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Crazy Business Ideas That Actually Worked: Zappos

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How an online shop convinced us to buy shoes without checking the fit.

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The gospel of online shoe retailer, Zappos (AMZN), is well-known by now. It's a billion-dollar company with the customer service of a mom-and-pop store. The well-documented enthusiasm of its employees ("Zapponians"), particularly those who staff its 24/7 customer call center, is nearly matched by the loyalty of customers who swear allegiance to online shop.

Zappos has a devoted following for many reasons: Its 365-day return policy; comprehensive range of often hard-to-find shoes and sizes; and, most of all, that responsive service. Its Customer Loyalty Team (C.L.T.) makes Zappos what it is, bringing human contact to the otherwise anonymous, chilly void of the Internet. The Zappos toll-free line is included in its search result on Google and featured prominently on its website.

As Alexandra Jacobs wrote in a September 2009 New Yorker profile of Zappos, "There are no limits on call times, and the resulting sessions occasionally resemble protracted talk therapy." Last summer, one C.L.T. member took a call that was a record five hours, 22 minutes, and 31 seconds long, from a woman on the East Coast who was interested in Masai Barefoot Technology shoes. "We started talking about her sister," the Zappos staffer told Jacobs.

Jacobs also described the scene at Zappos' headquarters, located just outside Las Vegas in Henderson, Nevada: "Visitors come to marvel at the spectacle of peppy, dedicated workers: a utopia of communal cheer and solicitude; trilled 'Good morning's and 'Hi, pumpkin!'s; free vats of popcorn, nuts, and trail mix; and politely held doors."

The company was founded by Bay Area entrepreneur, Nick Swinmurn, in 1999, during the same era that produced many ill-fated online retailers, like the emblematic Pets.com. Initially, consumers were skeptical of the start-up's premise: How could anyone buy a pair of shoes without trying them on? The current CEO Tony Hsieh, 36, also had his doubts. In an interview with Inc. magazine, he said:

I almost deleted the voicemail. Nick left a message saying he wanted to start a company that sold shoes online. I didn't think consumers would buy shoes sight unseen, and Nick didn't have a footwear background. It sounded like the poster child of bad Internet ideas.

But right before I hit Delete, Nick mentioned the size of the retail shoe market -- $40 billion. And the more interesting thing was that 5% was already being done through mail-order catalogs. That intrigued me.


As it turned out, friendly customer service and a no-hassle return policy made the transaction easy, even enjoyable. The company makes it painless to return a pair of shoes; it provides the prepaid shipping labels and the box.

That dedication to customer satisfaction is partly why Zappos has emerged as a retail juggernaut. As Jacobs made clear, the company puts equal care into creating a positive experience for its employees. In his new book, Delivering Happiness: A Path to Profits, Passion, and Purpose, CEO Tony Hsieh, 36, writes about how Zappos became successful once he turned his attention away from chasing profits and toward the satisfaction and mentorship of his staff.

"Great companies have a higher purpose of vision that is more than just about money or profits or being No. 1 in the market," Hsieh told the Star-Ledger recently. "Ironically, when money and profits aren't the primary objective, it actually generates more profits in the long run. And for us at Zappos, our higher purpose is about delivering happiness to customers and employees."

(Think you'd like to join the Zappos staff? Check out What It Takes to Work Here.)

This model led Zappos to its current standing. It has more than $1 billion in annual sales and has been profitable since 2006. Last year, Amazon acquired the company for $1.2 billion in stock and cash (the figure cited when the deal closed in November). At the time, business pundits suggested that the underdog Zappos might have sold out. But the company has remained autonomous and its management structure intact, which Hsieh says was a precondition of the takeover.

Swinmurn was prompted to start Zappos because, as Jacobs wrote in the New Yorker, "He'd been irritated when he couldn't find a pair of brown Airwalks at his local mall." (The company name comes from zapato, the Spanish word for shoe.) Hsieh, first an adviser and investor through a firm called Venture Frogs, joined the company a year later. Before that, in 1998, Hsieh and his former Harvard classmate Alfred Lin had sold an Internet ad-banner venture called LinkExchange to Microsoft (MSFT) for $265 million.

After making its mark on the shoe industry, Zappos has added clothing, accessories, and housewares to its virtual aisles. Given its noteworthy 11-year run with shoes, it's not difficult to imagine Zappos succeeding -- indeed, spreading its unique gospel -- to these larger markets, too.

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No positions in stocks mentioned.

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