Introduction
Founded in 1999, Zappos.com has quickly grown, increasing from almost nothing in gross merchandise sales in 1999 to over $1 billion in 2008.
This fast growth is due to their focus on providing the absolute best service and the absolute best shopping experience. The Zappos family currently staffs over 2,050 people. Their fulfillment center stocks more than 3 million shoes from over 1,136 brands, and it is complemented by a 24/7 customer service center located at the headquarters in Henderson, Nevada. Zappos offers free shipping on both orders and returns and a 365-day return policy. Clearly, their customer-first approach is working, since 75% of their customers are repeat buyers.

Zappos’s Background
In 1999, Zappos founder Nick Swinmurn approached Tony Hsieh and Alfred Lin with the idea of selling shoes online. At that time, Tony Hsieh was running an investment company funded from selling his previous company, Link Exchange. Link Exchange was founded by Tony Hsieh and Sanjay Madan in 1996, one year after both graduated from Harvard. Microsoft acquired Link Exchange for $265 million in November 1998. After Link Exchange was sold to Microsoft, Tony Hsieh and his old friend from Harvard, Alfred Lin, founded the venture capital company Venture Frogs. Through Venture Frogs, located in San Francisco, they started 27 companies, which were offered space in Hsieh and Lin’s 15,000 square feet of rented office space.
In 1999, Hsieh received a voice message from Nick Swinmurn who told him that he had just started a web site called shoesite.com. Swinmurn had an idea to build the Amazon of shoes by creating the largest online shoe store. Initially, Hsieh wanted to delete the voice message, but Nick mentioned the fact that footwear was a $40 billion industry in US, and 5% of that was accounted for by paper-mail order catalogs. This 5% translated to $2 billion and Hsieh and Lin decided to meet with Nick Swinmurn. They decided to invest $500,000 through their firm Venture Frogs, under the condition that Nick Swinmurn finds someone with experience in the footwear industry to join them. Nick found Fred Mossler, a Nordstrom veteran, and he proposed Zappos (a play on the word for shoes in Spanish) as the name for the new company. At Hsieh’s suggestion, the name changed to Zappos to avoid mispronunciations. He also suggested that the company move into their rented building in San Francisco, so he could get more involved into their operations.
For the next two years Zappos, focused on survival as it went through the dot-com market crash, the fallout from 9/11, and a recession. The money from Venture Frogs was used quickly, and because of their inability to raise funds externally, Hsieh decided to invest some of his personal money every few months in order to keep Zappos afloat. After some layoffs at the end of 2000, Zappos decided to change its strategy and carry its own inventory combined with a drop ship method. In order to support their new strategy, Tony Hsieh and one of Zappos’s employees engineered a new 24/7 warehouse in Kentucky located next to a UPS hub. It is worth mentioning that Zappos named their warehouse WHISKY (WareHouse Inventory System in KentuckY). A 24/7 schedule for a picking warehouse conflicts with traditional business models and is not very cost efficient. However, Zappos was more concerned about maximizing customer experience than maximizing their picking efficiency. As a result of their unique business decisions focused on customer service, gross merchandise sale at the end of 2002 grew to $32 million.
Zappos had a hard time finding people to work in their customer service department in San Francisco, so at the end of 2003, leadership decided to move the company to Henderson, Nevada. Out of 100 employees, 70 of the employees made the move with Zappos. The strong company culture became even more important after the move, as camaraderie grew stronger. With no one to lean on outside the company, a strong company culture became the number one priority for Zappos.
In 2004, Zappos secured its first line of credit of $6 million from Wells Fargo and received $35 million in investment capital from Sequoia Capital. This was after Sequoia had passed on the chance to invest in Zappos in 2001. We should note that Sequoia is the firm that has funded some of the most innovative companies in the world, such as Apple, Google, YouTube, PayPal, Cisco, Oracle, Yahoo! and LinkedIn.
For the following few years Tony Hsieh focused on strengthening a culture where employees are happy. His belief is that employees are generally happier if they are given some control over their work. Consequently, their happiness makes them more productive. This philosophy helped Zappos to grow to $1 billion gross merchandise sales by the end of 2008. Each new employee is told of two company milestones on the first day on the job: their first $3 million sales day in 2006 the year Nike products began selling at Zappos in 2007. In 2009, Amazon.com acquired Zappos for $1.2 billion. However, Tony Hsieh remained as CEO in order to maintain the company’s culture.

Zappos’s Organizational Culture

Zappos’s organizational goal is to create a family-style environment that challenges workers to learn and grow every day. It wants employees to own and build the culture, giving employees the feeling that they have a saying in the company. It strives to create and preserve a culture that encourages “fun” and creativity in a family-feel environment that would attract repeat customers and spread word of mouth advertising.
Nelson and Quick define organizational (corporate) culture as “a pattern of basic assumptions that are considered valid, that are taught to new members as the way to perceive, think and feel in the organization.” While most companies adopt a traditional model of culture Zappos CEO Tony Hsieh has redefined corporate culture and created a culture model that is not only successful in terms of corporate revenue but separates it from all other companies in its sphere. There are four main functions of Organizational culture, which according to Nelson and Quick are:
• To provide a sense of identity to members and increase their commitment to the organization
• Provide a sense-making device for organizational members
• Reinforce the organizations values
• Provide a control mechanism for shaping behavior
Zappos’s culture is dedicated to fulfilling these functions. In order to define their culture, Zappos has implemented ten core values commonly known among Zappos employees as The Ten Commandments, which are:
1. Deliver WOW Through Service
2. Embrace and Drive Change
3. Create Fun and A Little Weirdness
4. Be Adventures, 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
These core values are to be seen as exposed values, what the members of the organization say but also as enacted values, which are reflected in the way individuals actually behave. The Ten Commandments create a working environment that is centered on the individual employee with the belief that, as Tony Hsieh puts it “A happy employee makes a happy customer.”
According to Nelson and Quick, there are three levels of Organizational Culture: artifacts, values and basic assumptions. Artifacts include stories, rituals and symbols, which serve as the visual manifestation of the corporate culture. Values exist at a greater stage of awareness and are testable in the corporate environment as well as by social consensus. Basic assumptions are invisible, preconscious aspects of culture that are illustrated in relationships to the environment, nature of human activity and nature of human relations among employees. Zappos takes great care to manage its culture on all three levels starting with their hiring process where values are clearly communicated and expanded upon. This also includes the stories and rituals that have become a part of its everyday operations, and the release of its annual culture book, which gives insight into Zappos culture to potential employees, partners, and customers through the eyes of its current employees.
Corporate culture is an integral part of business success; therefore, it is important that employees embrace and model the corporate culture once it is established. Once employees become invested in the culture, it then becomes important that any new employee make a quick transition to their new environment. Therefore, it is important that managers and Human Resources staff are able to recognize whether or not a potential employee will fit into the company’s corporate culture. At Zappos, the interview process for new employees is taken very seriously. It may begin with a shot of Vodka or a question such as “if you could be any cartoon character who would you be and why?” or “On a scale of 1 to 10, how weird are you?” This process may seem a little bizarre at first, but once Zappos’s corporate culture is understood, it is easy to see that the interview model is a carefully thought out process. The process screens potential employees for creativity and individuality while filtering out wildflowers and narcissists. To ensure that all new hires fit within Zappos’s culture, HR conducts a separate interview completely dedicated to determining cultural fit. According to Zappos’s CEO, Zappos tries to recruit people who do not have customer service experience for customer service positions. Zappos considers bad habits difficult to overcome. HR staffers often veto some hiring decisions due to a lack of cultural fit. Once an employee is hired, they undergo a training process that includes a four-week training program, which educates them on Zappos’s history, culture and mission. They are then required to spend two weeks in the call center in order to better understand the Zappos customer. Training ends with one week in the company’s distribution center. After training is complete, new hires are offered $2000 to quit. According to Zappos, this offer is rarely taken. The offer to quit is Zappos’s way of giving new employees, who do not think they can embrace the corporate culture, an out that is beneficial to both the individual and the company, who is concerned with maintaining their culture. Once new hires complete their training and agree to become active participants in the Zappos culture, the fun can begin.
According to Zappos, their corporate culture is not just seen as an environment, but as an employee benefit. Although Zappos’s salaries are not particularly large, they and their employees agree the other benefits offered make up the difference. Employees are given medical and dental insurance that is covered 100% by the company in addition to free food in the form of cold cuts, sandwiches and ice cream. Each employee also has flexible working hours, access to a full time life coach, and access to a nap room. The most valuable benefit given to Zappos employees is a work environment that promotes personal relationships, positive attitudes, and above all happiness.
When designing the Zappos culture, Hsieh put on emphasis on fun. His goal was to create an environment that made employees feel as though they were meeting up with friends for a night out rather than going to work. Hsieh wants Zappos employees to feel more like family members than co-workers. He encourages employees to socialize both in the office and out. A great example of the socialization policy is that in order to log into their workstation, employees must enter both a password and identify an employee whose picture randomly appears on their screen. Correct and incorrect responses are tracked, and employees are encouraged to know their co-workers to achieve high recognition scores. Hsieh himself practices an open door policy with all employees, as illustrated by the fact that he has a cubicle among the rest of the employees instead of a corner office. This practice is not only effective, but also underlines one of the company’s core values, “Be humble.” In fact, Zappos managers are required to spend 20% of their time at work goofing off with employees and 10% of their time outside of work socializing with employees. According to HR at Zappos, personal enactment is very important to employees in general. Managers in particular must demonstrate the company’s values through their behavior. According to Nelson and Quick the five important elements to managing culture are:
1. What leaders pay attention to
2. How leaders react to crisis
3. How leaders behave
4. How leaders allocate rewards
5. How leaders hire and fire individuals
Zappos managers have applied its culture to these elements so successfully that employees have not only embraced Zappos’s culture, but have adopted it as a lifestyle. According to Zappos employees, the attitude of fun is exactly what they feel. Instead of dreading a workday, employees can look forward to pajama parties, retired product funerals, toga parties, and employee competitions in the middle of the day. This atmosphere creates a culture of conformity while still encouraging all employees to be individuals. This attitude also allows employees to build meaningful relationships with one another eliminating competiveness and egocentric behaviors. Proof of Zappos’s cultural success can be found among employees who call themselves Zapponians, and are often found wearing their company logo during and after work hours.