Tony hsieh at zappos structure culture and radical change

IN1249

Tony Hsieh at Zappos: Structure, Culture and Change

11/2016-6181

This case was written by Noah Askin, Assistant Professor of Organisational Behaviour, and Gianpiero Petriglieri, Associate Professor of Organisational Behaviour, both at INSEAD, with the assistance of Joanna Lockard. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It has benefited from the advice and insights of INSEAD Professors Frédéric Godart and Mark Mortensen.

Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu.

Copyright © 2016 INSEAD

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For the exclusive use of X. Li, 2018.

This document is authorized for use only by Xinghao Li in MGT 304 C; MGT 304 D taught by DR. CECILY COOPER, University of Miami from January 2018 to May 2018.

Copyright © INSEAD 1

March 24th, 2015 began like a typical morning at Zappos. Employees streamed into the online retailer’s headquarters in Las Vegas, shuffling by the popcorn stand in the lobby, the makeshift bowling alley between desks, and colleagues dressed as pirates. Once in their personalized workspaces, they answered the daily “identify a fellow Zapponian” quiz required to log in to their computers. And then they found a memo from CEO Tony Hsieh in their inboxes.1 “This is a long email,” the first line of the company-wide message read. “Please take 30 minutes to read [it] in its entirety.”

Zappos had been moving towards Holacracy—a philosophy and form of organizing based upon self-management—for a year now. But Tony felt that the transition was not going fast enough, and had not been supported with the widespread conviction necessary for such an overhaul. Therefore, he had decided “to take a ‘rip the Band-Aid’ approach to accelerate progress.” That approach involved a limited-time offer, as he wrote:

Self-management and self-organization is not for everyone … Therefore, there will be a special version of “the offer”2 on a company-wide scale, in which each employee will be offered at least 3 months’ severance (and up to 3 months of COBRA reimbursement for benefits) if he/she feels that self-management, self- organization, and our Best Customers Strategy and strategy statements as published in Glass Frog are not the right fit.3

In order to qualify for the offer, employees had to read the book “Reinventing Organizations” and watch a talk by its author online.4 If, after absorbing its message, they remained steadfast in the intent to leave, they had to give notice by April 30.

One week after the deadline passed, the press was reporting that 14% of Zappos’ 1,443 employees had taken up Tony’s offer.5

The 210 employees who left included 20% of the tech department. At the time, Zappos was undertaking a complex migration of its web site, which powered a billion-a-year business, to the Amazon platform. The project, labelled “Supercloud” and mandated by Amazon, was arguably “the single largest e-commerce re-platforming in history”. The timely completion of the transition, scheduled for December 2015, was now at stake.6

Zappos, which Tony ran and had saved multiple times with his own money before it was acquired by Amazon in 2009, was regarded as a shining example of a dynamic organizational culture, lauded as one of Fortune’s “Best Places to Work,” and labelled a potential savior of downtown Las Vegas. Each of these achievements was now called into question with the substantial scrutiny and potential disruption generated by Tony’s move.

Tony Hsieh’s Background

Born to what he described as “typical Asian American parents,”7 Tony Hsieh was expected in his youth to master four musical instruments, achieve perfect grades, and earn admission to a top American college. While he met his parents’ demands, Tony’s aspirations differed considerably. He began to show an interest in entrepreneurship at age 9. His first venture was breeding and selling earthworms. Garage sales, delivering newspapers, and selling his own newsletters followed. Most of his business ideas were short lived and failed to generate the

For the exclusive use of X. Li, 2018.

This document is authorized for use only by Xinghao Li in MGT 304 C; MGT 304 D taught by DR. CECILY COOPER, University of Miami from January 2018 to May 2018.

Copyright © INSEAD 2

returns he hoped for, though he was never dissuaded from pursuing new ventures. While he was attentive to their financial success, he saw money as a means to an end. As he recalled,

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.8

In his college years at Harvard, Tony avoided hours of exam prep by crowdsourcing study notes and selling each collection for $20. He also ran the Quincy House Grille, an eating area in his college dorm, buying frozen McDonald’s burgers for $1, and then cooking and selling them to fellow students for $3. Switching to selling pizzas, which required less travel and generated higher profit than burgers, Tony met Alfred Lin. One of his best and most entrepreneurial customers, Alfred would buy whole pizzas from Tony and resell them at a profit by the slice in his own dorm. The two eventually became business partners.

LinkExchange

After graduation, Tony took a job at Oracle, but quickly realized that his generous salary did not compensate for the lack of challenge. His desire to run a business was stronger than the appeal of easy money. After a short-lived website design venture, Tony and another friend from college, Sanjay Madan, created LinkExchange, a network of banner ads on websites. Sequoia Capital, one of Silicon Valley’s prestigious Venture Capital firms, provided seed funding and the company took off immediately. Microsoft bought it for $265 million in 1998, only three years after its launch. Sequoia made $50 million on their $3 million investment.9

As a 24-year-old millionaire, Tony had time to consider what he had learned from the trajectory of LinkExchange. In the beginning, Tony and Sanjay had hired friends and friends- of-friends who wanted to be a part of something special. As the company grew past 100 employees, however, they had switched to hiring smart people who seemed to be more motivated by money. Shortly after, Tony recalled, he began dreading going to work.

I was the co-founder of LinkExchange, and yet the company was no longer a place I wanted to be at. ...How did we go from an “all-for-one, one-for-all” team environment to one that was now all about politics, positioning and rumours?10

Venture Frogs

In 1999, Tony and Alfred Lin, who had been LinkExchange’s CFO, decided to start an investment fund called Venture Frogs, the name a product of a friend’s dare. They raised $27 million and begun investing in early stage companies.

Meanwhile, Tony bought a brand new loft above a movie theatre. Here, together with ex- LinkExchange friends, he hosted a tight community that he referred to as a tribe. In addition to incubator space for Venture Frogs, Tony later purchased the building’s 325 square meter (3500 square foot) penthouse solely to facilitate frequent and large gatherings of close friends.

The connectedness we felt was making all of us happier, and we realized that it was something that we had all missed from our college days…. I made a note to

For the exclusive use of X. Li, 2018.