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Tony Hsieh is the CEO of, an online shoe and clothing shop. Hseih joined Zappos as an advisor and investor after he sold LinkExchange, the company he co-founded, to[…]

The best communication happens naturally amongst friends, so Zappos encourages employees to spend time together outside of the office.

Question: How do you encourage communication among employees? 

Tonyrn Hsieh: There’s lot of ways of communicating with employees. But forrn us, really, we think the best communication is not communication from rnthe top down, but it’s communication that happens naturally amongst rnfriends. And so that’s why we encourage 10% to 20% of people's time, rnespecially if you are a manager, to be spent outside the office hanging rnout with other employees and people that you work with. Sometimes when rnwe do the new manager orientations and we encourage them to spend 10% torn 20% of their time outside the office, if they’re someone new, then the rnreaction we get is, "Well isn’t that wasting time? We’re not really rnworking." But then we ask people that have done it "How much more rnefficient is your team because there’s higher levels of trust?" rnCommunication is better, people are willing to do favors for each other rnbecause they are doing favors for friends instead of co-workers and the rnanswers we get back range anywhere from 20% to 100%. So, kind of rnworst-case scenario, you break even, but you’re having more fun. 

Question:rn What’s the least painful way to fire someone? 

Tony rnHsieh: Well, so there's different ways of firing employees and rnfiring, you know, in some cases may be even too strong a word. For rnexample, during the training program, at the end of the first week, we rnmake an offer to everyone. And the offer is that we’ll pay them for the rntime they’ve already spent training, plus a bonus, or $2,000 to quit andrn leave the company right then. And that’s actually a standing offer rnuntil the end of training. And we’ve extended it even a couple of monthsrn after that. 

So, technically, it’s the employee making their ownrn choice on whether this is the right company for them. And in Las Vegas,rn starting pay for a call center rep is $11.00 per hour. There’s plenty rnof other call centers. So, $2,000 is a pretty significant amount of rnmoney. So we want to make sure that we get employees that are, really rnbelieve in the long-term vision of the company, want to be a part of rnthat, and really believe that this is the company that is right for themrn from the culture perspective. And you know, we do occasionally have rnpeople who take that offer, and I actually think it’s a win-win for bothrn sides. 

Question: How did you go about laying off 8 rnpercent of your staff in 2008? 

Tony Hsieh: So, in rnlate 2008, we had to lay off about 8% of our staff and that was actuallyrn a pretty tough thing to do. We were actually still growing rnyear-over-year, but this was during the whole financial crisis and we rnhad planned for much more growth than we actually had and so we had rnhired into that. And then we realized that we weren’t going to be makingrn our numbers. So we ended up laying off about 8% of our staff. But we rnwanted to do it in a pro-active way. Most companies were waiting until rnthey were forced to lay off employees when they couldn’t make payroll rnany more or they would lay off employees and give them maybe two weeks rnof severance. For us, we wanted to make sure we took care of our rnemployees and we actually gave everyone at least two months of severancern and on top of that, anyone who had worked with the company for more rnthan two years, we gave them one month for every year they worked at rnZappos. And then we also covered their COBRA payments for six months rnafter that. 

And it was really more about making sure that we rnwere pro-active in taking care of our employees and we were very rntransparent in why we had to make that decision and emailed that, not rnonly out to our employees, but posted it publicly on our blogs as well. rnAnd so, I think for us, one of our core values is about being open and rnhonest and we tried to be as open and honest with all of our employees rnand made sure that we weren’t backed into a corner, because we could rnhave actually waited a few more months. But we wanted to make sure that rnthey got a decent amount of severance instead of doing what most other rncompanies seemed to be doing which was just letting them to with very rnlittle severance. 

Recorded on May 27, 2010
rnInterviewed by Victoria Brown