Lessons learned from Zappos.com

Experiencing a recent day at Zappos was eye-opening. Never heard of Zappos.com? The company has been the subject of articles in a number of magazines because of its rapid growth and business success, enabled by an obsession with customer service and a unique culture. More recently, Zappos has been in the news because it is soon to be acquired by Amazon.

Zappo’s business model is straightforward: Sell shoes (along with eyewear, watches, bags and apparel) online. Zappos believes that one third of U.S. retail transactions will one day occur on line and that people will buy from the company that provides the best service and selection. Zappos wants to be that company. Shoes were their foundation, but they believe that as long as they focus on service, they can move into any category. The business today is focused on the U.S. market. With the upcoming Amazon deal, the worldwide market is coming into focus.

I didn’t visit Zappos to learn about shoes or service. I went to learn about their approach to leadership development. Even without the looming Amazon deal, they have been a company in high growth mode, facing the need to grow leaders to keep up with the pace of their business expansion.

The company’s revenue was $1.6m in 2000, $184m in 2004, and over $1b in 2008. The number of items stocked is continually increasing. The day I visited 4.6 million different items were in stock from over 1,300 brands. IBM’s growth markets are also facing growth-related leadership development challenges, and I hoped that an exchange of ideas would be fruitful.

I did have a meaningful exchange with the “Pipeline Team,” as Zappos calls their professional development group, but my most powerful insights didn’t turn out to be about leadership development. Instead, I was struck by how Zappos has defined and executed its version of being a values-based company.

Zappos has ten core values from which the culture, brand and business strategies derive:

1. Deliver WOW through service
2. Embrace and drive change
3. Create fun and a little weirdness
4. Be adventurous, creative and open-minded
5. Pursue growth and learning
6. Build open and honest relationships with communication
7. Build a positive team and family spirit
8. Do more with less
9. Be passionate and determined
10. Be humble

I observed a remarkable degree of congruence between these espoused values, their physical manifestation in the organization, and the behaviors of people who work there.

Artifacts of all kinds reflect these values. Service is the focus of everything. I was wowed when the person who set up my visit offered to send a Zappos shuttle to the airport to pick me up. The shuttle driver was a young woman with several tattoos and facial piercings - - she didn’t look like a typical corporate driver - - reflecting the largely Gen Y workforce. She was very friendly and professionally inquisitive, and seemed genuinely interested in my reason for visiting. I learned that she works on the “Help Desk” which provides all kinds of internal services (but not IT support). She let me know that as part of her job, she updates the flat screen display in the lobby with the list of the day’s visitors and light news items. She wanted me to know that my name would be appearing on the display. In addition, since it happened to be the birthday of the first IBM PC, there would be a little story about that. (Did she go hunting for IBM news? I was so wowed that I forgot to ask.)

The Zappos core values are printed on cards and bookmarks, reproduced on employee-produced artwork that hangs in the hallways, scrawled on graffiti in the stairwells (this practice is encouraged and enabled with a supply of handy markers), posted on bathroom mirrors, and used as the basis for an annual 'Culture Book’ that compiles employees’ ideas about the culture and what it means to them. All employees are invited by the CEO to contribute, and this book is printed and bound for distribution to employees, prospective employees, business partners, and even some customers. Every contribution is included. As a visitor, I was given a copy of the most recent Culture Book.

On arrival at the Zappos HQ, I noticed that the best parking space was reserved for the person who had created the most WOW. Employees can nominate their colleagues for this honor, which is awarded weekly. The WOW factor is embedded into core processes. Zappos focuses on delivering on line purchases quickly, often overnight. To do that, they warehouse everything they sell and they won’t make available any item that is not physically in stock. Shipping is free, both for outbound deliveries and for returns. Workers in the call center (called the Customer Loyalty Team) write personal thank you cards to customers. Sustained ratings on the Net Promoter Survey (NPS) are above 90%, an unheard of high level.

The other core values are also visibly evidenced. When I entered the HQ building, the first thing that caught my eye was an enormous wall display and calendar of classes offered to employees. The pursuit of growth and learning was also demonstrated by a half dozen tall bookshelves full of business and personal improvement books. These are available for free to any employee. As a visitor, I was invited to take books, too. Some of these are used in classes, others are discussed in employee-led book clubs, and the rest are simply for enrichment.

The values of fun, weirdness, family spirit, and teaming were also quite evident. An employee-organized egg-drop contest was happening on the day of my visit. Teams of employees from a dozen departments had followed a set of constraints to construct contraptions that would hopefully protect their eggs during a drop from a second story balcony. Around lunchtime, a crowd gathered outside (in Las Vegas’ blazing summer sunshine) to watch the contest unfold. A member of the Pipeline Team noted that this kind of activity happens frequently, but not always with such success. Any employee who gets an idea to do something like this is free to pursue it. Not only do wacky activities help to keep the culture going, they also serve as tests of (non-positional) leadership, and can provide opportunities for constructive feedback.

So how does an organization get such congruence between words, deeds, and beliefs? The employee recruitment and selection process focuses first on cultural fit. Applicants have to pass a culture screening before their skills or qualifications are considered. The application form itself is a reflection of the culture. It includes the normal questions, along with “If you could be a superhero, what superhero would you be and why” and also a crossword puzzle about Zappos. Applicants who ask questions like “Do I really have to complete these silly parts?” or who leave them blank are screened out for indicating too little inclination for fun. In one recent calendar quarter, the company received 6,000+ applications and hired only 45 people.

While I observed a great deal of accomplishment in living by their values, Zapponians think they can do better. Every employee is challenged to make one improvement per week that makes Zappos better reflect its core values. It’s the accumulation of small things that seems to make a difference – making forms more fun to fill out, or organizing group activities, or sending a customer an extra special thank you note. The company has also proven that it can take on big changes. In its short life, there have been three complete swapouts of the store/pick/pack infrastructure and technology at Zappos’ warehouse and distribution center in Kentucky. A large wall display illustrates the evolution and communicates key real-time performance statistics (number of items stocked, number of items shipped, revenue).

What if you asked your employees to make one improvement per week to better reflect the values of your company, and reinforced this expectation vigilantly, and published stories associated with rising to the challenge, and encouraged colleagues to microblog or blog to share their improvement each week?

The real purpose of my visit was to specifically focus on Zappos' leadership development programs. All new employees, regardless of how senior their level, must attend a 4-week new hire program. The content includes eight hours on Zappos history and five hours on Zappos culture. The program for all new hires also includes 40 hours on the phones in the Customer Loyalty Team. At the end of the new hire program, participants are offered $2,000 if they decide that they don’t want to work for Zappos. The company thus weeds out those few who made it through the screening process, but who are not truly a good fit for the organization. If passion for the business is a key element of leadership, Zappos establishes it from the outset.

Formal leadership and professional development education continues throughout an employee’s first 18 months. Upon promotion to first line manager, another set of classes is required. Those promoted to more senior roles complete a further leadership curriculum.

In addition to the formal leadership development curriculum, there is an on-site life coach, Dr. Vik. His guidance and coaching - - available to any employee who elects to seek it out - - supports and enables the development of leadership behaviors and overall career goals.

Will the winning formula at Zappos survive the merger with Amazon? Can this kind of culture persist in a larger organization (there are only about 1,500 employees today). I'm looking forward to finding out!