TIP095: BILLIONAIRE TONY HSIEH’S BOOK – DELIVERING HAPPINESS AT ZAPPOS

W/ PRESTON & STIG

16 June 2016

In this episode of The Investor’s Podcast, Preston and Stig talk about the most recent book they read, “Delivering Happiness.” This book was written by the billionaire, Tony Hsieh, and it is one of the best books that Preston and Stig read in 2016.

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IN THIS EPISODE, YOU’LL LEARN:

  • How to make your corporate culture your competitive advantage.
  • Why your organization should write a culture book.
  • How to make customer service your corporate vision and strategy.
  • How a CEO can fire his board of directors.
  • The 4 factors to sustainable happiness.
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SUMMARY OF DELIVERING HAPPINESS

Chapter 1: In Search of Profits

In this section, Hsieh takes us down memory lane to his childhood. He talks about how his life was mapped out, thanks to his Asian-American parents. Like every Asian child, Hsieh was also expected to learn Piano, but he had other plans. With a dream to run his own business, Hsieh experimented with several options including delivering newspapers. He was also interested in learning about computers and learnt PASCAL. At this point, Hsieh has also described his hilarious activities in the computer lab and it’s quite obvious that this child filled with curiosity was involved in quite a few mischievous activities.

Since Hsieh wasn’t able to cope with the classes and homework, he began choosing classes that didn’t affect his schedule. In a clever manner, he managed his classes so that he could have the rest of the day free on at least one day every week.

Hsieh also asserts that it always pays to think outside the box even in school. For instance, when the students were asked to write a sonnet – a poem that contains 14 lines – Hsieh submitted Morse codes that were just dots and dashes of 14 lines and still managed to get outstanding grades. Perhaps, it was this very quick-witted thinking that helped him pave the way for his future.

As days passed by, Hsieh began working as a computer programmer for GDI and earned $15 every hour – an amount that was considered a fortune for any student in high school. Later, he applied to UC Berkeley, MIT, Stanford, Harvard and many other prestigious universities and was accepted by all of them. He got into Harvard and although he didn’t attend too many classes, he ended up crowdsourcing to gather notes and also made some profit on the side!

Chapter 2: You Win Some, You Lose Some

In this section, Hsieh talks about his experiences out in the real world after finishing college. He was interviewed and began working in Oracle, but his work didn’t seem too exciting to him. In fact, it felt like easy money, especially since he was paid $40k for just running a few tests. Teamed with his friend Sanjay, Hsieh founded IMS (Internet Marketing Solutions) since a business associated with the World Wide Web seemed like a good idea at the time.

The concept of their business was to convince people to use a web site for free and after a while, they had landed their very first customer who actually paid them for their services. Since Hsieh was already spending too little time at Oracle, he decided that it was better to quit Oracle and continue his business where he could be in control of his own destiny. However, it didn’t work out as the two friends had expected and they began wondering if it was a good decision to quit their jobs.

Out of sheer boredom, they experimented with an idea named Internet Link Exchange (later changed to LinkExchange) and also programmed the web site. Anybody who had a website could sign up and display banner ads on their pages. The web sites would make money through the visitors viewing the ads and since everything was provided free for them, they opted for the service, thereby receiving a lot of advertisement in the meanwhile.

This business worked well for Hsieh and Sanjay and they were even offered to sell the company for $1 million! However, they turned down the offer and continued to expand their company. Eventually, they sold the company to Microsoft for $265 million. Astonishingly, Hsieh parted with a large sum of the money according to his agreement with Microsoft and walked away simply because he didn’t want to waste another day!

Chapter 3: Diversify

In this chapter, Hsieh talks about how he invested in Zappos. With a lot of money in hand, Hsieh began looking for companies that needed seed money to begin their businesses. It was at this time that he met Fred and Nick who had developed an idea of building a website that allowed customers to shop for shoes easily. Although Hsieh felt that customers wouldn’t buy shoes online, he realized that it was a great idea since the business picked up slowly. Since Nick and Fred were also passionate, Hsieh invested enough money in the company and the name was changed to Zappos. The business revolved around something called “drop shipping” and although it was prevalent in many industries, it was never tried in the shoe industry.

Within a short period of time, Hsieh and Alfred invested in 27 different companies that required investments. Although the businesses were doing well, Hsieh wasn’t comfortable with the fact that he wasn’t involved in the day-to-day activities of the businesses. Therefore, to combat boredom again, he discovered poker.

Hsieh not only enjoyed learning more about the mathematical calculations of the game, but he also implemented them in his own business strategies. For instance, selecting a good table was as important as the calculations to win. If you chose a table with 9 tired players with lots of money, you are more likely to win in that table when compared to another table with 9 experienced, focused players with little money. Similarly, he realized that the CEO of the company should always think twice about the business he wants to be in. Even if the business runs flawlessly, it’s going to head for trouble sooner or later if the market’s too small or if it’s the wrong market.

Chapter 4: Concentrate Your Position

Zappos was doing well, but thanks to the recession, 9/11, and the economy dwindling slowly, the company was sinking every day. Although they let go of many employees, they were still short of cash and even Hsieh’s personal money didn’t help them. Since they didn’t have too many choices, Hsieh began selling his properties, but they were still far away from turning Zappos into a profitable company. Instead of looking out for new customers, they focused on the present customers and thereby excelled in customer service, which would be a blessing in disguise for them later.

Hsieh was ready to do anything to save the company, so he decided that they would change their very business model to fit in. Zappos was involved only in drop-shipping, but buying the inventory from the brands would triple sales and Hsieh decided to liquidate his properties to arrange for the extra money. With luck on their side, they were also able to convince more brands and slowly built the business again. The sales were so good that they even surprised themselves and made $8.6 million (gross sales) in 2001. However, they ran into quite a few problems with Elogistics (a company they were associated with to ship orders) and Hsieh describes the phase as one of the most stressful times in his life. Hsieh asserts that it’s never a good idea to outsource a company’s core competency.

Chapter 5: Platform for Growth: Brand, Culture, Pipeline

Zappos was considerably growing bigger by the day and Hsieh wanted to excel at customer service, which led them to open their own call center in Las Vegas. It wasn’t the cheapest option and they could have certainly outsourced it to another agency, but they had learned their lesson while dealing with Elogistics and didn’t want to outsource their core competency to anybody else.

Surprisingly, many of the remaining employees moved with them to Las Vegas. Slowly, the company began to work as a team and the culture became more important than anything else. By focusing on customer service, employee training and culture, Zappos made a staggering $1 billion in 2008 – a sign that they had surpassed their own goals. These three key areas were important to Zappos and it continues to be the same even today. A company that had gone to the brink of shutting down was now progressing rapidly and they were in no mood to ever look back.

Hsieh also says that the company has focused more on the repeat customers rather than spending more money on advertising. Since the company makes the customers happy, they don’t have to rely to anything else other than word-of-mouth sales. In order to up their service, they offer two-way shipping to their customers and one can even try the products at home and return them for free. Although this route seems a little expensive, Hsieh believes that they have an edge over the other companies simply because of their principles and core values.

Chapter 6: Taking It to the Next Level

Once the Amazon acquisition was announced, Zappos garnered a lot of publicity even for small things. Hsieh states that they learnt an important lesson at that point of time when they realized that they could get publicity even if they didn’t intend to if they just stuck to what they were already doing. They continued with their excellent service and the media continued to highlight their activities, thereby creating interesting stories for the public too.

At this juncture, Hsieh also talks about how Zappos has managed to develop great relationships with reputed people all across the world. Hsieh was invited to speak in public and since he was uncomfortable with his regular written speech, he decided to just go with the flow. As on today, many employees from Zappos talk about their company without any PowerPoint presentations and they have succeeded more in their endeavors mainly because of their passion. Needless to say, many people have also congratulated them on their efforts to develop a company that focusses on everyone’s happiness, rather than just chasing money.

At this point, Hsieh realized that their mission truly helped other companies to improve their performance too. Zappos was slowly developing into something bigger, but the board of directors wasn’t interested in anything else other than the finances, and since they could fire Hsieh and hire another CEO, Hsieh and his colleagues decided that they would buy out the board.

Chapter 7: End Game

In this final section of the book, Hsieh asks the readers to contemplate about their goals in life. What would you want to achieve in this life? Once you’ve answered that question, the next question is to ask why. Why do you want what you want? At the end of the day, an individual wants to be happy and Hsieh believes that it’s the most important element in our lives.

Whether it’s a customer who’s happy because of a perfect pair of shoes, or another customer who’s jubilant because of a shipping upgrade, it also boils down to one thing – happiness. Hsieh also states that Zappos is all about delivering happiness to not only the customer, but to the world. He urges everyone to find out what can make them really happy.

The science of happiness is very interesting and something you think makes you happy might not be that interesting at all. The opposite is also true where you’re happier by doing something you never thought you would. Basically, we humans don’t really know what it takes to truly make us happy and many of us spend our entire lives chasing something that might not deliver the ultimate happiness we’re truly seeking. Hsieh says that it’s incredible to apply this even to your business because it will automatically make you happy and also make your customers happy too.

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TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh  0:38  

Hey, how’s everybody doing out there? This is Preston Pysh. I’m your host for The Investor’s Podcast. And as usual, I’m accompanied by my co-host Stig Brodersen out in Denmark. 

I think most people out there, Stig, probably think that we have stopped reading books because we haven’t done a book review in a very long time. I don’t know when the last time I sent an email out to the community for one of our summaries, but it’s been a long time. So we are very happy to be back in the saddle, reading books and reporting on what we learned from reading some of these influential books. 

This week, we have a phenomenal book, and you guys know that we will tell you if we don’t like them, but this one here was absolutely awesome. This one was by the billionaire Tony Hsieh, who was the founder of Zappos. I want to say his net worth is really close to a billion. It might even be maybe slightly under, but he wrote a book and the name of the book is “Delivering Happiness: A Path to Profits, Passion and Purpose.” I can say this is probably one of the top books that I read in 2016. 

Stig is nodding his head. Do you agree, Stig?

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Stig Brodersen  1:43  

Yeah. 100% and you know, sometimes, Preston, you feel like you’re sitting with a problem one way or the other and just read the right book. I think that was the case with for us when it came to “Delivering Happiness.”

Preston Pysh  1:56  

Yeah, absolutely. So we’ll get into what this book is all about. But to quickly summarize what this book is, this is all about creating a culture within a business that really kind of represents your mission and your purpose. He could not have written a better book. If you haven’t read this and you’re in any type of management or leadership position within a business, you have to go out and read this book. This is like a mandatory read, as far as I’m concerned. 

So without further ado, what we’re going to do is we’re just gonna hop through some of the chapters here and talk to you about what it’s all about. So the book starts off and the thing that you’re really going to like about Tony’s book is you’re going to like the writing style. It’s very easy to understand. He’s a storyteller so it keeps your interest. You know, the books that we really struggle with, the one that kind of comes to mind for me that have a writing style I don’t really particularly care for is Peter Drucker’s “The Effective Executive.” That was just more like this is what you need to do. It’s not in this like story kind of like learning way.Tony Hsieh writes in in this manner that’s like a story it keeps your interest. it’s really fun. It’s light reading. 

Okay, so the book starts off with Tony Hsieh kind of talking about himself through childhood and his upbringing. So from a very early age, he was motivated to make a profit. He was motivated to make money and he doesn’t really get into why he necessarily was motivated to make money. But I think maybe it was he just wanted to maybe prove himself and maybe just kind of get attention, maybe it’s what it was. 

He also did some interesting stuff with programming. So when he became a high school student, he was doing computer programming. He was making $15 an hour and he obviously was very smart. He was obviously very different in the way that he thought and he got accepted to Harvard. So very interesting story. 

So then he goes to Harvard University, and he talks about how he didn’t even go to any classes. The reason I’m telling you this story is just to tell you how like unique  Tony is the way he that he thinks. So he’s going to some class and it had to do… Was it like study of like the Bible or something? I can’t remember what the class was. Was that right, Stig?

Stig Brodersen  4:13  

Yeah. Was it like, where the story where he was talking about the virtual study group?

Preston Pysh  4:18  

Yes. So he goes to Harvard and he’s taking this class. I think it was something about like, he had to take a whole course on the Bible or something like that. He just had no interest in this class at all.  So he maybe attended two classes for the entire semester, and like, literally skipped every other class, but there was no test. There was just  final exam that he had to take. So the teacher comes up with, like, 50 different questions that could be asked on the test, and the question that was actually administered during the test would be one of those 50 questions. 

So Tony’s starting to go through this and it’s like two days or three days before the actual test occurs, and he’s going through. He’s like, “Well, if I can just answer these 50 questions, and I can go in there and do this.” He starts going through and see that each one of these questions involves like a serious understanding of the material in order to answer it. So what Tony does is he develops a virtual study group that harnesses the minds of everyone in the class across the entire school to participate. 

The way you set it up was if you participate in you answer one of these questions, I will consolidate all of these different questions across all the different students, and I’ll come up with a study guide that basically answers all 50 questions, and then I’ll distributed back to the people that provided one of the responses. So what he did is he developed this 50 page study guide or not 50 page, but 50 answers study guide to all these students. He never showed up for one of the classes and he goes in and he just totally rocks this exam because he created this study guide that allowed him to basically answer the question. 

So this kind of tells you about who Tony is and the way he thinks. He’s not a person that really just marches to the beat of the drum and files in the formation and follows everybody else. This dude is somebody who is always asking, “Well, why do I have to do that?” Kind of like the founders at Google, when we read the book on Google. It was like, “Well, why do I gotta do that? That doesn’t make any sense. I don’t want to do that. That doesn’t sound like fun.” So this is his personality and this really kind of comes out in the first chapter.

Stig Brodersen  6:31  

Yeah and as we continue through the first section… By the way, there are three sections in this book. The first one is called Profits. The second one’s called Profits and Passion. The third section is called Profits, Passion and Purpose. That’s just how we will go through this book. 

But the very first section about profits, in continuation to what Preston said when he left Howard, Tony got a job at Oracle. In a way it was actually a good job. He was getting paid 40K a month and it was a job that suited his profile somewhat well. It wasn’t a hard job. He said that he was actually running tests on computers. He would simply go in and like nine o’clock in the morning, he would run a test, it would take like five to seven minutes to set up. Then the test would be like three hours.  Basically, within those three hours, he would well eventually he would go home and take a nap. But he would actually just be you know, emailing friends, early lunch, hanging out. Then after those three hours, he would start a new test again, five to seven minutes, and another three hours. 

So he said that the first month he was doing that he felt like he had the best job in the world because he was leaving like at, I don’t know, four o’clock or something after doing more or less nothing. And if you are sitting out there and thinking, “Wow, that sounds like the best job in the world.” You know, I can see why but I think you’ll probably realize at least that was what *Tony did. It’s boring, right? It’s not challenging and it’s not fun at all. 

So that’s actually why he eventually started his own company, and together with his roommate. He was actually the same roommate that he had in college. His name is Sanjay. He started a company called Link Exchange. It was like an early internet advertising company. I think, correct me if I’m wrong, Preston, but it was within like six months or four months, something like that, they actually got an offer. It was like a million dollars. Like it was a lot of money, right?

Preston Pysh  8:30  

Yeah, they got an offer for a million bucks and they’d only been doing it for a little bit. Sorry to interrupt, Stig. But just to kind of give people some context on what this Link Exchange was, it is early on in the internet, this is Google AdSense now is what this is really kind of morphed into. But Tony Hsieh was one of the original programmers on these banner advertisements that would pop up on your website. 

So if you owned a website, he would give you this snippet of code and then it would run advertisements on your website and it would cost you nothing. You just get a commission of every click or any sale that that banner lead to. So he was one of the lead programmers on this way back in the day. That’s what Stig is referring to here where he had somebody offer him a million bucks within the first six months.

Stig Brodersen  9:10  

Yeah and then what is even more impressive wasafter a year, Yahoo actually came to him and said that he was willing to offer him and Sanjay $20 million. Eventually, he declined. But I think his thought process about this was really interesting, because he was asking himself, “If I could make 20 million, well…” He will probably get $10, but never mind. If you could get $10 million, what would he do? And he said, “Well, I will probably buy a condo,” because right now he was sharing an apartment. He also said that he might want to buy a big screen TV. He said that he might want to travel and he said that he might want to start up a new company. 

But then he was thinking well, I can actually afford a big screen TV. But I don’t want to watch TV. I can’t actually afford traveling but I don’t have time for traveling because it’s so much fun with my company. It’s so much fun with my company that I actually don’t need a condo because I’m never home anyway. So he was basically saying, “Why would I sell a company that I’m really excited about to fund a new company that he might be excited about?” And so that was actually his train of thought and he actually he ended up declining a very generous offer of $20 million after just one year.

Preston Pysh  10:26  

So I like how you frame this, Stig, because what you’re really getting into with Tony, that I didn’t necessarily recognize until we kind of had this discussion, was just how in depth his thinking is. So a lot of people do this, what they call first order thinking, where they say, “I want a large screen TV and I want an apartment and I want this.” And so then they do it, but they don’t think about really the second, third, and fourth order impact of after that decision is made and what comes after that. What’s the follow-on piece of that.

Really, that is where Tony is really apart from a lot of other people that you just kind of read about and maybe the way that they talk is, and he describes it so well in his book where he talks through that *inaudible… “Now, I buy the big screen TV. Well, I’m not home, because the thing I really want to do is build my company. So that means that that’s probably just a poor decision.” 

He really kind of goes through and thinks through these future events that would occur if that decisions made, then what happens, then what happens, then what happens and it’s amazing to hear him. We’ll get into it more where he’s talking about happiness, and asking yourself why so many times where he just continues to think through things that just such a different level than most people.

Stig Brodersen  11:39  

Yeah and eventually, he actually ends up selling this company to Microsoft. You might be thinking, so why is he doing that if he’s really excited about this company, but he it actually turns out that he eventually he’s not excited about it. He had this story where he keeps putting his clock on snooze, and he said that he did that like six or eight times. He was thinking back and said, “Why can’t I get up in the morning and when was the last time I was hitting the snooze buttons six times?” It was back at Oracle. 

And again, he was asking himself, this shouldn’t be right. I created my own company. It should be a lot of fun. But he realized that it was not fun anymore. He said that the first, call it25 people he hired, there was a lot of fun. They were friends that have the same vision. And then because they were growing so fast, it attracted a lot of people that were not interested in the vision of the company. They  just wanted to make a quick buck. and they were very interested in, you know, stock options. So they’re not interested in where’s this going. 

So he actually ends up selling this to Microsoft for $265 million. Then actually, I was told a new term, it’s called VIP, and it’s not like very important person. Apparently, it’s a term that you use out there in Silicon Valley, and it means “vest in peace.” Basically, what that means is that if you’re a founder or something, you should be sticking around if there is anything going wrong, and you will get paid a handsome sum for that. 

So Microsoft actually offered him $40 million if you would stay with them for 12 months. And if he didn’t do it, he would actually lose eight of those million. He was like, “It doesn’t matter if I had $32 or $40 million. So why should I spend a year of my life doing something I don’t like?” I think well, it was really insightful and he said that the feeling you had when they sold the company, it was basically relief. It was not like, big accomplishment, or the best thing that ever happened. He was just relieved about the situation.

Preston Pysh  13:32  

Yeah, I liked how you describe that though because when he was talking about when he was working at Oracle. He was like, “Oh, my God, this is like torture for me to go in and I’m making good money, but I’m doing nothing and I’m not enjoying it.” And he talks about the progression where he was working at Link Exchange, and how he loved it at first and then when he was offered a million dollars, he was still having a blast. Then, by the time he got to the point where the company was this huge market value, he wasn’t having fun anymore. He was burn out. 

He was making his decision off of that, as opposed to really any type of monetary decision. Like, if he’s enjoying and he’s having fun. He has no choice but to be successful and growing up, but he knows whenever that’s expended, and he’s not enjoying it anymore, that it’s kind of at its end of the road. So he’s making his decisions off of that, which really kind of goes to the title of the book “Delivering Happiness.”

Stig Brodersen  14:26  

Yeah and then in the second section, we talked about what Tony’s actually doing with all that money because Tony, he’s actually thinking what really that drives me and you probably wouldn’t be surprised. He’s talking about entrepreneurship, starting great projects, and one of those great projects is Zappos. I gotta be honest. I wasn’t too familiar with Zappos before reading the book. 

Did you know the company, Preston? 

Preston Pysh  14:51  

I had heard of Zappos before, but I had no idea what it sold, what it did or anything like that. Butafter reading the book now, I know it’s started off as a shoe company where they were selling shoes online. And it’s kind of turned into like a major retailer, almost like Amazon.

Stig Brodersen  15:06  

Yeah and I think like if you go into this site, well, we actually go to this later. It actually bought up by Amazon later in the story. But you can think of it as sort of like Amazon and this just started out with shoes, just as Amazon started up with books. 

I think section two is probably the best section, that book because it’s about strategy. It’s about culture and it’s about values. I thoroughly enjoyed section two of this book. 

The main thing I wanted to talk about is really customer service as a vision and strategy. The first time I read this in the book, that Zappos’ strategy is customer service. I was thinking, I read this multiple times before, but I think the way that they’re very actionable about customer service is something that I really admire. 

So first of all, Tony is saying, “Well, we actually have some data and it shows that a customer in the lifetime cycle, being a customer with us, they actually call our customer service once. So why should we look at this as a cost, as a lot of other companies are doing? Why not look at this as marketing? Why not use it as a great place to create connections? Why hide it, why not put it on every single page on Zappos? It’s the best marketing.”

I really love this. So to begin with, every new entry at Zappos, they are starting the first few weeks in the call center. They’re actually speaking to the customers, because he’s saying that everyone in the company should be about customer service that don’t miss your call time. I don’t know if you ever, you know, felt like you’re speaking to customer service and like you felt they couldn’t hang up on you like soon enough. I definitely experienced that more than once and that was basically what he was saying. He said, “We don’t use any scripts. We don’t measure call times, and we don’t upsell.” 

I think that’s definitely something that was surprising for me to read. I don’t know, Preston, what was supposed to take about this whole vision about customer service being the main theme within the company? 

Preston Pysh  17:08  

So I thought this was like, it takes something that’s just so counterintuitive, and flips it on its head. So like, as a company that would be selling shoes online, you would think that having… I know if I was a CEO, I’d be looking at, “Okay, well, we’ve got to be able to handle people that want to do returns and everything else, and this is a huge expense. This is something that you just like look at, and you just roll your eyes, becauseit’s just gonna suck the blood out of your company.”

And Tony took that customer service piece of working with these people that are not happy with maybe the product that they purchased, and literally just totally flipped it on its head and said, “This is the centerpiece of our entire company. This is where we’re gonna make our long term value and competitive advantage.”

So like Stig said, he said, “We’re gonna make this our marketing so when people call here, we’re just going to wow them to the point where they can’t even believe the customer service that they’re getting. And it’s so good that they don’t want to shop anywhere else.”

So let me tell you about my personal experience called Zappos. So I read this book, and I was just this is amazing, this is something you read about, but it would probably really fail on application. But so I call them up because I wanted to have Tony on the show for this interview. I want to interview him about this. Well, Tony decided no, but let me tell you about the process of calling them.

So I was like, I could send them an email. But I just want to call their call center and just hear what this is all about. So I call them up and I forget the name of the guy that answered the phone, but he answers the phone, “Hey, welcome to Zappos where we’re delivering and all this other stuff.” And I say, “Hey, man, how’s it going?” He says, “I’m doing great. How about yourself?” And I was like, “Well, you know, I have a podcast and we study all these different billionaires, and we’re interested in having Tony come on the show.” And the guy’s like, “Oh, man, that’s awesome. That sounds great.” And I said, “Well, can you give me you know, his contact information or whatever.” He’s like, “Yeah, no problem at all. He’s like, here’s his email address. Shoot him an email and just let him know. And maybe you’ll do it. He’s a pretty busy guy. So you might not be able to do it. But you know, he’ll get back to you, somebody will get back to you.” And I said, “Okay, and then he says, is there anything else I can do for you? Is there anything that you need help with? Or, you know, anything I can do at all?” And I said, “No, you answered my question that was amazing.” 

This guy was so nice and just so energetic, so excited to be on the phone with me. It was the exact opposite of any experience I’ve ever had on any type of customer service call ever. So like that was my one experience. Maybe I got the best guy in the company. Maybe I got the worst guy in the company and everyone’s even better than him. I don’t know. But for the one time that I called there, I was blown away to be quite honest with you. It was phenomenal. So like this is real. 

And I’ll tell you what, call them. If you want to buy a new pair of Nikes, or whatever that maybe you’re out there and you just want to try this out and call their company. Just cold call. Their number is right at the top of their website, call them up. And just, even if you’re not buying anything, just call them and get a taste of this because it’s crazy. It’s amazing. It’s like the coolest thing ever. So that was my experience with Zappos.

Stig Brodersen  20:28  

I’m so happy that you told this story, Preston, because Tony was actually telling a crowdfund story, where he wants to test whether or not his vision for the companies can really, as you’re saying, be used in practice. And he’s saying that you were sitting at a hotel, I can’t remember where. And he was calling the call center and said, “Could you help me figure out where I can buy a really good pizza?” And apparently this person, he was like, yeah, and it was, you know, Hhs head was spinning, like, “What am I going to do here?” And then hopefully, he was thinking about the values and that really being there for the customer. So he was sitting there making a Google search where Tony was saying, “Yeah, you know if you stay in this hotel, this pizzeria has delivery here and then you need to do this before 11 o’clock or this one before 12 o’clock.” And it was a hilarious story and I’m so happy that you had a chance to test that. They were actually as friendly as Tony is saying they are.

Preston Pysh  21:26  

Yeah, it totally was. So the person that Tony was with and the story that Stig’s tell and he’s “our customer service is so good.” You could call them and literally order a pizza. It has nothing to do with buying shoes, they’ll find you a pizza place close to wherever you live in whatever city you’re in. Like that’s how dedicated they are to help you out, even it has nothing to do with necessarily the product that they’re trying to sell. My experience with calling in was was pretty much that is true. 

So this is amazing, like this is crazy. So then he talks about a person who doesn’t order and they pay for three-day shipping. Well, as Tony was able to get the product to them a day earlier, in one day shipping, they will do that. So like their goal is to set whatever bar you think that you’re going to get in customer service from dealing with them. And if they can beat it or exceed that, they’re gonna do it every single time. 

So his opinion is, that’s how they create brand loyalty. That’s how they create this Amazon effect, if you will, of people continuing to go back to their site, because they had such a positive experience either through calling customer service returns or whatever. That’s what he feels his competitive advantages with this business. 

So this is my final point on this is going back to just thinking in a unique direction is what I really kind of took away from this… is my initial inclination is if I was in his shoes is that customer service is like the thing that’s just gonna be your annoying thing that you have to deal with as the owner of the company. And Tony totally flipped it on its head, he thinks differently. When the crowd is thinking in one direction, Tony’s thinking in the exact opposite direction. He’s saying, “Okay, this looks like a weakness. So how can we turn this weakness into the most important element of our business?” So that’s what this is talking about. 

Charlie Munger, we talk about Charlie all the time. He says, “Invert, invert, invert, figure out a way to take whatever you think your weaknesses and flip it into your greatest strength.”

Stig Brodersen  23:39  

So one of the takeaways that I really took from this section was the idea about a cultural book. And what is a culture book? Well, it’s basically an unedited book of everyone’s thoughts on what the culture is at Zappos. So if you’re saying, “Well, I could tell my employees what our core values are. I could tell this is the culture.”

But culture is people. So he actually did something that I think would take a lot of course, he was sending out an email to everyone in the station and told them to send back an email what they thought the culture was. And you could send this as being anonymous, and it will still be in the book, or you could put your name on it. It would go in unedited. And that is what he did. 

Most people said something nice. Some people said something that was less nice, but he’s still published everything. And I think that is so courageous to do and a thing that just shows how much you respect your employees’ opinion. I think you can only do this if you have a really, really strong culture. Then he’s basically saying something that really sort of stuck with me and it was something I actually spoke with Preston about before this podcast episode because we are building our own organization right now. And Tony is saying, “When you get the culture, right, do you actually figure out the rest?” 

And I think that was so insightful. I never thought about it like that. You know, whenever I was in grad school, I was learning about values and I was thinking, it’s just some corporate buzzwords. But I think that was so insightful, especially after trying to work in various organizations really maneuver within the different cultures. I think he’s so right about that one.

Preston Pysh  25:21  

So I had the same opinion when I was younger, and you’d read about this, culture, and you’re like, “Oh, my God, let’s have a class about culture,” and you just kind of roll your eyes. But now I look at it and I see how insanely important it is. 

Here’s one of the main reasons why is when you look at a company that’s growing, and a lot of the times some of these companies, they can’t hire people fast enough, because there’s such a demand for their product or service, and so they’re desperate for filling a seat. So then they just interview three people and they have to make a selection because they got to fill the seat. I’ll tell you, that point in a company’s life cycle where it’s growing like a weed, and they’re filling seats because they have to in order to meet the demand, that is where I think a lot of companies make the big mistake. 

And the big mistake is this. They’re filling their seats because they feel like they’ve got to fill the seats. But what they’re really doing is sometimes they’re making a bad selection of people that don’t fit the culture, that don’t necessarily have the skill set that’s really required to do the job. And they’re in such a rush to meet a certain timeline and to grow so fast that they’re actually filling the ranks of their organization with people that really aren’t the best people for the job. There are people that just bring a bad culture with them. 

And you know who that person hires whenever it grows even more? They hire more people just like them. So, I guess this is what I tell you, especially if you’re in a company that’s growing like this, is leave the seat vacant. Just wait. You gotta wait till you get the right person for the job and more importantly, the person that has values that are similar to yours, because when you don’t get that person, you’re literally almost like putting a cancer inside of your organization. And as that organizations continues to grow, that cancer is going to grow, and it’s going to hire more, more people like themselves.  

Obviously like, I think most people are very good and most people out there are the right person for the job. But I think when companies get in a growth scenario they open themselves up to this potential,and so always be mindful of that. 

In Tony’s book, he talks about their hiring process. I love this, I absolutely love the way that they go through their hiring process. So they they look at, it’s really important to them, whether the person has the credentials to do the job. Do you have a finance degree, if you’re going to be working and you know, HR and working money and all that kind of stuff. That’s important.

But the thing that was more important to them in the hiring process wasn’t necessarily whether you have the the background and the education in the area that you’re about to be hired. It was more important to them was the values of who you are, and whether it’s a fit for the culture that they’ve been cultivated, and what they truly value is their most important asset of the company. 

So this is how they interview people. When you come in, and you’re waiting to come into the room to be interviewed. What they’re really paying close attention to is how you interact with the administrative assistant, how you interacted with other people when you walked in the door. Then when you come in, they’re looking at how you answer some of the questions and they have certain questions that they’re asking to get a feel for your values as a person. But then what they do, they say, well, let’s go out to lunch. Let’s have lunch together. So then they take the person out to lunch and you know what they’re really paying attention to. They’re paying attention to how you interact with the waiter. They’re paying attention to how you interact with other people in the social setting. Ae you a person that’s actually nice? Or do you treat the waiter who’s coming over in bringing you food like a jerk? That was what they were really paying attention to. They’re paying attention to those little things that really talk about who you are as a person and how you treat other people. And that was really the interview.  

I’ll tell you, I freaking love this because I think it really gets to how do you feel people within your organization with ones that are like yourself, and ones that are going to treat customers and treat vendors and treat anybody that they interact with with mutual respect, and not like they’re more important than somebody else. And so what they find is, a lot of the times when they’re trying to fill executive spots in their company, when they’re trying to hire somebody that’s a very high paid salary position, when they have people that come from other companies and try to fill that void, they’re almost always a bad fit for their company. 

So what they do is they hire an enormous amount of people from lower ranks within their organization because they want that person that represents their values and their culture, and that have worked there for five years and understand it and get it. And so. they have a lot of self promotion within the company to higher ranks, instead of out hiring people into executive positions, which I totally get. I think it makes total sense. I think that when you look at maybe the value of Zappos, it is truly this culture. It’s their customer service, yes, that’s the thing that they really sell on their banner of their site. But I think even deeper than that, I think it’s the culture that Tony has created, and the people that he has placed inside of that company to grow and cultivate the people below them. It is a very harmonious machine that has fantastic results and has happy people working there.

Stig Brodersen  30:55  

Yeah, I think their competitive advantage is really the culture and not the people. And it might be confusing when I say that, because I just said that culture is people, right? But what he’s actually saying is that a lot of corporations actually say that the people are the most important asset. 

Now,  it’s just a problem with this statement because what happens if someone leaves the organization? That means that you are losing an asset. And what is happening when the business is growing? Well, it might outgrow an employee and his skills will be obsolete. So what he’s talking about is that the pipeline that they’re having the culture is really the competitive advantage. And this is really comes back to what Preston talked about, they will hire a lot of people at the entry level, they’re actually offering them $2,000 to quit within the first four weeks just to ensure that they really want to be there. But then he’s saying, “We will just keep on training our employees up to management and they can actually get there in five to seven years. That way we ensure we always have the right culture. FWe can always teach them the competences, but the culture should always be there at the very beginning. That’s the very foundation of your organization.” And I love that point.

Preston Pysh  32:04  

Yeah, I totally agree. This book, I’m telling you, folks, you need to read this book because, you know, Stig and I are hitting on some of the points, but we’re capturing 5%, maybe not even that of the total learning that can take place in this book. And just so you know, we’re gonna send out our executive summary on this, we have, what is it five pages here, five page executive summary of what we captured from this book. We’ll send that out to everybody on our email list. So if you’re not on our email list, sign up, we don’t send out any marketing, any spam or anything like that. We just send out our book summaries and market information that we think is important to you. If it’s not of value to you, we’re not emailing it to you. So sign up on our email list. 

Okay, so let’s go to the last section of the book here, Stig.

Stig Brodersen  32:45  

I think the main point from the last section, and the last section is called Profits, Passion and Purpose. And I think there’s a lot of target about the whole process of Zappos being sold to Amazon and the reasons why this actually happened was he felt he was under a lot of pressure from the board of directors, and a lot of the shareholders, they were owned by fund and they wanted to sell at a higher profit and they weren’t so interested in anything else than profits. 

hH’s saying, you know, that’s that’s perfectly fine, het shareholders, they want to have a profitable business, and why should they care about the culture? Why should they care about… Tony actually going down and having a lot of talks about how you can change the culture in your business. 

So he actually saying that his mission is actually to change the corporate culture, not only for Zappos, but also for other companies. He got a lot of resistance from the Board of Directors saying why should be paying you for that, which he completely understands. So he was actually looking to be bought off by a company that shares the same values, and apparently, one day Jeff Bezos calls him and he wanted to buy Zappos in cash. 

Now, Tony said he doesn’t want that, because that felt like he was just selling his company. He felt like, yes, he wanted to be bought by Amazon because that way he can also maintain the control. But he actually said that they should trade shares, it should feel like a joint account.

Preston Pysh  34:17  

So I like this because it really comes down to this. How do you fire, if you’re the CEO of a company, and you hate your board of directors? How do you fire them? How do you get rid of them? And this is how Tony Hsieh did it. He basically did this deal with with Jeff Bezos and basically was able and he got a position where he’s able to get rid of the board and get them away from him so they can stop talking about profit margins, and he can just do his thing and run his company and have fun. Make some make money, obviously be profitable, but do it in a manner that he wanted to do it the way he wanted to do it. He didn’t want to have to listen to an answer to some board of directors and you know, have that constantly saying he needs to increase his margins. 

So I want to talk about this idea because this is something that I that I caught a glimpse of when we were at the Berkshire Hathaway Shareholders Meeting with Warren Buffett. I really think this is his sales pitch. How does he bagged these elephant companies? I’m sorry to transition the Warren Buffet, but the parallel here is too strong. So how does he bag elephant companies? 

You know how I think he’s doing it?  I think this is his play. This is his sales pitch, if you will. He goes to CEO whoever who has a very large and influential positions. Some CEOs have a lot more power than others. Okay, so he goes to these CEOs that have a lot of power in these kind of companies. And he goes in and he basically says, “Listen, are you tired of dealing with your board? Are they driving you nuts as far as margins and just  trying to take the company in a direction that will ultimately destroy the brand or your competitive advantage over time? If so, let me be your top cover. Let me come in and buy you. And I will not bother you at all. I’ll send you an email, once a quarter just to check up and see where things are at. But I will leave you alone and let you run your run your company.”

I think that’s his sales pitch. I think that’s how he’s able to start these negotiations, basically fire these boards and get all these competing interests out of these CEOs’ hairs. And it’s just a really interesting conversation now, whether you agree with that or not, that’s totally up to you. But that’s kind of maybe the way I’m seeing the way Buffett’s operating. 

We saw the same thing play out with Tony Hsieh and Jeff Bezos, which tells me Jeff Bezos might be kind of in this line of business of doing that kind of stuff as well. But it’s really interesting to see this happen, because it’s such an obscure idea, like how do you fire a board of directors? Well, this is how these guys are maybe going about it at times. 

The last thing that we want to talk about was the happiness portion of this. So this was really at the very end of the book. Tony gets into this discussion of what is it that we’re ultimately after? So going back to his example that Stig was talking about. So he’s like, well, I want to buy a large screen TV, I want to buy an apartment. So Tony says, “If you ask yourself ‘why?’ enough times, you ultimately get to the crux of the issue here. Well, why do you want a big screen TV? Well, because then I can watch the NFL games more, and I’ll enjoy that. Why do you want to watch the NFL? Well, because I have fun and I have friends over. Well, why do you have friends over? And why do you want to do that? Well, it ultimately comes down to because I want to be happy.”

So he says that if you ask why enough times of like, whatever that is, you want a fancy car, you want to have a million dollar business, you want to have whatever you name it. Ultimately, it comes down to you want to be happy. 

So Tony gets into this discussion. He’s like, well, what is happiness? What gives a person happiness, and what is the probably the most vital way to achieve happiness? What he discovers and he talks about some like statistical proof where he goes into some of these studies that were done with people where a person won the lottery. And he said, “The people that won the lottery, like a couple million dollars or whatever… At first, they say that their happiness was elevated from where it was before they had won the lottery, it was a lot higher, then they take the survey again six months later, and happiness, that they would say on a scale from 1 to 10, is a little bit lower. And then by a year later, after they had won the lottery, they say that their happiness is pretty much exactly back to where it was before they had won the lottery.”

So what Tony’s getting at, and he basically describes this in the book as material objects and things will bring you short term happiness. Then he talks about, well, what would be something that would give you enduring and long term term happiness? And so the thing that he arrives at is that when you give to other people, and you help other people achieve things that they want to have, or they want to do, that has the ability to bring you not to short term happiness, but enduring happiness. 

So the thing that that he that he really gets at is, that’s something that you can do right now and that’s something you can do today. Whereas the other stuff that brings you short term happiness is something that you have to work extraordinarily hard for sometimes in order to achieve. 

So he really gets to the heart of what it’s all about, and that’s helping other people out, as well as helping yourself out. It has to be a mutual win-win kind of thing. But this discussion that he has, at the end of the book is something that, I mean, you have to almost reread and reread again, to really kind of capture everything that he’s saying here because it’s so profound and so insightful. I mean, this is just one aspect of this book. I’m telling you this book is probably one of the best books we’ve read in a long time.

Stig Brodersen  40:04  

Tony specifically talks about four factors, and this relates to what Preston said at the very end of the book at what can really give you sustainable happiness. He’s saying, “Well, the first one is perceived control. Do you need to feel like you have perceived control over your life?” The way that he effectuates that within Zappos is in terms of pay. So he’s saying, I want to make it extremely transparent what people are making, and he’s saying for for instance, the first entry level, there are 20 skill sets you can acquire. If you have this skill set, like a small course, you would perhaps you know, get 60 cents more or a buck 50 or whatever it is. You will continuously experience small bumps in your pay. So they are actually in control of what they’re getting. 

Next thing that is perceived progress, and he’s saying that originally had a program that after 18 months, you would go from assistant buyer to buyer. And he said that they actually realized that by giving him three promotions instead. And you will end up after 18 months with exactly the same pay and title, people were happy about that. They could see they could easily see the progress because it was only in six months and not to the full 18 month. So that’s how he effectuated that. 

Then the third thing was *indebtedness. And when Tony talks about that, he’s saying you need long, deep relationships with your friends and hopefully, you can find good friends within the company. So he’s actually placing a lot of emphasis on how do we develop *deep relationships within the company, because that’s something that will give you sustainable happiness and make you stay in the company, and contribute to the company from there on. 

And then the last thing that’s vision. Vision, meaning you should feel that you’re part of something bigger and I think that’s really comes to the very core of every good corporation. If you really feel you are a part of something bigger than yourself, that’s really where you see a lot of good things happen. That’s really where to see enduring happiness. Think about spending eight hours a day on doing something that you don’t see the meaning of aside from collecting a paycheck, that’s going to be some long and hard days. 

Preston Pysh  42:14  

So something that Stig and I really took away from this book was the idea of culture, creating a community of people that have similar values to yourself, and just really cultivating that. So with that said, one of the things that we are standing up is TIP MasterMind. Now what this is, is we want to have local chapters around the world. It doesn’t matter where you’re at. But we’re looking for people that are of a similar value oriented mindset as Stig and myself and you’ve listened to you know, if you listen to the show a few times, you kind of know how we see the world. We want to attract people that are like that and have those similar values into kind of this global network of our community of MasterMind. 

So, we’ve had a couple people that have reached out to us in the last couple months saying, “Hey, I would like to stand up a local chapter or MasterMind Group, you know, I live in London, I want to have my local TIP, Investor’s Podcast meeting where I meet with people here in London that also listen to the show and that would be interested in sitting down and discussing, investing ideas and just all this kind of stuff. But we would like to meet you know, once a month or whatever the chapter would decide how regularly they would want to meet.”

And so Stig and I kind of looked at this and we’re like, you know, I think this is a point in time where we really need to cultivate this and this is something that we are very interested in standing up. And so we have a very close friend who is very smart, and his name is Andrew and Andrew is going to be the main guy for TIP,that is going to basically organize this and really lead this effort. 

So what we’re looking for if you’re a listener of the show, let’s say you live in Houston or you live in LA or you live anywhere, it doesn’t matter where you live and you’re interested in standing up a local chapter and connecting with people that listen to the show that would like to meet in person you know, once a month or whatever to talk about ideas to network to do whatever, send us an email. Okay, so send an email to Andrew, he will jot down your name and then he will work with you about setting up your own local TIP chapter and so Andrew’s email address, and he’s gonna hate me for for putting this on the air, but Andrew’s email address is andrew@theinvestorspodcast.com. So send him a message, say “Hey, my name is you know, whatever. And I’m interested in standing up a local chapter of TIP in you know, whatever city.” He will get back to you. 

We’re gonna run a beta test of this in probably two or three different cities to start. So we might not get this thing rolling for a couple more months, but we will definitely annotate your name. And if you’re wanting to be a manager or a leader within your local city, first come first serve really, we’re going to be looking at your background and seeing if you’re a good fit, obviously. But please email Andrew because this is something that we are very passionate about. This is something that we’re really excited to organize long term. We see this as something that we will potentially be able to capture through digital media and then organize onto our site for people to watch and view who maybe live outside of a major city or a hub where these meetings are taking place. We see this as a global MasterMind opportunity that is something that we are going to network together and we will discuss this and have more information about this on. 

But if you go to tipmastermind.com, that’s where you’re going to be able to find this information. That address will take you to a link on our site. And, you know, if you want more information, just email, Andrew. 

So that’s something we’re really excited about and a lot of that came from this book. And man, I think that this has huge potential for us to connect with value oriented people. So that’s something exciting we have on the horizon. So we want to talk about that. That’s all we have for this book. So we’ll see you guys next week. 

So one of the things that Stig and I are very strict about is not endorsing any kind of service or product that we don’t personally use ourselves. So with that said, we give our full endorsement of our sponsors’ content realvisionTV.com. Real Vision is a site that Stig and I personally use ourselves and it has had a profound impact on the way that we view the financial markets. 

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Hey, so at this point in the show, what I want to do is I want to introduce two of my really good friends who are out there and they’re actually starting their own podcast. I want to help them promote their podcast. So I want to introduce them to our audience. So they know who you guys are and the name of their podcast is The Leadership Podcast. And as you guess they’re probably going to be talking about leadership. So we’ve got Jim and Jan, and I want to turn the mic over to them so that they can briefly introduce themselves and kind of give you a little glimpse of what they’re trying to do with their show. So Jim, take it away and tell everyone about yourself.

Jim Vaselopulos  49:02  

Thanks, Preston. I’m Jim Vaselopulos. I have been in the tech business for a number of years, run companies, built companies, sold companies, and really had a lot of fun doing that. I’ve taken a keen interest and leadership through the years. So, in concert with Jan, we decided let’s start this podcast to interview people and learn from the best leaders in the world, much as you learn from the best billionaires in the world.

Preston Pysh  49:27  

Alright, Jim. Well, how about you?

Jan Rutherford  49:28  

Yeah. Hey, everybody, this is Jan Rutherford, I split my time between Denver and Portland. And I entered the army at age 17 and spent nine years as a Special Forces soldier and officer and then on to military intelligence. And for the last 25 years really was on the business side, big corporations, small and mid-sized company, last full time gig as a CEO of an IT company focused on healthcare.

For the past few years, I’ve been out on my own doing leadership development and these days, I deliver a lot of keynotes work with a lot of executives and their teams. My favorite thing I do is actually the crucible expedition where we take special operations soldiers and high level executives out into the wilderness and let magic happen when it comes to leadership.

Preston Pysh  50:18  

All right, that’s awesome guy. So here’s the thing. You guys are standing up this podcast, the name of it, if people want to listen to your show, they can go into iTunes, they can go into Stitcher, and they can type in The Leadership Podcast and it should show up there it should be easy to find for you. And that’s my two good friends, Jim and Jan’s new show, if you want to learn all about leadership, that’s what they’re going to be working on. 

So, guys, thanks for joining us. I hope a bunch of our listeners come over and give your show a listen and learn a lot from you guys. So thanks so much for joining us, and I really hope everyone enjoys your show. 

Extro  50:56  

Thanks for listening to The Investor’s Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www.theinvestorspodcast.com. Submit your questions or request a guest appearance to The Investor’s Podcast by going to www.asktheinvestors.com. If your question is answered during the show, you will receive a free autographed copy of The Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before commercial application.

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