Dan Kennedy’s Worst Nightmare

A two man show will never allow your company to break the billion dollar mark.

Hey you,

It’s #2.

Today, Thanksgiving here in the United States, I wanted to give you a gift of yet another one of the 18 modules that make up Yanik Silver’s latest “Underground Online Seminar.”

This actually has none of the super technical internet stuff in it.  It’s just 10 pages of  Tony Hsieh – of Zappos.com Fame, talking about what it takes to go From Zero, and Purely On The Backbone Of Customer Service, Break The Billion Dollar Mark Like He Did With His Company Last Year.

Tony Hsieh is ALL about optimizing the experience his customers get.  And because he’s got 9.9 million customers, he has a shit load of employees.  This is Dan Kennedy’s worst nightmare.

One employee is almost too many for Dan.  Tony’s got way more than that and if you want huge results like him, you’re really gonna love what he’s got to say…

1.1 Delivering Happiness

1.1.1 He’s re-framed “customer service department” as “Customer Loyalty Team”

1.1.2 He started his entrepreneurial path in college selling pizzas on the ground floor of his college dorm

His current COO/CFO Alfred, was there at the time also.  He was Tony’s #1 customer.  He would come by and buy one or two large pizza’s.  Several years later, Tony found out he was taking the pizzas upstairs and selling them off by the slice.

1.1.3 Background

1996-1998: He started LinkExchange (online ads) and sold it to Microsoft for $265 million

1999:  Started investment company called Venture Frogs.  Invested in Zappos.com and found just investing to be boring and so he ended up joining them full time within a year

Just in 2009:

#20 in Fast Company’s “50 Most Innovative Companies” list.

#7 in BusinessWeek’s Top 25 “Customer Service Champs” competition.

1400 employees, 23rd on Fortune’s “100 Best Companies To Work For” List

Powered by service – Their outcome is to provide the best online shopping experience possible with fast, free shipping, 365 day return policy, best selection, Over 1000 brands, over 200,000 styles, over 900,000 unique UPC’s.

Zappos is a service company that happens to sell shoes, clothing, handbags, eyewear, watches (and eventually a whole bunch of other stuff.

Looked to model themselves after Virgin.

They have 9.9 million purchasing customers, 4 million having bought in the last 12 months. On any given day 75% of purchases made are by returning customers

Their repeat customers have higher average order size – $143.22 vs new customers $111.98

Part of this has been made possible by spending less on advertising and pouring money that would have been spent there and putting into the customer experience.

They look at the costs of free shipping and other stuff like that as marketing costs, not fulfillment costs.

Likes the idea of customers doing the marketing for them.

1.1.4 What is Customer Service?

What Customers first see when they come to zappos.com…

On most sites it’s almost impossible to find a 1-800 number.  Most don’t even have one.

They take the opposite approach.  They put their number at the top of every single page of the site because they actually want to talk to their customers.

The phone is actually one of the marketer’s best tools if trying to cut through the clutter.  This is where you have the consumer’s undivided attention for 5-10 minutes.  And if you get this right they’ll remember it right for a very long time.

Free shipping:

People might buy 10 pairs of shoes, try them with 10 outfits and send the ones back that don’t fit back.  No problem.

Free return policy:

They did an internal study and found that customers that return the least, we’re NOT their best customers.  They actually make more money once customers figure out how easy it is to ship back and forth.  This helps them relax into impulse buys and try new stuff.

So they actually encourage people to order two different sizes of clothes or shoes to ensure they get it right on one try.

365-day return policy:

All the above are just policies.  Not customer service.

They actually pour a shit load of money into their warehouse operations and focus on fast, accurate fulfillment.

They stock & own everything themselves in warehouses as big as two football fields and only make available for sale what’s actually in their warehouse.  Doing this actually cut 25% of their revenue but they did it thinking long term in wanting to build their reputation in the mind of their customer.

They actually run the warehouse 24 hours a day which isn’t the most efficient way.  Most efficient way is to let the orders pile up and then when the picker goes through the warehouse they have higher picking density.  But they’re more interested in getting the order to you as quickly as possible.

Because one of their locations is 15 minutes away from the UPS hub in Kentucky they can create a wow experience with highly valuable customers by giving them free overnight upgrades and getting their package there in 8 hours.

Renegade Call Center:

The people who work the phones are instructed to go to competitors sites to find shoes they don’t have and then they direct you to their site.  They lose that sale but they don’t lose the memory in the customer’s mind that says these guys have my best interest in mind.

Most call centers focus on efficiency and driving down average handle time, time it takes to get person off the phone.  They don’t have call times.  They don’t up-sell.  They don’t have scripts and they ask the reps to use their best judgment as to what’s best for the customer.

1.1.5 Their #1 Priority is Company Culture

They believe that if you get the culture right, most of the other stuff falls into place.

They hire and fire based on culture.

They do two sets of interviews.  One is standard, fit within the team, technical experience ability and so on.  Then HR does a separate set of interviews purely for culture fit.

Employees have to pass both in order to be hired.  They’ve passed on highly qualified people based on them not being right for their culture.

The reverse is true as well.  If someone’s performing well at their job they’ll fire their ass if they’re bad for the culture.

50% of Performance reviews are based on whether you live the culture or not.

They have a 500 page book detailing their culture that is built by the employees, the  definition of what the zappos culture means to them.  New edition comes out every year.

This is unedited so it reads as customer reviews like you might see on a website.

This is part of their culture that encourages people to be open and honest.

Everyone that’s hired, no matter what position you’re in whether it be accountant, attorney, warehouse guy, you go through the same training as the call center reps.

This is 4 weeks in Vegas covering company history, culture, philosophy about customer service, and they actually put your ass on the phone for two weeks taking orders from customers.

After this, they send you to Kentucky for a week where they show you all the warehouse functions that go with shipping, packing, receiving and so on.

The reason they make everyone go through this is because, first, it gets everyone on the same page.  And more importantly, if their brand is gonna be about customer service, then customer service shouldn’t just be a department.  It should be the entire company.

After the first week of the four week training they offer everyone in the class the chance to quit.  They’ll pay you for the time you’ve already spent and in addition they’ll give you a $2,000 bonus to quit and leave the company.

If you’re a $10 and hour employee, that’s a pretty nice chunk of change.  This is actually a standing offer throughout the rest of the 4 weeks of training.

They do this to discourage people from coming on board just for a paycheck.  They want people who are sold on the vision and the culture of the company.

1.1.6 Tony believes Brand and Culture are just two sides of the same coin.

Your brand may lag behind the culture but eventually it’s gonna catch up.

He uses the metaphor of the brand of Air Travel being “Horrible”.  No one set out for that but there it is.

He talks about how it’s almost impossible to for see all the problems that can come up with employees but that if you pour a shit load of money into making sure you’ve got the right people you save al lot of money in the end and reinforce a harmonious culture.

1.1.7 Owning the 3 C’s in the consumer’s mind


First, job is to make people aware they sell clothing and shoes.

Customer Service:

Next, they want them to feel safe buying stuff from them because they have nurturing customer service.  This comes not so much from telling them but from their first hand experience.


They actually want people to know about their company culture.  That’s the reason they do tours of their facilities, put video’s on their blog site, gives you glimpse behind the scenes.

1.1.8 Zappo’s is really just about delivering happiness (customers and employees).

“People may not remember exactly what you did or what you said, but they will always remember how you made them feel.”

1.1.9 What is Zappos Culture?

They narrowed their definition down to 10 Committable Core Values

1. Deliver WOW Through Service

2. Embrace and Drive Change

3. Create Fun and a Little Weirdness:

They embrace the idea that everyone’s a little weird in some way and encourage people’s personality to come out.

The question they ask to reveal this in an interviewee is “On a scale of 1-10 how weird are you?”

If you answer 1, you’re probably a little to straight laced for the Zappos culture where they have random things like parades going through the office and people dressing up in costumes because they can.

A 10 is little too psycho.

They’re mostly looking at how candidates re-act to that question.  This really throws the professional interviewee for a loop.  They can sniff out people who are trying to feel out the interviewer.

4. Be Adventurous, Creative, and Open-Minded

One of the interview question for this is “On a scale of 1-10 how lucky are you in life?”

1, is “I don’t know why but bad things always seem to happen to me and the opposite is “I don’t know why good things always seem to happen to me.”

They have a similar philosophy to Bob Parsons.  They don’t want to hire unlucky people because that brings a bad vibe into the culture.

Being lucky more a state of mind than a classification of person.   A person who feels lucky is open to opportunity and radiates joy.  People who feel like they always get screwed and brood bring the energy of the room down.

5. Pursue Growth and Learning

6. Build Open and Honest Relationships Through Communication

7. Build a Positive Team and Family Spirit

8. Do More With Less

9. Be Passionate and Determined

10. Be Humble

The interview question asked here gets people to fail the test more than any other. They’ve had pretty senior positions open for years that they couldn’t fill because people keep giving unsavory answers here.

When you hire one person who’s super capable but abrasive and annoying, that won’t tear the culture down but if you keep making exceptions, that will.  For them it’s purely a question of whether the guy is egotistical or is he humble.

His employees actually came up with this list.  They asked them to define their culture and what should it be.

When HR interviews people they have questions that reveal how much people match these values.

Lots of companies have something similar to this but they always sound like a press release or lofty/fake.  It’s something that after orientation no one pays attention to ever again.

They key word here is “Committable”.  Think for yourself what core values you want to have for your company.

Response he gets when he talks about this is “Yeah, I’m sure that works for Zappo’s but my business is different.”

He tells people not to adopt Zappos’s core values but to determine their own and let them drive their company.  Doesn’t matter what they are.  All that matters is that you have them and that they’re committable and making sure they align with your outcome as a company.

There’s a special effect that happens when everyone is on the same page.

And you’ve got to commit to them and hire and fire by them.

7 Steps For Getting To A Billion Dollars In Sales

Step 1: Decide if you’re out to build a $1 Billion Dollar company.

This requires more patience with revenues & profits in order to lay a proper foundation.

The path to do this varies from building a $100 million dollar company.

You can avoid a lot to the stuff he’s talking about if you’re only out to build a $10 million dollar company.

There’s no shortcut and no quick recipe.  You’ve got to be willing to sacrifice growth and revenue.  Part of that was expressed when they gave up 25% of their revenue to inventory product.

You want to decide this sooner, than later.

Step 2: Figure out your values and your culture.

Figure out your personal core values.  You can make these the same as the companies in the beginning.

Company’s core values:

Start early.

He started on this late and thinks they’d have gotten to a billion sooner had they gotten this wrangled.  Should be started before you start the company.  It doesn’t matter what the values are… ALIGNMENT is vital.

LIVE the brand

What do you want your personal rant to be?

Step 3:  Commit to Transparency – Be real, and you have nothing to fear.  Your culture is your brand.  Don’t try to be someone you’re not.

Their culture book is one way they’re transparent to the world.

They have a newsletter titled “Ask Anything” where people can ask about the company’s financials, ask about what brands they’re gonna carry, about pretty much anything.

They work with 1,500 brands and all of them actually have the log in password to their extranet and have access to the same info that their own merchandisers and buyers do.

They can view on hand inventory, profitability, mark downs, turn ins, and so on.

When a “Normal” business does interviews or reporters come, you’re ushered by HR or a PR Person and you only get to talk to three people or whatever.

At Zappos they give you a basic tour and then say, “You basically know where everything is, go find out what you want to know and come back and find us here in the office.”

They believe in their culture so they have nothing to hide.

Step 4: Vision:  “Whatever you’re thinking, think bigger.”  Does the vision have meaning?  Chase the vision, not the money.  Or as Puff Daddy would say, “Don’t chase the paper, chase the dream.”

They finally asked themselves a vital question, “What do we want to be when we grow up?”

They decided they wanted to be about the very best customer service.

The unexpected benefit that came was that employees’ became more engaged because they were working for something beyond profit.

It also flipped vendors who didn’t want to take them on because they were an internet account.

He get’s asked at marketing conferences “What’s a good market to go into?’  He feels like it’s the wrong approach.  He encourages people to figure out what they’re truly passionate about and go after that passion and figure out a vision that about more than making money.

Cited Craigslist as an example of a guy who didn’t set out to become rich and he did.

His challenge to you would be “What would you be passionate about doing for 10 years even if you never made a dime?”

If you have employees, “What’s the larger vision and greater purpose in their work beyond money or profit for you?”

People perform better if they believe there’s more to their work than making you rich.

His belief is that there’s a big difference between inspiration and motivation.

Motivation can get you to a certain point… Inspiration can accomplish so much more and what inspires is contributing to something larger than themselves.

Hard times will come and passion inside you and your employee’s is what will get you through it.

Step 5: Build Relationships (Not Networking)  Be interested instead of trying to be interesting.

He associates networking events as a bunch of people just horse trading, what can you do for me?

He finds that when you go to an event without an agenda and just seek to bond and become friends with people of interest to you, that this is when the magic happens, somewhere down the line an opportunity comes up where you can serve each other, that you couldn’t foresee happening at the time you met.

He embraces the idea of talking to strangers, not trying to get anything out of it.

Step 6: Build Your Team “If you want to go quickly, go alone.  If you want to go far, go together.”  African proverb  Hire slowly.  Fire Quickly

You can’t build this big of a company on your own.  You need to be able to build a team who intertwine with your values.

Hiring slower and firing quickly is one of the things Tony wishes he could go back and change about Zappos

Step 7: Think Long Term –  Repeat customers, customer service, no ‘get rich quick’ formula.  Overnight successes are years in the making both personally and in business)

If maximizing profit in 2009 was Tony’s outcome, the thing to do would be to fire the 400 people in his call center, don’t answer the phone, don’t answer emails and he bets that his customers for 2009 would not go down.  They’ll have a lot of unhappy customers but they’ll be a shit load more profit.

But they’re looking at long term to make sure the business is sustainable.

What is Your Goal In Life?

For a lot of people, it’s happiness.

What is the science behind happiness?

Research shows people are very bad at predicting what will give them sustained happiness.  “When I get _______, I’ll be happy.” or “When I achieve _______, I’ll be happy.”

Research has shown that the “Is this all there is?” factor arrives and we adapt and become desensitized to outcome they achieved.

There’s a science behind marketing.  You’re gonna spend all kinds of time studying this stuff.  What if you spent just 10% of your time studying and learning the science of happiness.  How much happier could you be?

Tony has found that happiness comes down to 4 things…

Perceived Control

In traditional call centers you work the year, and then you get a bump in pay.  At Zappos they lay out the option of acquiring 15-20 other skill sets as a rep that each come with a small bump in pay.

Basically they show them the path and say “It’s up to you how high you go.”

Perceived Progress

They don’t care if you come in with no skills.  They focus mostly on culture.  For the merchandisers they broke down the steps to becoming a buyer into 3-4 month stages over 3 years.  People feel they’re moving forward and can see a clear outcome.


They try to get their people with related values to reframe their view of what they do not as a job but as a calling.

Vision/Meaning for your life/Being a part of something bigger than yourself

3 levels of happiness

1. Rockstar happiness – You’re always chasing the next high.  Works but very hard to sustain.   Once the high goes away, happiness does also.

2. Flow.  This is where you get so engaged doing what you’re doing that time flies by.

3. Meaning.  Contributing to something larger than yourself.  Research has shown this is where happiness can be sustained the longest.

Recommended Reading:

by Chip Conley

Tribal Leadership by Dave Logan, John King, Halee Fischer-Wright

4 – Hour Workweek – Tim Ferriss

Happiness Hypothesis – Jonathan Haidt

There you go, the counter intuitive approach to getting more customers.  What do you think?  Does this approach make sense to you?  For me it does.

I remember years and years ago hearing Tony Robbins talk about how they axed the number of complaints they received, ultra significantly when they finally started figuring out who the wrong people for their service culture was.

If you want to go big, you’re gonna need lots of help.  And this means hiring employees.

Dan Kennedy is anti-employee and loses money because of it.  He knows it and built his business to suit his life style preferences.  What do you want?

If you want to do it huge or just optimize your company’s culture start by checking out Zappo’s training on this here… http://blogs.zappos.com/blogs/inside-zappos/2008/12/06/culture-class

Thank You So Much For Supporting Us Here.  Talk to you soon.  Happy Thanksgiving!

Note Taking Nerd #2 & The Chief