Too many companies only focus on the bottom line. When a company forgets about passion, purpose and happiness, it actually ends up hurting long-term profitability.

Question: Why do you link happiness with business?

Tony Hsieh:  Yeah, well so I guess maybe it would be helpful to backtrack a little bit.  Prior to Zappos I had cofounded a company called Link Exchange.  This was back in 1996, during the first dotcom boom. And a college roommate and I started it out of our living room and grew it to about 100 or so people and ended up selling the company to Microsoft 2 1/2 years later, in 1998. But what a lot of people don’t know or realize is the reason why we ended up selling the company and it’s because the culture just went completely downhill, and I remember when it was just 5 or 10 of us it was a lot of fun, kind of your typical dotcom, working around the clock, sleeping under our desk, had no idea what day of the week it was and as we grew we started hiring our friends and I remember there was one friend of mine that was on a cross-country road trip and he stopped and we needed help and he actually never made his way back home.

And that worked great until we got to about 15 or 20 people and then we ran out of friends to hire and so we then started hiring people that had all the right skill sets and experiences, but weren’t necessarily great for the company culture. And we just didn’t know any better to pay attention to culture. And by the time we got to 100 people I myself dreaded getting out of bed in the morning to go to the office, and that was kind of a strange feeling because this was a company I had co-founded and so that is what led us to sell the company and then afterward both my co-founder and I we left the company, left Microsoft shortly thereafter.

So as I started getting involved with Zappos, originally my role was just as an investor, an adviser. I was also doing that with a bunch of other companies.  I realized within a year that for me Zappos was pretty...  Sorry, investing was pretty boring and I really missed being part of building something.  I felt like I was always standing on the sidelines, so Zappos... really liked the people there and got involved full-time and I’ve been full-time ever since.

And for me the initial motivation was really what would make me happy. And I wanted to... you know if I was going to go into an office I wanted it to be with people I would choose to be around even if we didn’t have to work together and so that was one of the major reasons why I decided out of all the different companies we invested in to work with Zappos. But over time it has kind of evolved where originally Zappos was all about just selling shoes online and we decided to focus on customer service, which is all about making customers happy and then over time we put more and more emphasis on company culture, which is all about making employees happy and so kind of took a step back and realized we’re basically trying to make customers happy, make employees happy and also make our vendors and business partners happy, so let’s kind of take a step back and just be about delivering happiness, hence, the title of the book.

Question: Does wealth lead to happiness?

Tony Hsieh:  Yeah, well what is interesting is they’ve actually...  So when I was thinking to that that was prior to really a lot of this research behind the signs of happiness that happened and what they’ve found through the research is basically money is...  If you’re worried about putting food on the table or putting a roof over your head, that stress is definitely will contribute to unhappiness, but once you have your basic needs met then incremental money and in fact I think there was an article that came out a couple of weeks ago where they said any... what they found is anything above I think the number was $75,000 a year in terms of income actually when they studied the happiness level of people that were making more money they actually were less happy because they were… for whatever reason they were stressed about all the additional things that come with it and then other studies have also shown that people are... the happiness is much longer if you’re buying experiences versus things. And so I guess I think kind of the default assumption that I had and that our society in general has is more money equals more happiness and all the research has shown that that’s true up to a point, up until you can get your basic needs met, but then really there is other stuff that has a much bigger impact on your happiness besides just money.

Question: What are the three kinds of happiness?

Tony Hsieh:  Well so the three types of happiness that you just stated, pleasure, passion and purpose are really just come out of the whole research that has been done on the signs of happiness and I think both for myself and probably for most people our kind of default is to kind of try to chase after the pleasure type of happiness where what the research has shown it’s great if you can sustain it.  The problem is it’s very hard to sustain unless you’re basically a rock star and so that’s why I refer to it as the rock star type happiness and what the research has shown is out of those three types it’s the shortest lasting type of happiness.  Basically as soon as the source of stimuli goes away your happiness just plummets and drops right down to where it was before.

But I think a lot of people including myself back then were trying to chase that, sustain that and then with the thought of if I ever... you know once that’s sustained on an ongoing basis, which the research has shown is next to impossible, then I’ll worry about the passion part of it and then if I ever get around to it I’ll worry about the higher purpose part of it because that feels like more kind of philanthropic or charity type of angle. But based on the research data that third type, the higher purpose type is actually the longest lasting type of happiness.  So the proper strategy should actually be to figure out that first and then layer on top of that the passion type of happiness and then anytime you experience the pleasure type it’s just kind of icing on the cake. And it’s definitely counter-intuitive and even if you take out the kind of, I don’t know what you’d call it, like philanthropic side of being part of something... Like even if you approach it from a purely selfish perspective in trying the maximize your own selfish happiness that actually is kind of ironically the best strategy for doing so.

Question: How did your higher-purpose mindset evolve?

Tony Hsieh:  We definitely did not start out with you know "higher purpose," and what is interesting is now we have books in our library.  When you come visit our offices you’ll see we’ve got 30 or 40 titles in our library out in the reception area and we give those books freely out to visitors and employees, but two of the books that not only do we give out, but we teach classes on to our own employees are "Good to Great" by Jim Collins and "Tribal Leadership." And we actually partnered with the authors of "Tribal Leadership" so you can download the audio version for free from the Zappos Web site, but and I wish I had read both of these books prior to Zappos, but basically the authors researched and looked at what separated the great companies in terms of long-term financial performance from just the good ones or the mediocre ones and they were actually surprised by their findings. 

They found that there were two important ingredients that the great companies had.  One was the great companies all had very strong cultures and the second one is actually kind of surprising is the great companies all had a higher purpose that wasn’t just about being number one in market or profits or making money and ironically by having that higher purpose it actually enabled those companies to make more profits in the long run. And so the subtitle of my book is "A Path to Profits, Passion and Purpose" because for businesses you need all three of those in order to continue to grow the brand and the business and I think too many companies in corporate America focus on just the profits, which if they forget about the passion and purpose part of it, it actually ends up hurting their long term profits for the company. And so for us we kind of accidently stumbled onto this because I hadn’t read the book. I don’t even know if the books existed at this time.

And so in 1999 when Zappos started it was all about let’s just build the brand to be about shoes, selection.  We’re just going to be the market leader in shoes.  And then about four years into it, in 2003, we all kind of sat around and asked ourselves what do we want to be when we grow up.  Do we want to be about shoes or something more meaningful?  And actually, at the time the main motivation was we just don’t want to be pigeonholed into just shoes and so then we decided "Okay, let’s build our brand to be about the very best customer service and customer experience and with the philosophy of we’ll invest... take most of the money we would have spent in paid marketing and paid advertising, invest it into the customer experience and let our customers do the marketing for us through word of mouth." 

So, and a funny thing happened when we actually communicated this to our employees.  We found that suddenly employees were a lot more passionate about the company, a lot more engaged. And when customers called they could sense the person on the other end of the phone wasn’t there just for a paycheck, but really wanted to provide great service. And when vendors came into our offices of visited us they wanted to stay longer and visit more frequently, so all of these things had this kind of multiplicative snowball effect that really drove our growth a lot over the years and it wasn’t something that we expected.  It is something that we just kind of accidently stumbled into. And then a couple of years after that we decided okay, let’s build the... Company culture had always been important because I didn’t want to repeat the same mistake I had made at my previous company, but instead of just saying it’s a priority let’s actually make it the number one priority of the company, with the belief that if we get the culture right then most of the other stuff—like delivering great customer service or building a long term enduring brand or business—will happen just naturally on its own and so over time it has kind of expanded from just shoes to customer service to culture and then now realizing the thing that ties all that together is delivering happiness.

And it’s really interesting because once we came up with "Okay, it’s going to be delivering happiness," and this was in 2009 then that opened up a whole new world of possibilities for us and so now we had this program called Zappos Insights.  It’s actually its own separate Web site and entity within the Zappos family and so if you go to ZapposInsights.com there is anything from a monthly video subscription service to one-day and two-day seminars that we actually host here in Vegas and people from all over the world fly in and we help them figure out how to create their own strong cultures.

And it has been really neat because we’ve seen...  Well first of all, it’s just neat because it’s its own separate business.  It has nothing to do with selling shoes online, but it’s also really neat because this whole idea of happiness as a business model we’re now spreading beyond just to Zappos employees and Zappos customers.  We’re helping other companies go make their customers happier, make their employees happier and there is this one company, called the Atlanta Refrigeration Company, they do repairs out in the field.  And afterward they did this thing that went through "we can focus on making customers happier," focus on culture to make employees happy and they’re reporting that in a down economy the revenues are up.  They’re profits are up and they even sent us before and after pictures of their offices to show the change in culture and so it’s just really neat seeing this idea of happiness as a business model working in other companies and other industries.  It’s not just a Zappos thing and it’s not just an internet thing.

Recorded September 24th, 2010
Interviewed by Peter Hopkins