy customers spend more money.
So how can you make your customers and employees happier and maximize profits? In Delivering Happiness, Hsieh says the answer lies in implementing three principles: Encourage a healthy business culture, provide great customer service, and invest in continuing education. In this guide, we’ll explore these three guiding principles that made Zappos a successful company.
While Hsieh never provides a concrete definition of company culture, we’ve used his discussions on culture to define it as follows: Culture is the standard behaviors and beliefs that employees maintain both in business settings and in their personal lives.
For example, many companies nurture the cultural belief that customer satisfaction is a priority and encourage employees to behave respectfully toward colleagues and customers. These behaviors eventually become cultural workplace habits, and employees start applying them in their personal lives as well, considering other people’s needs before their own and treating everyone respectfully.
It’s important to have a culture that reflects your business’s mission so that your employees will habitually behave appropriately to advance that mission. For example, Google’s mission is to make information universally accessible. Behaviors and beliefs that fit this mission include encouraging curiosity and valuing transparency. Employees with these traits will approach their jobs with open minds and determination to innovate and improve information accessibility, advancing Google’s mission. However, if Google’s culture didn’t reflect its mission, instead prioritizing profit over customer satisfaction or accessibility, employees might suggest and implement policies counter to the mission (such as putting information behind paywalls).
Company Culture’s Disputed Definition
Most people agree that corporate culture involves the behavior of a company’s employees, their beliefs, or as Hsieh argues, both. Those who prioritize behavior say it doesn't matter what employees believe as long as they behave in a way that supports the company’s mission. Those who emphasize belief argue that it doesn’t matter what specific behaviors employees engage in: As long as they believe in the company’s mission, they’ll act in accordance with that mission.
Hsieh’s definition is the most comprehensive, including both behavior and belief as important factors in achieving a company’s mission. This is fitting given that people are composed of both their beliefs and behaviors, and the two are interlinked: for instance, certain beliefs encourage certain behaviors. Thus, aiming to influence just one of these factors through company culture is arguably reductive.
According to Hsieh, a company's culture grows organically from its employees. As such, you must hire people who improve and uphold the desired culture. Employees who don’t uphold the company's culture can change or damage that culture.
Hsieh says most businesses encounter this problem because they hire employees that’ll bring them high profits without considering how these employees will impact the company’s culture. Most of these employees only focus on making money, rather than supporting their coworkers and the company. This influx of money-focused employees degrades the culture from a supportive, enjoyable environment to a miserable one.
(Shortform note: Companies that focus too much on profits rather than developing a healthy culture develop "toxic cultures” that push employees to meet impossible standards of profit and efficiency. To meet these standards, employees take shortcuts and illegal actions, such as lying on balance sheets to make the company seem more profitable than it really is, thus making the culture even more toxic. When these illegal actions are exposed, the company usually blames individual employees instead of the culture. They distance themselves from the issue to save face and refuse to acknowledge the larger, systemic problems: the lack of support and toxic culture that inspired the employees’ actions.)
If culture grows naturally, as Hsieh maintains, how can you assess what your culture currently is? Hsieh suggests asking your employees. Because everyone involved in a company influences its culture, gaining every perspective on that culture is important.
(Shortform note: While Hsieh says it’s important to gain every employee’s perspective on culture, he doesn’t say how to ask all employees for this feedback. Some HR experts argue that surveys are the most effective method of gaining employee feedback. Use comprehensive yearly surveys and short weekly or monthly surveys to gain perspective on your entire company’s culture. Yearly surveys let you track large-scale problems, and shorter, more frequent surveys let you track smaller issues and catch problems before they escalate.)
Once you’ve gained an understanding of your culture, you can work to nurture its good qualities. Hsieh recommends formalizing your culture into a set of principles. Some common principles include prioritizing customer experience, embracing change, and taking personal responsibility. Making a list concretizes your culture and makes it easier to communicate and enforce the principles that’ll support your company’s mission.
This step should also rely on employee testimony: You’re not establishing a set of principles you think the company should have. You’re discovering those good qualities your employees believe the company already has so you can nurture them.
Principles Are More Complex Than Hsieh Suggests
Patrick Lencioni (The Five Dysfunctions of a Team) disagrees with Hsieh's assessment that your principles should be solely based on the good qualities your company already has, claiming the matter is more nuanced. He argues that there are four types of principles:
Core principles: These are principles selected and enforced by the executives of a company. They form the cultural cornerstones of the company.
Aspirational principles: These are currently unattained principles that you want the company to achieve.
"Permission-to-play" principles: These are the basic standards of honesty and integrity that every company requires from its employees.
Accidental principles: These are principles that stem from employees and spread throughout the company over time. These principles usually form from the shared interests and personality types of coworkers.
Now that we've covered Hsieh's general ideas about creating a company culture, let's look at how he fostered Zappos's culture specifically. Zappos began nurturing its culture early in the company’s life. Based on his employees’ suggestions, Hsieh refined Zappos’s culture into ten defining principles. We’ve synthesized these into three critical categories: friendship, support, and innovation.
The first principle defining Zappos’s culture is friendship, Hsieh explains. Employees who are friends with their coworkers are happier, which inspires them to do better work and makes the office environment more enjoyable. In addition, employees that are friends work better together in difficult times.
(Shortform note: Research supports Hsieh’s belief that friendship is important in the workplace: People who have friends at work are more productive, dedicated, and happy. You can encourage friendships at work by creating an environment of communication, humility, and compassion. Managers can foster such an environment by exemplifying these qualities themselves, as their employees will likely follow their lead.)
Zappos encourages friendship by building it into the hiring process. For example, in the company’s early days, the hiring team considered if they would enjoy spending time with each potential employee outside of work. If the answer was “no,” they wouldn’t hire that individual.
(Shortform note: Zappos initially used the potential for friendship as a barometer for hiring new employees. However, only hiring people you like and who share your values and interests can lead the company to lose diversity of experience or thought. Instead, hire people who add to the culture, rather than conform to it. These individuals have different values and perspectives than your existing employees, which means they add nuance to your culture and new ideas to your company. These additions ensure that your culture doesn’t stagnate and instead continues to innovate and improve.)
The second principle of Zappos’s culture is supporting employees, Hsieh says. Support means recognizing what’s best for your employees’ happiness and productivity and fulfilling that need, even if it means losing money in the short term.
For example, your employees might need affordable childcare so they can focus on work instead of worrying about their children. To meet this need, you might institute a program to help parents pay for childcare or even provide childcare in-house. These solutions cause a short-term loss in service of long-term growth fueled by employee happiness and productivity.
(Shortform note: Recognizing and providing for your employees’ needs, rather than the needs of the business, requires employee-level empathy. This means respecting that your employees have lives and goals outside of their jobs, rather than pushing their personal lives and needs aside in favor of profits.)
One of the things employees need to be happy and productive—and that Zappos provides—is trust and empowerment to make decisions, Hsieh argues. The employees on the “front lines” of a department are usually the best equipped to understand and handle that department’s problems. Supporting these employees and their suggestions shows that you respect them and empowers them to solve problems faster.
(Shortform note: Paul L. Marciano agrees with Hsieh’s emphasis on trust and empowerment in Carrots and Sticks Don’t Work. He outlines three main steps to empowering employees: First, share information with your employees about the company’s goals and procedures so they can work to fulfill those goals. Second, ensure your employees have all the resources needed to complete their tasks. Finally, step back and let your employees use the information and resources you've provided. Let them try new things and learn from their mistakes.)
Another thing employees need to be happy and productive is financial security. Zappos provides financial security for its employees by offering 100% medical, dental, and vision insurance coverage for all employees.
(Shortform note: Research suggests that offering employees such comprehensive insurance packages makes them healthier and less stressed. This decrease in stress and increase in health makes employees up to three times more productive than employees with less comprehensive insurance. Also, offering insurance can reduce operating costs: Employees will often take lower salaries in exchange for insurance, since buying insurance coverage directly often costs more than a salary increase would cover.)
The final principle of Zappos’s culture is innovation. Innovation is vital for any company, Hsieh maintains, because companies fail when they stop improving. The only way to maintain success is constant evolution.
(Shortform note: Many people stifle their company’s innovation because they won’t hire people who are smarter or more skilled than them and who may thus help them to improve. In The Art of Thinking Clearly, Rolf Dobelli calls this “social comparison bias.” Encourage innovation and maintain your company’s success by hiring the smartest and most talented people you can, even if they’re smarter or more talented than you.)
Innovation also contributes to employee happiness. Following the same patterns and processes at work becomes stifling over time and can lead to employee burnout, Hsieh explains. On the other hand, innovation brings a constant sense of excitement and growth to a company, making people more engaged and happier at work.
(Shortform note: Innovation’s relationship with happiness is a two-way street: Innovation inspires happiness and happiness inspires innovation. When employees have a good day, they’re more likely to come up with original and creative ideas. Thus, if you nurture them, innovation and happiness can work together in a cycle, continually improving your business and making your employees happier.)
Zappos encourages its employees to innovate by supporting their ideas, even unconventional ones, Hsieh says. For example, rather than conducting conventional job interviews, the Zappos hiring team created unconventional “speed interviewing.” Like speed dating, prospective employees only have a few minutes to convince the hiring team that they’re a good fit for the job. While the speed interviewing initially needed some trial-and-error to run smoothly, it lets the hiring team evaluate a lot of candidates quickly and determine who might be a good fit.
Zappos’s Continued Innovation
Zappos continued to innovate its recruitment process after Delivering Happiness was published. In 2014, Zappos replaced its traditional job postings with the Insider program. Instead of filling a single job position, the program focused on cultivating more general relationships with potential future employees: Its recruiters discussed general skills and interests, rather than specific job criteria. Once Zappos understood the potential employee’s personality and skills, it could determine where in the company that person fit and offer a job.
This program saw initial success, increasing engagement and interest in Zappos as well as the quality of applicants. However, it didn’t work well in the long term, and Zappos returned to offering traditional job postings on their website. This may be a sign to be bold with your innovation but pay close attention to the success of new projects and be willing to pivot to another plan if necessary.
Providing great customer service is another vital component of a successful business. According to Hsieh, great customer service is being so supportive and adaptable in every customer interaction that you have a positive emotional impact on the customer. This positive emotional impact is the first step toward forming a healthy and profitable long-term relationship with that customer.
(Shortform note: Hsieh sees a positive emotional impact as the root of good customer service, but how do you generate this positive response? It doesn’t necessarily mean going beyond your customer’s expectations with free perks and bonuses: Studies show that most customers are happier with simple, quick solutions to their problems. Prioritize problem-solving before worrying about dazzling your customers.)
Hsieh says providing good customer service is important because it increases the “lifetime value” of customers. This is the total revenue that a customer brings to the company throughout their life. If a customer only uses your service once, then their lifetime value is very low. However, if you create an emotional connection through your customer service, your customers are more likely to return to your business and increase their lifetime value.
(Shortform note: Hsieh notes that increasing the lifetime value of customers is important, but he doesn’t explain how important. Studies show that if companies increased the lifetime value of 5% of their customers, they’d increase profits by 100%. This profit increase occurs because you can charge long-term customers more money. By forming relationships with customers, you encourage them to trust you. If customers trust you, they’ll prefer your services over those of a competitor, even if you charge more.)
Zappos encourages great customer service through its intensive training program, Hsieh explains. Every Zappos employee goes through four weeks of customer service training and two weeks working in the customer service call center. Most companies would view this as a waste of time and resources, but Zappos sees it as essential to the company’s success. If all employees are trained in customer service, they can all embody the principles of good customer service—such as attentiveness and politeness—in their interactions with customers, business partners, and the press.
(Shortform note: Hsieh says training all employees in customer service is important. However, others go further, arguing that training internal departments that don’t usually interact with outsiders is most beneficial. Backend departments often complicate the customer service department’s job. However, if every employee is trained to prioritize customer service, they’ll focus on helping the customer service department succeed and thus help to maximize customer lifetime value. For example, an IT department that hasn’t trained in customer service may delay upgrading customer service’s hardware because they value the marketing department more. After customer service training, the IT department would prioritize upgrading customer service’s hardware so they can contact customers faster.)
Another vital element of customer service is maintaining communication with the customer. Zappos achieves this through its call center. While call centers are almost ubiquitous in large and medium-sized companies, Zappos sets itself apart from its competitors through its innovative, customer-oriented call center policies.
(Shortform note: Research supports Hsieh’s commitment to making his call centers as effective as possible. Studies show that 80% of customer interactions happen over the phone. In addition, 92% of customers base their opinion of a company on their experiences with that company’s call center. Thus, optimizing your call center can be vital to securing long-term customers.)
Hsieh says Zappos has three unusual call center policies that encourage the kind of communication necessary for great customer service:
1. Zappos doesn’t time calls. Most call centers measure employee success through the number of calls they take in a period of time, which pressures employees to rush calls. Untimed calls mean employees can instead focus on providing great customer service.
(Shortform note: Research supports Zappos’s abandonment of timed calls. Studies show that customers care less about call speed than they do about having their problems solved with a single call. Thus, call centers should judge employee success on whether they can handle customer needs without having to transfer the customer, rather than on how quickly they make calls.)
2. Zappos doesn’t use scripts. This allows employees to use their own judgment when handling customer requests and form genuine relationships with customers.
(Shortform note: Employees can form genuine relationships when they don’t have to rely on scripts because they have the freedom to learn about their customers and integrate that knowledge into their service. For example, a customer may mention that they enjoy hiking. The employee can use this information to connect with the customer and direct them to the company’s hiking boots. The customer will be impressed that the employee paid attention to their interests and is more likely to shop there again.)
3. Zappos doesn’t upsell. Many companies use their call centers to promote upgrades or additional products to customers. However, upselling prioritizes revenue over the customer experience. Instead of trying to sell a customer more products during their call, Zappos indirectly encourages customers to make further purchases by providing great service.
(Shortform note: Zappos’s call center doesn’t upsell, but its website does by tracking items you’ve previously viewed or purchased and recommending items you might like based on that data. This isn’t hypocritical: Customers’ needs change depending on the situation. When customers call Zappos, they just want to solve their problem quickly. However, when shopping online, upselling can help customers find the best products to meet their needs. For example, Zappos’ website might register that you’re shopping for Nike sneakers and display several different style and price options so you can quickly find one you like that fits your budget.)
According to Hsieh, the third and final important element of a successful business is continuing employee education: in other words, constantly giving your employees training and learning opportunities. This training shouldn’t only apply to the skills the employee was hired for, Hsieh adds. Rather, employees should learn about a variety of different skills and areas of knowledge so they can more easily innovate and adapt to new situations. According to Hsieh, employees are happier and more willing to work when they’re learning and improving themselves.
(Shortform note: How does learning make you happy? Raph Koster explains in A Theory of Fun For Game Design that “fun” is a burst of dopamine you receive when learning something new or mastering a skill. Dopamine generates pleasure and motivation, so learning something new, as Zappos encourages, directly contributes to happiness.)
In addition, companies are only as good as their employees, Hsieh explains. Your company can’t grow and improve unless your employees do as well because they’re the ones operating the business. Thus, to keep innovating and maintain your company’s success, support your employees’ innovation and success.
(Shortform note: Hsieh says companies are only as good as their employees and uses this as justification for continual employee education. Others take this idea a step further, saying your company is only as good as your worst employees. Thus, improve the quality of your company by evaluating and training your weakest employees specifically. You’ll improve your profits and the newly-trained employees will likely feel happier and more fulfilled.)
Finally, continuing education is important for business succession planning. Many companies train their employees for a single, specific job, Hsieh says. Then, when those employees have to adapt to another role—whether because of a planned promotion or an emergency situation—they aren’t prepared to do so. However, if your company prioritizes continuing education in a variety of skills and areas of knowledge, you’ll create a system where any time a role opens, there’s an employee ready to fill it. Not only does this alleviate stress, but it also provides a clear path of career progression for your employees, giving them a constant stream of goals to aim for.
(Shortform note: In Principles, Ray Dalio agrees that succession training is important. He suggests three steps you can take to ensure your employees are ready to fill new roles. First, select a replacement for each key person on your staff: Just like you’d have backups for important parts of a machine, make sure someone’s ready to fill the gap if any of your essential personnel are unavailable. Second, give these future successors opportunities to see how their predecessors think and solve problems. Finally, let successors handle some of their predecessors’ responsibilities so you can analyze how prepared they are for the role.)
Zappos encourages continuing education through its “educational pipeline” system of training. Hsieh says Zappos’s pipeline operates on a merit badge system: People who fulfill certain training requirements earn promotions and pay raises. The first, basic elements of training are mandatory, but after those elements are completed, people can select which merit badges they want to earn and which skills to specialize in.
(Shortform note: This merit badge system works because it offers employees a choice in what to train in. Even minor choices engage intrinsic motivation, where you do something because it’s personally rewarding for you. This kind of motivation lasts longer and is both stronger and mentally healthier than motivation caused by external rewards. Its power is visible in studies of traditional education: College students who select their own courses and assignments turn in better work more consistently. By applying proven theories of educational motivation to its programs of continuing education, Zappos thus encourages its employees to find fulfillment and happiness in their training.)
Happiness is good for business, Tony Hsieh, the former CEO of online clothing retailer Zappos, explains in Delivering Happiness. Happy employees work harder and more efficiently, and happy customers spend more money.
So how can you make your customers and employees happier? Delivering Happiness describes three important steps: Encourage a healthy business culture, provide great customer service, and invest in continuing education. Hsieh explores the theory behind each step before describing how he implemented them at Zappos. Hsieh also shares details from his own life, including additional lessons in business management that he learned through trial and error and later applied to Zappos.
Tony Hsieh was an American entrepreneur and former Zappos CEO. Born in Urbana, Illinois in 1973, Hsieh expressed an interest in pursuing entrepreneurship at just nine years old, experimenting with small business ideas such as worm farming, selling buttons, and writing a newsletter. He attended Harvard University and graduated with a degree in computer science in 1995.
Shortly after graduating college, Hsieh founded LinkExchange, an internet-based advertisement company. LinkExchange was very successful, and Hsieh sold the company to Microsoft in 1998 for $265 million. One year later, Hsieh became involved with shoe and clothing retailer Zappos, initially as an investor and then as CEO. Hsieh turned Zappos into a billion-dollar company in a decade, which launched him to business-world fame. From paying employees to quit to embracing “weirdness,” Hsieh gained a reputation for pursuing unconventional ideas and focusing on making his customers and employees happy.
In the 2010s, Hsieh pursued new, non-business ventures. First, in 2010, he wrote Delivering Happiness. The book was his first foray into writing and was an instant success, spending 27 consecutive weeks%20and%20life.) on the NYT Best-seller List. Later in the decade, Hsieh spearheaded a community revitalization project in downtown Las Vegas, focusing on encouraging community connectedness, small businesses, education, and culture.
In 2020, as the Covid-19 pandemic shut down the United States, Hsieh struggled with loneliness and drug abuse. These personal issues may have led to his retirement from Zappos that same year. Shortly after his retirement, Hsieh died of smoke inhalation from a house fire.
Delivering Happiness was published in 2010 by Grand Central Publishing, an imprint of Hachette Book Group, Inc. An e-book version was released in 2013. This guide refers to the 2013 e-book edition.
Tony Hsieh published Delivering Happiness shortly after selling Zappos to Amazon in 2009 for $1.2 billion. The deal made headlines as Amazon’s most expensive acquisition to date and was only surpassed in 2013 when Amazon acquired Whole Foods for $13.7 billion. The record-high deal created interest in how Hsieh had turned a tiny, unprofitable internet company that barely survived the dot-com crash of 2000 into a billion-dollar business. Delivering Happiness’s timing capitalized on this interest.
Many of the basic ideas presented in Delivering Happiness—such as the importance of having a healthy company culture—aren’t unique. In the book, Hsieh references some contemporaries he drew ideas from, such as business expert Jim Collins (Good to Great) and psychologist Jonathan Haidt (The Happiness Hypothesis).
However, Delivering Happiness stands apart from other business books because it details how Hsieh put these general ideas into practice. The book gives a glimpse into Hsieh’s mind as he explains the basis of his success and how other entrepreneurs can apply his ideas at their companies. For example, he explains how to encourage innovation in your employees by relating how Zappos supported its employees’ unconventional idea of instituting “speed interviewing” to make the hiring process easier.
Praiseful readers of Delivering Happiness enjoy Hsieh’s casual and easy-to-read writing style. They believe Hsieh offers a comprehensive overview of how Zappos operated under his leadership and provides good advice on applying Zappos’s principles to other companies.
However, some readers dislike the autobiographical elements of the book. They believe Hsieh focuses too much on his life before Zappos, rather than on how Zappos succeeded. In addition, some readers argue that the book feels more like an advertisement for Zappos than a book of advice.
Hsieh writes casually and passionately, an unconventional choice for a business book. Throughout the book, he not only states facts but also descriptively and emotively relates his perspective on these facts. For example, when Hsieh discusses Zappos’s acquisition by Amazon, he explains both the facts, such as Amazon’s record $1.2 billion payment, and the emotions of the moment, such as the hope he felt for the future.
In another unconventional choice, Hsieh scatters real emails, anecdotes, and employee testimonies from Zappos throughout the book. This allows the reader a close look into the real workings of the company.
Hsieh wrote Delivering Happiness as an autobiography of both himself and Zappos, stretching from his childhood to Zappos being acquired by Amazon in 2009. As a result, the book relies heavily on personal anecdotes to explain Hsieh’s ideas about how to effectively run a business, rather than on research. This arguably reflects Hsieh's goals in writing the book: He wasn't trying to produce a research-backed work about general business practices, he aimed to write about how Zappos specifically succeeded.
Delivering Happiness has three parts, each part covering a period of Hsieh’s life:
The book is organized chronologically. This is helpful at times, as it demonstrates how Zappos’s success grew over time as the company implemented more of Hsieh's ideas. However, this organization also leads to a lot of repetition: Since Hsieh applied the same principles multiple times during his years as Zappos’s CEO, he mentions them repeatedly throughout the book.
In this guide, we’ve divided Delivering Happiness into just two parts. Part 1 focuses on the principles that made Zappos successful and how Hsieh applied them. We’ve split each of Hsieh’s main principles—culture, customer service, and continuing education—into distinct chapters, combining and reorganizing ideas to decrease repetition and increase logical flow. We’ve allotted two chapters to our discussion of culture, as it’s the principle Hsieh discusses at greatest length.
Part 2 explores several life lessons Hsieh learned through trial and error that influenced his management of Zappos. We’ve arranged these lessons by theme and provided examples of how Hsieh learned and implemented these lessons at the company. Part 2 closes with three of Hsieh’s theories about happiness.
Throughout the guide, we explore research that backs up Hsieh’s principles, compare and contrast his ideas with other experts on business, and provide concrete steps for implementing Hsieh’s ideas at your company.
According to Tony Hsieh, the former CEO of online clothing retailer Zappos, happiness is good for business. Happy employees work harder and more efficiently, and happy customers spend more money.
So how can you make your customers and employees happier to maximize profits? In Delivering Happiness, Hsieh says the answer lies in implementing three principles: Encourage a healthy business culture, provide great customer service, and invest in continuing education.
In Part 1 of this guide, we’ll cover these three guiding principles that made Zappos a successful company, beginning in this chapter with what company culture is and how to nurture it. In Part 2, we’ll explore the autobiographical elements of Delivering Happiness and how Hsieh’s personal experiences influenced his management of Zappos.
According to Hsieh, a healthy company culture is one of the most important elements of a successful business. While he never provides a concrete definition of company culture, we’ve used his discussions on culture to define it as follows: Culture is the standard behaviors and beliefs that the employees of a company maintain both in business settings and in their personal lives.
For example, many companies nurture the cultural belief that customer satisfaction is a priority, as well as the belief that employees should behave respectfully toward colleagues and customers. These behaviors become cultural workplace habits, and employees start to apply them in their personal lives too, considering other people’s needs before their own and treating everyone respectfully.
It’s important to have a culture that reflects your business’s mission so that your employees will habitually behave appropriately to advance that mission. For example, Google’s mission is to make information universally accessible. Behaviors and beliefs that fit this mission include encouraging curiosity and valuing transparency. Employees with these traits will approach their jobs with open minds and determination to innovate and improve information accessibility, advancing Google’s mission. However, if Google’s culture didn’t reflect its mission, instead prioritizing profit over customer satisfaction or accessibility, employees might suggest and implement policies counter to the mission (such as putting up paywalls).
Company Culture’s Disputed Definition
It’s not surprising that Hsieh doesn’t provide a concrete definition for culture in Delivering Happiness, despite the importance of culture throughout the book. Culture occupies a nebulous place in the business world: Everyone knows that culture’s important, but no one’s sure how to define it.
While there’s no consensus on culture’s precise definition, most people agree it has two components: employee behavior and belief. Some argue that employee behavior is the true indicator of culture. As long as employees behave in a way that supports the company's culture and mission, it doesn’t matter what they personally believe about that mission. This perspective also posits that the founders of a company can dictate culture: If employee behavior comprises culture, then changing employee behavior through incentives and penalizations can also change the culture.
Others focus only on the belief aspect of culture. They argue that as long as employees believe in the company and its mission, they’ll behave in ways that support it. This perspective says belief, and thus culture, stems from the employees of a company and can’t be dictated by the founders. Incentives and penalizations can alter behavior, but the employees’ beliefs will ultimately determine how they act.
Hsieh’s idea of culture is the most comprehensive, acknowledging both the behavior of employees and their beliefs as important factors in achieving a company’s mission. This is fitting given that people are composed of both their beliefs and behaviors, and the two are interlinked: for instance, certain beliefs encourage certain behaviors. Thus, aiming to influence just one of these factors through company culture is arguably reductive.
A company can’t impose culture on its employees, Hsieh says. Instead, a company’s culture stems organically from employees. Therefore, Hsieh argues, you must hire people who improve and uphold the desired culture. Zappos achieves this through its two-part hiring process: First, Zappos interviews potential employees for their skill and ability to complete their roles. Then, they interview those who passed the first stage to see if they fit Zappos’s culture. Zappos only hires employees who pass both stages, no matter how talented or valuable the potential employee seems.
(Shortform note: An important requirement of Zappos’s two-part hiring process is that candidates must pass both interviews: Zappos won't sacrifice culture for skill or vice versa. Many employers neglect this important balancing act, instead heavily prioritizing a single attribute when hiring: commonly, culture fit. Thus, they hire people who don't fit their company’s skill requirements. Zappos’s two-part hiring method mitigates this problem by forcing the hiring team to thoroughly consider potential employees both personally and professionally.)
Enforcing this two-part hiring policy is important because employees who don’t uphold the company's culture can change or damage that culture. Hsieh says most businesses encounter this problem because they hire employees that’ll bring them high profits without considering how these employees will impact the company’s culture. Most of these employees only focus on making money, rather than supporting their coworkers and the company. This influx of money-focused employees degrades the culture from a supportive, enjoyable environment to a miserable one.
(Shortform note: Companies that focus too much on profits rather than developing a healthy culture develop "toxic cultures” that push employees to meet impossible standards of profit and efficiency. To meet these standards, employees take shortcuts and illegal actions, such as lying on balance sheets to make the company seem more profitable than it really is. When these illegal actions are exposed, the company usually blames individual employees instead of the culture. They distance themselves from the issue to save face and refuse to acknowledge the larger, systemic problems: the lack of support and toxic culture that inspired the employees’ actions.)
This policy of considering culture when choosing personnel must also extend to choosing investors and board members: Hsieh recommends ensuring that all stakeholders will uphold the company’s principles and focus on maintaining a healthy culture. Investors and board members have a lot of sway over a company’s operations because they control the company’s resources. A board comprised of the wrong people can withhold resources, ruining the culture by forcing the company to focus on profits above all else.
(Shortform note: Hsieh suggests finding a board and investors that support your company’s culture. But what if your company already has an established board and investors that aren’t supporting your culture? In The Innovator’s Dilemma, Clayton M. Christensen suggests creating a subsidiary—a company owned and controlled by another company. Subsidiaries have enough distance from investors and board members that they can take risks on less-profitable activities, such as developing culture. If the culture-focused subsidiary succeeds, investors and board members will be more willing to focus on culture throughout the parent company.)
How can you assess how healthy your culture currently is? Hsieh suggests asking your employees. Because everyone involved in a company influences its culture, gaining every perspective on that culture is important.
(Shortform note: While Hsieh says it’s important to gain every employee’s perspective on culture, he doesn’t say how to ask employees for this feedback. Some HR experts argue that surveys are the most effective method of gaining employee feedback. Use comprehensive yearly surveys and short weekly or monthly surveys to gain perspective on your entire company’s culture. Yearly surveys let you track large-scale problems, and shorter, more frequent surveys let you track smaller issues and catch problems before they escalate.)
This includes gaining negative perspectives, Hsieh adds. Employee complaints about culture act as an advance warning of more serious problems in the future. For example, if an employee complains that there’s not enough communication between teams, you should encourage teams to communicate more often. If you don’t solve the problem, it’ll worsen. For instance, imagine your sales team fails to communicate important order details to your production team. Your production team will be unable to quickly create the correct products, and customers will become frustrated with the delays and cancel their orders, costing your company profits.
(Shortform note: When receiving these complaints, look deeper than the surface issue. Sometimes, one issue is actually a symptom of a larger problem. For example, if a manager complains that her employees aren’t meeting their deadlines, you could incentivize the employees to meet said deadlines. However, if the employees are slow because their tasks aren't clearly explained, then incentives won’t help. You must address the bigger problem to fix the symptoms.)
Once you’ve gained an understanding of your culture, you can work to nurture its good qualities. Hsieh recommends formalizing your culture in a set of principles. Some common principles include prioritizing customer experience, embracing change, and taking personal responsibility. Making a list concretizes your culture and makes it easier to communicate and enforce the principles that’ll support your company’s mission.
This step should also rely on employee testimony: You’re not establishing a set of principles you think the company should have, you’re discovering those good qualities your employees believe the company already has so you can nurture them.
Hsieh emphasizes the importance of living by your cultural principles once you've formalized them. For your principles to actually nurture your culture, they must determine which employees you hire and fire, and you must uphold them in your daily operations. This may seem obvious, but many companies don’t live by their principles. Instead, they project a certain cultural image through advertisements but don’t adhere to that culture in reality.
Resist the urge to project this kind of fictional culture, Hsieh warns. Customers will notice this discrepancy between your company’s cultural principles and real practices. They’ll lose trust in your company and take their business to your competitors instead. For example, if your company says customer service is its primary goal, but then provides bad customer service, your customers will stop believing you and go to a more honest company.
Principles Are More Complex Than Hsieh Suggests
Patrick Lencioni (The Five Dysfunctions of a Team) disagrees with Hsieh's assessment that your principles should be solely based on the good qualities your company already has, claiming the matter is more nuanced. He argues that there are four types of principles:
Core principles: These are principles selected and enforced by the executives of a company. They form the cultural cornerstones of the company.
Aspirational principles: These are currently unattained principles that you want the company to achieve.
"Permission-to-play" principles: These are the basic standards of honesty and integrity that every company requires from its employees.
Accidental principles: These are principles that stem from employees and spread throughout the company over time. These principles usually form from the shared interests and personality types of coworkers.
While Lencioni and Hsieh disagree on the definition of principles, they agree that you must enforce them if they’re to have any effect. Lencioni goes further than Hseih, stressing the importance of enforcing even controversial values (for instance, enforcing professionalism in Silicon Valley, which is famous for its laid-back nature). When you enforce less popular principles, your employees know you're serious about those principles and adjust their behavior accordingly. In addition, these controversial principles set you apart from your competitors.
In Chapter 1, we examined what culture is and how to nurture it. In this chapter, we’ll cover how Zappos developed and nurtured its own culture.
Zappos sets itself apart from its competitors through a culture devoted to making its employees happy. Hsieh believes that by making its employees happy, Zappos will naturally fulfill its other objectives of great customer service and continued success.
(Shortform note: Both Zappos’s own success and other authors support Hsieh’s dedication to employee happiness. In The Infinite Game, Simon Sinek agrees that happier employees work harder and create better results: By prioritizing your employees over profits, you inspire them to care for the company in return. This means they will freely devote more time and effort to making the company successful.)
Zappos began nurturing its culture early in the company’s life. Shaping the culture at this stage was easy, Hsieh explains, because Zappos had a small group of employees who joined the company because they were excited about the project, rather than just looking to make money. Zappos could start nurturing these good qualities from the very beginning.
(Shortform note: Hsieh’s advice on developing and nurturing culture here focuses on building the culture of a new company. But what if your company is already established—how do you develop culture then? While you can’t dictate culture from the top-down, you can guide it. Change your company’s processes to encourage your desired principles. Employee behavior and attitudes will gradually shift to uphold those principles. For example, if you want to encourage efficiency, automate as many repetitive, time-draining processes so your employees can spend their time on more important projects. Your employees will recognize this dedication to efficiency and adopt that principle over time.)
Based on these employees’ suggestions, Hsieh refined Zappos’s culture into 10 defining principles. We’ve synthesized these into three critical categories:
The first principle defining Zappos’s culture is friendship, Hsieh explains. Employees who are friends with their coworkers are happier, which inspires them to do better work and makes the office environment more enjoyable. In addition, employees that are friends work better together during difficult times.
Zappos nurtures this culture of friendship in a number of ways. First, Zappos encourages employees to be themselves, letting their true personalities and interests shine through, Hsieh states. Having a blend of personalities and interests in your team makes work more enjoyable, and employees who don’t have to put on a persona at work are more comfortable and eager to work.
(Shortform note: Encourage your employees to be authentic by learning about their interests and engaging those interests at work. For example, if one of your employees is a stand-up comedian, encourage them to give engaging, humorous presentations. Also, model authenticity yourself: Be open about your personality and interests so your employees feel safe doing the same.)
Second, Zappos encourages employees to have fun at work. Having fun increases employee happiness and enthusiasm for work, Hsieh says. This boost to productivity makes up for any time fun activities may take away from work.
(Shortform note: Having fun increases employee happiness and enthusiasm because it triggers intrinsic motivation. Being intrinsically motivated means you do something because it’s personally rewarding for you. This kind of motivation lasts longer and is both stronger and mentally healthier than motivation caused by external rewards. Having fun while working releases positive chemicals in the brain that make the activity personally rewarding and trigger intrinsic motivation.)
Zappos also encourages honest communication and humility throughout the company. Hsieh explains that honest communication strengthens relationships and encourages respect, making it essential to Zappos's culture of friendship. Similarly, humility encourages respect because employees focus less on their own accomplishments and more on encouraging and uplifting others, which is also important for relationships.
Work Friends: A Danger or a Benefit?
Research supports Hsieh’s belief that friendship is important in the workplace: People who have friends at work are more productive, dedicated, and happy. Despite these benefits, only 19% of Americans report having meaningful relationships at work.
There are several possible reasons why there are so few work friendships. The expectations of professionalism at work can make friendships awkward, as people struggle to find a balance between acting like a friend and a coworker. Another hurdle is the job itself: Coworkers have tasks to complete, which means they rarely spend enough uninterrupted time together to forge a friendship. Finally, friendships can fall apart and the resulting tension harms team efficiency. This threat may discourage coworkers from forming friendships at all.
You can mitigate these possible friendship-related problems by encouraging an environment of communication, humility, and compassion, as Hsieh suggests. Managers can foster such an environment by exemplifying these qualities themselves, as their employees will likely follow their lead. By encouraging these factors, management shows it supports friendly relationships, which eases the pressure of professionalism and encourages employees to solve conflicts amicably. When managers take these steps, employees can reap the benefits of work friendships with fewer risks.
Humility is arguably the most important of the above traits to exemplify because it can naturally lead to the other traits. Humility means recognizing that you’re no more or less important than any other person: Once you realize this and treat other people accordingly, better communication and compassion are easier to nurture as well. As such, practice humility by listening to other people rather than being distracted by your own opinions or ideas, practicing gratitude, and being willing to admit when you don’t know something or aren’t the best person to complete a task.
Zappos doesn’t stop at abstractly encouraging its employees to embody the principle of friendship. It also takes concrete steps to increase friendships among its employees, Hsieh explains. For example, in its early days, Zappos built friendship into the hiring process: When evaluating potential employees, the hiring team considered if they would enjoy spending time with the potential employee outside of work. If the answer was “no,” they wouldn’t hire that individual.
(Shortform note: Zappos initially used the potential for friendship as a barometer for hiring new employees. However, only hiring people you like and who share your values and interests can lead the company to lose diversity of experience or thought. Instead, hire people who add to the culture, rather than conform to it. These individuals have different values and perspectives than your existing employees, which means they add nuance to your culture and new ideas to your company. These additions ensure that your culture doesn’t stagnate and instead continues to innovate and improve.)
In addition, Hsieh says Zappos designed its building so every employee must funnel through the lobby to enter or exit. This is less convenient for employees than having several exits, but this strategy increases the number of positive interactions employees have with each other as they enter and leave work. Even these brief positive interactions encourage the formation of friendships.
(Shortform note: Experts agree with Hsieh that small, positive interactions between coworkers can grow into relationships which then improve teamwork and performance. However, while brief contact can facilitate these relationships, longer interactions form stronger bonds. To this end, some CEOs go beyond Hsieh’s methods, building longer periods of time into the day for employees to be social without the pressure of wasting company time. While this lessens the time employees spend working, the benefits of positive employee relationships outweigh that loss.)
The second principle of Zappos’s culture is supporting its employees, Hsieh says. Employees that feel supported by their employers are happier and more motivated to work hard.
(Shortform note: Many managers neglect employee support in favor of supporting customers because they see employees merely as expendable assets to gain higher profits, while customers actually provide those profits. While supporting customers is important, it’s arguably more important to focus on supporting employees. Studies show that customer satisfaction significantly increases when employees are satisfied with their support at work. Thus, if you focus on supporting your employees, you’ll support your customers—and your bottom line—too.)
Hsieh explains that support means recognizing what’s best for your employees’ happiness and productivity and providing for that need, even if it means losing money in the short term. For example, your employees might need affordable childcare so they can focus on work instead of worrying about their children. To meet this need, you might institute a program to help parents pay for childcare or even provide childcare in-house. These solutions cause a short-term loss in service of long-term growth fueled by employee happiness and productivity.
(Shortform note: Recognizing and providing for your employees’ needs, rather than the needs of the business, requires employee-level empathy. This means respecting that your employees have lives and goals outside of their jobs, rather than pushing their personal lives and needs aside in favor of profits. This respect could take the form of maternity leave, flexible working hours, or providing training for promotions.)
One of the things employees need to be happy and productive—and that Zappos provides—is trust and empowerment to make decisions, Hsieh argues. The employees on the “front lines” of a department are usually the best equipped to understand and handle that department’s problems. Supporting these employees and their suggestions shows that you respect them and empowers them to solve problems faster.
Supporting Your Employees Through Empowerment
Paul L. Marciano agrees with Hsieh’s emphasis on trust and empowerment in Carrots and Sticks Don’t Work. He outlines three main methods of empowering employees:
1. Share information. Give your employees information about the company’s goals and processes so they can work to fulfill those goals. If you hoard information on a need-to-know basis, employees will feel untrusted and resentful. They'll try to learn the withheld information through gossip, leading to the spread of confusion and false information.
2. Provide resources. Give your employees the resources they need to complete their tasks. This includes training as well as physical resources. These resources should remove obstacles that may impede employee progress. For example, training removes a lack of knowledge, and automated systems remove repetitive, time-consuming jobs.
3. Give responsibility. Give your employees the chance to use the information and resources you've provided. Let your employees try new things and learn from their mistakes. If you’re anxious about delegating responsibility and risking costly mistakes if your employees can’t cope, decide what would constitute an acceptable loss and delegate responsibility within that limit. For example, you might decide that an employee losing $100 by investing in a failed project is an acceptable loss. In that situation, limit your employees' responsibility so they can't invest more than $100 without consulting a manager.
Another thing employees need to be happy and productive is financial security. Zappos outdoes its competitors in supporting its employees’ financial security in several ways. One of the most well-known examples is its four-week probation period. If employees quit during this time, they receive a $2,000 bonus. This incentive ensures that people stay at Zappos because they want to work there rather than staying out of necessity because they can’t afford to search for another job. This policy inspires and impresses employees, Hsieh explains, and fewer than 1% of employees take the offer.
(Shortform note: After Delivering Happiness was published, Zappos extended its “pay to quit” policy. The company found that some employees succeeded in the company for a while, but later experienced burnout. These burnt-out employees then left the company on bad terms. To encourage employees to leave on good terms before burning out, Zappos removed the bonus’s time limit. In addition, the bonus increases for every year an employee has worked for the company, with a maximum bonus of $5,000. Even with this increase, only 3% of Zappos’s workforce has accepted the offer.)
Besides pioneering new strategies for employee support, Zappos optimizes common strategies like offering comprehensive insurance. Zappos provides 100% medical, dental, and vision coverage for all employees, as well as 50% coverage for spouses and dependents of employees.
(Shortform note: Research suggests that offering employees such comprehensive insurance packages makes them healthier and less stressed. This decrease in stress and increase in health makes employees up to three times more productive than employees with less comprehensive insurance. Also, providing insurance attracts experienced employees and can reduce operating costs: Employees will often take lower salaries in exchange for insurance, since buying insurance coverage directly often costs more than a salary increase would cover.)
The final principle of Zappos’s culture is innovation. Innovation is vital for any company, Hsieh maintains, because companies fail when they stop improving. You can't become comfortable with your current success because others can and will copy your methods. The only way to maintain success is constant evolution.
(Shortform note: Many people stifle their company’s innovation because they won’t hire people who are smarter or more skilled than them and who may thus help them to improve. In The Art of Thinking Clearly, Rolf Dobelli calls this “social comparison bias.” Encourage innovation and maintain your company’s success by hiring the smartest and most talented people you can, even if they’re smarter or more talented than you. Focus on supporting these people, rather than competing with them, to make your company the best it can be.)
Innovation also contributes to employee happiness. Following the same patterns and processes at work becomes stifling over time and can lead to employee burnout, Hsieh explains. On the other hand, innovation brings a constant sense of excitement and growth to a company, making people more engaged and happier at work.
(Shortform note: Innovation’s relationship with happiness is a two-way street: Not only does innovation inspire happiness, but happiness inspires innovation. When employees have a good day, they’re more likely to come up with original and creative ideas. Thus, if you nurture them as Hsieh suggests, innovation and happiness can work together in a cycle, continually improving your business and making your employees happier.)
Part of innovation is taking risks and making mistakes. Zappos encourages employees to take risks and make mistakes because that’s the only way to learn, according to Hsieh. Over time, people who make mistakes have better instincts for which projects will succeed or fail and can choose successful ventures accordingly. Furthermore, trusting your employees to learn from their mistakes lets them better themselves and put their new experience and skills to work for the company, which in turn increases your profits.
(Shortform note: Hsieh claims that making mistakes—or failing—is the only way to learn. However, others argue that you learn less from personal failure than success. To learn from your failures, you need to accept that you failed. However, your brain sometimes refuses to accept failure because doing so damages your self-esteem. To overcome this, remember that failure is normal and not a sign that you’re incompetent or bad—as Hsieh encourages through his mistake-positive perspective. Remembering this trains your brain not to see failure as a threat to your self-esteem, which lets you accept your mistakes, learn from them, and improve.)
Another element of innovation is creativity. Creativity itself is a risk because you’re straying from the methods that you're sure work. However, Hsieh points out that creative innovations can also improve existing proven methods.
(Shortform note: Finding ways to foster creativity is especially important in the modern working world, where remote work is increasingly common. While remote work provides flexibility, it stifles spontaneity. This is a problem because spontaneous meetings between coworkers are often the most creative and innovative, as coworkers who didn’t specifically plan to share their thoughts build on each other’s ideas. This free exchange of thought can’t be perfectly replicated digitally. To address this lack of contact and spur creativity, modern companies have experimented with technologies that mimic in-person interactions.)
Zappos encourages its employees to innovate by supporting their ideas, even unconventional ones, Hsieh says. For example, rather than conducting conventional job interviews, the Zappos hiring team created unconventional “speed interviewing.” Like speed dating, prospective employees only have a few minutes to convince the hiring team that they’re a good fit for the job. While the speed interviewing initially needed some trial-and-error to run smoothly, it lets the hiring team evaluate a lot of candidates quickly and determine who might be a good fit.
Zappos’s Continued Innovation
Zappos continued to innovate its recruitment process after Delivering Happiness was published. In 2014, Zappos replaced its traditional job postings with the “Insider program.” Instead of filling a single job position, the program focused on cultivating more general relationships with potential future employees: Its recruiters discussed general skills and interests, rather than specific job criteria. Once Zappos understood the potential employee’s personality and skills, it could determine where in the company that person fit and offer a job.
This program saw initial success, increasing engagement and interest in Zappos as well as the quality of applicants. However, it didn’t work well in the long term, and Zappos returned to offering traditional job postings on their website. This may be a sign to be bold with your innovation, but pay close attention to the success of new projects and be willing to pivot to another plan if necessary.
These days, Zappos nurtures its culture—ensuring the implementation of the three facets above—through the Zappos Culture Book, Hsieh says. Every year, Zappos employees, vendors, and customers share their perspectives on the company’s culture in a book. These unedited testimonials—both positive and negative—are available to the general public as an introduction to the company, Hsieh adds.
The Culture Book shows Zappos’s executives how the company’s culture evolved during the year and lets them determine what aspects of that culture to nurture going forward. It also shows Zappos’s dedication to transparency, as well as its dedication to living according to its principles.
Additional Benefits of Culture Books
There are several benefits of the culture book system that Hsieh doesn’t discuss. For instance, collecting and publicizing nuanced views of the company in this way can make your company appear more welcoming of diverse team members. Not every employee has the same work style or needs—for example, some employees may work best in a social environment, while others need time alone to be most efficient—and publicly sharing the perspectives of many different team members shows your acceptance and openness to supporting these different needs. This encourages a wide variety of potential employees to apply.
In addition, you can use your culture book to measure employee cultural fit and track any difficulties they experience: If an employee mentions the same issues in several entries, you can evaluate how to better support that employee in those areas or whether the employee is still a good fit for the company.
Hsieh says culture is made of the standard beliefs and behaviors that guide employee interactions. These behaviors can either help your company achieve its long-term goals, or damage its attempts to do so. Thus, nurturing your company’s good cultural qualities is a vital step to creating a successful business.
Describe your company’s long-term goal or mission. Why is that goal or mission important to you?
Now, describe the good qualities your company culture and employees already have. How can those good qualities help you fulfill your long-term goal? (Note: If you’re struggling to identify these qualities, ask yourself “Are there any behaviors or beliefs that my employees share?” The more common these positive qualities are, the easier they’ll be to nurture.)
Consider each of the positive qualities you described above. Make a plan to nurture each quality. (Be specific and realistic: You might not be able to afford a pay-to-quit program like Zappos right now, but you can focus on cultural fit when interviewing potential employees.)
Now that we've covered culture, we'll move on to the second vital component of a successful business: providing great customer service. According to Hsieh, great customer service is being so supportive and adaptable in every customer interaction that you have a positive emotional impact on the customer. This positive emotional impact is the first step toward forming a healthy and profitable long-term relationship with that customer.
(Shortform note: Hsieh sees a positive emotional impact as the root of good customer service, but how do you generate this positive response? It doesn’t necessarily mean going beyond your customer’s expectations with free perks and bonuses: Studies show that most customers are happier with simple, quick solutions to their problems. Prioritize problem-solving before worrying about dazzling your customers.)
In this chapter, we’ll explore the ways good customer service can make your business successful. We’ll also look at how Zappos used good customer service to become a billion-dollar company.
Hsieh says providing good customer service is important because it increases the “lifetime value” of customers. This is the total revenue that a customer brings to the company throughout their life. If a customer only uses your service once, then their lifetime value is low. However, if you create an emotional connection through your customer service, your customers are more likely to return to your business and increase their lifetime value.
(Shortform note: Hsieh notes that increasing the lifetime value of customers is important, but he doesn’t explain how important. Studies show that if companies increased the lifetime value of 5% of their customers, they’d increase profits by 100%. This profit increase occurs because you can charge long-term customers more money. By forming relationships with customers, you encourage them to trust you. If customers trust you, they’ll prefer your services over those of a competitor, even if you charge more.)
Moreover, encouraging a customer to return through great service can also improve another customer’s lifetime value, Hsieh adds. People who experience great service talk about their experience with others, generating word-of-mouth interest in your company. This interest channels more customers to your company, each of whom has their own lifetime value that you can increase.
(Shortform note: Research supports Hsieh’s explanation that word-of-mouth interest increases customers’ lifetime value. Studies show that customers referred to a company by word-of-mouth are 16 to 24% more loyal than customers who found the company through other means. These referrals are effective because they come from a trusted source, usually family members or friends. Companies can’t generate word-of-mouth directly: The more pressure a company exerts on its customers to generate word-of-mouth, the less likely customers are to provide or believe it, since it’ll feel false or manufactured. Instead, companies must rely on providing great service that inspires customers to recommend the company without external pressure.)
If great customer service is so important to increasing the lifetime value of customers, how can you encourage it in your company? There are two main paths to great customer service that Hsieh discusses: making it a company-wide initiative and maintaining communication with customers.
Hsieh believes that an important step in encouraging great customer service is making it a company-wide initiative: in other words, making sure that every department knows that offering great customer service is part of your company’s brand. Let’s explore in detail how Hsieh implemented this principle at Zappos and why he believes it’s so important.
Zappos makes customer service a company-wide initiative in two ways. First, every Zappos employee goes through four weeks of customer service training and two weeks working in its customer service call center, Hsieh explains. This includes everyone from lawyers to software developers. Most companies would view this as a waste of time and resources—why spend six weeks training and paying employees for a job they’re not being hired for?—but Zappos sees it as essential to the company’s success. If all employees are trained in customer service, they can all embody the principles of good customer service—such as attentiveness and politeness—in their interactions with customers, business partners, and the press.
(Shortform note: Hsieh says training all employees in customer service is important. However, others go further, arguing that training internal departments that don’t usually interact with outsiders is most beneficial. Backend departments often complicate the customer service department’s job. However, if every employee is trained to prioritize customer service, they’ll focus on helping the customer service department succeed. For example, an IT department that hasn’t trained in customer service may delay upgrading customer service’s hardware because they value the marketing department more. After customer service training, the IT department would prioritize upgrading customer service’s hardware so they can contact customers faster.)
Second, Zappos accepts extra costs across all departments to make its customers happier, Hsieh says. For example, Zappos surprises many of its customers by upgrading them to free 1-day shipping. This, combined with its 24-hour warehouse that ships any time of night, means that customers receive their packages as soon as possible. Even though paying for faster shipping and maintaining a warehouse 24/7 is expensive for the company, it considers its customers’ happiness as more important than the cost.
(Shortform note: Experts agree that taking on extra costs as Hsieh recommends is one of the best ways to inspire word-of-mouth interest. Specifically, offering surprise bonuses is even more effective than minimizing standard customer costs like shipping because surprise turns happiness into delight. This delight leads to higher sustained profits, quickly recouping any losses the surprise bonuses incurred. A particularly powerful way to surprise customers is to offer something for free, rather than merely giving a discount. Whereas discounts can have the negative side effect of devaluing a product in the eyes of customers, offering something for free inspires nothing but sheer delight.)
Another vital element of customer service is maintaining communication with the customer. Positive communication improves relationships, and the closer the relationships you form with customers, the more likely they’ll be to return and increase their lifetime value. Communication is especially important for online stores, Hsieh emphasizes. When there's no in-person contact between a customer and employee, prompt and helpful communication, over the phone or virtual, is the only way to form a positive relationship.
Thus, customers should never have to search for your company’s contact information, Hsieh states. If it’s difficult to contact your company, you’re telling customers that you don’t want to communicate with them or form relationships.
Redefining Communication in the Digital Age
Experts agree with Hsieh that communication is vital for all businesses, especially online companies. As they’ve become more common in the digital age, these online companies have developed new methods of maintaining communication with their customers, going beyond simply making their company’s contact information easily accessible.
One of these innovations is live-chatting, where a text-based chatting feature is built into the company’s website. This service connects customers directly to a customer service representative. Live-chats have the versatility of a call center with the added benefit of avoiding excessive hold times. In addition, customers don’t have to search for the company’s contact information, as Hsieh warns against: Connecting is as easy as clicking a button. This method of communication is becoming more ubiquitous and may one day overtake call centers.
Zappos believes that the telephone is its greatest asset for providing great customer service. Most large- and medium-sized companies have call centers, Hsieh explains. However, Zappos sets itself apart from its competitors through its innovative, customer-oriented call center policies.
(Shortform note: Call centers may seem old-fashioned in the modern world, where the internet is ubiquitous and using it is often faster than calling someone. However, research supports Hsieh’s commitment to making his call centers as effective as possible. Studies show that 80% of customer interactions happen over the phone. In addition, 92% of customers base their opinion of a company on their experiences with that company’s call center. Thus, optimizing your call center can be vital to creating long-term customers.)
Hsieh says Zappos has three unusual call center policies that encourage the kind of communication necessary for great customer service:
1. Zappos doesn’t time calls. Most call centers measure employee success through the number of calls they take in a period of time, Hsieh explains. This is an easy way to measure success, but this method also incentivizes employees to rush calls, which degrades the quality of customer service. By refraining from penalizing employees for long conversations, Zappos lets them focus on providing great customer service.
(Shortform note: Research supports Zappos’s abandonment of timed calls. Studies show that customers care less about call speed than they do about having their problems solved with a single call. Thus, call centers should judge employee success on whether they can handle customer needs without having to transfer the customer, rather than on how quickly they make calls.)
2. Zappos doesn’t use scripts. You must be genuine to form a relationship, Hsieh says. Thus, Zappos doesn't give employees scripts. This allows employees to use their own judgment and display their personality when handling customer requests. A lack of scripts requires more intensive training, as new employees must learn to handle any situation on the spot. However, genuine relationships are more likely to inspire return customers, improving company profit.
(Shortform note: As Hsieh says, a lack of scripts helps employees form genuine connections with customers. This is effective because employees that don’t rely on scripts have the freedom to learn about their customers and integrate that knowledge into their service. For example, a customer may mention that they enjoy hiking. The employee can use this information to connect with the customer and direct them to Zappos’s hiking boots. Even if the customer doesn’t buy the boots, they'll be impressed that the employee paid attention to their interests. This customer is then more likely to buy from the company again, offsetting the cost of more intensive training.)
3. Zappos doesn’t upsell. Many companies use their call centers to promote upgrades or additional products to customers, Hsieh explains. The goal of upselling is to maximize the amount customers spend. However, upselling prioritizes revenue over the customer experience, which can drive customers away. Instead of trying to sell a customer more products during their call, Zappos indirectly encourages customers to make further purchases by providing great service.
(Shortform note: Zappos’s call center doesn’t upsell, but its website does by tracking items you’ve previously viewed or purchased and recommending items you might like based on that data. This isn’t hypocritical: Customers’ needs change depending on the situation. When customers call Zappos, they’re rarely interested in hearing about Zappos’s other products: They just want to solve their problem quickly. However, when shopping online, upselling can help customers find the best products to meet their needs. For example, Zappos’ website might register that you’re shopping for Nike sneakers and display several different style and price options so you can quickly find one you like that fits your budget.)
The principle that great service comes first should also apply to your vendors, Hsieh says. Depending on the kind of company you run, your vendors can be either people you buy goods from or the people who sell products on your behalf. Zappos’s vendors are the shoe brands that Zappos purchases its inventory from, like Nike.
Regardless of what kind of vendor you’re interacting with, Hsieh emphasizes the importance of giving them great service, as this helps form strong and profitable relationships. However, many companies fail to do this, focusing on short-term profits instead of nurturing long-term relationships. Vendors rely on company purchases to survive, and many companies leverage this advantage to take as much money from (or give as little money to) their vendors as possible, ruining their relationships in the process.
There’s no need to abuse your vendors, Hsieh says. Your company and vendors have the same goal: making money. Instead of fighting each other, work together by sharing information on market trends and innovative ideas. Focus on your mutual goals and how you can fulfill them.
This has two benefits: First, the vendors will help you reach your goals, making your job easier. Vendors are valuable resources; they know their products best, and working with them means you can use that knowledge for your benefit. For example, your vendors may be familiar with which marketing techniques are best for their products. If you have a healthy relationship with these vendors, they’ll be more inclined to share this information. In turn, you can use this knowledge to improve your marketing and boost your profits.
Second, treating your vendors with respect and collaborating will make them happier, Hsieh points out. The happier your vendors are, the more likely they are to help you be profitable. Good relationships with vendors can lead to perks such as exclusive products and deals for your company.
(Shortform note: In The Art of Thinking Clearly, Rolf Dobelli calls this give-and-take relationship “reciprocity.” If someone does something for you, you’re more likely to do something for them in return. Reciprocity can be used to manipulate people—for instance, if you help someone for the sole purpose of putting them in your debt. However, reciprocity is also a vital component of collaboration and community building. Thus, as long as your intention is to build healthy collaborations with vendors, reciprocity can be a valuable tool for your company.)
Keiretsu: Healthy Company-Vendor Relationships
Hsieh’s focus on creating healthy company-vendor relationships is uncommon in the United States, but such practices have existed in Japan since the 1940s. This method of forming close, mutually beneficial relationships between companies and vendors is called “keiretsu.” Keiretsu was initially popular because it resulted in lower operating costs and better quality goods, raising profits for the companies that used it.
Keiretsu declined after the 1980s as Western companies started experimenting with more immediate cost-cutting techniques: They pursued partnerships with whichever vendors could offer the most cost-effective goods instead of remaining loyal to the same vendors for decades. As these competing Western companies became more immediately profitable, Japanese companies turned away from their traditional keiretsu roots to these Western methods of operation. However, while these cost-cutting strategies were profitable, they degraded the relationships between company and vendor, as Hsieh warns.
Keiretsu saw a resurgence in 2000 with Toyota. Like Zappos, Toyota realized the importance of company-vendor cooperation. As such, the company focused on pursuing mutual goals with its vendors and worked out compromises that made both companies happy. For example, Toyota requires its vendors to provide fully-assembled systems (such as engines) rather than individual parts. In exchange, Toyota helps its vendors lower operating costs through educational seminars and factory inspections. Thus, while Toyota and its vendors both spend time and resources helping each other, both ultimately lower their costs.
Hsieh’s main advice for supporting vendors follows the Golden Rule: Treat your vendors as you want to be treated. People think you must be aggressive to negotiate and run a successful business, but mutual respect is much more effective. This includes being polite and respectful, showing appreciation through dinner or gifts, and building relationships through positive experiences.
(Shortform note: Roger Fisher and William Ury explain in Getting to Yes that when negotiating with someone, it’s easy to forget that you’re talking to a person rather than a company. This may cause you to treat vendors poorly as you focus on outwitting a competing company instead of treating the vendor respectfully. Improve your relationships with vendors by constantly evaluating if you’re accommodating their humanity as well as their professional identity.)
Part of being respectful and building these relationships is communication. You and your vendors are collaborators, Hsieh explains, and to effectively collaborate, you must freely share information. To this end, Zappos practices radical transparency with its vendors. The company gives its vendors almost complete access to its systems, letting them observe and offer their opinions on everything from profits to inventory and web design.
This information is usually hoarded by other companies, Hsieh adds. However, sharing information lets Zappos form stronger relationships with its vendors and become more successful.
Practicing Radical Transparency in Modern Business
While Hsieh points out that many companies hoard their knowledge, he doesn’t explain why. One possible explanation is that these companies fear the information will get into the hands of competitors. Information regarding policies and products shows how companies become successful and differentiate themselves from their competition. If the wrong competitors had access to this information—for instance, because a shared vendor let it slip—they could replicate a company's unique success.
However, overcoming this fear and sharing information with vendors may benefit companies for the reasons Hsieh notes above. To that end, here are two tips for instituting transparency between your company and your vendors:
1) Be constructive. As discussed, sharing information can be daunting for many companies, not least because of the administrative burden involved in regularly sending information back and forth. Furthermore, vendors may worry that if they share displeasing information—for instance, information about product delays—they’ll suffer criticism and pushback. If your vendor is resistant to information sharing, emphasize that working together will ultimately be mutually beneficial: Sharing even negative information freely will make it easier to solve problems quickly.
2) Apply the information. When your vendors share information or advice with you, it can be tempting to dismiss it. Since they’re not a part of your company, you may assume your vendors don’t know what they’re talking about, especially if their advice contradicts your own opinions. However, their outsider perspectives means they can notice mistakes and possible advantages you may miss. Carefully consider your vendors’ suggestions and be open to integrating them into your strategy.
The final important element of a successful business is continuing employee education: in other words, constantly providing your employees with training and learning opportunities. This training shouldn’t only apply to the skills the employee was hired for, Hsieh adds. Rather, employees should learn about a variety of different skills and areas of knowledge so they can more easily innovate and adapt to new situations.
In this chapter, we’ll explore the importance of continuing education and how Hsieh introduced it at Zappos.
As discussed, Zappos makes it a top priority to keep its employees happy. Hsieh states that employees are happier and more willing to work when they’re learning and improving themselves, so helping employees do so is an important part of fulfilling this goal.
(Shortform note: How does learning make you happy? Raph Koster explains in A Theory of Fun For Game Design that “fun” is a burst of dopamine you receive when learning something new or mastering a skill. Dopamine generates pleasure and motivation, so learning something new, as Zappos encourages, directly contributes to happiness.)
In addition, companies are only as good as their employees, Hsieh explains. Your company can’t grow and improve unless your employees do as well because they’re the ones operating the business. Thus, to keep innovating and maintain your company’s success, support your employees’ innovation and success.
(Shortform note: Hsieh says companies are only as good as their employees and uses this as justification for continual employee education. Others take this idea a step further, saying your company is only as good as your worst employees. Thus, improve the quality of your company by focusing your evaluations and training on your weakest employees specifically. They have more improvements to make, so focusing on them will likely improve your company and profits faster than giving the same amount of training and attention to every employee. In addition, your worst employees are probably also the most unhappy, and focusing on them will increase their morale.)
Finally, continuing education is important for business succession planning. Many companies train their employees for a single, specific job, Hsieh says. Then, when those employees must adapt to another role—whether because of a planned promotion or an emergency situation—they aren’t prepared to do so. However, if your company prioritizes continuing education in a variety of skills and areas of knowledge, you’ll create a system where any time a role opens, there’s an employee ready to fill it. Not only does this alleviate employee stress, but it also provides a clear path of career progression for your employees, giving them a constant stream of goals to aim for.
(Shortform note: In Principles, Ray Dalio agrees that succession training is important. He suggests taking three steps to ensure your employees are ready to fill new roles. First, select a replacement for each key person on your staff: Just like you’d have backups for important parts of a machine, make sure someone’s ready to fill the gap if any of your essential personnel are unavailable. Second, give these future successors opportunities to see how their predecessors think and solve problems—usually through shadowing or mentoring. Finally, let future successors handle some of their predecessors’ responsibilities before they take over the position so you can see how prepared they are for the role.)
Zappos encourages continuing education through its “educational pipeline” system of training. Hsieh says Zappos’s pipeline operates on a merit badge system: People who fulfill certain training requirements earn promotions and pay raises. The first, basic elements of training are mandatory, but after those elements are completed, people can select which merit badges they want to earn and which skills to specialize in.
(Shortform note: This merit badge system works because it offers employees a choice in what to train in, and even minor choices engage intrinsic motivation (as we discussed in Chapter 2). This theory of intrinsic motivation also operates in traditional education: College students who select their own courses turn in better work more consistently because they’re motivated to work harder. By applying these proven theories of educational motivation to its programs of continuing education, Zappos encourages its employees to find fulfillment and happiness in their training.)
The pipeline starts with entry-level workers, Hsieh explains. Zappos prioritizes finding new talent because it knows its pipeline will give these individuals the experience and training they currently lack. Most companies without this focus on continuing education can’t trust their training to provide this experience, so they focus on hiring the most experienced individuals they can find.
Everyone starts at an entry-level position on the training pipeline, and Zappos consistently adds new employees to the pipeline. This results in a long train of hires, each one more trained and experienced than the last. As discussed, this means Zappos never struggles to fill a role when an employee leaves or is promoted, Hsieh says. Instead, there’s another employee ready to take the next step in their training and take over the missing employee’s role.
While adding employees to the pipeline at the entry-employee level is effective, Zappos plans to expand its pipeline to reach college students as well. Hsieh believes that if you start building relationships with freshmen in college, you can offer them internships and determine if they’re a good fit to hire after graduation, thus making the transition to employee easier and the pipeline even more effective.
Diversifying Your Hiring Pipeline
Zappos’s interest in hiring entry-level employees and college students who may lack experience, rather than hiring candidates with set experience, highlights an important principle in modern hiring practices: hiring people with a diversity of (potentially unconventional) experience.
Many businesses hire within a very narrow range of experience—for example, they require employees to have experience with a specific computer program or to have worked for many years in a particular field. These companies likely wouldn’t hire entry-level and college-level workers as Hsieh suggests because they don’t want to invest in training new hires: They want hires to have the required experience now, and they see having this experience as essential to success in the role.
However, experts argue that focusing on potential is more important than focusing on specific qualities when hiring: They recommend taking a chance on hires who have experience that’s not traditionally associated with the role or have unconventional backgrounds, but have the potential to succeed. This aligns with Hsieh’s argument to hire entry-level and college-level workers, who may lack specific skills in a certain field due to their lack of workplace experience but have great potential to develop and succeed.
Hiring employees with unconventional backgrounds means they can use their unconventional experience to bring diversity of thinking to your team and solve problems in new and innovative ways. For example, if you hire a psychology major for an HR position, they can use their knowledge of psychology to solve interpersonal disputes and brainstorm ways to better engage employees.
Now that we’ve covered the three main principles that led to Zappos’s success, we’ll examine the general life lessons Hsieh learned and applied to his work at Zappos.
Hsieh says he expressed an interest in pursuing entrepreneurship at just nine years old. While his parents expected him to become a doctor, he wanted to make his own choices and direct his own life. He believed directing his own life would make him happy, and that to direct his own life he needed to make money. Thus, Hsieh experimented with various business ventures throughout his childhood and young adulthood.
(Shortform note: Directing your life is important for your overall happiness, as Hsieh believed as a child. However, having money isn’t necessarily the key to doing so. Rather than focusing on money, picture the best, happiest version of yourself and plan how to attain that goal. One of the steps to becoming your ideal self may be to improve your financial situation. However, that shouldn’t be your only goal, because it’ll only give you a temporary boost in happiness. The happiness from growing as a person and using your skills to help others is more powerful and long-lasting.)
These early entrepreneurial ventures taught Hsieh valuable lessons in business management that shaped his approach to managing Zappos. In this chapter, we’ll explore these lessons and how they influenced Hsieh’s business principles.
Hsieh learned the keys to running a successful business through trial and error. Instead of giving up during hard times or letting his mistakes define him, Hsieh learned from them and avoided those mistakes in the future, gradually improving his business sense. This dedication to learning from his mistakes formed the core of his belief in innovation and continual education, as discussed in Chapters 2 and 4 of this guide.
Let’s explore three important life lessons Hsieh learned after making mistakes:
One mistake Hsieh learned from was not initially following his passion. Hsieh learned the importance of following your passion shortly after graduating college and starting full-time work. As discussed above, Hsieh wanted to find happiness by directing his own life. He believed making money was the solution, so he selected a job based on salary rather than interest in the company’s mission. However, rather than making him happy, taking a job he didn’t care about left him bored and miserable.
Hsieh realized that money alone couldn’t build a fulfilling career: He had to be passionate about the way he made money as well. Thus, Hsieh quit his well-paying but unfulfilling job, focusing on finding happiness through self-direction, rather than money. This passion led him to start his first company, LinkExchange (an internet-based advertisement company), rather than finding another traditional job. While establishing LinkExchange was a demanding task, requiring long hours and hard work, Hsieh’s passion helped him persevere and succeed.
Should You Follow Your Passion?
Hsieh maintains that following your passion is an important consideration when choosing a career. This is a common idea in the business world that gained momentum in the 1970s and is now almost ubiquitous. However, in So Good They Can’t Ignore You, Cal Newport argues that following your passion is actually a terrible way to determine your career.
There are a few reasons passion isn’t necessarily an indicator for a good career:
1. Motivation is more important than passion. Motivation has a more direct connection to enjoying your job and making a fulfilling career than passion does. To encourage motivation, find a job where you have independence, the ability necessary to complete your job, and strong connections with coworkers.
2. Few people have passions related to their jobs. Studies show most people’s passions revolve around hobbies, rather than their jobs. However, many of these people are still happy with their jobs and find them fulfilling. Thus, passion isn’t necessary for a fulfilling career.
3. Passion for a job grows over time. Studies show that passion and job satisfaction increase over time. As you grow more accustomed to your job, you become better at it, earning greater independence and competence. These factors in turn increase your motivation, as discussed above, and improve your job satisfaction. Only after this do most people begin to see their careers as passionate callings rather than mere employment.
Rather than tailoring your career to your passion, Newport suggests keeping an open mind and being willing to find passion in whatever job life leads you to.
Overconfidence is another dangerous mistake for entrepreneurs to make, Hsieh says, as it encourages reckless decisions. Hsieh struggled with overconfidence throughout his life: When one business decision succeeded, he would approach the next opportunity as if it was guaranteed to succeed as well. He wouldn’t consider whether the market or his circumstances had changed since his initial success and made bad investments as a result.
For example, after leaving LinkExchange, Hsieh started an investment fund called Venture Frogs. He raised money for the fund easily and his investments were profitable. He was so successful, in fact, that he didn’t worry about the dot-com crash that occurred in 2000. Hsieh was overconfident because he succeeded in the past, so he didn’t consider how the new circumstances of the crash would affect his business. As a result, he invested all the fund’s money in companies that started failing in the crash and was unable to raise more.
Hsieh says this experience taught him to carefully weigh the risks and benefits of a decision before making it, rather than expecting success because he succeeded in the past.
The Dot-Com Crash and Avoiding Overconfidence
The dot-com crash occurred because of the same overconfidence Hsieh warns against. People were excited about internet companies and overconfident that these companies would succeed. These people invested in internet companies without properly estimating the risks of said investments. Thus, the fledgling internet companies received a lot of money very quickly.
In turn, these internet companies were overconfident that the investments would continue, so they didn’t handle their finances properly, spending the money as quickly as they received it to grow larger. When the investments dwindled, the companies went out of business because they were so focused on growing that they didn’t have any savings or sustainable sources of income. The few companies that did survive the crash did so because they were practical about their financial situation, rather than overconfident.
How can you avoid the kind of dangerous overconfidence that led to the events above? While Hsieh suggests combating overconfidence by weighting the risks and benefits of a decision, he doesn’t explain how to do so. Here are a couple of tips:
1. Be critical of your ideas. In Principles, Ray Dalio suggests asking yourself, “How do I know I'm right? What am I missing?” before making a decision. These questions force you to use critical thinking, rather than being overconfident that you’re always right.
2. Set tripwires for taking action. It’s easy to become complacent and overconfident in your company’s proven historical approach. However, market situations change quickly, and your responses must change accordingly. Determine in advance what market shifts would necessitate a change in approach—these are your “tripwires.” Also, determine in advance how you’d need to adapt to survive the tripwire. Once the market meets these tripwire conditions, you can quickly adapt to the new situation. If you fail to do so, your business may crumble.
For example, Kodak assumed the low quality of digital pictures would maintain physical photos’ popularity. If Kodak had set a tripwire for changing its approach—for example, digital resolution improving to a certain point—it could’ve adapted and survived. Instead, Kodak was overconfident in its historical approach, didn’t adapt, and went bankrupt.
The final mistake Hsieh learned from was failing to insource essential operations. Before we discuss this mistake, let’s define what essential operations are.
In Chapter 1, we discussed the importance of determining your company’s principles. It’s also important to determine your “core competencies”: the elements of your company that are essential to your operation. For simplicity, we’ll call these “essential operations.” For example, Hsieh says one of Zappos’s essential operations is its call center since its operation relies on providing good customer service.
Once you’ve determined these essential operations, you must manage them within your company, Hsieh emphasizes. Prioritize your essential operations and assign your most dedicated and passionate employees to manage them. Outsourcing work is standard practice for many companies, especially in areas that require less expertise, like call center work. However, outsiders won’t care as much about the overall well-being of the company, which means their quality of work will be worse than that of internal employees.
Identifying Your Essential Operations
Hsieh defines essential operations as the most important elements of your company’s operation. Others add another element to the definition: Essential operations are the areas that your company is known for excelling in that differentiate you from your competitors.
Identifying and insourcing your company's essential operations, as Hsieh suggests, isn’t a new idea. Experts have been supporting this division between core requirements and less-important operations for decades. However, while the idea is an old one, the execution of the idea is still difficult for many companies. There are two main ways companies fail to identify and focus on their essential operations:
1. Companies don’t insource just their essential operations. Some companies try to handle all aspects of their operation internally, rather than focusing on their essential operations. This works for small companies, where it’s easy to manage everything from production and transportation to retailing goods. However, as companies grow and markets globalize, it becomes more cost-effective to outsource less important functions of your company. Rather than trying to be adequate in all areas of your company’s operation, focus your resources on becoming excellent in the most important areas.
2. Companies insource the wrong operations. It can be difficult to tell what your company’s essential operations are. Consider both your company’s basic function and its principles when identifying them: Your essential operations will support both. For example, Zappos’s having its call center as an essential operation isn’t intuitive if you only consider its essential functions as a shoe vendor. However, once you consider its principle of great customer service, the call center’s importance makes sense.
Another important lesson Hsieh learned as he began his career in business was to prioritize long-term goals. Hsieh explains that many new business owners are so focused on keeping their company in business in the short term that they neglect their long-term goals. This is a mistake: Short-term goals, like making a certain number of sales this week, may keep your company in business, but long-term goals, like expanding into three countries, provide overall direction and a path to lasting success. If you only rely on short-term goals, your company will eventually stagnate and fail.
For example, Zappos originated as a drop-ship company: People ordered through Zappos's website, Zappos sent that order to the shoe manufacturer, and then the manufacturer shipped the package to the customer’s house. This method was less expensive for Zappos because it didn’t need to maintain warehouses or inventory. If Hsieh had only focused on his short-term goals of keeping the company in business and maximizing profits, he would’ve kept the drop-ship model.
However, Hsieh knew that if Zappos was going to succeed long-term and become a key player in the apparel market, it needed to expand to have its own warehouses and inventory. Thus, Zappos stopped drop-shipping, accepting the extra expense and effort needed to create its new, self-sustaining system. Zappos sacrificed its short-term goals for its long-term ones, and doing so made it more successful than the drop-ship model ever could have been.
Should You Always Prioritize Long-Term Goals?
Hsieh says you must prioritize long-term goals over short-term goals. In Measure What Matters, John Doerr agrees that long-term goals are important. However, Doerr adds that whether to focus on short- or long-term goals depends on your situation—defaulting to long-term goals may not work for all companies. For example, if you’re trying to cement your company’s position in the market or survive a difficult financial period, focus on short-term goals to keep your company in business. However, if your position in the market is secure and you want to expand, or if you have more financial freedom, focus on long-term goals.
Hsieh’s example of how Zappos focused on long-term goals mostly follows Doerr’s recommendations. Zappos was already established when it made the decision to stop drop-shipping, and the majority of its profits came from sources other than drop-shipping. In other words, its position was secure and it could expand without much risk. Thus, Zappos met Doerr’s requirements for focusing on long-term goals. If Hsieh had attempted to stop drop-shipping before Zappos was secure financially and established in its market, the company might have failed.
Hsieh learned the importance of long-term planning while playing poker. In poker, there’s a difference between making a long-term decision that can win you the game and making a short-term decision that wins you the hand, he explains. Winning a hand feels good, just like having high profits does in a business context, but it can’t predict your future success. On the other hand, playing poker with a long-term goal means you might lose the hand but win the overall game, just as Zappos lost money when it stopped drop-shipping but eventually became more successful by doing so.
Pre-plan for the Short Term to Focus on the Long Term
The best way to focus on long-term goals—in poker and business—is to pre-plan a strong short-term strategy. If you already have a concrete, repeatable plan for your short-term decisions, you can spend more time and energy focusing on the long-term situation, rather than having to continually make short-term decisions.
In addition, having a plan stops you from panicking if you have short-term bad luck. Rather than repeatedly changing your strategy to overcome that bad luck, overreacting, and later regretting it, you can maintain your strategy and trust that it will eventually lead to long-term success. Or, if you suspect your short-term strategy will no longer have the best possible results, you can devote your time to adjusting your long-term plan while your pre-planned strategy continues in the background.
For example, in poker, you might pre-plan how you’re going to bet, and in business, you might pre-plan your daily operations (scheduled marketing, a consistent rate of new hires, and so on). Then, if you have several bad hands or something disrupts the market, you can devote time to adjusting your long-term plan while your original strategy takes care of your short-term actions—betting aggressively to scout out your opponent’s tells, or temporarily slowing marketing and staff expansion until the market stabilizes.
Poker illustrates another way you can become trapped by short-term goals, Hsieh adds. Sometimes when playing poker, you need to change tables and opponents to make a profit. If you only focus on what’s happening at your table, you won’t realize if other tables become more profitable than your table. Instead, you need to pay attention to the whole room, looking for signs it’s time to change tables.
This concept applies to business as well, Hsieh says. Sometimes, you need to change markets to make a profit. If you only focus on the day-to-day minutiae of your company and succeeding in your current market, you won’t have the whole-picture view needed to see that your market is losing profitability or that other markets are gaining profitability. You need to take a step back and recognize when changing markets is the best option.
Continuing our example, Zappos’s “table” or market was drop-shipping. If Zappos hadn’t paid attention to its market’s shifting profitability, it might have remained a drop-ship company and gone out of business. However, Hsieh paid attention to the whole market. He realized that drop-shipping was less profitable than his competitors’ practice of direct distribution. Thus, he moved to the “direct distribution” table, increasing Zappos’s sales by over 500%.
(Shortform note: Zappos continued to change “tables” to maximize long-term profits after its initial shift away from drop-shipping. In 2007, it expanded its market from shoes to all kinds of apparel and accessories. As a result, its profits jumped from just below $600 million to almost $850 million.)
Changing Tables and Markets in Poker and Business
Hsieh says leaving an unprofitable table is an important part of poker and business. But how can you tell that your table is unprofitable? One sign of an unprofitable table in poker is that your table has aggressive players. These players constantly raise their bets, meaning you must risk a lot of money before getting to see how profitable your hand might be.
In business, this is like entering a market that’s dominated by a monopoly. Monopolies can afford to sell their goods at a loss because they dominate the market. While this risks monopolies’ money—as aggressive poker players risk theirs—it drives other companies, who can’t afford to sell their goods for such low prices, out of business. In this situation, it’s better to change to a more competitive market.
But how can you change markets? The most important step in this process is researching the new market you’re thinking about entering in three main areas:
1. Market demographics. This includes things like how many competitors your company would have in the new market and how profitable those competitors are. This tells you whether there’s enough business available in the market to make the change worth the effort.
2. Customer demographics. This includes the age, gender, and spending habits of your potential customer base. This information helps you plan your marketing approach and adjust your product so it appeals to your new base.
3. Political and regulatory landscape. This influences the market’s development and can warn you of any upcoming shifts that would affect your company. It can also warn you of any problems with joining that market. For example, if your potential product doesn’t fit a certain state’s regulatory laws, that location isn’t a good fit for your headquarters.
Once you’ve researched all these areas, you’ll have a solid understanding of the new market and how your company would fit into it. Weigh whether the new market would be better for your company in the long term. If so, take a risk and make the change.
Hsieh learned business management through trial and error. Instead of giving up, he learned from his mistakes and gradually improved his business sense. This determination let him develop his unique style of leadership that turned Zappos into a billion-dollar company.
Describe a mistake you made in the past, whether in managing a business or in your personal life. Be specific: What happened? How did the mistake affect you and your company? (For example, you may have lost an important opportunity because you rushed into a decision.)
Now, consider your mistake as objectively as possible. What can you learn from that situation? How might you improve in the future to avoid making the same mistake again? (Continuing our example, if you made a mistake by rushing, you can learn to be more patient and cautious when making decisions.)
Finally, make a plan for putting what you’ve learned into action so you don’t repeat your past mistake. (For example, you might leave yourself reminders to be cautious or use a risk-benefit analysis template when making decisions.)
Now that we’ve covered the main principles that led to Zappos’s success, as well as the life lessons Hsieh used to develop those principles, we’ll cover Hsieh’s final thoughts on happiness. As discussed throughout this guide, Hsieh believes that if you focus on happiness as your guiding principle, you’ll succeed in the business world. Happier employees work harder and happier customers become repeat shoppers. For this reason, the same theories that describe how to increase happiness in individuals can help companies succeed by showing them how to make their employees and customers happy.
In this chapter, we’ll examine three theories of happiness and how they relate to business.
The first theory Hsieh covers posits that happiness revolves around four elements: control, progress, relationships, and purpose. If you optimize each of these elements, you’ll be happy. Let’s take a look at each element:
1. Control. According to Hsieh, people who feel in control of their lives are happier. At work, this translates to being able to make decisions about your tasks or schedule. Even making minor decisions about your work life gives you a sense of control and makes you happier.
(Shortform note: Research suggests that being in control, whether in business or in life more generally, does more than just make you happy. People who feel like they’re in control achieve more and have better mental and physical health than people who feel a lack of control over their lives.)
2. Growth. Continual personal and professional growth is important for happiness, Hsieh says. Thus, develop goals that you can complete on a regular basis. These goals should be short term and frequently achievable, rather than long-term goals that you achieve less frequently, because having a constant stream of completed goals makes you happier than less regular achievement.
3. Relationships. Hsieh explains that happiness comes from connecting with others. The more connections with others you foster in a particular environment, the more engaged you’ll be in that environment. For example, if you’re friends with your coworkers, you’ll be more engaged and thus happier at work.
4. Purpose. Having a higher purpose or calling makes you happier as well, Hsieh says. In business, this translates to having long-term goals. These goals work together with the constant stream of smaller goals discussed above to provide a sense of growth and meaning to your daily actions.
(Shortform note: Why does having a purpose make you happier? Experts say it's because your brain is wired to find the larger meaning in your actions and situation. Determining your higher purpose fulfills this need, which makes you happier. The need to find a purpose in your actions could be another evolutionary trait: Without the higher purpose of staying alive and passing their genes to the next generation, early humans wouldn’t have had a reason to complete tasks that weren’t immediately rewarding, like collecting wood or storing food for winter. Thus, your survival-oriented brain developed to seek these higher purposes and encourage you to complete these tasks.)
Continual Progress: Job Satisfaction and Relationships
Hsieh says achieving small goals frequently makes you happier than achieving larger goals further apart, but he doesn’t explain why. According to The Happiness Hypothesis by Jonathan Haidt, it’s down to how people process emotions. When you experience a large jump in progress, such as getting a promotion, your happiness levels spike. However, your happiness level soon returns to normal as you grow accustomed to your new position.
On the other hand, completing small goals regularly creates longer-lasting happiness. When your happiness levels are about to start returning to normal after your post-achievement spike, the next goal comes along, keeping your happiness levels elevated for longer.
This theory also explains why positive relationships make you happier. Positive relationships are constant streams of pleasant interactions between you and another person. As such, these relationships heighten your happiness levels for the long term, as long as you’re having pleasant interactions.
This process applies to all relationships but can be especially helpful in the workplace. When you have strong work relationships, your brain connects the act of working with your positive relationships and the constant happiness that these relationships give you. As such, you come to associate work itself with happiness, which makes you more eager to work so you can continue to be happy.
The second theory of happiness, Hsieh explains, is based on Maslow’s hierarchy of needs. Maslow’s hierarchy sorts people’s needs and desires according to urgency. Survival needs such as food and shelter are the most urgent because you need to fulfill them to stay alive. Once you meet these basic requirements for life, Maslow says your desires and needs grow more abstract, such as the need for recognition.
(Shortform note: Maslow’s hierarchy of needs has five layers: physiological needs (such as food), safety needs (such as financial security), social needs (such as friendship), esteem needs (such as being treated with respect), and self-actualization needs, or the ability to fulfill your talents and potential. The first four layers are deficiency needs, where your needs occur because you lack something (such as food). The final layer, however, is a growth need: The need for self-actualization occurs because you want to grow as a person, rather than because you’re lacking something. This final layer is also the most abstract: Self-actualization means different things to different people since everyone has different talents and potential to fulfill.)
Hsieh’s second theory of happiness adjusts Maslow’s hierarchy for businesses. It posits three levels of happiness that apply both to customers and employees: The company first meets its customers’ and employees’ expectations, then their desires, and finally their unrecognized needs. Your goal as a company is to meet each level of happiness because the more levels you meet, the happier your employees and customers will be.
Let’s take a closer look at these three levels:
1. Fulfilling expectations. This is the standard of service that your company must meet to retain customers, Hsieh says. For example, customers expect you to ship them the correct item, and employees expect to be paid for their work. If you don’t meet these expectations, customers and employees will take their business and experience to your competitors, losing your company profit.
2. Fulfilling desires. Meeting desires (things your customers and employees want but don’t necessarily need) isn’t essential to your company’s survival, but it improves customer and employee relationships and inspires loyalty. However, this second level of the hierarchy does not overpower the first, Hsieh emphasizes. The customer or employee’s happiness is still contingent on you fulfilling their basic expectations, no matter how many of their desires you fulfill.
For example, employees want to be recognized for their work. Your company can meet this desire by hiring encouraging managers who recognize their employees for their hard work. However, you must still meet your employees’ expectations: Encouraging managers can’t retain employees who aren’t being paid.
(Shortform note: Sometimes, customers don’t know their desires, which makes it difficult to fulfill them. For example, when asked what they want, customers may give one answer in a survey while their spending habits indicate another. You must consider both customer feedback and spending habits to effectively meet customers’ desires. For example, if you run a restaurant, 70% of your customers may respond to a survey saying they want more healthy options on your menu. However, their purchasing habits show otherwise: Only 10% of people order those healthier options. If you only listened to the survey, rather than considering purchasing habits too, you’d lose money providing healthier food that your customers don’t really want.)
3. Fulfilling unrecognized needs. Once you’ve met the above requirements, you can focus on going above and beyond for your customers and employees to give them a final boost of happiness. You can do this by giving them things they didn’t even realize they needed.
For example, customers need the item they ordered, which is why they ordered it. While they’d be happy to receive the item within the designated time, they’d be happier if it arrived faster. Thus, their unrecognized need is to receive the correct item quickly. Your company can meet this need by upgrading people to faster shipping.
Meeting and Exceeding Customer Expectations
Hsieh implies that customer and employee expectations are static (for instance, being paid or receiving the correct item), but in Raving Fans, Ken Blanchard and Sheldon Bowles disagree, arguing that these expectations constantly evolve. This makes fulfilling these expectations more difficult, as you must adapt along with your customers and employees.
Keep abreast of your customers’ or employees’ evolving expectations by regularly requesting their feedback. (We discussed some methods of encouraging feedback in Chapter 1.) Examine their feedback to identify and solve any problems your customers or employees experience that might undermine their current expectations. Once you solve the problems, monitor the situation to ensure they don’t reoccur.
For example, if customers regularly give feedback that suggests they receive broken items, that violates their expectation of receiving a high-quality product. You can isolate the problem by checking your production and shipping processes. You may realize that customers are receiving broken items because your warehouse doesn’t have enough employees. The employees you do have are overworked and rushing to meet orders, so they aren’t as careful with packages as they should be. To solve this problem, hire more employees for your warehouse so they can refocus on being careful with packages. Monitor the warehouse to ensure your employees aren’t overwhelmed again.
Once you’ve fulfilled these expectations and your customer’s desires, Hsieh says you must focus on fulfilling your customers’ and employees’ unrecognized needs. Blanchard and Bowles suggest doing so by seeing your customers and employees as people, rather than as data to be analyzed. This lets you develop real, empathetic relationships with the customers or employees. The better you know someone, the easier it is to determine what would make them happy, thus helping you to recognize and fulfill their unrecognized needs.
The third theory of happiness Hsieh discusses posits that there are three kinds of happiness: pleasure, passion, and purpose.
1. Pleasure. Pleasure is the most fleeting kind of happiness, according to Hsieh. You feel pleasure when experiencing a positive stimulus, and you stop feeling it when that stimulus stops. Thus, to maintain pleasure-based happiness, you must constantly seek positive stimulation.
2. Passion. Passion lasts longer than pleasure and results from the unity of focus and ability, Hsieh says. Focus is important as it allows you to really dive into a project, to the point that time seems to pass more quickly. Competence is also necessary because you can only enter this state of focus if you have the ability to complete the project: otherwise, you’ll lose focus every time you need help to complete a task. Many people look for passion at work: Being in a focused state and doing work tailored to your abilities makes work more enjoyable because time passes quickly and you feel capable and in control.
3. Purpose. Purpose is the longest-lasting kind of happiness. When you have a purpose, you’re involved in something larger than yourself. You care about that larger cause and working to complete it brings you happiness. For example, Hsieh says his purpose is making people happy through his company.
Pleasure, Passion, and Purpose: The Seligman Theory
Hsieh’s third theory of happiness closely mirrors a theory that’s popular in the positive psychology field and focuses on understanding and maximizing happiness. For clarity, we’ll refer to this theory as the Seligman theory, named after the psychologist who studied it.
The Seligman theory revolves around three kinds of lives, each of which corresponds to one of Hsieh’s kinds of happiness:
1. A pleasant life. A pleasant life is akin to Hsieh’s understanding of pleasure. It revolves around enjoyable day-to-day activities—a constant stream of positive stimuli, as Hsieh puts it. While these isolated pleasant experiences improve your daily satisfaction, they don’t improve your overall life satisfaction. Your happiness is limited by needing constant stimulus. For example, a beautiful sunny day is pleasant, but the happiness it brings only lasts until the clouds return.
2. A good life. A good life is similar to Hsieh’s definition of passion, where your focus and ability unite to make completing tasks more enjoyable. The Seligman theory posits that this type of happiness involves more self-direction: Rather than simply enjoying pleasant experiences that occur in your life, you use your skills and interests to actively cause pleasant experiences. For example, your skill in pottery may direct you toward joining a pottery club. This gives you an activity you’re good at to focus on, providing you with longer-lasting happiness.
3. A meaningful life. A meaningful life matches Hsieh’s explanation of purpose. The Seligman theory posits that this is the next step in using your skills to direct your life: Rather than merely letting your skills direct you toward pleasant experiences—like the pottery class—you use your skills to contribute to the greater good. For example, you might teach a pottery class to impoverished children, or sell your pottery and donate the proceeds to charity.
While Hsieh implies that each kind of happiness is isolated, the Seligman theory suggests that true happiness lives in the conjunction of these three kinds of lives. Thus, to achieve true happiness, you should pursue all three.
Hsieh believes encouraging happiness at your company leads to success. The three theories of happiness he presents look at happiness in different ways, but all of them have applications for both individuals and business owners. In this exercise, use the theories of happiness to help your company succeed and increase your personal happiness.
Which of Hsieh’s three theories of happiness is your favorite? Why?
Discuss how you can apply that theory of happiness to your workplace and create happy employees and/or customers. Be specific with actionable plans. (For example, you can use the second theory to create a checklist of “levels of customer happiness” and review the checklist during customer interactions to ensure you’re fulfilling all three levels and maximizing their satisfaction.)
Finally, consider how you can apply that theory of happiness to your personal life to maximize your happiness. (For example, you could use the first theory to evaluate what areas of your life lack control, growth, relationships, or purpose. Then, you could put effort into those areas to increase your happiness.)