Delivering Happiness

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Top 10 Reasons Why You Should Read This Book

10. You want to learn about the path that we took at Zappos to get to over $1 billion in gross merchandise sales in less than ten years.

  9. You want to learn about the path I took that eventually led me to Zappos, and the lessons I learned along the way.

  8. You want to learn from all the mistakes we made at Zappos over the years so that your business can avoid making some of the same ones.

  7. You want to figure out the right balance of profits, passion, and purpose in business and in life.

  6. You want to build a long-term, enduring business and brand.

  5. You want to create a stronger company culture, which will make your employees and coworkers happier and create more employee engagement, leading to higher productivity.

  4. You want to deliver a better customer experience, which will make your customers happier and create more customer loyalty, leading to increased profits.

  3. You want to build something special.

  2. You want to find inspiration and happiness in work and in life.

  1. You ran out of firewood for your fireplace. This book makes an excellent fire starter.

Preface

I've been an entrepreneur for most of my life. I think it's because I've always enjoyed being creative and experimenting, applying lessons that I've learned along the way to both new ventures and my personal life.

In 1996, I co-founded LinkExchange, which was sold to Microsoft in 1998 for $265 million.

In 1999, I got involved with Zappos as an adviser and investor, and eventually became CEO. We grew the company from almost no sales in 1999 to over $1 billion in gross merchandise sales, annually.

In 2009, Zappos was acquired by Amazon in a deal valued at over $1.2 billion on the day of closing.

From an outsider's perspective, both companies may have seemed like overnight successes, but there were a lot of mistakes made and a lot of lessons learned along the way. Many of my philosophies and approaches were actually shaped by my experiences growing up.

I've also always been an avid book reader. At Zappos, we encourage our employees to read books from our library to help them grow, both personally and professionally. There are many books that have influenced our thinking at Zappos and helped us get to where we are today.

I decided to write this book to help people avoid making many of the same mistakes that I've made. I also hope that this book will serve as encouragement to established businesses as well as entrepreneurs who want to defy conventional wisdom and create their own paths to success.

How This Book Is Structured

This book is divided into three sections.

The first section is titled "Profits" and consists mostly of stories of me growing up and eventually finding my way to Zappos. Some of the stories are about my early adventures as an entrepreneur, while others are about a younger version of me rebelling against what was expected.

The second section, "Profits and Passion," is more business-oriented, covering many of the important philosophies that we believe in and live by at Zappos. I also share some of the internal e-mails and documents that we continue to use to this day.

The third section is titled "Profits, Passion, and Purpose." It outlines our vision at Zappos for taking things to the next level, and will hopefully challenge you to do the same.

This book is not meant to be a comprehensive corporate history of Zappos or any of the previous businesses I've been involved in. It's also not meant to be a complete autobiography. As such, I haven't mentioned everyone who contributed or played a role in my life. (If I had, there would have been way too many names for readers to try to keep track of and remember.) The purpose of this book is to give some of the highlights of the path that I took in my journey toward discovering how to find happiness in business and in life.

Finally, as you read through this book, you'll probably notice some sentences that aren't the best examples of English grammar. Except where third-party contributions to the book are specifically noted, I wrote this book without the use of a ghostwriter. I'm not a professional writer, and in many cases I purposely chose to do things that would probably make my high school English teachers cringe, such as ending a sentence with a preposition. I did this partly because I wanted the writing to reflect how I would normally talk, and partly just to annoy all my high school English teachers (who I appreciate dearly).

Although I did not use a ghostwriter, many people helped out behind the scenes with feedback, suggestions, and encouragement, and I'm grateful for everyone's involvement. There isn't enough room to list everyone who contributed, but I would like to specifically thank Jenn Lim, my long-time friend and backup brain. She acted as project manager and organizer of the entire book-writing process, and she was key to seeing this book from inception to finish. She also collected and helped edit many of the third-party contributions, some of which are in this book, and many more of which are available on the Web site at deliveringhappiness.com.

Introduction:
Finding My Way

Wow, I thought to myself.

The room was packed. I was on stage at our all-hands meeting, looking over a crowd of seven hundred Zappos employees who were standing up cheering and clapping. A lot of them even had tears of happiness streaming down their faces.

Forty-eight hours ago, we had announced to the world that Amazon was acquiring us. To the rest of the world, it was all about the money. The headlines from the press said things like "Amazon Buys Zappos for Close to $1 Billion," "Largest Acquisition in Amazon's History," and "What Everyone Made from the Zappos Sale."

In November 1998, LinkExchange, the company that I'd co-founded, was sold to Microsoft for $265 million after two and a half years. Now, in July 2009, as CEO of Zappos, I had just announced that Amazon was acquiring Zappos right after we had celebrated our ten-year anniversary. (The acquisition would officially close a few months later in a stock and cash transaction, with the shares valued at $1.2 billion on the day of closing.) In both scenarios, the deals looked similar: They both worked out to about $100 million per year. From the outside, this looked like history repeating itself, just at a larger scale.

Nothing could be further from the truth.

To all of us in the room, we knew it wasn't just about the money. Together, we had built a business that combined profits, passion, and purpose. And we knew that it wasn't just about building a business. It was about building a lifestyle that was about delivering happiness to everyone, including ourselves.

Time stood still during that moment on stage. The unified energy and emotion of everyone in the room was reminiscent of when I'd attended my first rave ten years earlier, where I'd witnessed thousands of people dancing in unison, with everyone feeding off of each other's energy. Back then, the rave community came together based on their four core values known as PLUR: Peace, Love, Unity, Respect.

At Zappos, we had collectively come up with our own set of ten core values. Those values bonded us together, and were an important part of the path that led us to this moment.

Looking over the crowd, I realized that every person took a different path to get here, but our paths somehow all managed to intersect with one another here and now. I realized that for me, the path that got me here began long before Zappos, and long before LinkExchange. I thought about all the different businesses I had been a part of, all the people who had been in my life, and all the adventures I had been on. I thought about mistakes that I had made and lessons that I had learned. I started thinking back to college, then back to high school, then back to middle school, and then back to elementary school.

As all the eyes in the room were on me, I tried to trace back to where my path had begun. In my mind, I was traveling backward in time searching for the answer. Although I was pretty sure I wasn't dying, my life was flashing before my eyes. I was obsessed with figuring it out, and I knew I had to do it this very moment, before the energy in the room dissipated, before time stopped standing still. I didn't know why. I just knew I needed to know where my path began.

And then, right before reality returned and time started moving again, I figured it out.

My path began on a worm farm.

SECTION I

PROFITS

1

In Search of Profits

Worm Farm

I'm pretty sure that Gandhi had no idea who I was when I was nine years old. And I'm pretty sure I had no idea who he was either. But if Gandhi had known about my vision and childhood dream of making lots and lots of money by breeding and selling earthworms in mass quantities to the public, I think he might have used the same quote to inspire me to become the number one worm seller in the world.

Unfortunately, Gandhi didn't stop by my home to offer me his sage advice and wisdom. Instead, on my ninth birthday, I told my parents that I wanted them to drive me an hour north of our house to Sonoma, to a place that was currently the number one worm seller in the county. Little did they know that I was conspiring to be their biggest competitor.

My parents paid $33.45 for a box of mud that was guaranteed to contain at least one hundred earthworms. I remember I had read in a book that you could cut a worm in half and both halves would regrow themselves. That sounded really cool, but seemed like a lot of work, so I went through with a better plan instead: I built a "worm box" in my backyard, which was basically like a sandbox with chicken wire on the bottom. Instead of filling it with sand, I filled it with mud and spread the hundred-plus earthworms around so they could slither freely and make lots of little baby earthworms.

Every day, I would take a few raw egg yolks and dump them on top of my worm farm. I was pretty confident that this would cause the worms to reproduce more quickly, as I had heard that some professional athletes drink raw eggs for breakfast. My parents were pretty confident that selling worms would not bring me the riches that I was dreaming of, but they allowed me to continue to feed the worms with raw egg yolks every day. I think the only reason they allowed me to do this was because of the high cholesterol content of the egg yolks. If the worms were eating the egg yolks, then that meant that my brothers and I were only eating the low-cholesterol egg whites. My mom was always making sure we weren't eating things that might raise our cholesterol levels. I think maybe she saw a segment on the local news about cholesterol that freaked her out one night.

After thirty days of putting the worms on the raw-egg-yolk diet, I decided to check on their progress, so I dug through the mud in the worm farm to see if any baby earthworms had been born yet. Unfortunately, I didn't find any baby earthworms. Even more problematically, I didn't find any adult earthworms either. I spent an hour carefully sifting through all the mud that was in my worm box. Every single worm was gone. They had apparently escaped through the chicken wire that was at the bottom of the worm box. Or had been eaten by birds that were attracted to the raw egg yolks.

My burgeoning worm empire was officially out of business. I told my parents that being a worm farmer was kind of boring anyway, but the truth was that I felt bad about failing. If Thomas Edison was still alive, he could have stopped by my house and encouraged me with his perspective on failure:

He was probably too busy working on other stuff, though, because, like Gandhi, he never did stop by my house. Maybe they were too busy hanging out with each other.

Growing Up

My mom and dad each emigrated from Taiwan to the United States in order to attend graduate school at the University of Illinois, where they met and got married. Although I was born in Illinois, my only memories of that period of my life were jumping off a diving board that was twelve feet high and catching fireflies. Early memories are always a blur, but I believe those were actually two separate memories, as I find it unlikely that as a two-year-old I would have been able to actually catch a firefly while in midair.

When I was five years old, my dad got a job in California, so we all moved to Marin County, which is across the Golden Gate Bridge, just north of San Francisco. We lived in Lucas Valley. Our house was about a twenty-minute drive from Skywalker Ranch, where George Lucas (of Star Wars fame) lived and ran his movie business from.

My parents were your typical Asian American parents. My dad was a chemical engineer for Chevron, and my mom was a social worker. They had high expectations in terms of academic performance for myself as well as for my two younger brothers. Andy was two years younger than me, and four years after moving to California, my youngest brother David was born.

There weren't a lot of Asian families living in Marin County, but somehow my parents managed to find all ten of them, and we would have regular gatherings where all the parents and kids would get together for a potluck and hang out afterward. The kids would watch TV while the adults were in a separate room socializing and bragging to each other about their kids' accomplishments. That was just part of the Asian culture: The accomplishments of the children were the trophies that many parents defined their own success and status by. We were the ultimate scorecard.

There were three categories of accomplishments that mattered to the Asian parents.

Category 1 was academic accomplishments: Getting good grades, any type of award or public recognition, getting good SAT scores, or being part of the school's math team counted toward this. The most important part of all of this was which college your child ended up attending. Harvard yielded the most prestigious bragging rights.

Category 2 was career accomplishments: Becoming a medical doctor or getting a PhD was seen as the ultimate accomplishment, because in both cases it meant that you could go from being "Mr. Hsieh" to "Dr. Hsieh."

Category 3 was musical instrument mastery: Almost every Asian child was forced to learn either piano or violin or both, and at each of the gatherings, the children had to perform in front of the group of parents after dinner was over. This was ostensibly to entertain the parents, but really it was a way for parents to compare their kids with each other.

My parents, just like the other Asian parents, were pretty strict in raising me so that we could win in all three categories. I was only allowed to watch one hour of TV every week. I was expected to get straight A's in all my classes, and my parents had me take practice SAT tests throughout all of middle school and high school. The SAT is a standardized test that is typically only taken once, toward the end of high school, as part of the college application process. But my parents wanted me to start preparing for it when I was in sixth grade.

In middle school, I ended up playing four different musical instruments: piano, violin, trumpet, and French horn. During the school year, I was supposed to practice each of them for thirty minutes every day if it was a weekday, and an hour per instrument on Saturdays and Sundays. During the summer, it was an hour per instrument per day, which I believe should be classified as a form of cruel and unusual punishment for kids who want to experience the vacation part of summer vacation.

So I figured out a way to still enjoy my weekends and summer vacations. I would wake up early at 6:00 AM, while my parents were still sleeping, and go downstairs to where the piano was. Instead of actually playing the piano, I would use a tape recorder and play back an hour-long session that I had recorded earlier. Then, at 7:00 AM, I would go up to my room, lock the door, and replay an hour-long recording of me playing the violin. I spent the time reading a book or Boys' Life magazine instead.

As you can imagine, my piano and violin teachers could not understand why I showed no improvement every time they saw me during my weekly lessons. I think they just thought I was a slow learner. From my perspective, I just couldn't see how learning how to play all these musical instruments would result in any type of benefit that was scalable.

(Hopefully my mom won't get too mad when she reads this. I should probably pay her back for all the money she spent on my piano and violin lessons.)

My parents, especially my mom, had high hopes that I would eventually go to medical school or get a PhD. They believed that formalized education was the most important thing, but to me, having the first twenty-five years of my life already mapped out seemed too regimented and stifling.

I was much more interested in running my own business and figuring out different ways to make money. When I was growing up, my parents always told me not to worry about making money so that I could focus on my academics. They told me they would pay for all my education until I got my MD or PhD. They also told me they would buy whatever clothes I wanted. Luckily for them, I never had any fashion sense, so I never asked for much.

I always fantasized about making money, because to me, money meant that later on in life I would have the freedom to do whatever I wanted. The idea of one day running my own company also meant that I could be creative and eventually live life on my own terms.

I did a lot of garage sales during my elementary school years. When I ran out of junk from my parents' garage to sell, I asked a friend if we could hold a garage sale at her house. We put all of the junk from her parents' house on display out in the driveway, made some lemonade, and then dressed her in a little girl's outfit that made her look five years younger. The idea was that even if people didn't buy anything, we could at least sell them some lemonade. We ended up making more money selling lemonade than anything else from the garage sale.

In middle school, I looked for other ways to make money. I had a newspaper route, but I soon discovered that being an independent contractor delivering newspapers on my bike was really just a way for the local newspaper to get around child labor laws. After doing the math, I figured out that my pay worked out to about $2 per hour.

I quit my paper route and decided to make my own newsletter instead. Each issue contained about twenty pages of stories I wrote, word puzzles, and jokes. I printed my newsletter on bright orange paper, named it The Gobbler, and priced it at $5 each. I sold four copies to my friends in middle school. I figured I either needed to make more friends who could afford to buy my newsletter, or needed to figure out another revenue stream. So when I got my next haircut, I showed my barber a copy of The Gobbler and asked him if he wanted to buy a full-page ad in the next issue for $20.

When he said yes, I knew I was on to something. All I needed to do was to sell four more ads and I would make $100, which was more money than I had ever seen in my life. Full of confidence after my first sale, I went to the businesses that were next door to the barber and asked if they wanted to advertise in what was sure to be the next newsletter sensation to sweep the country, or at least the county.

Everyone said no, but they said it in the most polite way possible. A few weeks later, I put out the second issue of The Gobbler. This time, I only sold two copies.

I decided to discontinue operations.

It was too much work and my friends were running out of their lunch money.

My brother Andy and I used to look forward to every issue of Boys' Life magazine each month and read it cover-to-cover. My favorite section was at the very back—a classified ads section for ordering fantastic things that I never even knew existed but knew I had to have one day. There were all sorts of magic tricks and novelty items (for the longest time, I thought the definition of novelty was "really, really cool"), including a kit for converting a vacuum cleaner into a mini hovercraft.

But what interested me the most was the full-page ad on the back of the magazine, which showed all sorts of prizes you could earn by selling greeting cards. It seemed so easy: just go around the neighborhood door-to-door, sell some Christmas cards (which everyone needed, the ad assured me), earn lots of points, and redeem the points for that skateboard or toy I never had but now wanted.

So I decided to order some sample greeting cards and a catalog, which arrived within a week. I was still on summer vacation, so I had plenty of time to go door-to-door. My first stop was my next-door neighbor's house.

I showed the woman who answered the door the catalog of all the different varieties of Christmas cards. She told me that since it was still August, they weren't really in the market for Christmas cards just yet. I thought she had a valid point. I felt stupid trying to sell Christmas cards in August, so that also ended up being my last stop.

I went back home to try to think of a business idea that had less seasonality to it.

In elementary school, I had a best friend named Gustav. We used to do everything together, hanging out at each other's houses, putting on plays for our parents to watch, teaching each other secret languages and codes, and having sleepovers once a week.

During one of my visits to his house, he let me borrow a book called Free Stuff for Kids. It was the greatest book ever. Inside were hundreds of offers for free and up-to-a-dollar items that kids could order, including things like free maps, 50-cent pens, free bumper stickers, and free samples of products. For each item, all you had to do was write a letter to each of the different mailing addresses, including a SASE (which I learned was short for "self-addressed stamped envelope") and whatever up-to-a-dollar payment they were asking for, if any. Gustav and I went through the book and ordered all the items that we thought were cool.

After my ten-minute stint as a door-to-door Christmas greeting card salesman, I went back home to read through the classifieds section of Boys' Life again and saw an ad for a button-making kit for $50. The kit allowed you to convert any photo or piece of paper into a pin-on button that you could then wear on your shirt. The cost of the parts to make the button was 25 cents per button.

I went to my bookshelf and grabbed the book I had borrowed from Gustav years earlier and never returned, and looked through it to see if any of the companies in the book were already offering photo pin-on buttons. There weren't any.

Excited, I typed up a letter to the publisher of the book and pretended that I was already in the button-making business and wanted to be considered for inclusion in next year's issue of the book. In order to look even more like I was running a legitimate business, I added "Dept. FSFK" as part of my mailing address. FSFK was my secret code for "Free Stuff For Kids." My offer was for kids to send in a photo, a SASE, and $1. I would turn it into a pin-on button, and then send it back in the SASE. My profit would be 75 cents per order.

A couple of months later, I received a letter back from the publisher. They said my offer had been selected to be included in the next edition of the book. I told my parents I had to order the $50 button-making kit, plus spend another $50 for parts, but that I would pay them back after my first hundred orders.

I don't think my parents thought I would actually get a hundred orders. They had heard me talk before about how much money I would make selling a hundred copies of The Gobbler, or how much I would get from getting a hundred orders of greeting cards. But I was still getting good grades in school, so I think they thought of allowing me to order the button-making kit and parts as more of a reward for that.

A couple of months later, I got a copy of the new edition of the book. It was pretty cool to see my home address in print, in a real book. I showed the book to my parents, and anxiously waited for the first order to come in.

The mailman for our neighborhood always went on the same route to deliver mail. Our house was near the bottom of a hill, and he would start his route at the bottom on the opposite side of the street, go up the hill, turn around, and then come back down the hill. So anytime I heard the mail truck on the opposite side of the street, I knew the mail would be delivered exactly twelve minutes later to our house, and I would wait outside the house for him to arrive. Usually this would happen at around 1:36 PM.

Two weeks after the book was published, I received my first order. I opened the envelope, and inside was a picture of a twelve-year-old girl in a red plaid dress holding a French poodle. More importantly, there was a dollar bill inside. I was officially in business! I turned the photo into a button and sent it back in the self-addressed stamped envelope. Later that evening, I told my parents about it. I think they were a little surprised I got even a single order. I gave them the dollar bill, and recorded in my journal that my outstanding debt had been reduced to $99.

The next day, I got two orders. Business had doubled overnight. And over the next month, there were days when I would get ten orders in a single day. By the end of the first month, I had made over $200. I had paid down all my outstanding debt, and was making pretty good money for a kid in middle school. But making the buttons was taking up to an hour a day. On days when I had a lot of homework, I wouldn't have time to make the buttons, so sometimes I would let the orders pile up until the weekend. Over the weekend, I'd have to spend four or five hours making buttons. The money was great, but having to stay indoors on weekends was not, so I decided it was time to upgrade to a $300 semi-automated button machine in order to improve my efficiency and productivity.

My button business brought in a steady $200 a month during my middle school years. I think the biggest lesson I learned was that it was possible to run a successful business by mail order, without any face-to-face interaction.