Tony Hsieh - CEO of Zappos at INC 500 Conf

Tony Hsieh - CEO of Zappos at INC 500 Conference

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Today I had the pleasure of watching Tony Hsieh, the CEO of Zappos.com, speak at the INC 500|5000 conference.  Above is a video and below is the transcript from his speech - a must-watch/read for any entrepreneur.  You can also see Tony's slideshow here

Here's a transcript of Tony's speech:

Good morning and welcome to the 2009 INC 500/INC 5000 conference.  You know, yesterday, I was reading the newspaper. And I read that according to certain economic indicators, we're getting to the end of the recession. Let me say when I look out at this crowd, I think maybe we are at the end of the recession. Many of you asked me last night how many attendees were here. I'm happy to say that this is the biggest conference that we've ever had, 1,700 people, and I would like to thank all of you for coming--our sponsors, our INC 5000 [...] team, and the great team of the conference organizers. During this conference, you'll be hearing from a number of entrepreneurs, many of them who've been in the magazine before. For instance, our first speaker, Tony Hsieh, was on the cover just a few months ago. So in a sense, this conference is kind of like INC live. You'll also, of course, be meeting each other, talking to each other, and seeing some people. Also on stage, who've been on this list before, which I think is particularly pertinent to the people here. I would like to just tell you about a few of the people on the list. I mean, I could go on and on, because as I read the profiles as our reporters delve into your stories, one is really more fascinating than the next. So I just pulled a couple out, and I just wanted to tell you about these people. I need my glasses for this.

Number 17 on the list is P3S Corporation, the daughter of a Mexican immigrant mother, and an American father, Mary Ellen Trevino grew up in Port Isabel--a town on the Texas-Mexico border--under difficult circumstances. Her father was a stroke victim and unable to work, so Trevino studied hard in high school, earned a scholarship, and attended college at St. Mary's University. She went on to get her MBA and began a career in the federal sector. She started P3S Corporation in 2005 to provide a variety of business solutions to the federal government.

P3S is the highest-ranked female-owned company on this year's list. Congratulations, Miss Trevino.

On number 225, was raised by blue-collared parents in Niagara Falls, NY. Gregory Celestan wanted a ticket out of town and needed a way to pay for college. He was accepted at West Point Military Academy, a great way to get a way to pay for college. He became a Foreign Area Officer, studying the language in culture of a region for military intelligence, specialized in Russian. In 2004, Celestan retired, having served 20 years and reached the rank of Lieutenant Colonel. He recalls watching large defense contractors at work and thinking, "I can do better". So after the end of his service, he founded Celestar, which provides intelligence support to government organizations. The concept of "I can do better", how many of you looked at something and thought, "I can do better"?

Number 1507, Liberty Tire Recycling has kept a hundred million rubber tires from landfill; of the equivalent 25% of the country's annual scrap tires. Thank you, CEO Jeffery Kendall. Thank you, Jeffery.

And last, I'd like to mention my old friend, Kingston Technology. Kingston Technology was started by Taiwan immigrants, David Sun and John Tu, in 1987 and became the number one company on this list in 1992 with $141 million in revenue and a growth rate of--dig this--117,000%. It has shown up three times since then, which means, it has kept growing and growing and growing. If you wonder who's at the, toward the bottom of the 5000 list, well, you can look at Kingston Technology at number 4445. It is $4 billion in revenue and 4,500 employees.

Of course, all these companies are much more than a series of impressive numbers, but the INC ranking is at its heart a celebration of numbers. The list is not about what's cool, or who the editors like, or the result of some kind of squishy methodology. The list is about the revenue growth, and we know from publishing this list over the years that revenue growth often leads to people getting hired and great things getting done. And I'm not the only who thinks so. A friend of INC's really wanted to be here; and when he found his own conference was scheduled at exactly the same time, he asked if he might say a few video words instead. Given that he's a very smart man--some might say brilliant--and that he's highly articulate, and that he's extremely accomplished and knowledgeable, I said, "Yes, please. Thank you." Could we roll the videotape?

[...] 30 year history, many of the household name company, things we know today, like Microsoft and Oracle. Once we're found on this list is the nation's 500 fastest growing privately-owned companies. Congratulations to this year's INC 500 and 5000 honorees. Your accomplishments including accurate revenue of $214 billion dollars and immediate 3-year growth rate of 126% were impressive and particularly inspiring, given the challenging economic climate we face this year. I'm proud of the record-level prosperity that America experienced when I was President. And while I believe the government's policy is at a critical role at playing in creative conditions for economic growth and rewarding innovation and hard work. I never forget that the heavy lifting of the American economy doesn't take place in Washington DC. In factories, labs and offices all across America run by people like you who turn ideas and products and services make the impossible possible and work hard to make sure their companies can compete. In addition to creating the jobs that are important in turning our economy around, a lot of you also know as I do, about the importance of giving back to your communities. Many of you participated yesterday in INC's day of service. I encourage all of you to make public service a regular part of your lives for the opportunities that are found everywhere.

For example, I'm pleased to have INC as a part of my foundation's Clinton Economic Opportunity this year. Through this partnership, we've created the Entrepreneurial Mentoring Program, which pairs entrepreneurs learning how to grow companies in intercity communities, was successful business leaders in entrepreneur mentors, like INC's own Norm Brodsky and Jake Owens. The current program is working with businesses in Oakland, Chicago, New York and Newark. We're building programs in several more cities across America, including Philadelphia. I look forward to continuing to work with INC to reach more entrepreneurship, and I hope some of you will agree to service and prepare mentors as well. Thanks for letting me say a few words today. And I hope you enjoy the conference.

Thank you, President Clinton. We're grateful that the President's so passionately interested in entrepreneurs, and I hope that some of you will consider joining the mentoring program. I understand that a day of service yesterday was an incredible success. Many of you went out to do that, and perhaps, some of those who were inspired to do that would also be inspired to be a mentor. There's an explanation of the mentoring program in your bag, and I hope you will take a look at it. And now, here to introduce the first speaker is Richard Quigley, President of Chase Business Cards. Thank you very much for coming.

President of Business Card for JPMorgan Chase. We're thrilled to be here today with you to celebrate your inclusion on the INC's 500/5000 list; but maybe even more, as Jane said to celebrate the fact, that you've been incredibly successful in these very difficult economic times. And I think JPMorgan Chase, we've been so inspired by your resiliency and your resourcefulness through this difficult period. In fact, we've been so inspired by the energy and passion of small business owners that just yesterday, we launched something called INK from Chase, which is a suite of new business cards that are especially designed for small business owners. The other thing we did just recently was ask all of you to participate in a survey, and it has some pretty interesting results from this survey where you gave your opinions about your business strategies. And one of the things that you said, which was very striking I thought, was how important customer engagement is to all of you. In fact, 54% of you said that customer engagement was critical to your business strategy going forward getting more revenue from your existing customers.

And I think nobody exemplifies that notion of customer engagement more than our first speaker today, Tony Hsieh, CEO of Zappos. They've done an absolutely amazing job of building a brand that's really all about catering and service to [...] customers. Zappos, if you don't know, is a 10-year old company. Tony started in 1999; and in that brief period of time, they've gone from having $1.6 million dollars of gross merchandise revenue to today over $1 billion dollars. I, myself, live in a Zappos household and my wife is an avid Zappos customer. I think she thought it was just amazing that instead of having to actually go to the shoe store, the shoe store would come to you--and we've made a substantial contribution to his $1 billion dollars in sales. Another thing, which I think is an interesting evidence of Tony's connections with his customers is that if you were to go to his Twitter page, there's 1.3 million people who've followed Tony and what he has to say on Twitter every day. I think it's on that level that he has this disengagement and this relationship with his customers, which is truly amazing. So please join me in welcoming a really extraordinary entrepreneur, Tony Hsieh.

So, I wanted to do a quick survey first. How many people have heard of Zappos prior to this? And how many of you have actually shopped with us before? OK. So normally, when I do the survey, the ratio of people that have shopped with us is about 2:1 women to men; and a lot of the men tell me that they themselves have not actually shopped in Zappos, but their girlfriends or wives have. I ask this same question about a year ago to a record executive from one of the major record labels. He was turning our offices in Las Vegas--and by the way, I'll give information later on about the tours there. They're actually open to the public, so next time any of you are in Las Vegas, I would definitely recommend coming for a tour. It's a lot of fun and takes about an hour. And so he was walking through the merchandising area when I asked this question, and then, I took him upstairs to our customer loyalty team--and that's our name for our call center--and as he was walking by, I asked if he had shopped from us. He said, "No," but he suspects his wife has because these white boxes keep showing up, but then they disappear, and he doesn't know whether his wife actually bought the shoes or returned the shoes or what was going on. And anytime he asked his wife what was going on, she just refused to tell me. So, he sat down next to one of our customer loyalty team reps and forced her to pull up his wife's account. And discovered that she had spent over $62,000 in her lifetime; and so as far as I know, they're still not divorced. Anyways, I definitely recommend coming for the tour.

So before getting into Zappos, I wanted to talk a little bit about what led me to Zappos, and the story actually begins with pizza. I was running a pizza business in college with a college roommate and was hiring the workers and dealing with suppliers, occasionally making the pizza myself. And this guy named Alfred, who's actually our CFO and COO today at Zappos, would stop by every night and order a large pepperoni pizza from me. And it wasn't that weird. I didn't think anything of it at the time 'cause in college, we actually had a couple of nicknames for Alfred. We would call him either the 'human trash compactor' or 'monster,' because anytime we went out to a Chinese restaurant--there would be like 10 of us--and he would literally finish everyone's leftovers, and he just really enjoyed eating. And so, he would stop by every night, buy a large pepperoni pizza; but then sometimes, he would come by a few hours later and buy another large pepperoni pizza from me. And I thought to myself, "OK, this boy can definitely eat." Well, I found out a few years later, Alfred was taking the pizzas upstairs and selling them off by the slice so, I guess that's why he's our CFO and COO today.

So after the pizza business, the same guy was running the business with, he and I started a company called LinkExchange, and we grew that to about 100 or so people and ended up selling that company to Microsoft in 1998. But what a lot of people don't know is actually the reason why we ended up selling the company. I remember when it was just five or ten of us; it was a lot of fun. We're working around a clock is kind of like you're typical .com back in the day--had no idea of what day of the week it was--sleeping underneath our desks, showering occasionally. And then, we didn't know any better to pay attention to company [Pulitzer]; and by the time we got to 100 people--like I remember, I, myself, tried getting out of bed in the morning and that was kind of a weird feeling 'cause this is a company I had cofounded in--if I, myself, didn't look forward going into the office, then how must the other employees feel? And so, we ended up selling the company to Microsoft, and then Alfred and I got together and formed an investment fund. And we invested in about probably 20 or so different internet companies and Zappos just happened to be one of them. But over the period of the next year or so, I realized just sitting on the sidelines and investing what was pretty boring, and I really missed building something and being part of building something.

So I joined Zappos full-time within the year, and I've been with Zappos ever since. And then also, actually, back in July we announced Amazon--the deal hasn't actually closed yet, we're expecting to close before the end of the year--but Amazon just announced that they're going to acquire Zappos. And so we're pretty excited about that in being able to build Zappos brand under the Amazon umbrella. So at a glance, most people think of Zappos as a footwear, online footwear retailer, and that's actually how we started. But internally, we think of Zappos brand very differently. We're actually hoping ten years from now, people won't even realize that we've started selling shoes online. In fact, today we sell a lot more than shoes. We sell clothing, beauty products, kitchenware, housewares; and really, we just want Zappos brand to stand for the very best customer service and customer experience. And we even have customers email us and call us and ask us if we would please run an airline or start or run the IRS. And you know, we're not going to do either of those things this year; but 20-30 years from now, I wouldn't rule out a Zappos Airlines. That's just about the very best customer service with the best customer experience. So one brand we look to for inspirations sometimes is Virgin. They're in a whole bunch of different businesses: music, airlines, and so on. The difference is that the Virgin brand is more about being hip and cool whereas we just want the Zappos brand to stand for the very best customer service.

So we've gotten a lot of recognition--especially this year--but the one that we're actually most proud of in terms of publications is making the Fortune 100 Best Companies to Work For. We actually were the highest ranking newcomer to the list this year, and that was a goal that we had set out earlier on because we wanted to make sure that we didn't make the same mistake that I made at my previous company. So we're all pretty happy about that. So in terms of our focus though, a lot of people think that the way you need to get more customers is to focus on marketing and always think about how to market to new customers. Our focus is really on how do we make the customer experience better and better. We have a little over 11 million customers; and on any given day, about 75% of our orders are from repeat customers. And our philosophy is take most of the money that we would have spent on marketing; and instead, put it into the customer experience, and then let our customers do the marketing for us through word of mouth. So over the past ten years, we basically grown from no sales in '99 to over a billion dollars in gross merchandise sales, up in 2008; and then the number one driver of that growth has been through repeat customers and word of mouth.

So what is customer service? Well, it starts with our policies. We offer free shipping both ways, so a lot of customers will order 10 pairs of shoes, and we'll ship all of them there to where they're living for free. And then they'll try them on with 10 different outfits and then ship back the ones that they don't like or that don't fit. We have a 365-day return policy for people that have trouble making up their minds or committing, and we have a 1-800 number that's at the top of every single page of our website. And that's pretty different from most websites. Most websites--it's very hard to find any contact information, it's normally 30-like, 5-links deep--and then it's an address that you can only email once. And we take the exact opposite approach. We actually want to talk to our customers. It's funny 'cause sometimes I'll speak at branding or marketing conferences, and there's a lot of discussion about consumers being bombarded with thousands and thousands of marketing messages everyday.

How do you get your messages to stand out? How do you get your brand to stand out? And as kind of unsexy and lo-tech as it may sound, the telephone is actually one of the best branding devices out there. You have the customer's undivided attention for 5-to 10-minutes; and if you get the interaction right, what we found is that the customer remembers it for a very long time and tells her friends and family about it. And so, what we've also found is that most customers that call us actually does not result in immediate sale. So, we're not there trying to up-sell people or try to convert every call into a sale. In fact, we run our call center very differently from most call centers. There's no scripts; there's no call times. We actually just found out that our longest phone call just happened about a month ago. It was 5 hours and 57 minutes 'cause customers sometimes call; they just call for all sorts of reason. Maybe it's the first time going through the return process or maybe there's a wedding this weekend, and they just want some advice on what to wear and, sometimes they call just 'cause they're lonely and want to talk to somebody, and we're happy to help them out. The other interesting thing is even though we sell online, but what we found on average every customer calls us at least once sometime during their lifetime. So most of what we focus on though is what happens after the sales been made.

There's a lot of websites where you can order something; and maybe a day later or a week later, that we get a message back saying, "Oh sorry, that items actually on back order; it's out of stock and not available," so for us, we decided to go with the philosophy of actually only showing on our website what we knew was physically in our warehouse. Our warehouse is located about 15 minutes from the UPS Hub; and because we run the warehouse 24/7, which is actually not the most efficient way to run a warehouse. The most efficient way is to let the orders pile up; and then when the picker has to go pick all the items, they don't have to walk as far. But we decided we're going to sacrifice some efficiency in order to make the customer experience better. And so a lot of customers will order as late as midnight Eastern--and because we're so close to the UPS Hub, because we run our warehouse 24/7, and because we will do surprise upgrades to overnight shipping for a lot of our customers--and they receive their order on their doorstep eight hours later and actually raise that whole "wow" experience for the customers and generates that word of mouth. And a lot of people ask us, "isn't that expensive to do, to upgrade to overnight shipping?" And it is very expensive for us, but for us, we really view that as our marketing dollars because that's improving the customer's experience and that's what's getting our customers to talk about us to their friends and family, and really trading an emotional connection with the customer. The other thing we do is when the customer calls and let's say they're looking for a pair of shoes, and we're out of stock with a certain size, everyone's trying to actually look on at least 3 other websites; and if they find the shoe there to direct the customer to the competitor's website. And yes, we obviously lose that sale, but we're not trying to maximize every single transaction. We're trying to build a lifelong relationship with our customers.

So I talked about all these different things that we do on the customer experience side, but our number one focus out of the company is actually not customer service. Our number one focus is company culture. Our whole belief is that if we get the culture right, then most of the other stuff, like building a long-term [...] brand or delivering great service will happen naturally on its own. So we actually do a lot of different things to make sure that not only does our culture not go downhill as we get bigger and bigger, but our culture actually scales and gets stronger and stronger as we grow. And it starts with the hiring process. We actually do two sets of interviews. Our hiring manager, the hiring manager of his or her team will do this standard within the team, relevant experience and technical ability and so on; but then our HR department does a separate set of interviews, purely for culture fit. And they have to pass both in order to be hired. So we've actually passed on a lot of really smart, talented people that we know will make an immediate impact on our top or bottom line; but if they're not a culture fit, we won't hire them. And the reverse is true, too. We'll actually fire people, even if they're doing their specific job function perfectly fine, if they're doing something that's not living up to our core values and is bad for the culture. And our performance reviews are also 50% based on whether you're living our core values, or if you're a manager and inspiring the core values in others. The other thing we do is everyone that's hired in our headquarters in Las Vegas--it doesn't matter what position you're in, you can be in accounting or lawyer, software developer--you go through the exact same training as our customer loyalty reps or our other call center reps. And so we go over our company history, our philosophy about customer service, [...] customer culture, and then you're actually on the phone for two weeks taking calls from customers. And the reason we do that is because if we really want our brand to stand for the very best customer service, then our philosophy is that customer service shouldn't just be a department, it should be the entire company. And during our busy season, and Q4 around the holidays, it's great because people from every department has had training, they can jump on the phones as well, so we've found that's been very helpful.

The other thing we do is during that training process which is a 4-week processing in Las Vegas; and then we also send you to Kentucky for a week, which is where our warehouse is. And you do all the warehouse functions picking, packing, and receiving, and so on; but while in Vegas at the end of the first week, we make an offer to everyone in the class. And the offer is this: we will pay you for the time you've already spent working and being trained plus a bonus of $2,000.00 to quit and leave the company right now. And it's actually a standing offer 'til the end of training, and we actually just extended it even further so that the last couple months after training. And the reason for that is because we don't want people at Zappos just for a paycheck. In Las Vegas, there's plenty of other call centers--and $2,000.00 is pretty significant amount of money--and starting pay that is $11.00 an hour. And we really want people that believe in our long term vision and want to be a part of our culture, so these are some of the things that we do in order to help protect our culture and make sure it gets stronger and stronger.

So for 2009, in terms of how we're thinking of the Zappos brand, we're really thinking about going the three C's. Really, we think of this in terms of the life cycle of the customer. If you've never heard of Zappos before, we want to make sure that you understand that we have a large selection of clothing and shoes. If you know about that, then we want to make sure that you understand that we're about the best customer service, and that's not something that we say, so much that people experience when they get that surprise upgrade to overnight shipping or when they call and talk to one of our call center reps. And for people that know that, we want to make sure that they understand our culture and our core values because that's the platform that makes everything possible. So we've actually had customers email us and tell us that Zappos is happiness; and above this, that excitement they feel when they get that perfect outfit or the perfect pair of shoes. So whether it's the happiness they feel from getting that perfect item or the happiness that customers feel from dealing with someone that's a real person on the other end of the phone, we feel the customer service, or the happiness the employees feel by being part of a culture that they really believe in, the thing that ties all of this together for us at Zappos, is that Zappos is really just about delivering happiness. Whether it's to customers or employees, and we also apply that same philosophy to vendors as well.

So what is the Zappos culture? Well, for us we came up with a list of ten core values, and this is something where we approach it a little differently. We didn't go and just have a few people go on a retreat somewhere and say, "Oh what should our core values be?" We actually emailed the entire company and asked them, "What do you want the Zappos core values to be?" And the keyword here is actually committable core values because a lot of companies have things called--they might call them core values or guiding principles or so on--but the problem with most of them is that it usually reads like a press release, like a marketing department put together, it's very lofty sounding. And maybe you learn about it on day one of orientation, but then it just becomes this meaningless plaque on the wall, and we wanted to make sure that it didn't become meaningless. And so by committable, it means that you're actually willing to hire and fire based on those core values. And so these are our ten core values at Zappos, and we actually have interview questions for each and every one of these.

The probably one that trips us up the most is actually number ten, be humble, because there's a lot of smart, talented people out there that are also egotistical. And at Zappos, we interview someone that's really egotistical, no matter how smart or how much they can contribute to the company in the short-term, we won't hire them. It's not even a question, whereas at most companies, probably the conversation afterwards would be, "Well, this guy can add a lot of value to the company, and he might be annoying and rub you the wrong way occasionally, but he's going to add a lot of value so we should hire him." And I think that's why company culture start going downhill at larger companies because that one hired isn't going to break or wreck the company culture, but making compromises like that over and over and over again is what eventually brings the company culture downhill. So we have different interview questions, just as an example for number three, create a fun or little weirdness. One of our interview questions is actually on the scale of one to ten, how weird are you? If you're a one, then you're probably a little bit too straight-laced for the Zappos culture; if you're a ten, you might be too psychotic for us. But there's no actual number that we're looking for. Our belief is that everyone's a little weird somehow and really, this is just a fun way of saying that we recognize and celebrate each person's individuality. And we want their true personalities to come out in their interactions with employees as well as their interactions with customers over the phone. Number four: be adventurous, creative, and open-minded. So one of the questions we ask is on a scale of one to ten, how lucky are you in life? One is, "I don't know why bad things always seem to happen to me." Ten is, "I don't know why good things always seem to happen to me." Well, we don't want to hire the 'ones' because they're unlucky, and they would bring bad luck to Zappos. We don't want bad luck to bring to Zappos.

But actually, this was inspired by a research study that I read about a few years ago where they actually asked the exact same question to random groups of people. And so they got answers all over the board; and then they asked the participants to do a task, and the task was to go through a newspaper and count the number of photos that were in that newspaper. Now what they didn't know was that it was actually a fake newspaper; and sprinkled throughout the newspaper were these headlines that would say things like, 'if you're reading this headline now, then you can stop, the answers 37 and plus and collect an extra hundred dollars for seeing this headline from the researcher.' And what they found is that people who considered themselves unlucky in life, generally, never noticed the headlines. They went through the task at hand; and eventually, got the right answer. But the people that considered themselves lucky in life, generally, noticed the headline, stopped early and collected the extra $100 dollars. So the takeaway isn't so much that people are inherently lucky or unlucky, but that luck is really more about being open to opportunity to beyond just the task or the situation as it's being presented. And so that's why we ask that question for core value member for him.

One of the other things that one of our other core values about being open and honest, and we've really found that committing to transparency, whether it's with employees or with vendors, or customers has really been something that we really believe in and has had a lot of benefits. So we have a lot of different ways we commit to transparency. If you go to Twitter.Zappos.com, we have 400 employees that are on Twitter. And we actually just aggregated all of their tweets together, and you can get a good sense of what our culture is like by going there.

For our vendors, we have an extranet, where they can log in and see the exact same information our own wires can see. They can view on-hand inventory, sales and profitability, markdown and so on. We did ask sometimes, like aren't you worried about that information getting out in the hands of the competitors? And realistically, I'm sure some of the information does get out there; but on the flip side, we work over a thousand different vendors. And for us, it's like having an extra thousand pairs of eyes helping us co-manage the business, and we've just found out the benefits far outweigh any perceived cons or risks to it.

We also have a Zapposinsights.com where we really, it's a video subscription service. And we really just share anything and everything about how we run our business; so with anyone that's a member that can go in and ask a question about recruiting. Or for our interview questions, for example, then we'll have the head of recruiting answer that question. And we also have a live event where companies from all over the world come in, and we really just open our doors and share how we do everything. So this is a common response that we get, "That's great." "Happy, you have a nice culture Zappos, but it would never work at my company." Well, I know Jim Collins is speaking, and he's written several great books butGood to Great is one of our favorites at Zappos. And what he's found is that actually it doesn't matter what your core values are or what your culture is as long as you commit to them. The most important thing is alignment. The other book I would also highly recommend is Tribal Leadership, which also looks into this aspect; and actually, if you go to Zappos, you can download the audio version of Tribal Leadership for free. That's something that we do just to help out other entrepreneurs and businesses.

The other thing I wanted to talk about is vision. When we started out, our vision was 'let's just sell a lot of shoes.' And then three or four years later, we sat around one day and asked ourselves, "What do we want to be when we grow up?" "Do we want to be about shoes or do we want to be about something more meaningful?" And that's when we decided we really wanted the Zappos brand to stand for the very best customer service and customer experience. And so, when we made that decision and announced it to the company, what we found is that so many employees were a lot more passionate about the company. And when customers call up, they can sense the other person on the other end of the phone, really truly care about delivering the best service; and when vendors came, they could tell that 'wow,' like they can really sense the passion of the employees. And so for us, it was kind of an accidental thing. But what we found is that when we expanded the vision where it wasn't just about profits or revenue or being number one in the market, that suddenly just the whole business seemed to move forward.

So I get asked sometimes, "What's a good market to go into?" by entrepreneurs. And I would say, actually, think about what you're actually passionate about and believe in and is meaningful to you. And don't just chase the money directly. Now I like to say is chase the vision, not the money. A movie called Notorious came out awhile back; and actually, Puff Daddy says to Biggy Smalls or Notorious PIG, "Don't chase the paper, chase the dream." I just wanted an excuse to put this slide in here. I know there's a lot of entrepreneurs here. I would challenge you to think about what would you be passionate about doing for ten years, even if you never made a dime? And if you have employees, what's the larger vision and greater purpose in the work beyond just money or profits or being number one in the market? You know there's a big difference between motivating employees and inspiring employees. And our whole philosophy is don't worry so much about the motivation part of it; but if you can inspire the employees to a larger vision, that's meaningful to them--that you yourself are passionate about--then you can accomplish so much more through inspiration instead of motivation.

So, this is kind of the evolution of how we thought of the Zappos brand. We started out with just wanting to be about a selection of shoes, and then we evolved to customer service, and then we started thinking about our culture and core values more. And then in terms of customer service, how do we want to do it? We wanted to do it through a personal and emotional connection; and then this year, the thing that ties all of it together is really, it's just about delivering happiness to employees and customers. And that's really what we want our brand to be about.

Wanted to tell another pizza story. This was two or three years ago in Santa Monica. I was at a Sketcher's Sales Conference and a bunch of us, after the conference, decided to go bar hopping in Santa Monica. And I never really been out in Santa Monica before, so there was a few of us from Zappos and a few of us from Sketchers, and we went out to the first bar and ordered a round of drinks. And then someone--I'm not actually sure who ordered a round of shots--and so, we took the shots and finished the drinks. And we went to the next bar and ordered another round of drinks; and then someone else ordered a round of shots, and we had to drink the shots because you can't let the alcohol go to waste. And so we drank the shots, and then we went to the 3rd bar; and someone ordered a round of drinks, and then I'm not sure how many shots were ordered after that. But what I do know is that we ended up basically, going from bar to bar and eventually last call in Santa Monica's 2am; so eventually, we finished and wound up and started walking back to the hotel.

And during this walk to the hotel, one of the Sketchers girls that we were with kept talking about this pepperoni pizza that she had seen on the room service menu; how she was looking forward to like eating the pepperoni pizza as soon as we got to the hotel room. Like she was going to call room service and order the pepperoni pizza, and it was only a 5 minute walk, but it seemed like it was much longer with her constantly talking about it. And so we eventually wound up in the hotel room, and she ordered and calls room service; and unfortunately, learned that room service doesn't deliver hot foot after 11pm. So she was dejected, and she's like, "Oh, I was so looking forward to this pepperoni pizza. I was thinking about it all night." And I'm like, "I know." And so the rest of us from Zappos--in our inebriated state--said, "Call Zappos, call Zappos." Like to us, it was literally the funniest thing that we could have in the world, really. And so, she put it on speaker phone, took us on our dare, called Zappos and said, "I'm like in Santa Monica, and I've been thinking about this pepperoni pizza all night, and I tried calling room service. Room service doesn't deliver after 11pm; but they do, but they don't deliver hot food after 11pm. And like, is there anything you can do to help me 'cause I heard you're about the best customer service.'" Well first there was an awkward silence. And the rep said, "You know you called Zappos, right? Like, we sell shoes. We sell clothes, but we don't sell pizza, yet." She was like, "Yes, but I've just been craving this pizza all night and so..." "Ok, hold on" and came back two minutes later with a list of the five closest places in the Santa Monica area that were still open delivering pizza at the time. Now I hesitate a little to tell this story because I don't want all of you to start calling Zappos ordering pizza. But I just think it's a fun story to illustrate that obviously we don't have a proper procedure for this; but if you get the culture right and make sure everyone understands the long-term vision of the company, then most of the other stuff like delivering great service, billing or brand will just happen naturally on its own.

So I have a few minutes left, so just wanted to take a quick step back and ask you guys to think about...forget the business of it, just think about what is your goal in life? And think about what it is you actually want to accomplish out of life. What's interesting is if you ask different people this question--and I want you guys to actually think about what is your personal goal in life--you get all sorts of different answers. Some people say they want to grow a company or get a job, find a boyfriend/girlfriend, and then, you ask, "Why?" And then you say, "Oh, I'll find a soulmate or retire early." And then ask yourself, "Why again?" "Then, I can get married, spend more time with family"; and if you keep asking, "Why" enough times, and I would keep encouraging you to keep asking yourself  "Why" for whatever goal in life that you have. Actually, eventually everyone gets the same answer. And what's interesting is that people are doing whatever they're doing because they believe that it's actually what's going to bring them happiness.

So, a few months ago, actually about 12 months ago, I started getting interested in this whole field called, that's basically about the science of happiness. And prior to 10 years ago, 11 years ago, this field didn't even exist. Today it's called, Positive Psychology because psychology used to be about, you know, looking at people that have had something wrong with them, trying to make them normal, but no one ever studied normal people in making them happier. And one of the things that came out of the research is that people are actually very bad at predicting what will actually bring them long-term happiness. Most people think once I get this, then, I'll be happy; or once I achieve this, I'll be happy. But there's been so many studies of lottery winners, for example, you look at their happiness level right before winning the lottery; and then look at their happiness level a year later, and it's usually the same or lower. So I thought that was pretty interesting; and then I thought about, OK, I'm so focused on Zappos, and there's a science behind the lotto stuff; business that I'm doing. And Zappos for me is very exciting; but in terms of the business, I'm looking at the science of conversion or direct marketing or repeat customer behavior. And I thought, "What if, and I don't know the right percentage, but what if you spent just some of your percentage of your time, just studying and learning about the science of happiness? How much happier could you be, if you applied some of those concepts to not only your personal life, but to your business? To your customers? To your employees?" You know, people go through life trying to achieve all these different things. You know a lot of them actually never even make it to the happiness stuff; but if the eventual goal is happiness, what if just by trying to understand some of the research that's already been done out there on happiness, you can basically take a short cut and go straight to the happiness and avoid a lot of the stuff in between that might be unnecessary. So, I thought that was interesting.

I'm actually running out of time, so I'm going to make this presentation, but I want to give all of you information; but just a few different frame works, you'll be able to look through the slides of happiness that's come out of the research. And one is that happiness is really just about perceived control, perceive in progress, connectiveness, and vision--or meaning being a part of something bigger than yourself--and if you have those 4 things, then what the research is showing is that that's actually all you need for happiness. Another one is Maslow's Hierarchy. There's a book called Peak, by Chip Conley that basically takes Maslow's Hierarchy, and then condenses it to three levels and applies it to customers and employees and investors. So as an example, for employees, the three levels would be job versus career versus calling; and for us at Zappos, that's really our focus for our employees is really for them to get to think of their work, not as a job, not as a career; but really, as a calling.

And then the other framework is that there's actually three types of happiness: pleasure, engagement, and meaning. And what the research have shown is that the first type of happiness--which I like to call the rock star type happiness--it's all about chasing the next high; and it's great if you can constantly find that source of stimulant that gives you the next high, but the problem is that it's very hard to maintain. So as soon as the source stimuli goes away, then your happiness drops right down to where it used to be so it's very hard to maintain unless you're a rock star, basically. The second type is, there's a book called Flow, but it's got those times when you're so engaged in something that, it seems like 20 minutes have passed, but really 3 hours have passed; and so for some people it might be running, for other people, it might be painting. For professional athletes, they refer to it as being 'in the zone' when peak performance meets peak engagement; and this is the 2nd longest type of happiness. And then the 3rd type that they've found through the research is actually the longest lasting type of happiness, and when part of something that's bigger than yourself. And so for some people, for example, might be volunteering for your favorite charity that they really believe in. So what's interesting is most people go through life, chasing after the first type of happiness with the thought that once I achieve that; then I'll work on the 2nd type of happiness. And then if I ever get the time, then I'll work on the 3rd type based purely on the research and data. The proper strategy is actually to focus on the 3rd type of happiness, and then later on, the 2nd type, and then, the 1st type, which would be icing on the cake. So, I would encourage you to learn more about the science of happiness.Happiness Hypothesis, great book, one of the most impactful books I read in the past five years, and you don't need to write down any of this information.

Basically if you want this presentation, you can just email me, tell me at Zappos.com. Also, we have something that we put out once a year, we ask all of our employees to write a few paragraphs about what the Zappos culture means to them; and except for typos, it's unedited. And I'm holding it right here. It's a physical book; and so basically, it's like customer reviews you might find on websites except their employee reviews. So I need your physical mailing address if you'd like a copy of that. I'd be happy to send out for free. And if you're ever in Las Vegas, you know, tours at zappos.com to schedule a tour. And we'll pick you up from the airport, drop you off at the hotel.

So just wanted to leave you with thinking about if the ultimate goal when your life is happiness, what percent of your time do you want to spend learning about the science of happiness? I compare it to training because it's like training for a marathon. We all instinctively know how to run, but there's certain things about training for a marathon that they've done research. And there's certain metaphysics for marathon that are actually better and some are kind of intuitive to what you may normally think if you're not a marathon runner. So just think that how can the science of happiness help yourself, your business, your brand; and if the research shows that on the company's side that companies that have a higher purpose and a bigger vision that has meaning end up doing better as shown through books like Good is Greater,Tribal Leadership. And then to parallel to that, if focusing on your personal happiness, if having a higher purpose leads you to personally be happier, then think about what is your company's higher purpose and what is your own personal higher purpose. You know, I'm not up here trying to sell another pair of shoes; but hopefully, through this presentation you've been inspired to deliver better service to your customers and make customers happier, or you've been inspired to focus on company culture to make your employees happier. Or you just been inspired to learn more about science happiness and make yourself happier than I'll have done my job in helping us at Zappos accomplish our higher purpose, which is all about delivering happiness to the world.  Thank you very much.

Hello. I'm Dan Farrar, [...} of INC. Thanks, Tony. INC's story about Randall Grahm was cut-titled, The Do Over. Randal took his $30 million dollar company, Bonny Doon Vineyard; and essentially, stopped doing the things that made him comfortable and successful, no half-measures just stopped. Randall had built a reputation as a good winemaker and a great way witty marketer. At a certain point in his life, he realized he got the equation wrong. What he really wanted was to make brilliant wines, whatever the cost, his bottom line, which is why as the story says, he renounced his magical powers. He's going to talk today about how he remade his business and his life. Please welcome Randall Grahm.