Zappos CEO Tony Hsieh (1973-2020): The Power Of “Why”

Former Zappos CEO Tony Hsieh recently died in a house fire. He was 46.

Hsieh was a man of many talents, ideas, and successes. The theme of his life was happiness: his employees’, his customers’, and his own.

Here’s what we can learn from his example.

A Dreamer Who Delivered

The child of immigrants, Hsieh’s early life was part tiger child, part Tom Sawyer.

He got straight A’s, studied piano and violin, and went to Harvard. At the same time, from his early years, he started numerous businesses, cut classes, and, by playing recorded music in his room, fooled his parents into thinking that he was practicing.

Hsieh finished Harvard but jumped off the corporate track after a few months to start a website business. Pivoting into online advertising, he sold that business a few years later to Microsoft for $265 million.

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Hsieh became an early investor in the company that became Zappos, an online-only shoe retailer. After the dot-com bust, Hsieh took over as CEO. In November 2009, Hsieh sold Zappos to Amazon for $1.2 billion in Amazon stock. As part of the deal, Zappos operated as an independent unit. Hsieh retired from Zappos in August 2020.

The Showman Vs The Show

Hsieh had unusual ideas, lived large, and did things his own way. The world classifies such people by how much money they have:

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Hsieh might have started out weird. And he might not have ended up as visionary. But he at least rose to the level of quirky or maverick.

Of course, Hsieh, like many other CEOs, was a showman. Showmen make the show look easy, even when it isn’t.

Backstage, making Zappos successful took Hsieh and his people through years of nerve-wracking ups and downs. This included layoffs, brushes with bankruptcy, and operating-model busts and rebuilds.

At one point, Hsieh, having already sunk his personal fortune into keeping Zappos afloat, sold his San Francisco loft to finance a critical distribution warehouse in Kentucky.

By late 2004, however, Zappos had turned the corner. It secured $20 million in funding from Sequoia Capital. Sales boomed. The company began turning a profit. And less than a year later, Amazon’s Jeff Bezos began what would be a five-year courtship of Hsieh and Zappos, consummating in 2009.

Company Culture And The Power Of “Why?”

Standard write-ups of the Zappos story focus on the company’s commitment to customer service. They also include the quirks and perks of working at Zappos: nap rooms, a petting zoo, frequent costume parties.

Hsieh’s own telling of the Zappos story, however, focuses on people, on company culture. He understood that Zappos the company could have no commitment to customer service — only its people could.

Generally speaking, the same discretion employees need to do their jobs also gives them the room to loaf, skim, or cheat. Every management system and set of rules will have gaps and gray areas. When people face such gaps or gray areas, they will ask themselves why they are doing what they are doing.

To succeed, companies need to align employees’ “why’s” with the companies’ end goals.

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So how could Hsieh imbue his workforce with the passion for customer service that Zappos’s success required?

The answer was culture. As Warren Buffett puts it, “Culture, more than rule books, determines how an organization behaves.”

One of Hsieh innovations warrants particular note. Every new employee, after completing orientation, was offered a month’s severance to quit the company.

Finding Your “Why”

What appears a perverse incentive carried a spark of genius.

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As casino magnate Steve Wynn observed, [If employees think they’re being paid fairly, w]hat is important is their happiness, their state of mind, and their fundamental identification with the enterprise.”

Hsieh himself wrote in comparable terms of the “science of happiness” as a key to company culture and customer loyalty.

For both entrepreneurs, this approach grounded company culture in virtue ethics: employees achieving happiness through excellence at work.

Hsieh’s buyout offer forced every new employee to think through his or her “why” for working at Zappos. Having been through training, an employee lacking a “why” beyond a short-term paycheck would have good reason to take the buyout. For those who stayed, a career at Zappos offered something they could identify with, some higher and better reason to come to work every day.

Snapping Up A Bargain

Experienced HR executives understand how much poorly motivated employees cost. Beyond their wages and benefits are the damage these employees do to operations and to the morale of other employees, as well as the managerial time and effort such employees waste.

Low motivation hits both the top and bottom line. According to Korn Ferry Consulting

Mark Arian, CEO, Korn Ferry Consulting
Mark Arian, CEO, Korn Ferry ConsultingKORN FERRY

CEO Mark Arian, “Our research shows that over a five-year period, companies with highly engaged and motivated employees grow sales and earnings at nearly double the rate of firms with low employee engagement and motivation.”

Weeding out unmotivated employees early through voluntary buyouts represented a bargain, so much so that after buying Zappos, Bezos decided to try it within Amazon.

Testing Hiring Assumptions and Processes

Hsieh’s buyout offers yielded a second benefit. It tested HR’s assumptions and processes for hiring employees.

Of course, not every employee who declined Zappos buyout performed well or stayed for the long term. But, the buyouts provided early data for how well Zappos recruited and selected for motivation. In Zappos’s line of business, as in many others, attitude matters much more than aptitude.

Epilogue And Epitaph

Tony Hsieh turned Zappos from a struggling start-up into a unicorn. This took talent, grit, and enormous effort.

Among his stand-out innovations was how he leveraged the power of “Why”. Tom Quigley, VP People at Zinier, observed Hsieh’s accomplishments over many years. “Tony personally crafted programs, practices and accountability at Zappos that were transparent, genuine and wildly successful,” Quigley noted.  “Many firms have tried to copy Tony’s approach, but very few have come close to his results over a comparable length of time.”

The $1.2 billion of Amazon stock Zappos shareholders received in 2009 is now worth approximately $30 billion. So, Hsieh, the quirky maverick, might have turned out to have been visionary after all.

He also appears to have been a fun-loving, kind, and caring person. He made people happy. Among the hyper-rich, that is rarer than a super yacht.

For Hsieh, it also provides a fitting epitaph.


This column first appeared in Reprinted with permission.

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