I sat down with Alfred Lin after my tour of Zappos headquarters in Las Vegas a few weeks ago. I will post the video from the tour in another post. In the meantime, check out the incredible insights Alfred shared in the interview below.
By the way, the video from the interview wasn’t usable, so I submitted it to Mechanical Turk, another Amazon company, to have the below transcript made. It took three hours and cost $20! Now that’s service!
Sean: We’re here with Alfred Lin, the CFO, COO and Chairman of Zappos. Thanks for taking some time to meet and talk a little bit about Zappos and startups in general. To get started, maybe you can talk a little bit about your background before Zappos and how you got to be interested in startups.
Alfred: Sure! I guess I started out and met Tony Hsieh, who is our CEO at Zappos, in college and he’s always the constant entrepreneur with the big ideas. We had a grill in a college dormitory that the seniors would buy each year and run it for that year and sell it to underclassmen the following year. So Tony bought the rights to the grill and he thought well, making steaks, hamburgers and fries is just not as leverage-able as a business or as profitable a business, so he decided he wanted to make pizzas and so he bought a pizza oven and put it in there and he ran a pizza business in our dorm. I owned a large common roomie group so I used to just come downstairs buy one or two large pizzas and take it upstairs and sell it by the slice. And truth be told, you know, it’s a funny story and it sounds kinda bad that I’m cheatin’ my college roommate but truth be told, I wasn’t trying to make off of my college roommates. Lets say the slices were a dollar twenty-five, a dollar fifty. Quarters were a price commodity in college because you need it for washing machines, you know, drying machines, vending machines and so even though it was a dollar twenty five or a buck fifty I would always get two bucks.
Sean: So there was a company before Zappos that you guys did together right?
Alfred: Yeah, Tony and I have had, y’know, our businesses growing up as a kid. The real first business that we built together, he started with his college roommate, was Link Exchange and I joined about a year later, after Sequoia Capital funded it. A year after that, we sold to Microsoft for about two hundred sixty five million. The reason we sold is, and you’ll hear Tony talking about this, is not because it wasn’t doing well, it was one of the few companies at that time, in 1998, ‘99, actually it was cash flow positive and any company that was cash positive was pretty hard to come by. We were actually thinking about taking the company public but the reason we decided to sell was because the culture just went completely downhill. Tony, being the co-founder of the company, didn’t even enjoy coming to work and so we sold that company off. We thought, to start up the very, very early stages of a start up where it’s ten guys and there all sleeping under the desk and it’s really fun, you got this huge sense of accomplishment. And so we started a venture firm called Venture Frogs and started investing in a bunch of Internet startups in 1999. Zappos just happens to be one of ‘em, and um, Tony joined relatively early on and I came about five, six years ago. And we’ve been runnin’ the business ever since.
Sean: Do you guys consider yourselves founders or..?
Alfred: Nick Swinmurn was the founder, he had come to me and Tony and pitched the idea of selling shoes on the internet and we thought it was a crazy idea, even he thought it was a crazy idea. He had left a voice mail saying, “Hey I have this crazy idea, I wanna sell shoes in the Internet,” and Tony and I had a finger on the delete button because it did sound crazy. We started going over the numbers and it was a 40 billion dollar industry and five percent in 1999 of it was being done in mail order. And so it wasn’t rocket science to believe that the Internet was gonna be bigger than mail order.
Sean: Was it obvious in the beginning that the point of differentiation would be customer service?
Alfred: Actually, it was not. I would say, at Zappos, we have been very, very, fortunate, very, very lucky, and uh… there was no master plan that this was going to be a customer service company. In fact when we invested in the company it was all about taking orders, creating a website, taking orders from the web, from our customers, and sending it to brand partners that have them then fulfilled, and not carry inventory. And that sounds like a great financial model where you’re just the middleman but it turned out, it wasn’t that great of a business because it was very hard to get real live data feeds and inventory feeds from the brand partners. So we would have customers who would order and then we would pass on the order to the brand partner but they would not be able to fulfill it but they would tell us a week later. By then you would have a customer that’s somewhat annoyed and very dissatisfied with the service. So then we decided we would start inventory our own products, providing good service, and we also just noticed, the customers that we provide good service to, they just purchase more from us and they purchase more from us over time.
Sean: So what came first, the culture or the customer service? And was one a necessity for the other or are they independently being built?
Alfred: Every business has a culture; I think it starts with the culture. Whether you like it or not, at your company there is a company culture. And it’s very, very important to make sure that that culture continues to grow over time. So, we have a very simple philosophy. Yes, we’re a customer service company and we want happy customers. But we don’t think it’s possible to have happy customers without happy employees. And you can’t have happy employees without having culture that they want to help live, breathe and help grow. So if you wanna think about input and output, the output is happy customers, the input is having a great culture.
Sean: At Link Exchange was it more about not having attended to the culture or just having made wrong decision on the culture that made it what it was?
Alfred: Tony might have a different answer. My observation was, it was a little bit of both. We hired people who had the right resume, the right technical background, but didn’t know enough to pay attention to culture. And no individual hires destroy culture but you make one mistake and that person hires people more like them then the rest of the company. The second thing is I think most companies don’t want their culture to decline but they also don’t pay as much attention to the culture to make sure it grows. So my example is typical planning progress that all of this has gotten into because it’s a new year and you’re rolling out a new plan with new goals. Usually it means we need more sales which means we need more customers which mean we need our existing customers to buy more from us which means we need to do this, that, y’know other things related to hiring more people, putting in more servers, building more plants, getting more inventory. All those things are great, you need to do all those things, but has anybody ever said, “oh we need to grow our culture” and plan for that? And I think that simple thing, making sure that your culture is a part of your planning process will make a huge difference.
Sean: So tell us a little bit about the principles of your culture from the perspective of someone that’s got that five person startup and they’re sleeping under their desk so there’s a culture already which is passion and hard work. There’s a lot going on here [at Zappos headquarters] as we could see from the tour. But there’s probably principles that drive it all ‘cuz obviously you can’t dictate who hangs what up in the office and y’know, what not to hang up in the office right?
Alfred: Yeah we kind of talk about it as a user generated environment here, people put up what they want to put up. In terms of the principles behind it, I think it’s both very, very easy and very, very hard. It’s easy to say, “that group has a culture” the hard part is can you articulate it? Can you define it? Can you talk about those in terms of value that, y’know, a hire/fire is based on? And that’s what we ended up doing. In the early days, nobody really writes this stuff down because you as the founder, the CEO, can interview everyone that comes in. So they tend to have a very consistent culture for some period of time. Get to the fifty/a hundred people, can’t quite interview every single person, you have to rely on other people to interview and, the question is, do the other people that are interviewing really understand the culture? And we didn’t know to do this even at Zappos, we did this in 2005, probably 500 employees back then. We basically said we need to put our core values down on paper so that we can educate everybody at the company that these are our core values and we’re going to hire/fire based on these values.
Sean: Have they changed a lot, you know, those core values? Have they remained the same or have you had to change them as you got bigger? You’re now what, 1600+ employees?
Alfred: Tony sent out a question, “okay can you tell me about your personal values? What do you think the Zappos core values should be?” It was a year process where we basically got the input from all the employees and tried to make it grass roots. It started out with 37, 38 values but that was too long a list so we combined some of them and we ended up with 10 core values. It hasn’t changed since we rolled it out, but I think that is a testament to both being patient and sticking to what we really believe to be the values when we write down the values. It’s not just a, “oh this is nice we’re gonna write something down and put it as a platinum wall” and the second reason I believe, that we haven’t had to change all this because we’ve done a good job hiring and firing based on those values. And if you’re hiring and firing based on those values, those values will tend not to change.
Sean: It was obvious to me, in arranging to sit down with you today, part of the culture is you living it right? And being accessible which is something we saw downstairs with you guys siting out in the middle of all your employees. But I was personally surprised to have such easy access to you. You had no idea who I was when I first emailed yet you wrote back. Is that typical? Are you that accessible? And if so how the heck do you manage, y’know, email from random people like me?
Alfred: Well, I’m pretty accessible and people who write me I tend to write back. I, um, probably don’t respond as quickly as I used to, but look we’re a service company. I can’t say the rules are for everybody else except me. If we’re gonna be a service company and we’re gonna get back to people, as a company to customers, to partners, to investors, to employees. Then y’know, if everybody is doing that then I have to do that. That’s only fair. One of the fastest ways to ruin a culture is to have a double standard based on things like that.
Sean: So do you think there’s a lot of opportunity still left for a company that starts today whose core point of differentiation is customer service?
Alfred: Absolutely. And the reason I believe that is… we generally don’t get very good customer service and it’s kind of a shame. More companies should think about service as a differentiator.
Sean: It seems like people spend more time figuring out propriety technology that will keep everybody away. This [customer service] almost seems an easy choice to make. Regardless you guys put out a lot of information on how to do it. It seems like not a lot of people pay attention.
Alfred: I think we have a tendency as a technology business to complicate things and things are complicated enough. It is interesting, simple things executed really, really well, it’s quite hard to do that. And so consistent service is probably one of the things we as consumers all complain about and it’s just very hard to get consistent service.
Sean: What would be your advice be to someone starting a company today in terms of choosing and executing a differentiator?
Alfred: Well, I have a few thoughts on that and one is, for all entrepreneurs, if you’re in it for the money you’re probably going down the wrong path. Tony talks about chasing the vision, not the money. So pick something you’re really, really passionate about. It might be extreme; Tony asks the question, “What would you do for the next ten years if you didn’t make a dime?” And that might be a little extreme, but I think the spearhead of the question is you didn’t make any money passed your basic needs, basic, basic needs. And what would you do? Like if you could find that sort of work and be that passionate about it. You’re much more likely to succeed if you’re doing something passionate.
The second thing we’ve noticed it’s always better to make decisions faster. There are very few things in life and in business the longer time allows you to make a better decision and part of that is, it’s not that more information isn’t better, it’s that being able to iterate and move forward is much more satisfying because it gives you more perceived control and progress. It’s just much more satisfying then waiting a long period of time and then making a decision. And there are plenty of things where your gut tells you you should do something and then some level of evidence tells you to do something but you don’t have all the information and you wait and then it ends up being the same result anyway. So why don’t you just cut that time period down?
And the third thing I would say is, if you’re truly an entrepreneur be both willing to push and your tolerance just to the edge of uncomfortable. You don’t wanna jump off a cliff, but you wanna get right at the edge of the cliff and stand on the edge.
Sean: So last question; it’s no secret that you guys were acquired by Amazon.com last year. Looking out, five or ten years, what’s next for you? Are you back in the VC world? Back as a entrepreneur? Still a big question mark for you?
Alfred: We have a lot of work to do here, we’re still scratching the surface at Zappos. We did do the deal with Amazon, but we did tell them that we really believe that we’re building something special here and we’d like to continue building the company. And so why not [give us] the independence to build that company, build that brand and build a culture? And that’s what we’re hoping continue to do.
Sean: So you’re just getting started as Jeff Bezos says, “It’s always day one.”
Alfred: It is always day one.
Sean: That’s awesome. Thanks a lot Alfred for taking your time.
Alfred: Thank you!
