photo credit: Dennis Wright

If you had to choose between an idea that would generate money right now today and an idea that could generate considerably more money later, which would you choose?

It’s not a quiz, it’s an everyday decision. Some would say there’s no right answer for every business at every moment; that it depends on the circumstances; that a business hurting for cash flow probably shouldn’t pass up the short-term money. Some would say it’s a false dichotomy.

Every day we face the same choices in our personal lives when it comes to health and lifestyle decisions, and we understand the tradeoff: fun now vs. wellness later. Or when we make personal decisions about finance, and its our long-term financial well-being at stake. We know the value of compound interest, and we know that making healthy dietary decisions now can make all the difference in our health later in life.

But it seems that some businesses don’t even weigh their options; they automatically choose the short-term gains of immediate sales over creating something of lasting value. A company I used to work with struggled with this dilemma, even though they had solid earnings and money in the bank. It should have been easy to invest in their future by making decisions that would tend to make customers more loyal and return more often rather than drive customers to spend a little more in the short term.

Truly great businesses usually don’t make decisions that are based in short-term rewards; they seek outcomes that will prolong their health and enhance their longevity. We need more examples of that around us.

What’s an example you’ve seen recently of a company placing long-term health over short-term gains?

What’s not to love?

So I was delighted to have the opportunity to interview Tony Hsieh, CEO of Zappos.com, for Corporate Idealist. The following responses provide insights into what it’s like to lead a truly innovative and customer-centric company… that just happens to do over $1 billion in gross sales.

Tony Hsieh, CEO of Zappos.com

Corporate Idealist: Thank you for agreeing to this interview. In previous interviews, you’ve mentioned that you got into the shoe business because it looked like such a great opportunity — a $40 billion market. Did you have any concept at the time that you might differentiate the company through customer service, or did that evolve with time?

Tony: Back in 1999, there really weren’t any great destinations online for buying shoes. After learning that it was a $40 billion market in the US, and 5% of it ($2 billion) was being done through paper mail order catalogs, it seemed like a good investment opportunity. I got involved with Zappos about 2 months after it started.

From the beginning, we’ve always thought that customer service was important. But it wasn’t until 2003 that we decided we wanted the Zappos brand to not just be about shoes. Instead, we decided that we wanted the Zappos brand to actually be about the very best customer service and customer experience. Once we made that decision, we started making a lot of changes to our business to be even more customer-service focused.

Corporate Idealist: You’ve also stated that roughly 75% of your business on any given day is from repeat customers. Was the realization that repeat business was going to be your sweet spot something that came about by accident when reviewing business intelligence data, or were you actively trying to cultivate a loyalty- oriented business?

Tony: We stumbled into it accidentally. In the early days of the company (we were founded in 1999), we were unable to raise funding so we weren’t able to spend a lot of money on expensive marketing campaigns. As a result, we were forced to focus more on our existing customers. What we found was that the more we invested into customer service and the customer experience, the more loyal they were, and the more we grew from word of mouth. Today, we take most of the money we would have spent on paid marketing or advertising and invest it into the customer experience instead.

Corporate Idealist: What challenges did you have to overcome to make the company truly able to focus on customer service and customer experience?

Tony: During the first few years, there were many times when we we didn’t have enough money to pay our own employees, but we had such a passionate and dedicated group of employees, that many of them decided to forgo or reduce their salaries because they all believed in the long term potential of the company. If it weren’t for the passion of our early employees, Zappos wouldn’t be around today.

Corporate Idealist: Have you ever had to debate with other executives or with your board of directors about the costs associated with providing an excellent customer experience? If so, how has that been resolved?

Tony: Like any other business, we still have financial goals we need to meet in order to keep our shareholders and board of directors happy. Our approach has been to maximize the amount we invest in the customer experience and our company culture while still meeting our financial goals. There are always things we can do to make our customers happier… for example, in theory we could offer same day delivery for every customer. But it wouldn’t make sense from a financial perspective, so we don’t do that.

Corporate Idealist: Turning our attention to the employee experience, your hiring practices are famously steeped in Zappos culture and oriented towards retaining the right people through the on-boarding process. There’s a clear customer benefit in all this, but it seems that there is an employee benefit, too, in working around people who share a vision and a positive attitude. What indicators can you describe (such as retention, etc.) that this approach is working as intended?

Tony: Our turnover rate for employees varies by department (for example, turnover in the warehouse is higher), but when you compare each department with the same department in other companies, we’ve found that it’s generally lower, which saves the company money in the long run.

Corporate Idealist: You’ve said that when you decided to move operations to Las Vegas in 2004, it was due to difficulties finding customer service people in San Francisco. Yet it seems as if Las Vegas has come to be part of the company identity, as well — visiting conventioneers are often welcomed by Zappos by a party in a trendy nightclub. [Editor's note: I've been fortunate enough to attend one myself.] How did the employees who relocated from San Francisco adapt to Las Vegas culture, and how long did it take for Las Vegas to be part of the company identity?

Tony: When we first moved from San Francisco to Las Vegas, we had about 90 employees in San Francisco and about 70 ended up moving with the company.  Today, we have about 700 employees in Las Vegas, so the vast majority of our current employees joined Zappos after they had already lived in Las Vegas.

For the employees that moved from San Francisco, some of them decided that living in Las Vegas wasn’t quite right for them, so we offered to pay for their relocation back to San Francisco. Overall, I think most employees are pretty happy with the move.

Most customers don’t actually know that we are located in Las Vegas, so I’m not sure if it’s really a part of the company identity.

Corporate Idealist: Another big piece of the Zappos identity that was later to the game is Twitter. You yourself are clearly one of the most popular accounts on Twitter, and many Zappos employees use it as well. How did Zappos come to embrace Twitter, and how has it become a part of the culture?

Tony: We have over 400 employees on Twitter, and you can view their tweets at:

http://twitter.zappos.com/employee_tweets

As you can see, most of the tweets are not about business or marketing, but it’s a great way for us to connect on a more personal level with both employees and customers. It gives people a glimpse into our company culture, which is ultimately what our brand is all about.

Corporate Idealist: Corporate Idealism, as we espouse it on this blog, is all about creative business, meaningful and satisfying work, and an unrelenting focus on the customer, none of which do we believe contradict the ability to make money. The Zappos story epitomizes that. Do you have anything to add for our readers about being a real- world Corporate Idealist?

Tony: I would say rather than focus on what will make you the most money or be best for your career, figure out what you would be passionate for 10 years and go pursue that. A lot of people work hard at building a career so that one day down the road they think it will bring them happiness. And most of the time, when they finally accomplish their goal, they realize that it doesn’t really end up bringing happiness or fulfillment for the long term. One of the things that the research has shown is that people are very bad at predicting what will make them happy. If the ultimate goal is to achieve enduring happiness, it seems like it’s worth spending some time learning about the science of happiness so you don’t wind up in the same situation.

The analysis found that in 16 of the 18 industries studied, companies committed to sustainability outperformed industry averages by 15% over the six months from May through November 2008.

The study is called Green Winners: The Performance of Sustainability-focused Companies in the Financial Crisis.

But perhaps the most interesting aspect of the study results isn’t the fact that the companies were green: it’s that they were sustainable in a larger sense of the word. According to the study, there were characteristics shared by the leading companies which included, among others (boldface emphasis mine):

• A focus on long-term strategy, not just short-term gains
• Strong corporate governance
• A history of investment in green innovations

Sounds like the types of companies we can get excited about around here.

photo credit: pfala

A quick glance at the business-oriented coverage of Earth Day would suggest that the theme of Earth Day 2009 is that a single day for this concept makes no sense anymore.

Grist, the sponsor of a “Screw Earth Day” campaign, asks if Earth Day still matters, and the answer is a resounding yes, but with a clarification:

I also would challenge that if done strategically, all the “green” stuff we do throughout the rest of the year should be good not just for the environment, but also for business and partnerships. And that right here, at this intersection—where environmental issues and business needs meet—is where green can establish real roots and begin to grow.

Newsweek, in part referencing the Grist campaign, asks if it’s time to retire Earth day:

What was originally intended as a sounding alarm has been reproduced each year in the exact same way. The problem is, it’s hard to be motivated by a screeching alarm when you’ve been hitting the snooze button for the last four decades.

Forbes, in asking how you make Earth Day good for your company, observes familiar sentiments:

It’s like dieting. We see friends, neighbors and celebrities go on crash diets all the time, and after the crash period is over, the weight always comes back. When it comes to our planet’s carbon diet, we can’t take the crash approach. We need to make the Earth Day sensibility part of our employees’ everyday lives by making it fun. After all, who ever stuck with a diet that made them miserable?

Clearly the environment would benefit from a widespread adoption of this “every day should be Earth Day” philosophy, but the real motivation for lasting change will usually come from the bottom line. What we could really use are good case studies where making environmentally sound investments resulted in a positive impact to profit, such as the Wal-Mart example in this FT.com piece on signs that corporate responsibility is surviving the recession:

Wal-Mart also has commercial reasons for its stance. The company has been encouraging companies to cut down on packaging. This enables it to fit more goods into each delivery truck, not only reducing its emissions, but also cutting the amount it spends on petrol. Its insistence that manufacturers produce concentrated laundry detergent has allowed it to save on both packaging and shelf space. Cost-cutting is vital to beating the downturn and if companies can boost their green credentials at the same time, why not?

What are some of the best examples you know of where integrated environmental practices leading to profit?

photo credit: Piez

Over at HarvardBusiness.org, Jeff Stibel has written an article called 7 Things This CEO Hates About Business. Near the top of his list, somewhat surprisingly, is:

2. Money. If it weren’t for all the money involved, business would be a lot more fun! Making money should be secondary. Money comes when you stop thinking about creating wealth and start thinking about creating value. We all joked when money was “secondary” during the dot-com days…then cringed during the dot-com bust. But the truth is, most of those companies that put money second did better than the ones who focused first on making money. Just compare Google, Amazon, and eBay to Lehman, Citi, and Wachovia.

But reading what he wrote, and thinking about what he seems to be saying, he’s not so much talking about money as he is about the shallow, cynical pursuit of money, which for our purposes might be called ‘anti-idealism.’

Because hey, there’s nothing wrong with money. It’s a useful way to think about success, although it is of course only one measure of success.

It’s just that it’s such a boring measure of success. It’s a single dimension. One-dimensional metrics, like revenue, orders, customers, units, and so on, are useful as far as they go, which is generally as crude barometers of overall patterns in a business. But as Stibel is saying, it’s far more interesting to think about value. Or any other more abstract measure that requires multiple inputs to calculate.

Think about how Jim Collins pointed out that the Good to Great companies all had unique KPIs that aligned with their “hedgehog concept,” or differentiated position. How much more interesting would business be if, starting today, no one was allowed to measure success by single dimension metrics anymore, but instead had to determine a metric that would reflect their company’s guiding principles and passions — and this would become the metric that shareholders would hold them accountable to, and employees would strive to influence.

How much more interesting, and how much more rewarding would business be?

Does your company know its metric? Why not set some time aside today to decide on it?

via 7 Things This CEO Hates About Business – Conversation Starter – HarvardBusiness.org.

Image credit: adamsofen, via flickr

Can you be an environmental idealist in this tough economic climate and still be profitable? That’s the essence of the question posed over at the Greenbang corporate responsibility blog, where they discuss a decline in cleantech investmentments from 2007 to January 2009:

Although investment volume is only one metric to measure companies’ commitment to green, it does suggest that this commitment is at risk in such tough economic conditions. Are companies starting to relax green business policies because of pressures on the business bottom line and does it need to be a tug of war?

As we’re fond of observing, there are many simple and inexpensive ways for businesses to be dedicated to the environment, but actually investing in green technology or greener alternatives is a real sign of progress because it recognizes the long-term picture in which ecology is inextricable from economy. Although it seems natural for skittish businesses to pull back on what seem like short-term expenses due to uncertainty about the timeline of the recession, might that reactionary move be corrected in coming quarters with businesses digging into the current circumstances as  economic reality, as we come to the realization that investments must still be made for any progress to take place?

Since it’s Earth Day week, this may be easy to observe anecdotally: have you noticed a cooling off in enthusiasm for environmental stewardship from business this year? Or does it seem to be just as much a hot topic as ever?

via Do environment and business need to play tug of war? | Corporate Responsibility.

“This year, 99 companies made the cut. Twenty companies dropped off the list from last year, and 25 companies were newcomers. A remarkable 44 companies are ‘three-peats,’ making the list for the past three years.”

What’s more, a graph accompanying the article plots out the growth over the past five years for the World’s Most Ethical Companies as compared to the S&P 500, and you can see for yourself how it comes out:

Of course, over at the The Business Ethics Blog, Chris MacDonald points out that drawing conclusions from this data may be a bit hasty:

“It’s an interesting graph, to be sure, but it doesn’t show what they claim it shows. What it shows is correlation, not causation.”

Nevertheless, it’s an interesting pattern, and a great list. Check it out.

Via Ethisphere Institute.

They not only perform better during expansions but recover faster when growth rebounds from an economic slump.

Source: HarvardBusiness.org – The Daily Stat: Which Companies Bounce Back, Post-Recession?.

How are you adding value to your business today?