Learning to balance short-term, medium-term and long-term goals is the key to corporate success.

Question: How do you measure happiness in business?

Tony Hsieh: I think it is hard sometimes to measure the benefit of any one thing you do and I think if you approach it that way it’s...  You know the way we really think about it is what it is going to be like in the aggregate and over the lifetime of the customer and so a perfect example of something that doesn’t make sense in the short term but does in the long term is if you call us and you’re looking for a pair of shoes and we’re out of stock for your size, everyone is trained to look on three competitor Web sites to see if they can find it there and if they do direct you to that competitor. 

Obviously in the short-term we’re going to lose that transaction, that sell, but we’re not trying to maximize for every transaction.  We’re trying to maximize the customer experience and build that lifelong relationship with customers and not only...  That’s not only great from a loyalty perspective, but it’s stuff like that that drives a lot of the word-of-mouth, which... So from our point of view yes, a lot of the things that we do, free shipping both ways is really expensive, surprise upgrades to overnight shipping is expensive, phone calls where we actually just found out our longest phone call was seven and a half hours long.  We just set that about a month ago and so all those things are expensive, but we really just while on a P&L maybe that falls under I don’t know, "cost of goods" or some other line item, but we really view those as our marketing costs.  It’s we are investing in the customers and then relying on them to do the marketing for us through word of mouth and so that... so then we don’t need to spend all this money on more, I guess, normal methods of marketing.

And so we’ve grown from no sales in 1999 to in 2008 we hit a billion dollars in gross merchandise sales and even despite a down economy over the past 24 months we’ve continued to grow.  Our Q1 net sales this year are up almost 50% year over year in a down economy and a lot of people ask us what did you do in the past 24 months and it’s not anything we’ve done over the past 24 months.  It’s what we did prior to that, really all the things we’ve just been talking about that may be hard to justify in the short term, but we’re reaping the rewards of because we’ve always done that.

Question: How can other companies be happy and profitable?

Tony Hsieh:  Yeah, I mean ultimately I guess that is what business is all about, right? About learning to balance the short-term, medium-term and long-term and I think it’s when things are going well it covers up a lot of mistakes and bad decisions because you’re growing so quickly... when really those are the times when you really should be investing more in the long-term. And I think for us we’ve basically just always invested in the long-term while trying to make our short-term targets as well.  So yeah, there is no easy answer, but ultimately that is what business is.  You need all of the above.  It’s not just "Well I can’t afford to do that." And the other thing is a lot of the stuff actually doesn’t have to be expensive.  Focusing on company culture, for example. It doesn’t cost anything to say hi when you pass someone else in the hallway, whereas, most corporations if you pass you avoid eye contact and so on.

Question: How do you engage Millennials as employees?

Tony Hsieh:  Well for us we’ve never actually focused on Millenials and we tend to get asked that question a lot just because the things we focus on I think are pretty universal human wants or needs.  It’s just that I think maybe 50 years ago people just had less mobility in terms of being able to job hop. But I don’t think we would if it was 50 years ago still be doing the same thing, and really focusing on employee happiness.  I think it was more 50 years ago companies didn’t have to, and they could still get away with it. Whereas, our point of view is "If employees can be happy and feel like they can be themselves in the office"... You know there is so many people in corporate American where they’re a different person at home on weekends versus what on Monday when they’re in the office and they leave a little part of themselves or a big part of themselves at home. And I think that was definitely true 50 years ago and maybe what the Millenials are kind of bringing more into the forefront is maybe they’re just saying they want to be the same person and if not they can... we live in a world  where they can afford to job hop.  It’s much easier. 

So yeah, I don’t know if it’s specific to Millenials, but everyone wants to be part of something bigger than themselves that they believe in and everyone would ideally want to be passionate about whatever work that it is they’re doing and so... and everyone wants to feel connected to people and so I don’t think those are specific to Millenials.  Those apply to everyone.

Question: Is your business philosophy catching on?

Tony Hsieh:  Well it’s been really interesting.  We’ve been on a...  So we’re in the middle of a 23-city bus tour that is taking 3 months and you can see all the list of cities wherein if you go to DeliveringHappinessBus.com. But what has been really interesting and we have a separate website kind of as a follow up to the book at DeliveringHappinessBook.com and there is a section called "Join the Movement" and we’re just having people submit their stories of if the book or discussion on the Web site has inspired them to either follow their passions or focus more on making customers happy or employees happy and so on, but a lot of the stuff actually hasn’t even...  We’ve definitely heard a lot of feedback from other entrepreneurs and businesses, but what surprises us is also we’ve been hearing from churches and school systems and where we had a teacher that told us that they passed the book out to their faculty and within two weeks the whole vibe of the school changed, which I thought was really cool and certainly not anything that we thought would be affected from the book and so I guess we don’t necessarily... 

The "Delivering Happiness" team is actually a team of about 15 or 20 of us.  It’s basically its own separate startup and we don’t have a clear vision of exactly what this happiness movement will end up and a lot of it is being generated by people that are inspired and doing their own thing from all different industries including businesses and over time the website will be evolving and really that is how we’re learning what is resonating and what is not with different people, but it has definitely been… We’ve only gone in seven cities so far and just in those seven cities it has been really interesting.  One of the cities we went to was Iowa City and at University of Iowa the book is now required reading for one of the classes and we’ve heard that for about three or four other universities and schools, so who knows what is going to happen with it.

Question: Do businesses need to be profitable before they can be happy?

Tony Hsieh:  I think it really depends on each person’s specific situation, but what we generally hear the most about is not that people really can’t afford to follow their passion.  It’s they kind of have ingrained in their mindset "Well I have to do this" and what they say the book has helped them do is actually realize that the ultimate goal of everyone, whatever... you know people have different goals in life, but ultimately the purpose of achieving that goal is they believe it will make them happier. And there are so many people that for example will work really hard in a job they hate for two years so they can go on this two-week vacation, dream vacation when people like Tim Ferriss in "4-Hour Work Week" basically woke up one day and was like if I want to travel then I’ll just travel and you can do it for much less than what your assumptions are. So I think a big part of the book is really question what your assumptions are in terms of what you have to do. And a lot of people realize "I don’t have to work in this job that I’m miserable at every year, or every day, and I don’t have to live in, for example, New York City where it’s super expensive and if I live somewhere else that is less expensive and could pursue my passion like, I can afford to do that."

Question: What is the right way for businesses to adopt change?

Tony Hsieh:  For us it’s just built into the culture and I think for organizations in general it’s pretty important to have something like that as part of their culture because there is a quote from Darwin that it’s something like "It’s not the fastest or most intelligent of the species that survives.  It’s the one that is most adaptable to change."   And I think the same is true for businesses as well. And if you look back on the history of giant businesses, corporations that have kind of lost their way or gone bankrupt or whatever it’s because they were stuck in their old ways and for us I think we’ve...  So we have 10 core values total.  One of them is embrace and drive change.  One of them is to be adventurous, creative and open minded. And one of them is to be humble. So I think if you combine those three it’s kind of I think for us really encapsulates this idea of "just because something worked yesterday doesn’t mean that is what we should be doing tomorrow" and just always be open minded and not wed in your ways and be ready to adapt and change and basically ask the question "Why not?" as often as possible.

Recorded September 24th, 2010
Interviewed by Peter Hopkins