On Holacracy, Customer Service and 'Zappos Anything'

For Zappos CEO Tony Hsieh, it's not just about ecommerce anymore

Author: Andria Cheng

April 7, 2017

Ask Zappos CEO Tony Hsieh, who pioneered the free two-way shipping concept that now is the industry norm, about where retail is going next, he refers you to other company executives to talk about those things.

It’s not because he’s tuned out. Rather, Hsieh’s vision for Zappos goes way beyond ecommerce.

“What’s important to me is Zappos is about the very best customer service and customer experience,” the 43-year-old Hsieh said in an interview at the trailer park in downtown Las Vegas where he lives amidst Airstream trailers and wandering alpacas. 

Sunset at the trailer park (Photo: Andria Cheng) 

“One day there could be a Zappos airline, a Zappos hotel, Zappos anything. We can have hundreds or thousands of businesses one day. If there’s an opportunity for us to make a difference in terms of better customer service and better customer experience, those are the businesses that we would be considering getting into.”

Zappos, which Amazon bought in 2009 but left Hsieh to run independently, has often been noted for its customer service. Zappos consistently makes StellaService’s list of retailers with best service. (For example, Zappos has a 365-day free return policy). On Apple’s app store, Zappos has an average five star rating. The app store’s editors said it’s their top recommendation for shoe shopping. 

Even as online clothing and shoe selling has become a crowded field, with brick-and-mortar retailers better integrating their online and in-store efforts, Hitwise data showed that Zappos overall still ranks as the No. 4 most-visited site among apparel and accessories retailers, after just Old Navy, Victoria’s Secret and Forever 21, all of which have physical stores.

So how is Hsieh planning to achieve his grand vision? A big part of his strategy involves Zappos’s controversial foray into what’s called holacracy structure in 2014.

We are “transforming Zappos from your typical top down hierarchical corporate structure to where Zappos is organized more like a city and less like a big corporation,” said Hsieh, who also wrote the book “Delivering Happiness” about why a company with a different culture and sense of purpose and happier employees can translate to happier customers and bottom line. “One of the things I’ve noticed is when you have 1,500 employees, it’s just a lot harder to move quickly compared to when you have 10 employees. What we are doing is working on all the structures where we can move just as fast or faster than when we were really small.”

Hsieh compared the effort to opening a single bakery in the middle of a big city. “Even though the city might have millions of people, a bakery can still make its own decisions. The mayor of the city doesn’t tell its residents what to do and where to live and which business to open. It’s really this concept of self organization and self management that all startups have when they are small and, over time, slowly lose it,” said Hsieh.

Zappos now is divided into 500 teams, or what it calls circles internally. Employees can belong to multiple teams, each of which Hsieh said is the equivalent of a startup and is free to be entrepreneurial.

Every employee is empowered to do anything.

“There’ll just be a lot more innovation,” said Hsieh. “For any company, employees have so many amazing ideas, so much creativity and so many skills that are beyond their specific job description….You don’t have to go up the whole approval chain. Every employee is empowered to do anything. It’s about being able to do a lot more experiments and iterate very quickly.

“The whole goal of what I’m working on is ‘How do we create the platform so any employee can come up with an idea?’ If someone wants to start a Zappos bakery or a Zappos airline, they could. It’s not me saying, ‘Here’s what I think we should do in ecommerce or Zappos hotel.’”

But there’s a caveat—you can do whatever you want, he says, but it must help build the brand, it must reflect the company’s core values, as perhaps most importantly it must provide great customer service and experience.

Hsieh’s grand vision still has yet to be played out completely, especially since the self-management structure has invited mixed reviews. Meanwhile, increased competition may still force Hsieh’s attention back to the nitty-gritty of business. Data from Slice Intelligence, which tracks online receipts from a panel of 4.7 million online shoppers, showed that Amazon two years ago beat Zappos as the largest online shoe seller. But data from RBC Capital Markets in September 2016 showed Zappos was still increasing its penetration among US internet users.

While Zappos employees generally give it above-average marks on both Glassdoor and Indeed’s job review sites, and 82% of those on Glassdoor approve of Hsieh, there also have been some complaints about the company culture being “chaotic” and run on favoritism.

Hsieh doesn’t shy away from answering that question.

“Generally for a lot of people, it’s just fear of the unknown,” he said. “There definitely are people who just want to be told ‘If you do step 1 to 10, you’ve done a good job.’ The goal is to get rid of that prescription, command and control and really enable employees to think entrepreneurially.”

Turnover rate last year at Zappos was about 15%, lower than the previous five years, the company said. Average employee tenure is around 4 years. That’s longer than the median tenure of 2.9 years among service occupation workers tracked by Bureau of Labor Statistics. Declining to give more specifics, Hsieh said Zappos has continued to grow each year with 2016 being its most profitable year.

And Hsieh’s vision still looks to have many loyal followers.

“I’m really passionate about what I do,” said Josh Pedro, a nine-year company employee who started working in customer service (which he said already had the self-management style) before moving to being “senior brand marketing coordinator,” or internally, “Swiss Awareness Knife.”

“Anybody is open to talk to anyone" he said. "We are empowered to do what we are doing. (Holacracy) has been a way to bring us closer together. There’s more communication.” 

Main image credit: Zappos