Zappos CEO Tony Hsieh on Selling to Amazon Vs. Microsoft, Fixing His Biggest Mistakes, and Why Harvard Entrepreneurs Go West
What do Bill Gates, Mark Zuckerberg, and Tony Hsieh have in common? That’s right, they all went to Harvard. And they have all run billion-dollar companies. Unlike Bill G. and Zuck, though, Hsieh actually graduated, in 1995. The CEO of Zappos, the Las Vegas-based online shoe retailer now owned by Amazon.com, was in Boston yesterday as part of a two-month nationwide tour. He’s out promoting his book, Delivering Happiness: A Path to Profits, Passion, and Purpose.
The book is part autobiography, part business case study, and part personal philosophy. In it, Hsieh (pronounced “shay”) discusses the ups and downs of Zappos, the ins and outs of the firm’s vaunted culture, and some important life lessons. He also writes about selling LinkExchange to Microsoft for $265 million in 1998, and his decision to let Zappos be acquired by Amazon.com for more than $1 billion last year. (Hsieh recently spilled the beans about that process in a magazine article, complete with classic entrepreneur-vs.-board-VC conflicts over whether to focus on employee happiness and culture vs. profits and an exit.)
Yesterday, I met with Hsieh aboard his “delivering happiness” tour bus—it’s a rock-star style, 50-foot, baby-blue rolling billboard that sleeps 10. The bus was parked in Boston’s Seaport District, where Hsieh and his entourage (including Jenn Lim, chief happiness officer) were attending a private party at Kel & Partners. Their 20-city tour started in New York and Rhode Island, and is going down south before heading west and eventually ending in Seattle just before Thanksgiving.
I learned two personal things about Hsieh. First, he does have nice shoes, though I don’t know what brand they were. Second, he was born in Champaign-Urbana, IL, my hometown, before he grew up in the San Francisco Bay Area. (“The only thing I remember [in Urbana] is catching fireflies,” he said.)
Hsieh professed not to know a lot about Boston-area startups. But at least one local company—Kiva Systems, the Woburn, MA, maker of warehouse robots (and a Zappos partner)—was pretty psyched last summer when Zappos said it was becoming part of Amazon.
In our Q&A yesterday, we covered a range of topics, and here are some highlights: Bad hires have cost Zappos $100 million-plus over its lifetime. Hsieh sees Amazon CEO Jeff Bezos only once a quarter. Entrepreneurs don’t necessarily need money. And there’s a reason why Harvard undergrads head west to make their fortunes. Read on for more:
Xconomy: What’s up with Harvard not being able to keep its best entrepreneurs in town?
Tony Hsieh: I would say, I had a hard time just getting Harvard to forward my e-mails to me. They might do it now, but at the time, I specifically asked the head of computer science who then became dean or something. So maybe it has to do with inflexibility or something.
X: What’s the one message you want people to get if they’re coming to you and your book for the first time?
TH: I would say, be true to yourself and follow your passions. The other stuff will naturally fall into place if you actively pursue that. That’s happened for me from an entrepreneurial background. Another way to say it is, don’t let inertia win.
X: What is your philosophy about blending one’s personal life with business?
TH: Well, I think they should be the same. That’s the great thing—if you just start doing stuff you’re actually passionate about, then it’ll somehow magically blend together. Especially in today’s world where anyone can start their own website or whatever.
X: That’s all well and good, but what about the entrepreneur who is struggling to raise money and make ends meet?
TH: I think there’s a lot of assumptions built into that question. Like that you need money. Maybe it was true 10 or 15 years ago. At LinkExchange in ‘96, we were spending probably $50,000 a month for servers and high speed internet and all that. You get better connectivity and computing power today for $50 a month. So definitely [bootstrap if you can]. It’s never a question of not having enough resources, it’s a question of not having enough resourcefulness. It’s like blending creativity with optimism with bootstrapping, and you just figure things out as you go. Not everything’s going to work out, but also part of being an entrepreneur is recognizing that when you fail at something, that’s just part of the learning process—and it’s a necessary step. There’s very few entrepreneurs where the first thing they tried was a major success.
X: Your two biggest companies were acquired by Microsoft and Amazon. How did those two negotiations and partnerships compare?
TH: Complete night and day. The reason for selling my previous company, LinkExchange, was to get out. We sold it and I left the company shortly thereafter. Whereas for Amazon, it was so that we could fulfill our vision at Zappos even faster. As a precondition, we told them we wanted to remain independent, continue to grow our culture and our brand, and our way of doing business. From our point of view, it’s as if we swapped out our board of directors. If you come visit our offices, there’s no sign of Amazon at all.
X: Tell me more about the evolution of Zappos under the Amazon umbrella. How’s the company doing?
TH: We don’t have to worry about cash flow anymore or balance sheets, so that’s been really nice. It’s basically as if we view Amazon as this giant consulting company that has a lot of experience and resources that we can tap into as much or as little as we want, for free. We leave it up to each department to decide how much they want to do that. The only disadvantage has been—and this is not so much an Amazon thing as it is a public company thing—we used to be very open with our financials and share them with whoever asked. But because we’re part of a public company now, we can’t do that. But that would’ve been true if we’d stayed independent and went public on our own.
X: So you don’t have to call Jeff Bezos with an update every week?
TH: I see him once a quarter for two hours in a meeting with 10 people. So I don’t actually know him that well.
X: What personally makes you happy? How do you live a meaningful life?
TH: I personally enjoy being creative. Anything that involves thinking outside the box, going against conventional wisdom. Maybe it stems from my childhood issues with trying to prove my parents wrong and go a different path. They wanted me to get the MD or PhD, like all Asian parents; so being an entrepreneur was my way of rebelling against that.
X: What’s the biggest mistake you’ve made as CEO?
TH: I would say the biggest category of mistakes that I’ve made, and we’ve made at Zappos, has been in hiring. We’ve been around for 11 years. If you add up the cost of all our bad hires and the bad decisions they made—they also hired people, and so forth—over 11 years it has cost the company well over $100 million.
X: What would you ask the God of Business, if you could ask one question?
TH: I would want to know where all the people that we should hire are. Ultimately, for Zappos, that has been the limiting factor. Being able to hire people that are talented enough and fit our culture, and being able to hire them fast enough. If we could hire them faster than we can today, we’d grow really fast. A lot of businesses look at what their sales projections are and so on, and try to hire people into it. Whereas I think we really do it more as, hire the right people, and the sales will naturally be a function of how many great people you have. We’re about 2,200 people now.
X: How do you preserve the company’s interpersonal culture when you have thousands of employees?
TH: The only way to do it is if every employee views as part of his or her job living and inspiring the culture in others. That’s the only way it can scale. Otherwise it falls apart, which is what happens at most companies. For us, not only do we not want the culture to go downhill, but we actually want it to get stronger and stronger as we get bigger.
X: What are some of your favorite places to go around Boston?
TH: Pinocchio’s in Harvard Square. If you order the steak and cheese with everything—and you have to say it exactly in those words—that was my first introduction to the equivalent of Philly cheesesteaks. Every “Philly cheesesteak” I’ve had after that has been not even close.