Out of nowhere, Jeff said, "Did you know that people are very bad at predicting what will make them happy?" Those were the exact words on my next slide. I put it up and said, "Yes, but apparently you are very good at predicting PowerPoint slides." After that moment, things got comfortable. It seemed clear that Amazon had come to appreciate our company culture as well as our strong sales.
Still, I had plenty of concerns. Jeff's approach to business had been very different from my own. One of the ways that Amazon tries to deliver a great customer experience is by offering low prices, whereas at Zappos we don't try to compete on price. If Amazon gets a lot of customer service calls, it will try to figure out why -- maybe there's something confusing about the product description -- and then it will try to fix the problem so that it can reduce the number of phone calls, which keeps prices low. But at Zappos, we want people to call us. We believe that forming personal, emotional connections with our customers is the best way to provide great service.
But as I talked to Jeff, I realized that there were similarities between our companies, too. Amazon wants to do what is best for its customers -- even, it seemed to me, at the expense of short-term financial performance. Zappos has the same goal. We just have a different philosophy about how to do it.
I left Seattle pretty sure that Amazon would be a better partner for Zappos than our current board of directors or any other outside investor. Our board wanted an immediate exit; we wanted to build an enduring company that would spread happiness. With Amazon, it seemed that Zappos could continue to build its culture, brand, and business. We would be free to be ourselves.
Negotiations with Amazon began shortly afterward. Amazon initially offered to buy Zappos in cash, but that didn'
src="http://sitemanager.inc.com/lib/tinymce/jscripts/tiny_mce/themes/advanced/langs/en" type="text/javascript">
t sit well with us. In our minds, a cash deal felt too much like we were selling the company outright, so we proposed an all-stock transaction. Zappos shareholders would simply trade their stock for Amazon stock. We saw the deal less as an acquisition than as a marriage. An all-stock deal would be analogous to a married couple opening a joint bank account.
In June, Jeff sent a formal proposal to buy Zappos in stock, which our board voted to accept on July 20. We persuaded Amazon to let us break the news to our managers. So at around noon on July 22, an hour and a half before the markets closed and the deal was publicly announced, I stood in front of about 50 of our most senior employees in our training room and explained what we were doing. It was a speech about the most important thing in my life, and all the nervousness that I used to feel when I first started speaking in public came back.
I spoke for half an hour and told them to explain to their staffs that nothing was going to change: They would still have their jobs, and the Zappos culture would still be our own. But now, we would be able to do new things more quickly.
At first, everyone in the room was anxious -- some had assumed I was leaving the company; others didn't know what to think -- but as I spoke, I could see the relief come over people's faces. They went back to their desks, gathered their staffs, and told them what was happening. Within a couple of hours, everyone had gone back to work. In the hallways, I overheard employees talking about how excited they were about having access to Amazon's resources. Two days later, I gathered our Las Vegas team -- roughly 700 employees at the time -- in a conference center to address any additional questions. Party music filled the room, and employees threw beach balls around into the crowd. The energy was amazing. It felt like the beginning of the next leg of our journey.
The acquisition closed on November 1, at a valuation of $1.2 billion (based on Amazon's stock price on the day of closing). Our investors at Sequoia made $248 million. Our board was replaced by a management committee that includes me, Jeff, two Amazon executives, and two Zappos executives. As CEO, I report to the committee every quarter, and Zappos is responsible for hitting revenue and profitability numbers. But unlike our former board of directors, our new management committee seems to understand the importance of our culture -- the "social experiments" -- to our long-term success. In fact, one Amazon distribution center recently began experimenting with its own version of Zappos's policy of paying new employees $2,000 to quit if they're unhappy with their jobs.
Otherwise, Zappos continues to operate independently. Our relationship is governed by a document that formally recognizes the uniqueness of Zappos's culture and Amazon's duty to protect it. We think of Amazon as a giant consulting company that we can hire if we want -- for instance, if we need help redesigning our warehouse systems.
In the first quarter of 2010, net sales at Zappos were up almost 50 percent, and we've added several hundred new employees. The growth has made Amazon very happy, but it's also creating new challenges. I've noticed that at company happy hours, you don't see as many employees from different departments hanging out with one another.
To address that, we've begun tracking employee relationships. When employees log in to their computers, we ask them to look at a picture of a random employee and then ask them how well they know that person -- the options include "say hi in the halls," "hang out outside of work," and "we're going to be longtime friends." We're starting to keep track of the number and strength of cross-departmental relationships -- and we're planning a class on the topic. My hope is that we can have more employees who plan to be close friends.
That's just one small thing that we're doing to make sure our culture gets stronger and that our employees are happy. We have close to 1,800 employees now, and I think we're proof that a company doesn't have to lose itself as it grows bigger -- or even after it gets acquired.
This article is adapted from Hsieh's new book, Delivering Happiness: A Path to Profits, Passion, and Purpose. Inc. senior writer Max Chafkin contributed additional reporting.
