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Cultural Revolution

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Tony Hsieh ...
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Take all the rules you thought you knew about running a business and turn them upside down: Work hard but play harder. Only hire your friends. Make emotional connections.

If this sounds like corporate blasphemy, remember that the retail industry is not in Kansas anymore. The Internet has created a world of commerce not unlike the mythical Oz, where virtually any item a shopper wishes for can be found.

Like the wizard who ruled Emerald City, Tony Hsieh, CEO of rising star Zappos.com , knows success lies not in the products it sells, but in the magic it delivers. Dorothy’s ruby red slippers, like the shoes sold at Zappos.com , were merely a launching pad.

With its promise of free overnight shipping and 24/7 customer service, Zappos is on track to sell $800 million worth of shoes, apparel and accessories this year—but what consumers are really buying is the magic of an outstanding customer experience.

The infrastructure for providing exceptional customer experiences is the personable Zappos culture, which is what motivated Hsieh, a Harvard graduate with a computer-science degree, to invest in the fledgling company in 1999. Assuming the leadership role in 2000, he took Zappos from $1.6 million in sales his first year to $597 million in 2006.

If you visit the Zappos headquarters in Henderson, Nev., chances are you wouldn’t find Hsieh sitting behind a desk in the corner office. More likely, he would be at the karaoke machine in the cafeteria participating in a Zappos’ Idol moment.

Talking with Chain Store Age last month, the surprisingly soft-spoken and unassuming Hsieh, 33, insisted there are some “incredibly talented singers at Zappos, but I’m not one of them.” Performing is not a prerequisite for employment, but a passion for having fun is the unwritten requirement in every-one’s job description.

Interviews are sometimes conducted in a speed-dating format, with prospective employees talking with five or six managers in fast-paced five-minute dialogues. If the individual gets a green light from these chats, then there are more traditional interviews in the specific area where they wish to work to assess the candidate’s technical abilities. Lastly, and most critically, they are interviewed by human-resources professionals to confirm a cultural fit.

“There are plenty of candidates who would be great individual contributors, but if they are not a cultural fit we would not hire them,” said Hsieh. “We want people who are eager to live the Zappos lifestyle and promote the Zappos culture—not a typical nine-to-five office employee. One of the core values at Zappos is a willingness to embrace change and drive change. We actually want people who like to have fun and be a little weird at times.”

For instance, office parades are a common occurrence as well as a source of competitive camaraderie between departments. Recently Zappos software engineers dressed like bugs, because as Hsieh explained, their job is “to stamp out bugs,” and paraded through the offices handing out edible bug candies.

Not to be outdone, the next group of parading associates led an Oktoberfest celebration, complete with lederhosen costumes, and sausage, pretzels and root beer for all.

“I want our employees to wake up and feel like they are going to hang out with friends, not going to work,” explained Hsieh. “Working at Zappos is a lifestyle not a job. When people visit our offices, they are always surprised at how friendly everyone is and what a fun atmosphere we have.”

The Zappos culture encourages employees to spend time together outside of work. When he’s not in the office, Hsieh is usually hanging out with co-workers. He admitted that, although there isn’t an agenda, usually half the time is spent talking about Zappos. In some circumstances, that could be construed as borderline workaholic—but given the focus on fun and the fact that Hsieh loves the lifestyle, a better description might be playaholic.

Perhaps the cultural commitment has roots in what Hsieh described as the best advice he has ever gotten: “Two or three years ago, Robert Greenberg, CEO of Skechers, told me the most important thing in life is quality of life—it’s not about the money. I try to apply that philosophy to my personal life as well as at Zappos.”

However, the fun-loving nature and a personal commitment to remain humble never obstruct Hsieh’s business acumen or his dedicated work ethic. For example, Zappos acquired 6pm.com , a Web site with a product offering comparable to Zappos but at discounted prices, in September.

“We’ve found many customers don’t buy from Zappos because they care more about discounted prices than superior customer service,” said Hsieh. “At 6pm.com , shoppers can find end-of-season product at lower prices.”

The two Web sites will be operated completely separately, although 6pm. com will serve as an outlet store for merchandise that doesn’t sell on Zappos.com . Additionally, the Zappos distribution center (DC) in Shepherds-ville, Ky., will manage inventory and fulfillment for both Web sites.

In the world of e-commerce, the next step for customer service, suggested Hsieh, is for the retailer to help its customers feel a personal, emotional connection with the company.

“That connection is hard to make when it’s next to impossible to find a phone number on most Web sites,” he added.

The Zappos phone number is on the top left corner of every page on its Web site, because Hsieh explained, “We don’t view the contact as an expense; we view it as an investment. It’s a branding opportunity for us and it gives us the opportunity to deliver great customer service in a very personal way.”

“Most call centers measure the average time of each phone call and the emphasis is on how many customers each representative can talk to in a day, which translates to how quickly they can get the customer off the phone.”

Zappos takes an entirely different approach. “What we care about,” said Hsieh, “is that our associate went above and beyond the customer’s expectations. Calls may last an hour, and if a customer is looking for a particular pair of shoes that are out of stock, our associates are trained to look at competitor Web sites to find what the customer wants. Yes, we don’t make a sale, but we might develop a life-long relationship with that customer.”

It seems to be working. On an average day, 75% of Zappos’ orders are from repeat customers. Hsieh also noted that Zappos has more than 6 million customers, roughly 2% of the U.S. population.

“Getting the word out to the other 98% is a huge opportunity for us,” he said. But advertising is not an integral part of the plan. “Our strategy is to put money back into the customer experience rather than invest a lot of money in marketing. Services such as free overnight shipping and operating the warehouse 24/7 make this possible, but it is expensive and certainly not the most efficient way to run a warehouse. However, most of our growth is from repeat customers, and they do our marketing for us.”

Hsieh plans to continue to grow the business. Besides the recent addition of apparel to its product mix, Zappos has launched a number of Web sites that build a sense of community and reinforce the focus on individual lifestyles. Running.Zappos.com caters to the avid runner’s lifestyle; Outdoor.Zappos.com is geared to hikers and campers; Couture.Zappos.com appeals to high-end shoppers; and RideShop.Zappos.com is for the skateboarding or surfing enthusiast.

“In 10 years, I would like Zappos to be a household name that people are extremely excited about and equate to excellent service,” declared Hsieh. “We’ve received customer e-mails asking us to please manage the IRS or take over an airline—we’re not planning on that anytime soon, but we like that customers perceive our brand to be about service, not just shoes.”