Success Story: Zappos Founder Tony Hsieh’s Unconventional Billion Dollar Formula.

Tony Hsieh

The following is an edited excerpt of a talk given by Zappos founder and CEO Tony Hsieh at the Success 3.0 Summit. If you’re unfamiliar with the name, he sold his first company for over $100 million and sold for $1.2 billion. He’s now putting $350 million of his own money into building a startup city in Las Vegas. As cool as that is, what’s equally cool is HOW he acquired that much money. I was interested in WHAT he did different and HOW he actually did it.

Tony demonstrates a new model of success all of us can put into practice. His story and others are being made into a movie called RiseUP.

To see a sneak peak of the trailer click the banner below.

Many of you know about Zappos, and most people who think about Zappos think shoes, but internally we actually have a saying that we’re a service company that just happens to sell shoes. Our whole philosophy is to take most of the money that we would have normally spent on paid advertising or paid marketing and instead invest it into the customer service and customer experience and then let our customers do the marketing for us through word of mouth.

RiseUP: Nifty but does that translate into actual dollars?

We’ve grown from no sales in 1999 to 2008 was the first year we hit a billion dollars in gross merchandise sales. We’re actually doing about triple that now. The #1 driver of all that growth has been through repeat customers and word of mouth.

RiseUP: A lot of people talk about culture and having it be inclusive and what not. Can you give me a specific example with Zappos?

Well, our previous offices were in Henderson, about 25 minutes outside of Las Vegas. We had been looking for a place for the last 7 or 8 years to build a permanent campus that we could call home. It was surprisingly hard to find in the Vegas area. We actually moved the entire company to Vegas 10 years ago, and at the time we had about 90 employees. 70 ended up moving with the company. Over the years, we grew to 1500 employees. As we grew, we started getting spread out in different buildings and that really had an impact on company culture. The people at the top of the hill never saw the people in the other buildings, and so we were super excited when we found out that the city of Las Vegas was building a new city hall, and their former city hall would become available. That became our new campus, and we just moved in a year ago. We set a new world record while we were doing it too, it was the most number of people simultaneously cutting a ribbon, over a mile long with 1500 people cutting it. Afterwards, someone decided it would be a good idea to have a happy hour with 1500 pairs of scissors running around, but it worked out.

The Happy Hour Scissors

So, rewind from about a year or two before this ribbon cutting and we were super excited. We finally had a place we could call our permanent headquarters so we asked some employees for suggested. I went and toured a bunch of amazing campuses: Apple, Google, Nike. I remember Nike had a building that had a beautiful running track around it, and in one of their other buildings they had an onsite pub, and I thought to myself we definitely need one of those as well. As Fred and I toured these campuses, we asked employees for suggestions and we got literally hundreds of suggestions. The #1 suggestion we got back from employees was actually “doggie daycare”, more than human daycare!

We realized a couple things: one was that it was going to be physically impossible to fit all of these into a single campus, but the other thing we realized was that all those other amazing corporate campuses — Apple, Nike, Google — were great for employees, but were actually really insular and didn’t really integrate or contribute to the city around them.

So we thought to ourselves:

“What If We Turned The Whole Concept Inside Out?”

What if, instead of just focusing on ourselves, we took an approach that was more analogous with NYU, where the campus kind of blends into the city, where you don’t really know where one begins and the other ends?

What if we encouraged our employees to go out and interact with and contribute to the community?

We designed our campus so that we could hold events on our campus and invite community members in.

Right around that time, a bunch of Zappos employees and I discovered this whole new area of downtown Vegas that had been there for a while but that most tourist don’t know about. It’s called Fremont East. If you think Vegas, you probably think the big casinos on the strip — which as it turns out, aren’t technically within the city limits. Or if they know anything about downtown it’s the old casinos, the overhead light show and so on. But if you go a few blocks east there’s actually a secret area called Fremont East, where if you go into any of the bars, or coffee shops or restaurants there, you would have no idea you were in Vegas. If anything, it’s almost the complete opposite of the Vegas that most tourists know.

It’s the most community focused place I’ve ever lived. I grew up in San Francisco, but I’ve never lived in a place where all the restaurant owners and bar owners hang out in each others’ places just to support each other, to support the community. It was one of those magical coincidences that was just too good to be true. It was just a few blocks from our future campus at the time, so we had the answer in terms of ‘what’s next’.

We went from the first three “C”s and decided to add a fourth C in terms of what we want the Zappos brand to be about, so we added “community”. So now we try to integrate all of these into our different customer and employee touch points. A few weeks ago, we closed down a couple blocks of downtown Vegas and had a skateboarding event that was free to the community. Employees came so it was a fun bonding event and helped build company culture. We captured it on video and made it available to our customers who are interested in skateboarding shoes, and through that process we weaved in the story of the community and of Zappos company culture.

So now I’m going to switch gears and talk about the Downtown Project, which is actually a separate company that’s privately funded by myself and Fred and a few other friends. We don’t have any outside investors because we wanted to take a long-term approach and not take on any debt for this project. It’s a $350 million dollar budget, and there’s a few different goals…..

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