Zappos, known for its exceptional customer service and innovative corporate culture, owes much of its success to one of its co-founders, Tony Hsieh, and his unconventional lifestyle. However, Hsieh’s impact went beyond his eccentricity. His unique approach to business made him a trailblazing CEO, propelling Zappos from a small player to a giant in the e-commerce industry. So, who exactly owns Zappos? Here’s a clue: It’s the world’s largest logistics company.
How Did Zappos Come to Be?
In 1999, the idea of selling shoes online seemed implausible. How could anyone purchase sneakers without trying them on first? Investors were skeptical of Nick Swinmurn’s concept. Swinmurn, disillusioned with traditional shoe stores that either lacked the desired model or the right size, decided to sell shoes online. He approached Tony Hsieh with his idea, but Hsieh, recognizing the novelty of online shopping at the time and the artistry of choosing footwear, initially hesitated. Swinmurn, however, presented a compelling argument: “Footwear is a $40 billion industry in the United States, with catalog sales contributing $2 billion. E-commerce is growing rapidly, and people will continue to wear shoes in the foreseeable future.” Swinmurn had a valid point. Intrigued and seeking new investment opportunities, Hsieh agreed to invest in ShoeSite.com in 1999. The name was later changed to Zappos, derived from the Spanish word for shoes, “Zapatos,” to make it catchy and straightforward.
Zappos faced numerous challenges during its early stages. Nevertheless, Hsieh’s confidence in the venture led him to assume the role of CEO in 2000. In that same year, Zappos achieved gross sales of $1.6 million, which catapulted to $8.6 million the following year. The question remains: What fueled this remarkable growth?
Culture Change: The Main Reason for Amazon’s Acquisition of Zappos
Zappos weathered the dot-com crash and experienced consistent sales growth. However, despite reaching $70 million in sales by 2003, the company struggled to turn a profit. Hsieh recognized the need for improvement in various areas, particularly customer service, which became his obsession. In an interview with Harvard Business Review, he mentioned having several options to address the issue. While outsourcing the call center to a more cost-effective solution would increase operational efficiency, there was a significant obstacle: Zappos’ customer base predominantly resided in the United States. Consequently, the company required US-based customer service representatives who embraced Zappos’ core values and vision. However, finding affordable representatives in San Francisco, where Zappos was headquartered, proved challenging. Determined to find a solution, Hsieh made a radical decision: he relocated the entire company to a more affordable state. This move not only provided Zappos with control over inventory, customer relations, and company values but also showcased Hsieh’s strategic thinking.
In 2004, Hsieh secured funding from Sequoia Capital, enabling further expansion. Zappos established its first outlet store in Kentucky and created a unique culture book. Unlike traditional corporate books, Zappos’ culture book was a collaborative effort, with employees contributing personal essays. These actions yielded swift results, with Zappos achieving $184 million in gross sales by the end of that year. In 2005, Sequoia Capital invested an additional $35 million, and Zappos recorded $370 million in sales. Nick Swinmurn himself credits Sequoia’s investment as instrumental in Zappos’ success.
While Hsieh’s name receded from the limelight after quietly departing Zappos in 2006, his philosophy on company culture remained ingrained. Zappos garnered much attention for its unique approach to cultivating a positive work environment.
Reputation: Why Amazon Pursued the Acquisition of Zappos
A search for Zappos’ success on Google yields countless articles discussing the vital role of the company’s culture. However, delving deeper into the details reveals some unconventional methods. In addition to the aforementioned culture book, Zappos employed a monthly “Ask Anything” newsletter to encourage open communication among employees. The company even offered on-site libraries and employed life coaches to promote personal and professional growth.
Although phone calls are no longer essential for conducting business, Zappos insisted on exceptional customer service. Representatives were trained to prioritize the customers’ needs, regardless of call duration. Zappos employed alternative measures to gauge service quality, emphasizing the fulfillment of customer demands. Legendary stories circulate about representatives spending hours on the phone, helping customers decide on purchases, and even assisting in locating nearby pizza places. Additionally, Zappos set itself apart by offering free shipping, including on returns—an uncommon practice in the industry.
Hsieh’s unwavering commitment to customer service, earning him the moniker “king of Customer Service,” made Zappos a standout among its competitors. Few companies prioritize customer satisfaction to the extent that Zappos does.
Unorthodox Hiring at Zappos
How strange would you consider yourself to be, on a scale of one to ten? This was a question Tony Hsieh posed to potential candidates during interviews. According to Hsieh, the number was less important than observing candidates’ reactions upon hearing the question. By catching candidates off guard, Hsieh believed they would react more authentically. Not content with this unique approach, Hsieh took it a step further by extending “The Offer.” After hiring individuals for about a week, Hsieh personally approached them and made an offer: either continue working for Zappos or quit. The seemingly obvious choice, however, came with a twist. If a candidate chose to quit, Zappos would provide compensation of up to $2000. Why this intricate tactic? Hsieh explained, “If you’re willing to accept The Offer, it indicates a lack of commitment to the company’s vision.” This peculiar yet effective approach helped Zappos maintain a workforce unified by a shared belief system. By 2008, Zappos reached nearly $1 billion in sales, attracting the attention of several potential investors.
Not all of Hsieh’s experiments in corporate culture proved successful, though. In 2013, Zappos implemented a “holacracy” model, eliminating traditional company titles. While initially met with enthusiasm, the transition ultimately led 14% of the workforce to take The Offer and leave the company.
Amazon Enters the Picture: Zappos Acquisition
“Is Zappos owned by Amazon?” This question often arises, given the close association between the two companies. Jeff Bezos, founder of Amazon, initially approached Tony Hsieh with an offer to acquire Zappos in 2005, but Hsieh declined. However, by 2008, Zappos faced severe challenges stemming from the financial crisis, prompting the consideration of a potential sale. Beyond financial concerns, Hsieh’s divergence in cultural focus from the board’s desires added to the strain. According to Hsieh, the board wanted him to prioritize selling shoes, rather than dedicating extensive time to employee happiness. Cash flow was also a significant issue, as Zappos relied heavily on credit lines. Initially, Hsieh and CFO Alfred Lin contemplated buying out the board at a cost of $200 million. However, Amazon re-emerged with an offer. Despite the enticing terms, Hsieh feared the dilution or complete loss of Zappos’ distinctive culture, which he had spent years cultivating.
Negotiations for the acquisition were intense, fraught with tension, particularly between Hsieh and the board. Ultimately, the acquisition materialized, with Amazon purchasing Zappos for a staggering $1.2 billion. To Hsieh’s relief, the company’s culture remained intact. Amazon even adopted some of Zappos’ philosophies, including The Offer. Hsieh retained his position on the board and continued serving as CEO. Zappos’ consistent inclusion in Fortune magazine’s “100 Best Companies to Work For” list for four consecutive years validated the successful integration of the two organizations. Despite the acquisition, Zappos’ reputation as a paragon of excellence persisted, portraying Hsieh’s tenure at the helm as a resounding success and an exemplary model of astute business practices.
Who Was Tony Hsieh?
Tony Hsieh was widely regarded for his distinctive approach to success and his unwavering commitment to fostering happiness among those around him. These philosophies were encapsulated in his bestselling book, “Delivering Happiness,” which offered insights into marketing, finances, and life principles, making it a valuable resource for aspiring entrepreneurs.
However, behind the scenes, Hsieh’s personal life wasn’t as bright. Acquaintances recount his obsession with pushing his body to extreme limits. He would fast to test his endurance, at times weighing less than 100 pounds. Hsieh even experimented with nitrous oxide to deprive his body of oxygen and followed an “alphabet diet,” consuming only foods starting with a specific letter for 24-hour intervals. Journalist Angel Au-Young characterized Hsieh as a man driven to create happiness, constantly seeking stimulation through parties or substances. Au-Young wrote, “He fostered so much human connection and happiness, yet there was this void. It was difficult for him to be alone.”
The difficulties increased with the isolation brought on by the events of 2020. As the world shut down, Hsieh’s energy source diminished. Close friends observed his increasing reliance on drugs and the toll it took on his mental health. Consequently, Hsieh stepped down as CEO of Zappos. With his fortune, he acquired multiple properties in Utah, envisioning a space where art, food, and culture could converge, providing him once again with the company of people. Unfortunately, isolation still prevailed, rendering socializing challenging. Hsieh struggled to reconcile his visions of a vibrant life with his ongoing addictions. Even his close friend, singer Jewel, warned him that his path offered only one possible outcome.
On November 27, 2020, Tony Hsieh passed away, succumbing to injuries from a fire that occurred a week earlier. The exact circumstances of his death remain unclear, leaving room for speculation. Evidence indicates that Hsieh had intentions of seeking rehabilitation, a sign of his desire for change.
Let us hope that Tony Hsieh’s untimely death won’t be in vain. His enduring legacy encompasses not only his entrepreneurial wisdom but also serves as a cautionary tale about the costs of success. As for his creation, while Zappos is now under Amazon’s ownership, Hsieh’s tireless pursuit of perfection remains an indelible part of its fabric.
