Why I Sold Zappos

[jrockway]

This article explains a lot of Corporate America. Banks and investors make money by doing nothing; they write a check, they get a check back for more than the original. Therefore, they don't care if the employees or customers are happy, they only care about maximizing the chance that they get their check tomorrow.

This is obviously shortsighted in the case of Zappos. You can buy shoes online from anywhere. The user selects the shoes he wants, you put them in a box, you ship the box. Take away the "expensive" features of Zappos, like good customer service and free shipping, and your customers will just go somewhere else, leaving you with nothing.

Amazon has a clue about dealing with customers, so I think Zappos will be OK. But if the banks and VCs took over, Zappos would have become another data point in the portfolio of "being nice fucks you over". (But really, it's the banks that are fucking you over. Or perhaps, the people that default on their loans are fucking everyone else over.)

[dschobel]

Banks and investors make money by doing nothing; they write a check, they get a check back for more than the original.

That's grossly unfair but I think you know that. Without the initial capital there would be no Zappos to speak of.

The conclusion that people should be drawing is the same one we see time and again on HN, choose your investors carefully.

[brc]

I think the class warfare comments detract from your point.

Yes, the investors and board are their to maximise the return. The job of the CEO is to sell the vision to them and keep them on board. That the company sailed into a headwind not of their own making and the board got jumpy is yet another challenge on the way to large growth.

The board members would probably have lost personal money and dented their careers if Zappos had lost it's funding lines. They certainly do not 'make money by doing nothing'.

If they didn't maximise the change that they got their check back tomorrow, a lot of stuff would fall in a heap as people took stupid risks.

Getting out a broad brush and painting 'corporate america' is not an insightful analysis.

[fgf]

"Banks and investors make money by doing nothing" this is false. Weeding out bad wanna be founders, for example, is important, difficult and something VCs spend a lot of time doing. If being a VC was so easy they would be paid like janitors.

"Therefore, they don't care if the employees or customers are happy" You are wrong, they do. Customers write the check and employees deliver what they write it for, obviously they have some influence on whetter the check arrives or not (and how big it will be)..

"they only care about maximizing the chance that they get their check tomorrow" They care about maximising profit, this obviously involves planning for the long term. (A company expected to earn more money in ten years will be worth more right now.)

"This article explains a lot of Corporate America." You don't get corporate america. Hacker news is great for technical news but there is a surprising amount of this kind of simple/uninformed anti-market rhetoric.

[cynicalkane]

Banks and investors make money by doing nothing

Marx thought the same thing, and decided that to remedy the situation the lower class should steal the capital from the upper class. Marx was wrong, and so are you.

Cynicism about capitalism is popular in this recession, but that speaks less about the failures of capitalism and more about the fickleness of public opinion. Allocation and management of capital is a bit harder than throwing money at things and expecting it to stick, as millions of American investors have discovered over the past two years. Anyway, it seems ironic to have this pseudo-communist whining on a board run by a venture capitalist.

[antipaganda]

They're not doing nothing; they're risking their money. Risk is hard to get right every time.

[nazgulnarsil]

when you ignore risk stupid ideas start making sense, like jumping a bus with a motorcycle. it must seem grossly unfair that the head of a corporation is wealthy if you ignore all the people who failed and the risk that person took making that company successful.

[smanek]

This was interesting:

When employees log in to their computers, we ask them to look at a picture of a random employee and then ask them how well they know that person -- the options include "say hi in the halls," "hang out outside of work," and "we're going to be longtime friends." We're starting to keep track of the number and strength of cross-departmental relationships -- and we're planning a class on the topic.

[tcdent]

I can understand encouraging casual relationships with your coworkers, but tracking and giving seminars on improving them goes too far. I'll take my $2000 now, please.

[ecaradec]

Actually it probably works because employees already trust their management. Doing this at a random company without building a friendly culture first would be distasteful.

[LiveTheDream]

I wonder if Tony took into account Dunbar's number, the magical number (150) at which people tend to max out on personal relationships.

FTA, there are about 1,800 employees. It's not clear how they are geographically divided.

[joe_fishfish]

Maybe this is a cultural thing but personally I would take great exception to my employer interfering in my private, personal relationships in such a fashion.

[bl4k]

they need a 'have slept with' option

[ludwigvan]

How BigBrotheresque.

[edw519]

Wow, I really enjoyed that. For a totally unexpected reason...

There's lots of discussion here at hn about MBAs and I often comment about how little use I got out of mine. I remember little from marketing, finance, and operations classes. But I remember the case studies. The comprised almost half of the curriculum. And I hadn't thought much about them for years. Until reading this post.

This reads like a Harvard Business Review case study. It's got everything that makes for good business reading: compelling ideas, profit and loss, tradeoffs between profit and growth, economic considerations, competing interests, and most of all, characters. For a minute there, I thought I was reading Lee Iacocca. This could even make a great Hollywood script.

Great post. Thank you dwynings. I gotta get this book!

[maukdaddy]

It reads exactly like a HBR case...except without all of the excel attachments ;)

[davidmurphy]

This makes me want to read some case studies! Does anyone know of a good source for (ideally free) case studies, or does one always have to pay? I did a search for HBS case studies and found them for sale....

[tansey]

I had no idea Zappos was so big (1800 employees, over $1.5B in revenue), but with a founder like that, I can see why. He clearly cares a lot about his employees and his company's vision. What an enthralling story too!

Easily the best article I've read today.

[staunch]

He's still in the honeymoon period. Everyone is optimistic at this stage. My guess is that within a year or two he will leave, disgusted by the subtle erosion of the Zappos vision.

[byoung2]

Some more of the Zappos vision might actually bleed over into Amazon (the article mentioned the Amazon distribution center that followed the "$2000 to quit" Zappos approach).

[megablast]

Well, he is still growing, which is good, and likely to lead to a hands-off approach by Amazon. Amazon might just let them work things out, rather than integrating them too much into Amazon.

[tk999]

Agree. 1 year.

[rantfoil]

Subtle jab at Sequoia -- on the one hand, yes, macro trends went against Zappos heavily. On the other hand, the board didn't have faith in Tony's groundbreaking worldview.

You can tell through the heavily filtered language that Tony went through hell and back on this one.

[dabeeeenster]

I find it incredible that a company that on the face of it seems so robust was/still is completely at the mercy of the banks that are funding its cashflow.

1 bn in sales, yet the moment it misses a growth target it could easily get caught in a cashflow credit crunch and go belly up?

Utter madness.

[roel_v]

Eh? Most big retail businesses finance inventory this way. Ahold (big supermarket holding company) with a market cap of 15 billion and a revenue of a little under 40 billion almost went bust a few years ago because of a similar reason. It's too expensive for a company of that size and in that market to use its own capital for financing inventory - margins are like 3 percent, 5 percent if they're selling premium products. There's no (financial) room to keep 10% of their revenues laying around in warehouses.

Besides, those that don't have credit lines from banks have them from their suppliers - with the same risks and conditions.

[brc]

And yet very, very common in the real world.

For more fun and games take a look at an airline business funding one day. One hiccup with a line of credit, particularly fuel credit, can bring an entire airline down in a matter of days.

The risks of funding retail lines of credit are not for the fainthearted. Get some bad purchasing going, end up with a load of junk in the warehouse that customers don't want and the business can't pay for ; the whole thing unravels very fast.

[protomyth]

A lot of consulting companies got hit pretty hard when their revolving credit accounts got crunched. It is a fact of life when you are talking 30, 60, and 90 day net.

[bl4k]

it is called trade finance. the world runs on it.

when extremely large purchases are made between two large companies, the terms of payment can get very complicated, which is why you need banks in the middle. have you ever thought about how you would go about purchasing $1B worth of shoes? Hint: you don't put it on the company amex.

[jey]

This is why businesses involving direct distribution of physical goods are, to use a technical term, "teh suck".

[mikebo]

Way more frank than I was expecting. Great article

[mawhidby]

Agreed. This article was adapted from Tony's book, Delivering Happiness, and it just so happens that today is the official release: http://www.deliveringhappinessbook.com/ I was planning on getting the book, but after reading this article, I went ahead and orered it. Can't wait to read it.

[blizkreeg]

Such an inspiring story. What amazes me about great companies is there is always one (just one) underlying trait that strings through the company as its DNA. And it is never money.

[clemesha]

Is this actually true? Or is it more that we "hear" (listen and remember) about this type of "great" companies?

(This is definitely more of an honest question than some sort of inadvertently negative response.)

[rama_vadakattu]

Reminding "VC money is a time bomb" --DHH http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2351

[mchafkin]

If anyone is interested, we'll be hosting a live chat with Tony at 1pm EST. http://www.inc.com/live

[iworkforthem]

Take-a-away... VCs funding is not a good idea. They just want to grow their investments and not grow the business. To build a great company, you need to have some form of identity... To think Zappos is a Billion $$$ company that sell shoes, etc. Crazy..

[hop]

Unless you need 48M in working capital like Zappos did, there are few investors other than venture capitalists.

[jacquesm]

You'd think that he's proven his mettle and then some, if someone is an outlier like this the best you could have done is simply to get out of their way.

[petercooper]

except whereas Virgin was about being hip and cool, Zappos would be about offering the best service.

According to Branson's autobiography, that was Virgin's initial brand ethos too.

[tjmaxal]

If you liked this article you might like a similar one at Fast company:

http://www.fastcompany.com/1657030/the-happiness-culture-zap...?

[eande]

Tony Hsieh website on delivering happiness http://www.deliveringhappinessbook.com/ with lots of more information around the subject he is very devoted to.

[perlpimp]

What a great read. It seems that you have so many options, as long as you don't rush it.

[bennysaurus]

It looks like they are hanging onto a little of their culture at least even externally - just take a look at the link in the about section at the bottom of the page labelled 'Don't ever click here'

[alain94040]

Indeed well worth the read. There are many parallel story lines that you could extract, depending on which point you are trying to make, but the best thing to do is read it and decide for yourself.

[coryl]

Awesome, Tony Hsieh is a true business leader.

[hartror]

Fantastic story but I think it avoids the obvious, if Zappos didn't have what customers wanted being really really nice wouldn't have done them any good.