In early 2005, Tony Hsieh was a relative unknown.
Zappos was a fast-growing company, but it was far from being the household brand that it is today. While it hadn’t yet come up with its core values for which it is famous today, the company had a growing sense of its own culture and identity. They were on the cusp of something big.
It was against this backdrop that Hsieh emailed this never-before published update to investors, employees, partners, and friends of Zappos. It’s an awesome behind-the-scenes look at what drove Hsieh and kept him up at night. In this glimpse into how Hsieh thought about building a company, you can see the seeds of what would grow into Zappos’s world-famous company culture and brand.
Within five years, Zappos would hit $1 billion in revenue and Hsieh would author Delivering Happiness, a #1 New York Times Bestseller, which would catapult him into being one of the most influential business persons in the world. But here is an unfiltered look into the mind of Tony Hsieh, before the notoriety and fame.
From: Tony Hsieh
Date: Tue, Feb 1, 2005 at 3:19 PM
Subject: Zappos.com Update – February 1, 2005
Dear Investors, Employees, Partners, and Friends of Zappos:
With the WSA show right around the corner, I thought it would be a good time to send out another company update.
We had a busy and hectic holiday season, and we’re happy to announce that we surpassed our goal of $175 mm for 2004 by ending the year with $184 mm in total gross merchandise sales! For 2005, our goal is to break the $300 mm mark.
For those who don’t know, here are our historical sales numbers:
1999: Almost nothing
2000: $ 1.6 mm
2001: $ 8.6 mm
2002: $ 32 mm
2003: $ 70 mm
2004: $184 mm
2005: $300 mm (goal)
With January already behind us, we are on track to beat our 2005 goal. We finished January at $28 mm compared to our internal plan of $22.5 mm. (In fact, we’ve temporarily cut back on some of our marketing efforts in order to slow down our sales while we staff up our Customer Loyalty Team.)
Last year was an eventful and exciting year for us. Here are some of the highlights from 2004:
- We moved our corporate offices from San Francisco to Las Vegas, with the majority of San Francisco employees relocating with the company.
- We increased our line of credit with Wells Fargo to $40 mm.
- We secured $20 mm in equity financing from Sequoia Capital, the same venture capital company that funded Yahoo, Google, and Paypal.
- We were ranked #15 in Inc. Magazine’s annual list of the 500 fastest-growing private companies in the United States.
- We expanded our warehouse from 120,000 square feet to 280,000 square feet, capable of holding 3 million pairs of shoes.
- We grew our total workforce to 500 people (200 in Las Vegas, 300 in Kentucky).
- We expanded our Customer Loyalty Team hours to 24/7, 365 days a year.
- We added handbags as a new category to our web site.
- Within shoes, we added many additional categories, including kids’, outdoor performance, skate, running, western, and couture.
- We increased the number of brands offered on our web site to over 400.
From a merchandising point of view, last year our focus was on expansion. This year, our focus in merchandising will be on the growth of our existing businesses and the development of our people.
We have added an Inventory Analyst to help us keep a closer eye on our inventory planning and execution, and make us more efficient and profitable.
We have implemented a rigid training program for our merchandising team so that we can develop the best merchants in the industry. We believe that merchandising is both an art and a science, and we want to make sure our merchandisers embody this philosophy.
We have also made the extranet more robust in order to strengthen our partnerships with our vendors and create win/win relationships for each of our businesses.
On the marketing front, we will continue to focus advertising on our service and selection, rather than on price. We will be looking to integrate our advertising efforts more with those of our vendor partners.
Our initial tests in 2004 with print advertising were very promising, and for 2005 we plan on increasing both our print advertising budget as well as our online advertising budget. But from a marketing perspective, what’s most exciting to us is that the biggest drivers of our growth are repeat customers and word of mouth.
The word of mouth effect has quietly snowballed over time, and we see our long term plan of building a service brand slowly coming into place. Internally, we have a saying:
“We are a service company that happens to sell shoes.” (And now handbags.)
From a sales perspective, our goal is to get to $1 billion a year in gross merchandise sales by 2010 (or possibly sooner), which is why at this stage of the company we have decided to reinvest most of our profits back into our growth. Rather than maximizing short-term profits, we’re taking a long-term view and focusing on building the business for the long haul. We’ve grown quickly over the past 5 years, but we are just scratching the surface of what’s possible.
But it’s not the numbers that are the most exciting… It’s the opportunity to build a company culture and consumer brand that is centered around the service, not the shoes or the handbags.
We are often told that customer service is sorely lacking throughout most of this country. If we constantly focus on improving the customer experience and cause people to think about service everytime they think about Zappos, then in the long term, we believe that we will succeed as a company.
However, our service can’t just be “good enough”… We need to go above and beyond people’s expectations. Internally, we call this our WOW philosophy. Our neverending goal is for every interaction with every customer to result in the customer saying “WOW” — so that they will shop with us again and tell their friends and families about our service.
However, building a service organization is much easier said than done. It starts with extending the WOW philosophy beyond just our customers. We also need to extend it to our vendors, our employees, and our other business partners. Some people might call this “brand resonance”, but it’s really the only way to build an enduring brand.
With our vendors, we’ve worked hard at building partnerships and avoiding the adversarial relationships typical in retail/wholesale relationships. And we plan to continue to do so in 2005.
Our biggest challenge for 2005 will be managing our growth so that we stay consistent with the Zappos brand and grow our service-focused culture. We are now at the point where, with our rapid growth (more than doubling year over year, every year), we risk losing our service-focused culture if we don’t do a good job of actively managing it.
It’s really the only thing that keeps me up at night… and the only way for us to succeed is to continue to apply the same partnership philosophy that we give to our vendors to our employees as well.
The truth is, this is uncharted territory for us. I’ve never been part of a company that’s grown from nothing to hundreds of millions of dollars in sales. I’ve never been part of a company that’s grown from 5 people to a staff of over 1000, which is where we plan on being by the end of this year.
So undoubtedly, we will make mistakes along the way, and we won’t do everything right the first time. But that’s okay, because that’s also what we want our culture to be about. We’re not afraid of making mistakes, but we’re also quick to turn them into learning experiences and fix the mistakes when they happen. Part of the Zappos culture is having faith that in the end, we will figure things out, and we will grow stronger through the experience. It’s how we got to where we are today.
At the end of 2004, we published our first culture book — a compilation of opinions about what the Zappos culture means to each of our employees. The culture book showed that no one person owns or dictates the Zappos culture. It is a collective effort, and it’s exciting to be part of a company that has accomplished so much by sheer willpower. The drive to succeed is inherent in our culture.
The Zappos brand will live and die by the service that we deliver. So the question — to everyone receiving this email — is this: what can we do better to WOW you, whether you’re a customer, an employee, a vendor, or a business partner? Only with your feedback can we improve, and build something that has never existed before: a well-known brand, accessible to everyone, that promises nothing less than a WOW experience.
If we can accomplish that, then we will have built a company culture and brand that we can all be proud of. That’s why in order for us to succeed, the Zappos brand needs to be about the service, not about the shoes.
We have a long road ahead of us, but it’s an exciting one. Thanks to everyone for your support through 2004, and we look forward to an even better 2005!
Tony Hsieh
CEO – Zappos.com