Don't Learn the Wrong Lesson from Zappos

Scott Francis
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Inc. has a fantastic article adapted from Tony Hsieh’s upcoming book, it is a riveting read, to me. Tony and his CFO championed a culture as the key means of differentiation in the difficult online shoe and apparel retailer segment.  Competing against Amazon online isn’t easy. What makes Zappos different is that they don’t compete on price:
Zappos sells shoes and apparel online, but what distinguished us from our competitors was that we’d put our company culture above all else. We’d bet that by being good to our employees — for instance, by paying for 100 percent of health care premiums, spending heavily on personal development, and giving customer service reps more freedom than at a typical call center — we would be able to offer better service than our competitors. Better service would translate into lots of repeat customers, which would mean low marketing expenses, long-term profits, and fast growth. Amazingly, it all seemed to be working.
They compete by differentiating on service.  And they’ve bet that by taking exceptionally good care of their employees, that that would translate into better customer service.  By all accounts it was working quite well, but the board wasn’t supportive of “Tony’s social experiments”, but rather tolerated them as long as things went smoothly and the risks to the business weren’t too great. I think it would be too easy for business owners and managers to conclude that Zappos, and by inference, Tony’s “social experiments”, failed because they sold to Amazon (albeit at an attractive price).  I believe precisely the opposite is true – that they were able to command north of a $1B value precisely because of the culture they created – which made them both an interesting business for Amazon to acquire, and a separate culture which Amazon would find worth preserving (despite the normal tendency of acquirers to stamp their culture upon acquisitions instead). At BP3, we also pay 100% of insurance premiums.  We invest in our employees’ retirement plans (through matching – not just through paying the administrative fees) – more companies should be doing this.  But we’re also looking to increase our investment in other team growth opportunities – including events like bpmCamp.  We’ve invested here in there in other personal development opportunities but if I’m honest, we haven’t done enough yet. As a professional services firm, we can relate to Tony’s thought process on culture.  If you take care of the people who touch customers, you are, by inference, taking care of your customers as well.  If you take the people who touch your customers for granted, you are borrowing trouble and relying on people to swim upstream to provide a positive experience for their customers.  You’ll find it harder to retain the best talent, and you’ll find your competition acquiring the best talent. Taking care of your team is job 1. My hat is off to Tony and the whole team at Zappos.  We’ve been fans, and we’ve been happy customers, here’s hoping that Zappos continues the culture crusade into the future.

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