This podcast is brought to you by Squarespace. I talk to entrepreneurs all the time who are looking for a way to upgrade their digital footprint. Well, whether you're just starting out or you're scaling your business, Squarespace is the easiest way to build a great website that stands out. It's an all in one website platform that gives you everything you need to claim your domain, showcase your products and get paid.
Anyone can use Squarespace's cutting edge design tools to build an online presence that truly reflects what makes your business special. There are templates, intuitive drag and drop editing, and even an AI enhanced website builder. Then Squarespace's built in analytics tools help you make smarter business decisions, review website traffic, learn where to focus engagement and track revenue all in one place. Looking to grow your business?
Squarespace even offers fast, easy business financing through Squarespace capital. Go to squarespace.combilt for a free trial and when you're ready to Launch, use offer code BILT to save 10% off your first purchase of website or domain loan issued by Celsius bank and service by stripe. All loan subject to credit approval. This show is in partnership with Airbnb.
This past summer, I took my family to Vienna. It was incredible. We spent our days wandering the old streets, stopping for coffee and pastries, visiting museums and just soaking up the history of one of the most beautiful cities in the world. And one of the things that made the trip so special was the home we booked on Airbnb.
It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. Your place, with all of its personal touches and its amazing location, can make someone else's vacation even better.
Your home might be worth more than you think. Find out how much at Airbnb ca host 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. 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 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. As Zappos was growing, it was also losing more money, and we also need more money for inventory.
And so all 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. You could not get an asset investment. 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 ever buys shoes online. Rob NPR is How I Built this. A show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. 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. I read that you only have four pairs of shoes, is that right? Yeah, roughly. Maybe.
Maybe fewer now. What kind of shoes are you wearing now? Right now I'm wearing black Asics, and then I have a pair of flip flops that I wear. Yeah, that's what they're in.
I'm actually not passionate about shoes at all. I'm passionate about customer service and company cultures. I can talk forever about those two things, but I can't say anything about shoes. Okay, 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 a. He's an introvert. Right, Definitely.
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? I'm probably different from a lot of typical CEOs where I use the analogy of imagine a greenhouse where maybe 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.
Yeah. 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.
Yeah, and probably gets a little bit weird too, because I heard that when applied to Zappos, you actually get asked how weird you are. I believe so, yeah. I think our application form evolves, but as far as I know, that question is still vary. Oh.
So on a scale of 1 to how weird are you? I would say maybe an eight. Okay, there you have it. Tony Hsieh, the guy who built this huge company with more than a thousand 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 his headquarters in Las Vegas to see how it operates. Because as many of you know, at Zappos, there's. 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. And the story of how Tony got there begins, as these stories often do, in childhood. My parents were your typical Asian American parents.
They're always making sure that I was practicing piano and violin and other instruments. And during the summers, for example, practice one hour, you know, one hour violin. And this is, you know, as a kid, summer vacation. So I would actually get up super early and I would actually just play back a recording of myself playing piano or violin.
Wait, you would play a recording of you practicing the violin to give your parents the impression that you were actually practicing the violin? Right. So it's because they were sleeping, but they could hear, so. So that was my way around that.
It's like a Ferris Bueller move. And strangely, every week when I went to piano lessons or violent lessons, I never improved. And so the teachers now understand why. 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. Yep, I wasn't there for very long.
I think I was there for five months. And it's 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 Kaljimi and I decided to do that on the side while we were both our day jobs were at Oracle. But during lunch. Right.
And I would go start selling and designing websites for different local small businesses. So you guys were like doing side hustle. Yeah, and then we had this idea for. At the time, advertising online was very, very rare.
And right 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. Okay, so wait, so you guys were trying to build like a web based ad sales company? Well, originally we didn't really actually intend to start as businesses more when those things were rewarding.
I was 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. And like, how would you even contact them? We would just email them because back then people would put their email addresses.
Oh, on the website. Something like on the website, like wemaster at what was your p when you email them? 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 it. We weren't really trying to pitch. I guess we were more just, we're doing this experiment. Do you want to participate?
Okay, so just to understand, you basically got like a lot of small websites to join a network and then agree to run ads on their sites. And then you were like the middleman. Right. You sold those spaces on websites to companies that wanted to advertise.
Yeah. Wow. So this is like incredibly good timing. Yeah.
Over two and a half years, we ended up running 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. Okay, first of all, Tony, this is not how this narrative is supposed to go. I mean, you were so young, this is just three years after you graduated from college. So I mean, was it totally overwhelming that that happened so quickly?
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 started getting out of bed and wanting to go to my own company, which is kind of a weird feeling because when it was just five or ten 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 week it was, working on 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. 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. So wait, what, did you just like, cash out and moved on? 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. 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. So just to be clear, you could have made much more money if you had saved for like just another year and a half, but you walked away because you were miserable. 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 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. Okay, 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.
Yeah, it was called Venture Frauds. 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 investment pretty boring. And I felt like I was sitting on the sidelines all the time, and I really missed being part of building something. So how did you Zappos even get on your radar?
How did that happen? Almost actually didn't get on our radar because I remember getting a voicemail from the founder of Zappos, Nick Swinburne Mernan. 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 posters have a bad Internet ideas who can actually try on shoes without seeing them in person.
And right before hitting the delete button on the phone, he threw out a couple facts that made us change your mind. One was that footwear at the time was a $40 billion year industry in the US 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 was 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 going to remotely try and choose. And so in our minds, we thought, okay, the World Wide Web in the Internet is going to be much bigger than just paper or catalogs.
And so that's what made us socially decisive this. Okay, so when the founder of Zappos, Nick Swinburne, came to meet you guys for the first time, what was your impression of him? 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.
Turned 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 a. You find an investor. And so we all met, and ultimately Fred ended up joining the company and been working with Fred ever since.
Wow. So at what point did you realize that, you know, you want to be more than just a passive investor? You wanted to be involved in the company? 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 gradually.
It wasn't like one day wasn't really helping. The next day it was full time. And this was like a time when people were still kind of freaked out by using credit cards online. Right.
So in the first year of that company, were you actually selling shoes? 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 put it in 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.
So that's how you would get user gauge what people were interested in or more importantly, just whether they'd buy shoes online at all. Yeah. And then over time we learned what brands were interested in and then eventually got to the point where we wanted to make money. And so you must have been like burning through cash at this point.
How are you funding the company? Yeah, I mean, so after the link exchange sale, I set some money aside for investing and also bought a bunch of apartments or lots that were in that same building in San Francisco. Yeah, this was right in San Francisco. And basically as Zappos was growing, it was also losing more money and we also need more money for inventory.
And so I ended up one by one selling off the apartments in. Huh. It's kind of like when in Monopoly, when you buy hotel or houses and you have to sell them but lose money on the sale. That's basically what happened.
So how many apartments did you have to sell? All of them, eventually. Wow, you must have really believed this thing was going to work. Yeah, well, so all 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 war. And basically it was just a bad economic environment and investment. You could not get asset investment.
No. And also there were huge companies like pets.com that were E Commerce that were kind of imploding at the time. And so, so even if someone wanted to invest in an instrument company, the last thing they wanted to do was invest in an online shoe company because no one would ever Buy shoes online. 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. You're listening to How I Built this from npr. And one more thing.
The New York Times best selling book How I Built this is now available. It's a great read and a great gift for anyone looking for ideas. Inspiration, wisdom, and encouragement to have the courage to put out an idea into the world. It's filled with tons of stories you haven't heard about how some of the greatest entrepreneurs you know and respect started out at the very bottom.
Check out How I Built this, the book available wherever you buy your books. 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. 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. 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. So did you actually have to lay people off in those early days? Yeah, within the first couple 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.
So how did you guys even begin to turn it around? How did you get to a place where you were able to make it sustainable? 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. That wasn't baked into the model from the beginning.
That came later. 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 a 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. 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 that your competition would never do. Yeah. So there's a point where you really just define yourself like, this is, you know, this is what sets our company apart.
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 now, people won't even realize we started selling shoes online.
And I can imagine one day there could be a Zappos Airlines or Zappos Hotel that is really just about the very best customer service and customer experience. Do you do Zappos cable tv? That'd be great. I need that.
We are open to anything where service can be a differentiator. Okay. So Zappos becomes a huge deal, and then, like at your peak, I guess, in 2009, you sell to Amazon. Why?
And so Amazon had actually approached us several years before 2009. They just wanted to acquire us. And basically the company acquired ends up joining the mothership, and it kind of loses its original identity. And so we said.
Said no very quickly. And then they actually, in the years 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 want to essentially compete and win.
And so they tried that for a while, but we continue 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. 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?
I'd say it was probably mostly luck. What's interesting is that Jim Collins is trying to remember the name of his latest book, GreatBye Choice, I think. And he actually has his acronym, ROL, Return on Luck. And he looked at whether companies.
How much of a role did that 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 in back ends, they all have lucky and unlucky events that happen 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. And then when bad things happen to good companies, the good companies were prepared to deal with were 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. Do you remember when we were kids that show Lifestyles of the Rich and Famous? Yeah. And, like, you became a very rich and famous person.
Right. So did it change the way you live your life? I mean, right now I live in an Airstream, which, like a trailer, like 150 square feet type of thing. 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 I 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. Yeah. 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 phone, maybe. 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 okay with losing everything you have. 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 forced 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.