Startup Playbook Excerpt 2

Secrets of the Fastest-Growing Startups from Their Founding Entrepreneurs

New York Times Bestselling Author

With Hanny Hindi

Foreword by LinkedIn founder Reid Hoffman

David S. Kidder

190 The Startup Playbook

introducing tony hsiehIn his recent memoir, Delivering Happiness, Tony Hsieh clearly

lays out the key themes of his personal and professional life,

especially when he describes the moment when Zappos’

culture truly began to cohere. The major struggle the company

faced in its early years was finding employees as committed

to customer service as the executives were. After realizing that

they weren’t going to find them in California, Tony and his team

decided to move somewhere with a much stronger culture of

service. They considered many options, but ultimately chose

Las Vegas. As Tony writes, “We had about ninety employees

in San Francisco at the time, and I had thought maybe half of

them would decide to uproot their lives and move with the

company. A week later, I was pleasantly surprised to learn that

seventy employees were willing to give Vegas a shot.”

Employees who decided to make the move were making a major commitment to Zappos. “Probably the biggest benefit of moving to Vegas was that nobody had any friends outside of Zappos, so we were all sort of forced to hang out with each other outside the office.” That proximity forced Tony to clearly define the culture he was building. He eventually settled on ten core values, but the last value is the most profound. It consists of only two words: “Be humble.”

Tony is a humble leader with a strong commitment to his partners, his employ-ees, and his customers. If past performance is the greatest predictor of future outcomes, then we should expect great things from Tony in the years to come. He’s only in his mid-thirties, but with the founding of LinkExchange and his leadership of Zappos, he has had a huge career already. I have no doubt that he will continue to repeat his successes and learn from his failures. With genuine honesty and perspective, Tony knows that nobody has it all figured out.

TONY HSIEHFOUNDER:

LINKEXCHANGE

VENTURE FROGS CEO:

ZAPPOS

tony’s storyWith the sale of LinkExchange to Microsoft, Tony Hsieh achieved major success very early in his career. His next move was to cofound Venture Frogs, a fund that invested in and incubated Internet companies. One of their investments was an online shoe retailer.

Tony Hsieh: Venture Frogs was invested in about twenty-seven different companies; Zappos just happened to be one of them. At the time, we were running an incubator and providing office services and so on. Zappos was one of the companies that moved into the incubator. I didn’t go into it thinking, “I’m going to find a shoe company to invest in, and then I’m going to bring people along with me and try to make it work.” I just started working more and more with them. Over the course of a year, I slowly got sucked into working with them full-time. [This is Tony’s character-istic humility at work: he didn’t just start working “full-time” at Zappos; he became the CEO of Zappos.] If it hadn’t worked out, I wouldn’t have become emotionally invested in the company.

Second-time entrepreneurs are sometimes reluctant to devote real time and energy to the hard work of building a new company, especially if they had a major success with their first venture. This was never Tony’s problem.

Being successful is just about doing whatever it takes to get stuff done. In the early days of Zappos, we did everything. If we had 100 orders that needed to go out, everybody stayed late at night packing boxes and chip-ping in. That was true for all of us, not just me.

Creativity and persistence in solving problems would always characterize Tony’s work at Zappos. In some cases, it was a simple matter of working through the next day’s order. At other times, it involved major operational issues.

Many brands said we needed to have a physical store before we could sell their shoes. That wasn’t part of our original business model, so we just turned our reception area into a shoe store, took a picture of our “shoe store,” and sent it into the brands. That worked for some of them, but others were more diligent. Their reps would actually visit and see that it wasn’t a real store. They were right, of course, the “store” probably sold one pair of shoes a day.

the linkexchange

story

Tony and his partner, Sanjay Madan,

founded LinkExchange in 1996 after

graduating from Harvard University.

Within a year, ads powered by

LinkExchange were reaching nearly

half of all Internet-enabled house-

holds. In late 1998, Microsoft pur-

chased LinkExchange for $265 million.

Tony was twenty-four.

the zappos story

Tony Hsieh is not the founder of

Zappos. When Nick Swinmurn

founded the company in 1999, Tony

was an early investor through his fund,

Venture Frogs. He became CEO of the

company the following year. Today,

Zappos is the world’s largest online

shoe vendor. They have an inven-

tory of more than five million shoes

in 200,000 styles from 1,200 shoe-

makers, including Bruno Magli, Nike,

and Ugg. On November 1, 2009,

Amazon.com purchased Zappos for

$1.2 billion. At the time, it was

Amazon’s largest acquisition.

Tony Hsieh / LinkExchange, Venture Frogs 191


To attract the brands we wanted, we had two options: start a real shoe store or find a real shoe store. Starting a real shoe store would have been a big pain, and we would still have to convince brands to sell to that store. We decided to find an old mom-and-pop store somewhere in the middle of nowhere that we could buy cheaply. That’s how we ended up buy-ing the shoe store in Willows, California. As it turned out, there was an abandoned department store across the street. We were expand-ing at the time, and we ended up turning that space into a two-story, 30,000-square-foot warehouse.

There was no way we could possibly have predicted how things would turn out. We were just looking at all of our options and trying to find creative ways of getting things done.

In the years that followed, Zappos experienced extraordinary growth, but it took an extremely risky and difficult path that could have ended very differently.

For a vivid example of the challenges the Zappos team faced, look up the chapter “Improvising Inventory” in Tony’s book Delivering Happiness. In 2002, Zap-pos decided to move their warehouse from Willows, California, to a spot near the UPS hub in Kentucky. Tony and his team packed five semis with 40,000

shoes before taking a “minivacation” to New Orleans. While on their trip, they got some bad news: one of the semis had overturned. The driver was fine, but the cargo wasn’t. “The shoes are strewn all over the side of the high-way,” they were told. “I don’t think we’ll be able to recover any of them.” In one shot, Zappos lost 20 percent of its inventory. Zappos over-came that challenge as well as others, but it was a clear reminder that there’s no such thing as “overnight success.”

You sometimes feel very lonely as an entrepreneur. Every time you fail at something, you wonder how all these other companies are doing it so effortlessly. But those ups and downs are part of every eventual success story. Very few entrepreneurs are successful in the first thing they try. From the outside, Zappos might seem like an overnight success. The truth is that we made a lot of mistakes along the way and learned a lot of lessons.

“You sometimes feel very lonely as an

entrepreneur.”

Be Humble

Just because you were once a great company doesn’t guarantee that

you always will be. Businesses that have gone from being great to

going under or becoming irrelevant have often lost their sense of

humility. That’s step one of falling or failing. The people in overly

proud companies start believing their own press releases and feeling

like they can do no wrong. To help protect us against this, one of our

core values at Zappos is being humble.

Embrace and Drive Change

Another core value at Zappos is to embrace and drive change. Never

accept or be too comfortable with the status quo. Historically, the

companies that get into trouble are the ones that aren’t able to quickly

respond and adapt to change. At Zappos, we are constantly evolving.

If we want to stay ahead of our competition, we have to continually

change and keep them guessing. As long as embracing constant

change is a part of our culture, nobody will evolve as fast as we can.

Adopt a “MacGyver” Mentality

My favorite TV show growing up was MacGyver. He could combine

duct tape with a pencil and a paperclip and make a sailboat out of it.

He never had exactly what he needed, but he figured out how to make

things happen. For me, that’s what the entrepreneurial spirit is about.

It’s about being able to combine optimism and creativity, kind of with

the faith that it’s going to work out somehow in the end, only you

don’t know exactly how. So being an entrepreneur, I think, is really just

about playing MacGyver with business.

the tony hsieh playbook


“The people in overly proud companies start believing their own press releases . . .”


B U S I N E S S O P E R AT I O N SOvercome Complexity with Acquisitions

We needed to have a physical shoe store in order to work with certain

brands. An acquisition with a clear purpose helped us avoid the com-

plexity of starting a real store and allowed us to quickly add fifteen to

twenty new brands.

F A I L U R EDon’t Be Afraid to Fail Your Way to Success

So many people label themselves a “failure” when they fail at some-

thing. Instead, the entrepreneurial spirit is realizing that these failures

are a necessary part of the path to wherever you’re going to end up.

F O C U S I N G T I M E & E N E R G YPrioritize Passion over Profits

Make sure you’re passionate about whatever you do. It has to be

something you’d be happy doing for ten years, even if you never made

any money from it. The irony is that your passion will greatly increase

the chances that you’ll end up doing well. There are going to be hard

times, and your passion will get you through them. It will also rub off

on the other people in your company.

H I R I N GMake Sure Early Hires Are Willing to Take on Any Role

Every company needs people with different skill sets and passions.

But early on, everybody should be willing to wear ten different hats.

They can’t have the attitude that something isn’t “their job” or “their

responsibility.” They have to have the MacGyver mentality and do

whatever it takes to get the job done.

P R O D U C T D E V E L O P M E N TPrioritize Progress over Process

Stuff needs to get done, and you need to do whatever it takes to get

things done. Sometimes you just don’t have all the resources you

would like, but you just have to fight through it; that’s part of the pro-

cess. You’re going to have to cut some corners in the process, but you

can’t let that stall your progress.

T A L E N TAvoid Top-Heavy Titles

Giving early managers and executives top-heavy titles inhibits growth.

If your company grows and becomes successful, you are going to out-

grow the capabilities of the people who were with you at the begin-

ning. Chances are very small that your first ten people are going to be

the ten VPs you want five or ten years down the line. In the beginning,

be very stingy about giving away titles.

V I S I O N & M I S S I O NDon’t Let Your Vision Inhibit Change

Don’t lock yourself into a specific business model when you start

out, especially if you’re going into a new industry. You just don’t

even know what you don’t know. Because nothing ever turns out

the way you expect it to, you have to be open-minded about the path

your company takes. Don’t get stuck on what you envisioned when the

company first started.

tony’s best advice


W O R K I N G F O R Y O U R S E L FChoose Partners You Enjoy Spending Time With

It’s important to choose partners you would want to be around even

if you weren’t in business together. Would you go on a cross-country

road trip with them? I would actually recommend taking a vacation

with whoever you’re going to be working with. When you’re with

somebody 24/7, it accelerates that process of acclimating to each

other. This can help show you what working together is going to be

like after six months or a year.

TONY’S

VISION FOR THE

FUTURE

Recently, Tony has shifted his focus from delivering footwear to “delivering happiness.” This is the title of the book he wrote and then promoted on a cross-country bus tour. From Las Vegas to Chicago, from Boston to Miami and back to Portland and Seattle, Tony spread his message of delivering happiness one individual, employee, and company at a time. As ever, Tony wasn’t content to do things the traditional way. The book’s website didn’t simply promote sales; it acted as the hub of a movement. Readers were encouraged to start clubs to build happiness at their workplaces or in their communities, and to share their stories on the Delivering Happiness site, on Facebook, or on Twitter.

Tony also achieved the high point of traditional pub-lishing success: on June 22, 2010, Delivering Happiness reached the number-one spot on the New York Times Bestseller list.

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