Zappos: Selling Shoes by Selling Happiness

The story

In 1999, a young man named Nick Swinmurn started an online shoe store in San Francisco. It became Zappos. A year later, an entrepreneur named Tony Hsieh invested in the company and soon became its leader. Their first year's sales were tiny, about $1.6 million in 2000.

Selling shoes online had a big problem: people want to try shoes on. What if they do not fit? Zappos decided to remove that worry. It offered free shipping and a return policy that eventually stretched to 365 days. Customers often ordered several sizes, kept the pair that fit, and sent the rest back. That was costly. But Zappos saw it as the price of earning trust, and it found that happy customers kept coming back. By the late 2000s, about three out of four daily sales came from repeat customers.

The heart of Zappos was its phone line. Many companies treat customer service as a cost to keep as small as possible, with scripts and time limits. Zappos went the other way. Its call center workers were encouraged to make a real personal connection, even if a call ran long. Hsieh put it simply: "We're not trying to maximize efficiency. We're trying to maximize the customer experience." In 2012, a call that ended in the sale of a pair of boots lasted more than 10 hours. Zappos later reported a record call of 10 hours and 43 minutes. Most calls were short, of course, but these stories showed staff that they really were trusted to put people first.

Zappos also cared intensely about hiring the right people. Every new employee, even those hired for office jobs, spent time working in the call center. And during training, new hires got an unusual offer: if they decided Zappos was not right for them, the company would pay them to quit. By around 2010 the offer was $2,000 to $3,000. Only about 2 to 3 percent took it. The idea was that it was far cheaper to part ways early than to keep someone who did not believe in the mission.

The approach worked. Zappos's gross sales passed $1 billion in 2008. In July 2009, Amazon announced it would buy Zappos for about 10 million shares of Amazon stock, worth about $807 million at the time, plus $40 million in cash and stock for Zappos employees. As Amazon's share price rose, the deal was widely reported as worth about $1.2 billion when it closed. Amazon promised to let Zappos keep running independently from its home in Las Vegas, and Jeff Bezos praised it as a customer-focused company.

Zappos was not perfect. Its generous policies cost money, and later experiments, like doing away with traditional managers, drew mixed reviews. But the core lesson has lasted. In a world where it is easy to compare prices, the way you make people feel can be the thing that sets you apart.

For a small business, that might mean answering every email warmly, making returns painless, or giving employees permission to do the right thing without asking a manager first.