LinkExchange "allowed amateur Web publishers to barter for dvertising by agreeing to publish 1 one another''s ads. " LinkExchange proved to be a successful business venture, but Hsieh became 2 depressed because the work was no longer fun. "When it was Just five or ten people, it was a lot of fun. We were working around the clock, no idea what day of the week it was, sleeping under our desks," says Hsieh. 0 [Continuing, he explains,] "[w]e hired all the right people in terms of 3 skill sets, but by the time it was 100 or so, I dreaded going to the office. Hsieh increasingly felt "that the people he had hired were not committed to the venture''s ongterm growth. 0 Work, which once had felt liberating, had become a chore. He resolved that his next company would not be about a short-term payday. It would be about long-term growth, 4 about creating a place to which he and his employees would want to come every day. " 5 At the age of twenty-four, Hsieh sold LinkExchange to Microsoft for $265 million. He used the money to help fund his second company, which was cofounded in 1999 with Alfred Lin, a Harvard classmate.
Called Venture Frogs, the business was a venture capital firm investing in start-up businesses. "A few of Venture Frogs'' investments ystem OpenTable—but as the dot. com bubble burst, most struggled to survive, and some were shuttered. Hsieh had been attracted to investing because it seemed to bring all the fun of start-ups on a larger scale; instead, it became a treadmill of meetings full of bad news. 0 What Hsieh wanted, he realized, was the unstructured fun of a 6 new company. As he puts it, ''I wanted to be involved in building something. ''" One of the start-ups funded by Venture Frogs was the online shoe store Shoesite. om, founded in 7 San Francisco by Nicholas Swinmurn. Reflecting on Shoesite. com, Hsieh says, "It was the most 8 nteresting opportunity, and the people were the most fun. " Hsieh invested $500,000 in Shoesite. com, Joined the company, and subsequently renamed it Zappos. By the summer of 2000, Hsieh and Swinmurn were co-chief executives, and Zappos was operating out of Hsieh''s 9 living room. Zappos grew rapidly and soon was moved from San Francisco to Henderson, 2 3 4 5 6 7 8 9 M. Chafkin, "Get Happy: How Tony Hsieh Uses Relentless Innovation, Stellar Service, and a Staff of Believers to Make Zappos. om and Ecommerce Juggernautoand One of the Most Blissed-out Businesses in America," Inc. 31(4) (May 2009): 69. Ibid. J. M. O''Brien, "Zappos Knows How to Kick It," Fortune 159(2) (February 2, 2009): 56. Chafkin, "Get Happy," 69. O''Brien, "Zappos Knows," 56. Chafkin, "Get Happy," 70. H. Coster, "A Step Ahead," Forbes Oune 2, 2008), http://www. forbes. com/global/ 2008/0602/064. html (accessed June 20, 2009). Chafktn, "Get Happy," 70. Chafkin, "Get Happy," 70; Coster, "A Step Ahead. " Nevada, Just outside of Las Vegas. When Swinmurn left the company in 2006, Hsieh became the 10 sole chief executive.
The Zappos Culture 11 Zappos. This distinctive culture is built upon a foundation of ten core values that all Zapponians—the name that Zappos personnel give themselves—follow in their work lives. These values are as follows: 0 deliver WOW through service; 0 embrace and drive change; 0 create fun and a little weirdness; 0 be adventurous, creative, and open-minded; 0 pursue growth and learning; 0 build open and honest relationships with communication; 0 build a positive team and family spirit; 0 do more with less; 0 be passionate and determined; and 12 0 be humble. 3 "Defining core values as a company is one thing. Performing them on a daily basis is another. " So, how does Zappos put its core values into practice? First and foremost, Zappos builds its 14 culture, brand, and business strategies on these core values. Developing and maintaining the Zappos culture starts with the hiring process. Tony Hsieh says, "[t]here are plenty of candidates who would be great individual contributors, but if they are not a cultural fit we would not hire them. we want people who are eager to live the Zappos lifestyle 15 and promote the Zappos culture—not a typical nine-to-five office employee. " Culture building continues after the hiring process is over. In fact, it is an important ingredient of everyone''s Job. "[A] passion for having fun is the unwritten requirement n everyone''s Job 16 description. " And annually, the company publishes a "Culture Book" in which many of the associates explain what the Zappos culture means to them. Moreover, Zappos "bases half of an 17 employee''s performance review on how well he/she has lived up to the company''s values. Another important way in which the Zappos staff lives the company''s core values is by striving to maintain the firm''s reputation for developing lifelong customer relationships. According to 10 14 15 16 17 Coster, "A Step Ahead. " Anonymous, "Business: Keeper of the Flame; Face Value," The Economist 391 (8627) ulture/zappos-core-values (accessed June 20, 2009). C. S. Cross, "Dot. com Distribution," Industrial Engineer 40(11) (November 2008): 52. "Zappos Core Values," http://about. zappos. com/our-unique-culture/zappos-core-values (accessed June 20, 2009).
C. Gentry, "cultural Revolution," Cham store Age 83(12) (December 2007): 32 and 34. Gentry, "Cultural Revolution," 32. (April 18, 2009): 75. Hsieh, "[i]f you get the culture right, you don''t need to come up with a policy and procedure for 18 everything. " Technology at Zappos While organizational culture drives Zappos. com, technology supports that culture nd the work of all Zappos employees in delivering great customer service. A prime example of the role that technology plays is provided by the Zappos distribution center (DC).
Zappos has one central warehousing/distribution location rather than numerous regional sites. Physically situated in Shepherdsville, Kentucky, the DC is close to the United Parcel Service (UPS) World Port, the main air hub of UPS in Louisville. This enables Zappos to fill orders less than two hours after they are placed and to take advantage of the UPS late-night pickup 19 schedule. Craig Adkins, vice president of fulfillment operations for Zappos. om, explains the company''s reasoning for having one central DC as opposed to a distributed network with several regional locations. Zappos would have to carry more inventory to spread it across multiple facilities. 0 If we were spread out throughout the country, we would be regionally closer, but we would actually be no closer to the customer than we are now. 0 If, for example, I had a building in Reno, and I wanted to serve my customers in California from there, I can actually get goods into 20 Los Angeles faster from Louisville than I could from Nevada. " How does technology nable the DC to contribute to fulfilling of the core value: Deliver WOW Through Service?
It starts with the companys information technology, nearly all of which is developed in-house, linking its storage and shipping systems to the e-commerce site through a 21 central database. Inside the DC, all incoming shipments from suppliers are unpackaged immediately and placed on pickable shelves. This helps to make inventory management, product distribution, and customer ordering processes integrated and seamless. Craig Adkins explains, "There are a million individual SKUs and 4 million items in inventory, so here''s no need for a deep level of reserve storage.
If you see it on our web site, it''s on our shelf. If the last item sells out, it comes off the web site automatically. We don''t do back orders. It''s a live inventory system, which almost 22 nobody does. " A recent technological leap forward at the DC was the installation of 72 Kiva robots at a cost of $5 million. The Kiva "bots" pack 12 percent of the shipped items at the DC, based fulfillment process," says Adkins. "The labor costs are 50%, and electrically it''s only using half as much 18 19 20 21 S. Murphy, "Culture Conscious," Chain Store Age 83(9) (September 2007): 55. W.
Hoffman, "From Bricks to Clicks," Journal of Commerce (December 22, 2008), http:// www. Joc. com/node/408765 (accessed June 9, 2009). P. Barnard, "The New Big Thing: Super-size DCs," Multichannel Merchant 25(11) (November 2008): 51 . M. Zager, "Zappos Delivers Service With Shoes on the Side," Apparel Oanuary 2009), http:// www. apparelmag. com? ME2/dirmod. asp? sid=23B258090 (accessed June 9, 2009). Ibid. power as our old system. " The Kiva "bot" system allows the Zappos DC to ship a pair of shoes 24 in as little as eight minutes. The Kiva system is extraordinarily flexible and can be adapted to other product lines s Zappos expands.
The system can be reconfgured very easily, and it can be moved to any geographic 25 location. Craig Adkins describes the company''s experience with the Kiva "bots" with enthusiasm and a definite view to the future: "We were amazed that Kiva transformed our new warehouse from bare concrete to fully operational readiness— with trained supervisors and associates—Just four months after we signed the purchase order. We''re already working on designs to cube out the 26 building with Kiva''s mobile fulfillment system (MFS) on the multi-level mezzanines. "
This case was written by Michael K. McCuddy, The Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University. C. Steiner, "A Bot in Time Saves Nine," Forbes (March 16, 2009), http:// www. forbes. com/forbes/2009/0316/040_bot_times_saves_nine. html (accessed June 20, 2009). 24 25 26 Chafkin, "Get Happy," 68. W. Atkinson, "Robotics in Action" sidebar to "The Future Is Flexible," Modern Materials J. Teresko, "Getting Lean with Armless Robots," Industry Week 257(9) (September 2008): 26.
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