Managing

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The Zappos Way of Managing

How Tony Hsieh uses relentless innovation, stellar customer service, and a staff of believers to make Zappos.com an e-commerce juggernaut -- and one of the most blissed-out businesses in America. By Max Chafkin | May 1, 2009

"What would make you happier in your life?"
Tony Hsieh asks me this question as we sit at a booth with half a dozen young people in one of those absurdly lavish lounges that can be found only in Las Vegas. It's called Lavo, setting of recent Paris Hilton and Nelly sightings and the city's newest hot spot. The theme is an ancient Roman bathhouse, and so, in addition to the normal nightclub features -- thumping bass, low tables, dim lighting -- there's the distracting aspect of two scantily clad women performing a risqué bathing routine, complete with damp sponges and music.

It's a strange setting for an interview -- especially for an interview with Hsieh (pronounced Shay). He's a thoughtful, low-key fellow who seems out of place in such a louche setting. Indeed, he seems oddly oblivious to his surroundings, which makes sense, given that he runs what is arguably the decade's most innovative start-up, Zappos.com. Hsieh helped start Zappos in 1999 as an online shoe store, and the company has since expanded to all manner of goods. Zappos booked $1 billion in gross sales in 2008, 20 percent better than the year before. It has been profitable since 2006. At a time when most business leaders are retrenching, Hsieh is thinking big. In late 2006, he launched an outsourcing program to handle selling, customer service, and shipping for other companies, and last December, he started an educational website for small businesses that charges them $39.95 a month to tap Zappos executives for advice. Hsieh has said Zappos will eventually move beyond retail to businesses such as hotels and banking -- anything where customer service is paramount. "I wouldn't rule out a Zappos airline that's just about the best customer service," he announced at the Web 2.0 conference last fall.

But Hsieh, 35, isn't interested in talking about any of this right now. He's still on the happiness thing. "On a scale of 1 to 10, how happy are you right now?" he asks, informing me that, right now, he's at about an 8. I think for a second and then respond, "Maybe a 7?"

This isn't polite conversation for Hsieh. "I've been doing a lot of research into the science of happiness," he says. In addition to asking everyone he meets what makes him or her happy, he has also been studying books on the subject, especially Jonathan Haidt's The Happiness Hypothesis, which uses social psychology experiments to evaluate the world's great religions and philosophies and concludes that ancient wisdom and science are both useful tools in the quest for contentment. Hsieh is working on a system to supersede both. "I've been trying to come up with a unified theory for happiness," he says.

Unlike the world's great religions, the Tony Hsieh Unified Happiness Theory is not entirely settled. It involves establishing balance among four basic human needs: perceived progress, perceived control, relatedness, and a connection to a larger vision. And because Hsieh's life is his company, the test subjects are Zappos employees. "I've got a few different frameworks, and I'm just figuring out how to combine them," he says without irony or even a smile. "I think I'm pretty close."

Hsieh is widely regarded as one of the most innovative Internet marketers of all time. The Web entrepreneur and marketing guru Seth Godin has likened Hsieh's ability to use technology to connect with his customers to the Beatles' ability to animate their teenage fans. The blog Search Engine Land calls Zappos "the poster child for how to connect with customers online." And Hsieh's mastery isn't limited to marketing. Zappos's warehouse boasts a fleet of 70 brand-new robots that allows it to ship a pair of shoes in as little as eight minutes, earning reams of praise...
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