Learn How to Master Patience for Long-Term Business SUCCESS | Tony Hsieh's Advice in 16 Minutes

He's an American internet entrepreneur and venture capitalist. He's the CEO of the online shoe and clothing store Zappos. Prior to joining Zappos, he co-founded LinkExchange, which he sold to Microsoft for $265 million. He's Tony Hsieh, and here are his top 10 rules for success.

The great companies had a vision that had a higher purpose beyond just money or profits or being number one. In a market. And kind of the irony there is that by not making profits the number one priority of the company, or the higher purpose of the company, it actually enabled these companies to make— generate more profits in the long term. So, sometimes when I speak at entrepreneur conferences, I get asked, what's a good market to go into where I can make a lot of money? And my response to them is, instead of thinking about where you can make a lot of money, Think about what are you so passionate about doing that you'd be happy doing it for 10 years, even if you never made a dime. And that's what you should be doing. And kind of the ironic thing is the money will actually follow. So, you know, we've all heard of Craigslist. He didn't set out to make money. He was passionate about the community. And now it's one of the top trafficked websites on the internet. So, I like to say chase the vision, not the money. There was a movie that came out a— I think a couple years ago, called Notorious. I think it only lasted a week in the movie theater, but I saw it. And in it, Biggie Smalls, also known as Notorious B.I.G., is— well, Puff Daddy says to Biggie Smalls, "Don't chase the paper, chase the dream." I just want an excuse to put this picture up here. Anyway, so if you're an entrepreneur, say, think about what would you be so passionate about doing that you'd be happy doing it for 10 years, even if you never made a dime from it. And if you have employees, think about what's the larger vision and greater purpose in their work beyond just money or profits or being number one in a market.

Company culture was always important, and myself and Fred interviewed everyone when we were still in San Francisco, basically until We couldn't do that anymore because there were too many employees to interview, but basically we wanted to— we had this criteria of, you know, yes, interview for the normal business technical stuff, but—

Do they meet the bar?

Right.

Technically.

So do the normal set of interviews, but then you kind of had this final test of, like, is this someone I would choose to hang out with or grab a drink with? And if the answer was— if we weren't in business together. If the answer was no, then we wouldn't hire them.

So that goes against a lot of the things that I've heard out there in the past. It's like, keep your work and personal relationships separate. That's kind of been a thing that's been stated out there. There should be this firewall between the two. But you went in and said, okay, it's very important that I can actually get along with this person.

This is someone I could go out and have a beer with.

Why was that so important to you?

I guess I have two answers to that. One is, yes, there are companies that focus on work-life separation or work-life balance, and at Zappos we really focus on work-life integration, and at the end of the day it's just life, so you might as— and especially if you spend so much time at work, you better hopefully enjoy the time that you're spending there and the people that you're with. So that's one answer. The other answer is, and I don't think the book existed at the time Zappos was founded, but Jim Collins, his book Good to Great researched and looked at what separated the great companies in terms of long-term financial performance from just the good ones or mediocre ones, and found that the great ones had two important ingredients that separated them from just the good ones or mediocre ones, and one of them was that they all had strong cultures. We formalized the definition of our culture into, we have 10 core values at Zappos. One of the actually really interesting things I found from the research was that it actually doesn't matter what your values are. What matters is that you have them and that you align the organization around them. The power actually comes from the alignment, not from the values. The actual values. So there's no judgment in the values. And so we're not out there telling people, oh, you should adopt the Zappos values and culture and so on, 'cause actually that would probably not work in most cases. Our message is more, you should figure out what your values are and then align the entire organization around them.

So our whole philosophy is, let's take most of the money that we would have spent on paid advertising or paid marketing, and rather than buy our exposure, Instead, let's invest it into customer service and the customer experience and let our customers do the marketing for us through word of mouth. On any given day, about 75% of our orders are from repeat customers. And we basically grew from no sales in 1999 to, in 2008 was the first year where we hit $1 billion in gross merchandise sales. And actually, even despite the bad economy, we've actually continued to grow over the last 2 years. In fact, our net sales for Q1 this year were up almost 50% year over year. And people ask us, what did we do differently over this last 24 months? And we actually didn't do anything differently. And it's not because of anything we did over the past 2 years. It's because of all the investment we made prior to that that we continue to grow because of the loyalty of our customers. And the number one driver of all that growth is through repeat customers and word of mouth.

I would say probably the biggest thing is just Patience. And I don't mean patience as in terms of just, you know, sitting around and hoping something miraculous will happen. But really, when you're making decisions for your business, thinking long term and thinking about what is actually going to make a difference 10 years from now and what's actually going to make a difference even 2 or 3 years from now. But I think most people get stuck in what's going to make a difference this week or this quarter or even this year. When you think longer term, the decisions you make end up being very different. And so things like culture, for example, if your culture suddenly goes downhill tomorrow or suddenly improves tomorrow, you're not going to see the effects this quarter or this year even in terms of your bottom line. But 2 or 3 years down the road you will. And same thing with customer service. If we hypothetically stopped answering our phones and fired everyone in our call center, that would actually have a huge gain in our profits for 2009. I don't think it would hurt our top-line revenue. We'd still do over a billion in gross sales. But 2 or 3 years from now, then we'd start feeling the effects.

So I think the biggest thing is just how long-term are you thinking.

I always like doing these thought experiments, and so one way to think about it is if money were no issue, if you had infinite money, what would you do? Or the counter to it is if everything was free, or if this one thing was free, then what would you do differently? And so I think that can help spark the initial ideas, and then once you kind of have the crazy out-there idea, then you work backwards and make it more into reality. For example, a lot of startup tech companies have problems hiring tech talent. So what if there's a line out the door of amazing engineers? Then what would you do differently? And then that might shift the thinking into, okay, how do we get a line out the door of really talented engineers and, and make that the problem, the real problem that you're trying to Or actually, back to Zappos history, in the early days we had trouble hiring people that were really good buyers and good at merchandising. Initially the problem was framed as, how do we go and recruit more talented buyers? But then we reframed it as, well, how do we— the only way we can guarantee kind of an endless supply of talented buyers is if we basically grow and train them ourselves. And so now we have a program where we hire people that are entry-level, and within 3 to 5 years they have the potential to become a senior leader within the company.

You talk to managers and tell them you should be spending 10 to 20% of your time outside the office with your team. Initially the response from some of them are, well, is that really working? We're just hanging out. And then we ask the managers that have done it, how much more productive is your team because there's better communication and higher levels of trust and people are willing to do favors for each other because they're doing favors for friends, not for just a coworker. And in terms of increased productivity, the answers range from anywhere from 20% to 100%. So kind of worst-case scenario, you break even.

I mean, we just, we were fresh out of school, had, just didn't know what we were doing, and I think, I'd say one of the lessons that actually, you would think we'd learned the first time, but that kind of repeats itself throughout history is actually just not having enough self-confidence, right? Like thinking, oh, if we hire this external person that has this great resume, then they'll be great, and it feels weird, but they must know more than we do. And I think one of the lessons we learned through LinkExchange was actually, if you're one of the co-founders, you probably know more about the business than someone that's just coming in from the outside. We were young at the time and didn't know that.

One of our interview questions is, on a scale of 1 to 10, how weird are you? And, you know, if you're a 1, you might be a little bit too straight-laced for the Zappos culture. 10, maybe a little bit too psychotic for us. But really, it's not so much the number that we care about, it's how they answer. Because our belief is that everyone is a little weird somehow. And this is really more just a fun way of saying that we really recognize and celebrate each person's individuality. And we want their true personalities to come out and shine in the workplace. You know, there's so many people where they're a different person at home on weekends versus when they're inside the office. And people in corporate America leave a little bit of themselves, or in a lot of cases, a big part of themselves at home. And we really strive to create an environment where people are just comfortable being themselves. So instead of worrying about work-life separation, it's about work-life integration where it's just the same person. And, you know, not only are you comfortable being yourself, but when you connect with your coworkers, it's not just coworker relationships, but true friendships that end up forming where you would choose to hang out with these people even if you weren't working at the same company together. So these are some of the questions that we ask ourselves in terms of thinking about how to deliver great customer service. And we internally use the word wow when thinking about how to treat customers, but we use it as a verb. We talk about how do we wow our customers and also how do we wow our employees and the vendors that we work with. And it starts with the policies you see on our website. We offer free shipping both ways, so a lot of people will order 10 different pairs of shoes, try them on in the comfort of their living room with 10 different outfits, and then send back the ones that don't fit or they don't like, and we encourage that type of behavior. We have a 365-day return policy for people that I guess have trouble committing or making up their minds. And, you know, they can take a while to return products. And, you know, most websites it's very hard to find contact information. Usually it's buried 5 links deep and maybe it's an email address you can only email once. Whereas for us, we take the exact opposite approach. We put our 1-800 number on the top of every single page of our website because we actually want to talk to our customers. And it's funny, 'cause sometimes I'll be speaking at a branding or marketing conference and there's a lot of discussion about consumers being bombarded with thousands and thousands of marketing messages every day. How do you get your message to stand out? How do you get your brand to stand out? And, you know, should they be investing millions of dollars in this 30-second Super Bowl ad that people may or may not be paying attention to? Or should they be leveraging the latest in the social media fad? And for us, as kind of low-tech and unsexy as it may sound, we found that the telephone is actually one of the best branding devices out there. 'Cause we have the customer's undivided attention for 5 to 10 minutes. And if we get the interaction right, we find that the customers remember that for a very long time and tell their friends and family about us. And we run our call center very differently from most call centers. We don't have scripts. We don't have, you know, This concept of average handle time, which most call centers have, which is all about how quickly can you get the customer off the phone in the name of being more efficient. But we're not trying to maximize for efficiency. We're trying to maximize for the customer experience. And we don't upsell. And so going back to the no call time, I actually just got an email last night. A new record was set for the longest phone call ever. It was 8 hours and 3 minutes long.

So.

Yeah. I don't know how the bathroom situation worked out for that one.

But—

so— and it may seem weird that, you know, for us, we're an internet company. 95% of our sales go through the website. So why do we focus so much on the telephone? And what we found is actually, on average, almost every customer calls us at least once sometime during their lifetime. And it's actually usually not to place an order. Most of our phone calls do not result in orders. It might be their first time going through the returns process and they just need help stepping through the process of printing out a return label for the first time. Or maybe they have a wedding over the weekend and they just want some fashion advice. And I think we have some customers that call us because they're lonely and we'll, we'll talk to them as well. So, so that's our call center. And then for our warehouse, we actually run it very differently from most warehouses. As well. Most warehouses, they let the orders pile up so that when the picker needs to walk around, there's higher picking density, more efficient, doesn't need to walk as far. For us, we run our warehouse 24/7, which is not the most efficient way to run a warehouse. And, but we're not trying to maximize for efficiency. And because we run it 24/7 and because our warehouse is located in Kentucky right next to the UPS hub, and because we do these surprise upgrades to overnight shipping for most of our repeat loyal customers. When you combine all three of those things, a lot of customers order as late as midnight Eastern time and the shoes show up on their doorstep 8 hours later when they're expecting it a week later. And that creates that whole emotional response we're trying to elicit in that wow experience that causes them to remember us for a very long time and tell their friends and family about us.

The ultimate definition of success is you could lose everything that you have in truly be okay with it. Your happiness isn't based on external factors.

Could you lose everything and be happy?

I think that would actually be a fun challenge.

Thank you so much for watching. I made this video because Ghilaum Attard— I hope I pronounced that right— asked me to. So if there's a famous entrepreneur that you want me to profile next, Leave it in the comments below and I'll see what I can do. I'd also love to know which of Tony Hsieh's top 10 rules had the biggest impact on you. Leave it in the comments and I will join the discussion. Thank you so much for watching.

Continue to believe, and I'll see you soon.