Pod Insights How I Built This with Guy Raz Remembering Tony Hsieh of Zappos About this episode The former CEO of Zappos, Tony Hsieh has died. He was 46 years old. We are grateful that Tony shared his story with us in 2017 and we are republishing it as a tribute to his life and career. Tony was a computer scientist whose first company made millions off the dot-com boom. But he didn't make his mark until he built Zappos—a customer service company that "happens to sell shoes." Tony stepped down as CEO of Zappos in August 2020; the company is worth over a billion dollars and is known for its unorthodox management style.
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1:30 Guy Raz? based on one small decision. Visit usbank.com/business to learn more. The creditor and issuer of this card is US Bank National Association, pursuant to a license from Visa USA, Inc. Some restrictions apply. Our presenting sponsor today is Anthropic, the team behind Claude. Every founder on this show started with a hard question. Not the marketing plan, the 2:00 AM kind. Is this idea any good? Am I the one to build it? Should I quit my job? Anthropic got built the same way. A public benefit corporation founded on one Hard question. How do we make sure AI goes well for people?
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5:26 Guy Raz? Hey, everyone. So as some of you may know, over the break, we heard the sad news about the death of Tony Hsieh, the co-founder and longtime head of Zappos. When I interviewed Tony three years ago on the show, I have to admit, it was one of the hardest interviews I'd done at that point. And not because Tony was difficult or belligerent or evasive. To the contrary, he was kind and polite and genuinely sweet.
5:56 Guy Raz? The problem was that Tony had such a hard time talking about his achievements and his incredible vision for how to run a business. He was so modest and so humble, I literally had to beg him to brag a little. But in the end, we were able to pull out an incredible story from Tony. And as so many of you know, Tony Hsieh wasn't a shoe salesman, even though that's what Zappos is known for. Tony was a customer service salesman. He rewrote the playbook on how to treat customers and employees. And he inspired legions of founders and CEOs to
6:35 Guy Raz? come visit Zappos to learn how to replicate his model. Tony Hsieh was just 46 when he passed away this week, and we wanted to honor him by re-airing this episode that first ran back in January of 2017.
6:55 Speaker 01 As Zappos was growing, it was also losing more money, and we also need more money for inventory. And so all of this was happening at a bad time in terms of the dot-com crash back in 2000. So it was pretty much impossible to raise money from anyone.
7:11 Guy Raz? You could not get outside investment?
7:13 Speaker 01 No. And also, even if someone wanted to invest in an internet company, the last thing they wanted to do was invest in an online shoe company, because no one would ever buy shoes online.
7:31 Guy Raz? From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
7:43 Guy Raz? I'm Guy Raz, and on today's show, how old-school mail-order catalogs inspired Tony Hsieh to build one of the world's biggest online shoe retailers. You know it as Zappos, and it's worth billions.
8:02 Guy Raz? I read that you only have four pairs of shoes. Is that right?
8:05 Speaker 01 Yeah, roughly, maybe fewer now.
8:08 Guy Raz? Wow. What kind of shoes are you wearing now?
8:10 Speaker 01 Right now, I'm wearing black Asics. And then I have a pair of flip flops that I wear.
8:16 Guy Raz? Yeah.
8:17 Speaker 01 Those are the only two pairs. I'm actually not passionate about shoes at all. I'm passionate about customer service and company culture. So I can talk forever about those two things, but I can't say anything about shoes.
8:28 Guy Raz? OK, so as you just heard, one of the most successful shoe salesmen in the world doesn't care about shoes. And also, he's really quiet. He's an introvert.
8:40 Speaker 01 Right, definitely.
8:41 Guy Raz? So how do you cope with it? And you have a huge company. Like, when you've got to talk to lots of people and inspire them, like, how do you find the energy to do that?
8:50 Speaker 01 I'm probably different from a lot of typical CEOs, where I like to use the analogy of imagine a greenhouse, where maybe at a typical company, the CEO might be the strongest and tallest, most charismatic plant that all the other plants strive to one day become, maybe.
9:10 Guy Raz? Yeah.
9:10 Speaker 01 And for me, I really think of my role as more about being the architect of the greenhouse. And then all the plants inside will flourish and thrive on their own. And so from a, I guess, company perspective, I try to surround myself with people that are just naturally more extroverted.
9:29 Guy Raz? Yeah, and probably, I guess, a little bit weird, too, because I heard that when you applied to Zappos, you actually, you're asked how weird you are.
9:37 Speaker 01 I believe so, yeah. I think our application form evolves, but as far as I know, that question is still there.
9:44 Guy Raz? Oh, so on a scale of 1 to 10, how weird are you?
9:47 Speaker 01 I would say maybe an 8.
9:53 Guy Raz? OK, there you have it. Tony Hsieh, the guy who built this huge company with more than 1,000 employees, doesn't really like shoes. He's an 8 on the weird scale and an introvert. And yet, people who study companies and company culture come from all over the world to Zappos, to its headquarters in Las Vegas, to see how it operates. Because, as many of you know, at Zappos, there are no typical bosses. Employees have a lot of autonomy to make decisions. But at the same time, there's an obsessiveness about customer service. In fact, as you will hear, Zappos doesn't even think of itself as a shoe company, but basically, as a company that sells good customer service.
10:35 Guy Raz? And the story of how Tony got there begins, as these stories often do, in childhood.
10:42 Speaker 01 My parents were your typical Asian-American parents. They were always making sure that I was practicing piano and violin and other instruments. And during the summers, for example, practice one hour piano, one hour violin. And this is, you know, as a kid, summer vacation. And so I would actually get up super early and I would actually just play back a recording of myself playing the piano or violin.
11:09 Guy Raz? Wait, you would play a recording of you practicing the violin to give your parents the impression that you were actually practicing the violin?
11:16 Speaker 01 Right, because they were sleeping, but they could hear. So that was my way around that.
11:23 Guy Raz? That's like a Ferris Bueller move.
11:26 Speaker 01 And strangely, every week when I went to piano lessons or violin lessons, I never improved. And so the teachers do not understand why.
11:36 Guy Raz? So anyway, Tony eventually goes off to college. He graduates in the mid-1990s. And it's not like he goes right into starting Zappos. At first, he goes to work for Oracle as a low-level programmer.
11:49 Speaker 01 Yep. I wasn't there for very long. I think I was there for five months and was just straight out of college. And... The actual work I was assigned to do was pretty boring. And this was right about when the internet or the world wide web started. Because I remember it didn't even really exist, I don't think, the summer before, or at least two summers before. And at the time, these web design and hosting agencies were popping up left and right. And so Sanjay, my college roommate, and I decided to do that on the side while we were both, our day jobs were at Oracle, but during lunch breaks and at night would go start selling and designing websites for different local small businesses.
12:31 Guy Raz? So you guys were like doing a side hustle?
12:32 Speaker 01 Yeah. And then we had this idea for, at the time, advertising online was very, very rare. And right, you know, today, if you go to any website, you'll see ads all over the place. But back in the day, if you went to a website and it had an advertisement on it, it was actually kind of a badge of honor, because only the really big websites like Yahoo would have advertising customers.
12:56 Guy Raz? Okay, so wait, so you guys were trying to build like a web-based ad sales company?
13:00 Speaker 01 Well, originally, we didn't really actually intend to start it as businesses, more of one of those things where we were bored and we're thinking, okay, well, let's try this and see what happens. And so we literally just contacted 100 random websites that we thought were interesting.
13:15 Guy Raz? Like, how would you even contact them?
13:17 Speaker 01 We would just email them. Because back then, people would put their email addresses.
13:23 Guy Raz? Oh, on the website?
13:23 Speaker 01 Say something like, yeah, on the website, it'd be like [email protected] .
13:27 Guy Raz? Oh, right. What was your pitch when you would email them?
13:29 Speaker 01 Basically that we're trying this thing out, and if you just put this little piece of code into your website, banners will start showing up. And in exchange, you send us your banner, and we'll make sure that it's showing up on other websites doing the same thing. And that was, that was it. We weren't really trying to pitch, I guess. We were more just, we're doing this experiment, do you want to participate?
13:51 Guy Raz? Okay, so just so I understand, you basically got like a lot of small websites to join a kind of a network and then agree to run ads on their sites?
14:00 Speaker 01 Yep.
14:00 Guy Raz? And then, and then you were like the middleman, right? You sold those spaces on websites to companies that wanted to advertise?
14:06 Speaker 01 Yeah.
14:07 Guy Raz? Wow. So this was like incredibly good timing.
14:10 Speaker 01 Yeah, over two and a half years, we ended up growing the company, which was called Link Exchange, to about 100 or so people. And then ultimately ended up selling the company to Microsoft in 1998 for 265 million.
14:25 Guy Raz? Okay, first of all, Tony, this is not how this narrative is supposed to go. I mean, you were so young, and this is just three years after you graduated from college. So, I mean, was that totally overwhelming that that happened so quickly?
14:38 Speaker 01 Well, the whole thing definitely seemed very surreal. But at the same time, what a lot of people don't know is the real reason why we ended up selling the company. And the real reason was because the company culture had gone completely downhill. And I myself dreaded getting out of bed in the morning to go to my own company, which is kind of a weird feeling because when it was just five or 10 of us and we were all friends, it was a lot of fun. We were kind of your typical dot com startup. Back then, we were sleeping under our desks, had no idea what day of the week it was, working around the clock. But it was really exciting and it was fun growing. And as we started hiring more and more people, we eventually ran out of either friends or friends of friends. And so had to do, figure out how to do interviews and so on.
15:23 Speaker 01 And not everyone we hired was good for our culture. And by the time we got to 100 people, it wasn't any one specific hire. It was just death by a thousand, or in this case, 100 paper cuts. And that's really what led to the sale.
15:38 Guy Raz? So, so wait, what, you just like cashed out and moved on?
15:41 Speaker 01 Well, in Silicon Valley, usually there's a four-year, what's known as a four-year vesting for your stock. And I'd only been there for two and a half years. So really had to stay for another year and a half after Microsoft acquired us in order to get the full amount of what the deal was structured for. But I ended up actually just walking away from that where I guess I could have easily just sat around for a year and a half. But I was ready to move on to the next thing.
16:12 Guy Raz? So just to, just be clear, you, you could have made much more money if you had stayed for like just another year and a half, but you walked away because you were miserable?
16:21 Speaker 01 Yeah, I think I just started going down the path of just trying to make sure that I'm being true to myself and doing things because.
16:30 Speaker 01 It's what I want to do versus what is maybe a status symbol or what society expects me to do. I mean, the one resource that we all ultimately have the same constraints on are time. So I didn't want to be wasting time.
16:47 Guy Raz? OK, so fair enough. You part ways with Link Exchange. And then I read that you opened an incubator, like where you invested in other companies?
16:55 Speaker 01 Yeah, it was called Venture Frogs. And we raised about 27 million. I'd say roughly half of that was my money. And then the other half was from other early Link Exchange employees that had money from the acquisition. And for me, when I first got started in that, my thinking was, oh, this will be lots of fun. We'll get exposure to lots of different founders and different internet companies. But what I realized was that for me, I actually found that investing was pretty boring. And I felt like I was sitting on the sidelines all the time. And I really missed being part of building something.
17:32 Guy Raz? So how did you, like, how did Zappos even get on your radar? Like, how did that happen?
17:36 Speaker 01 It almost actually didn't get on our radar because I remember getting a voicemail from the founder of Zappos, Nick Swinburne. And he said he had this idea for selling shoes online. And we were getting random pitches every day. And so to me, it seemed like the poster child of bad internet ideas. Who's going to actually try on shoes without seeing them in person?
17:57 Guy Raz? Yeah.
17:58 Speaker 01 And right before hitting the delete button on the phone, he threw out a couple of facts that made us change our mind. One was that footwear at the time was a $40 billion a year industry in the US.
18:11 Guy Raz? Yeah.
18:11 Speaker 01 And I'm not into shoes at all, so that was news to me. And then the other interesting fact was that at the time, mail order catalogs, those paper catalogs, that was actually the fastest growing segment of the footwear industry in the US. And that represented 5%, so $2 billion a year and growing. And there's clear proof that people are willing to remotely try on shoes. And so in our minds, we thought, OK, the worldwide web, the internet is going to be much bigger than just paper order catalogs. And so that's what made us ultimately decide to invest.
18:50 Guy Raz? Okay, so when the founder of Zappos, Nick Swinburne, came to meet you guys for the first time, what was your impression of him?
18:58 Speaker 01 He just seemed like a pretty casual guy. But we basically just said, since you, Nick, don't have any footwear background, we'll invest if you can find a shoe guy. Turns out that there was a shoe guy named Fred Mosler, who was working at Nordstrom at the time. And he told Nick, I'll join if you find an investor. And so we all met. And ultimately Fred ended up joining the company and been working with Fred ever since.
19:25 Guy Raz? Wow. So at what point did you realize that you wanted to be more than just a passive investor? That you wanted to be involved in the company?
19:32 Speaker 01 There wasn't really any one moment in time. It was more, we were also running an incubator at the time and Zappos ended up moving in and all in the same building. And so we just started being able to help them more and it just slowly just evolved. But it was gradual thing. It wasn't like one day wasn't really helping, the next day it was full time.
19:54 Guy Raz? And this was like a time when people were still kind of freaked out about using credit cards online, right? So in the first year of that company, were you actually selling shoes?
20:05 Speaker 01 Yeah. I mean, so in order to test out the whole concept for real, Nick would actually just go down to the local shoe store, take pictures of all the shoes that were on the wall and then put it on the website. And if someone bought something, then go down to the local shoe store, buy the shoe and then ship it. And obviously not making money from each of those, but it was really, a really cheap and easy way to test the actual demand.
20:31 Guy Raz? So that's how you would get, you sort of gauge what people were interested in?
20:35 Speaker 01 Or more importantly, just whether they'd buy shoes online at all.
20:41 Speaker 01 Yeah, and then over time, we learned what brands they were interested in. And then eventually got to the point where we wanted to make money. And so-
20:49 Guy Raz? But just, I mean, you must have been like burning through cash at this point. So how are you funding the company?
20:55 Speaker 01 Yeah, I mean, so after the Link Exchange sale, I set some money aside for investing and also bought a bunch of apartments or lofts that were in that same building.
21:07 Guy Raz? In San Francisco?
21:09 Speaker 01 Yeah, this was right in San Francisco. And basically, as Zappos was growing, it was also losing more money and we also needed more money for inventory. And so I ended up, one by one, selling off the apartments.
21:25 Guy Raz? Huh.
21:26 Speaker 01 It's kind of like when in Monopoly, when you buy a hotel or houses and then you have to sell them-
21:30 Guy Raz? Yes.
21:31 Speaker 01 -but you lose money on the sale.
21:32 Guy Raz? Yeah.
21:32 Speaker 01 That's basically what happened, so.
21:35 Guy Raz? How many apartments did you have to sell?
21:36 Speaker 01 All of them, eventually.
21:38 Guy Raz? Wow. I mean, you must have really believed this thing was going to work.
21:41 Speaker 01 Yeah, well, so all of this was happening at a bad time in terms of the dot com crash back in 2000. So it was pretty much impossible to raise money from anyone. And there was also 9/11 and a war. And basically, it was just a bad economic environment and especially in Silicon Valley.
22:02 Guy Raz? Right. You could not get outside investment?
22:04 Speaker 01 No. And also, there were huge companies like Pets.com that were e-commerce that were kind of imploding at the time. And so even if someone wanted to invest in an internet company, the last thing they wanted to do was invest in an online shoe company because no one would ever buy shoes online.
22:26 Guy Raz? When we come back in a moment, the secret sauce that helped Zappos blow up. And a hint, it had nothing to do with shoes. I'm Guy Raz and you're listening to How I Built This from NPR.
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26:07 Guy Raz? It's How I Built This from NPR. I'm Guy Raz. So it's the early 2000s and Zappos is struggling. The economy isn't doing well. And basically, at this time, Tony Hsieh is funding the company with his own money. And he's doing that by selling off a bunch of apartments that he owns. So fair to say, this was not a good time for the company.
26:32 Speaker 01 I mean, every week or two, we had to make the choice between do we make payroll? Or do we pay half of our vendors? Or do we sell another apartment? But you can't just sell an apartment overnight either.
26:43 Guy Raz? So did you actually have to lay people off in those early days?
26:46 Speaker 01 Yeah, within the first couple of years, just the reality of we really are out of cash and we're out of options. And so had to do a layoff just to keep the company going.
27:01 Guy Raz? So how did you guys even begin to turn it around? I mean, how did you get to a place where you were able to make it sustainable?
27:07 Speaker 01 I think for us, a big turning point was really deciding we wanted to build our brand to be about the very best customer service and customer experience.
27:16 Guy Raz? That wasn't baked into the model from the beginning? That came later?
27:19 Speaker 01 Yeah, so in the beginning, we always wanted to offer good service, but it wasn't until we decided we wanted to build our, that's what we actually wanted our brand to be about. That's the most important thing. It led us to do a lot of things that would not have made any sense if that wasn't our North Star. And so examples would be offering free shipping both ways, because that's obviously very expensive to do. And if we were just around trying to, say, maximize the profit margins, then we never would have gone down that path. And yes, we would have made more money in the short term during those days, but then we wouldn't have built our brand and reputation and so on.
28:04 Speaker 01 And so I think when you actually want your brand to stand for something or to have some sort of purpose, and in our case, it's about, to be about the very best customer service and customer experience, you do things that are kind of nonsensical in some ways and that your competition would never do.
28:21 Guy Raz? Yeah, so I mean, there was a point where you really just defined yourself like, this is, you know, this is what sets our company apart.
28:28 Speaker 01 Yeah, and there's actually a phrase that I think one of the employees in our call center actually came up with, started describing us as, we're a service company that just happens to sell shoes. And so for us, that's, we're hoping 10, 20 years from now, people won't even realize we started selling shoes online. And I can imagine one day, there could be a Zappos Airlines or a Zappos Hotel that is really just about the very best customer service and customer experience.
28:58 Guy Raz? Do you do Zappos cable TV? That'd be great. I need that.
29:02 Speaker 01 We are open to anything where service can be a differentiator.
29:08 Guy Raz? Okay, so Zappos becomes this huge deal. And then like at your peak, I guess in 2009, you sell to Amazon. Why?
29:18 Speaker 01 Yeah, so Amazon had actually approached us several years before 2009. They just wanted to acquire us and then basically the company being acquired ends up joining the mothership and kind of loses its original identity. And so we said no very quickly. And then they actually, in the years in between then and 2009, they launched a competitor called Endless. And it was basically launched from our perspective to compete with us. And ultimately, if they weren't going to be able to acquire us, then they wanted to essentially compete and win.
29:57 Guy Raz? Right.
29:57 Speaker 01 And so they tried that for a while, but we continued to grow. And so I think after several years of them, I'm assuming, I don't know the details, of losing lots of money trying to gain market share through Endless, they approached us again and said, okay, we will let you guys be your own separate subsidiary with your own separate culture and own separate way of doing business. And happy to report, seven years later, they've remained totally true to their word and we've been able to continue doing our own thing. And our culture is very different and distinct from Amazon's. And so from our point of view, it was really just as if we swapped out our prior board of directors with a new one.
30:49 Guy Raz? Why do you think that, I mean, if at times Zappos was like a week away from going under and there was just a lifeline that came through every time, whether you sold an apartment or some money came in, why do you think it made it? Do you think it was luck or do you think you guys were just really good at what you were doing?
31:11 Speaker 01 I'd say it was probably mostly luck. What's interesting is that Jim Collins is, I'm trying to remember the name of his latest book, Great by Choice, I think, and he actually has this acronym, ROL, Return on Luck. And he looked at whether companies, how much of a role did luck play in companies that did well and companies that didn't do well? And in his research and analysis, he actually found that good companies and bad companies, they all have lucky and unlucky events that happened to them. Except when it happened to good companies, they would double down on whatever that event was and get the most out of that.
31:53 Speaker 01 And then when bad things happened to good companies, the good companies were prepared to deal with, or more prepared than the not so good companies to deal with that bad luck. But the same amount of good luck or bad luck happens to all companies and all people.
32:10 Guy Raz? Do you remember when we were kids, that show Lifestyles of the Rich and Famous?
32:14 Speaker 01 Yeah.
32:15 Guy Raz? And like you, you became a very rich and famous person, right? I mean, so, so did it change the way you live your life?
32:21 Speaker 01 I mean, right now, I live in an airstream, which...
32:24 Guy Raz? Like a, like a trailer, like 150 square feet type of thing?
32:28 Speaker 01 Yeah. We've got dogs running around, kids running around. We actually have two alpacas running around, so. And I just love it because there's just so many random amazing things that happen around the campfire and now you just go outside. And I actually think of it as the world's largest living room. And I guess for me, I've always, like, I'm willing to pay for experiences, but not really for things.
32:56 Guy Raz? Yeah.
32:57 Speaker 01 And just because experiences, I think I realized a while ago, are what make me happy. And it's funny because I was literally this morning having coffee with a friend of mine in the airstream and we were talking about, I think it was a quiz or something where the question was, if you, if your house was on fire and you could only save one thing from your house, what would it be? And how that would be a really good way of getting to know someone? And I was just looking around my airstream and it was like, I don't know, my, my phone? Maybe?
33:32 Speaker 01 And sometimes people ask me what my definition of success is. And I would say, for me, it's getting to the point where you're truly OK with losing everything you have.
33:47 Guy Raz? That's Tony Hsieh, the co-founder and longtime head of Zappos. He died this past week at age 46. By the way, Tony had an interesting way of dealing with his introversion. He'd force himself to do one uncomfortable thing every single day. And on the day I interviewed him three years ago, he dyed his hair bright red and spiked it up into a mohawk, just because it made him uncomfortable.
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