This Week in Business History- Episode 25
“But what we all can take the opportunity to do is to learn from & celebrate the legacy that Tony Shay has left behind. An enormous legacy that will impact the global business community for decades to come. An even bigger personality that never put himself on a pedestal, always brightened every room & consistently made people feel good about their contributions & taught them to value their point of view.”
-Scott Luton, Host, This Week in Business History
In this special episode of This Week in Business History, host Scott W. Luton dives into the back story of Tony Hsieh, the late founder & transformational CEO of Zappos. Gone way too soon at age 46, Hsieh leaves behind an enormous legacy, in a number of respects.
“Your personal core values define who you are, and a company’s core values ultimately define the company’s character and brand. For individuals, character is destiny. For organizations, culture is destiny.”
Scott Luton (00:12):
Good morning, Scott Luton here with you on this edition of this week in business history. Welcome to today’s show on this program, which is part of the supply chain. Now family of programming. We take a look back at the upcoming week, and then we share some of the most relevant events and milestones from years past, of course, mostly business focused with a little dab of global supply chain. And occasionally we might just throw in a good story outside of our primary realm. So I invite you to join me on this. Look back in history to identify some of the most significant leaders, companies, innovations, and perhaps lessons learned in our collective business journey. Now let’s dive in to this week in business history.
Scott Luton (01:11):
Hello, and thanks for joining us. I’m your host Scott Luton. And today on this edition of this week in business history, we are focused on the week of November 30th. Thanks so much for listening to the show before we get started. I wanted to share an experience from earlier this week. A dear friend of mine of the show is Jenny Froom based in Johannesburg, South Africa, Jenny serves as COO of st. Picks a professional association that is striving to build a vital community of educated supply chain professionals across Africa. And they’re doing big things and building a global community while doing so last week, Greg white and I spoke at a virtual sapiens conference where we shared some of the key takeaways that we’ve had from this historically challenging year in prepping for my comments. I came across an excellent point made by my friend [inaudible] Abdul Kadir, the CEO of health supplies management agency, based in Kaduna, Nigeria on a live stream with us a few months back, Ramaz two stated quote.
Scott Luton (02:16):
We have the power to reinvent ourselves in our business, which is critical for the times that we find ourselves in, in quote, how very true before our very eyes this year, we’ve seen global supply chains, retailers, schools, you name it all reinvent their operations. We’ve heard this buzzword agility for so many years, but a business that possessed agility in 2020 was certainly in much better position to adapt and even thrive in this environment. And just what is the alternative for many, it’s not very appealing. Let’s just ask companies like pure one earth fare, sweet tomatoes and thousands of other companies that have gone out business due to their inability to improvise, execute, and overcome a very well-stated Remati, I’ll be sure to include a link for our audience to connect with her in the comments of today’s episode, back to today’s show this week in business history today we’re breaking the rules just a bit. Over the weekend, we lost a global business leader that was a trailblazer and he and his company had a big impact on my point of view, early in my career. Yes, Tony Shay, who was a co-founder at Zappos and served as its transformational CEO. He passed away unexpectedly
Speaker 3 (03:39):
On Friday, November 27th, 2020.
Scott Luton (03:42):
We’ll be diving into his story and just what was so special about his organization at the end of the podcast, we’ll also offer our listeners an opportunity to earn a free copy of Tony Shea’s popular book, delivering happiness, stay tuned and thanks again for joining us here on this week in business history, powered by our team here at supply chain. Now Tony Shay was born to Taiwanese immigrants, Richard and Judy Shay in Illinois on December 12th, 1973, just five years later, the Shea family would move to the Lucas Valley area of California, just Northwest of San Francisco Bay. Richard Shea was a chemical engineer and worked for Chevron. And Judy Shay was a social worker a few years later when Tony was nine years old, he hatched what was perhaps his first entrepreneurial idea. He convinced his parents to pay $33 for a box of earthworms. Maybe his first successful pitch.
Scott Luton (04:45):
Tony his plan was to create a worm farm in the backyard and then sell worms to the public. Despite his best efforts at constructing ineffective worm pin, all of his inventory got away after a few weeks. So his first startup was a failure, but Tony Shay would more than make up for it. For sure. Richard and Judy Shay took a disciplined approach to raising Tony. He was allowed one hour of TV a week. They expected straight A’s. Tony was required to take music lessons. He chose the piano and violin, and they started to prep him for the sat in sixth grade. As a young teenager, Tony Shay would have a big Eureka moment. He’d come across a magazine ad for a kit that made photo buttons. If you remember the ones that in the 1980s, everyone would pin to their denim Jean jackets, right? But Tony would have to pitch his parents to spring for the $50 for the photo button kit they did.
Scott Luton (05:48):
And this time the business was a resounding success. Tony would advertise his photo button production service. And in due time he was making $200 a month. More importantly, Tony Shay would say that it was this small venture that taught him a key lesson that he could run a successful enterprise without face-to-face interaction. That lesson learned just might come in handy in a few years for Tony Shea in high school, Tony lived in the computer lab. He had taken a strong liking to computer programming ever. The enterprising young man he’d begin programming for outside companies while still in school for $15 an hour. Now keep in mind that the minimum wage in 1988 was $3 and 35 cents. Tony saw a problem that he had to go to class. Imagine that which cut in to his programming work capacity. No worries. He worked out a few side deals with his teachers.
Scott Luton (06:52):
If Tony could keep his grades up as to no tests, assignments, et cetera, he could miss classes and stay in the computer lab, making that $15 an hour. And he would keep up his end of the bargain because Tony’s grades were good enough for him to gain entry into Harvard university. After graduating from Harvard, he worked briefly at Oracle corporation, but Oracle couldn’t overcome the founder blood that was piping through Tony Shay’s veins. Of course not hardly a company on the planet can overcome that huge obstacle. Tony would leave Oracle and five months to start a company that eventually became link exchange. The company would eventually focus on internet advertising a year after its founding link exchange would receive a $3 million investment from Sequoia capital. About 30 months after its founding Tony Shay and his partners would sell link exchange for $265 million to Microsoft. Not too shabby.
Scott Luton (07:56):
Right? Well, Tony Shay was only just getting started after forming a company named venture frogs with his business partner. Alfred Lin, Tony would be on the lookout for investments in other startups, as fate would have it. The venture frogs team would meet Nick Swinburne in 1999. After Nick couldn’t find the right size and style shoes at his local mall, he decided to start a company called shoe site.com. And Nick was looking for investment at first, Tony Shay called shoe site.com the poster child of bad internet ideas in quote, but after giving it some thought and realizing as Nick shared with him that the U S shoe industry was a $40 billion market. And already 5% of it was being sold through paper catalogs. Tony in venture frogs was in with an initial investment of $500,000, which eventually would grow to $2 million shoe site.com would quickly be renamed Zappos, a play on the Spanish word for shoes.
Scott Luton (09:08):
Zapata’s 2000 of course the was the.com stock crash. Gaining additional investment was really tough and the business model was still being proven at the time. Zappos would take the order online and then would rely on manufacturers to ship direct to the customer. Tony would continue to become more infatuated in the business and was spending more and more time advising the Zappos team. He would become co CEO with Nick Swinburne in 2001. And in 2003, Tony Shea would become CEO outright said, Nick, at the time quote, we’ve gotten to a point now where the CEO’s responsibilities are mostly going to be financial and I don’t need the title for my ego in quote, Nick’s very practical, humility would pay off. Well, do you think he realized at the time, just how big of a move he had made about 2001 Zappos had $8.6 million in gross sales, but big changes were ahead.
Scott Luton (10:14):
A massive shift was made in that Zappos would begin to hold its own inventory, which would give customers a bigger selection and better and more reliable service. Now, while this had a huge impact on sales, as they took off like the proverbial hockey stick, the big adjustment also had a tremendous impact on operations, especially in scope capacity and complexity. At first, the Zappos team chose to outsource the warehousing and fulfillment operations that did not go well. In fact, it was an unmitigated disaster. Tony Shay brought it back in-house and determined that if a company was going to be an e-commerce leading retailer, the organization would have to own the warehousing and fulfillment operations. Zappos would build a partnership with ups in 2002, and would position an 825,000 square foot warehouse near the ups. Worldport airfreight up in Louisville. This partnership would help ensure Zappos orders would ship in an expedited manner.
Scott Luton (11:23):
In 2003, the company implemented a 365 day, no hassle return policy after experimenting with a 60 day return policy, as long as the shoes were in like new condition and in the original box, customers could return them. In 2004, Tony Shay would consult with his appose team and decide to move the company to Nevada, where they could be in a better position to hire talent, especially customer service talent, and they need it as Zappos instituted a 24 seven customer service approach. The company would hire five to 10 new customer service agents. Every two weeks all told these four moves one building out its own inventory to insourcing, warehousing, and fulfillment, and building a shipping relationship with ups three instituting the most aggressive returns policy in retail and for building a talented army of customer service agents. Well, these big decisions would ultimately allow Zappos to start to build its key differentiator world-class customer service, and the numbers would show it by 2004, the company had reached $184 million in gross sales.
Scott Luton (12:42):
I mentioned hiring a ton of talent earlier. Let’s talk for a moment about Tony Shay’s unique approach to hiring and managing talent. But first this quote from Ali Partovi, a former Tony Shay business partner Partovi said this about Tony quote. Tony often propose the opposite of the conventional approach and astoundingly. He was often right, Tony, his creativity was unrivaled and uncontainable ideas came to him effortlessly and continuously from quirky asides to brilliant strokes of genius. In quote. Now about talent. First, Tony Shay would implement a two interview approach to all potential hires that candidate would have a business interview focusing on talent and skillsets. And then the candidate would have a culture interview determining fitness for the company culture. Secondly, starting in 2005, all employees would first go through customer service bootcamp, which culminated in every employee, regardless of their role or function to pick pack and ship orders, learn by doing and learn to respect those that do the hard work.
Scott Luton (13:57):
And thirdly, Tony Shay had a two word employment policy is Zappos, and it was critical to the company’s success. Tony and the Zappos team did not want to employ team members that didn’t want to be there. The policy was called the offer and it was simple after a week or so of being on the job. Zappos employees were told that they had a choice to make, they could continue working in their roles if they were happy or they could quit and better yet Zappos would pay them a thousand dollars, which is reportedly now up to a month salary, as it has turned out on average, less than 1% of employees have taken the paid separation option. And better yet is built an army of team members that wanted to be at Zappos by 2006, Nick Swinburne chose to leave company as he’d later say, quote, the company is running itself.
Scott Luton (14:55):
I don’t need to be here in quote. Also in 2006, Zappos would consult with all of its employees referred to as [inaudible] to implement its official core values. The number one core value would be instilled and remains to this day deliver wow. Through service about 2007, Zappos would not only hit $840 million in gross sales, $840 million in gross sales. But the company also had branched out to a wide variety of products. Other than shoes. Also in 2007, Zappos would offer free overnight shipping. Another advantage of having their warehouse adjacent to ups. Worldport one other big development for Zappos in 2007. After over 2000 emails, 1900 phone calls, scores of meetings, tons of blood, sweat, and tears to land the biggest name and shoes on March 21st, 2007. Nike finally came on board. So you could say 2007 was a transformational year. Tony Shay would say, quote, we focus on making sure we have a great service focused culture.
Scott Luton (16:13):
If you get the culture right, then a lot of the really amazing things happen on their own, but then came 2009 on Wednesday, July 22nd, 2009, Tony Shay would send an email to all employees, its opening lines included the following quote. Over the next few days, you will probably read headlines that say Amazon acquires Zappos or Zappos sells to Amazon while those headlines are technically correct. They don’t really properly convey the spirit of the transaction. I personally would prefer the headline Zappos and Amazon sitting in a tree in quote, after Jeff Bezos had personally addressed a key concern for Tony Shea and indicated that Zappos would be allowed to operate as an independent entity. A deal had been struck. Amazon acquired Zappos outright in a $1.2 billion deal. Despite all of Zappos success up to 2009, there was a key factor that weighed into the tough decision to sell Tony Shay would say quote at the time, Zappos for LOD on a revolving line of credit of a hundred million dollars to buy inventory.
Scott Luton (17:29):
But our lending agreements required us to hit projected revenue and profitability targets each month. If we missed our numbers, even by a small amount, the banks had the right to walk away from the loans, creating a possible cashflow crisis that might theoretically bankrupt us in early 2009. There weren’t a lot of banks eager to give out a hundred million dollars to a business in our situation in quote in 2010, Tony Shay would write a popular and successful book entitled delivering happiness. It was this book as well as a few word of mouth conversations at the time when Zappos first hit my radar as a business to study in 2013, Zappos would move to downtown Las Vegas where they would be the new owners and occupants of the old city hall building. This move would begin Tony Shay’s deep involvement with planning, leading and investing in the downtown project, which was a major redevelopment and revitalization project for downtown Las Vegas.
Scott Luton (18:36):
The area traditionally ran as second fiddle to the bigger flash year and well-known Las Vegas strip in 2017. Zappos for good was created to amplify and significantly ramp up the company’s efforts at donating to the local community as of 2019, over 1 million items, shoes and more have been donated to various causes. Of course, all along the way as with any business, there have been missteps for example, about 18% of all his opponens left the company. In 2014, after Tony Shea implemented a form of de-centralized management called Holacracy, it was meant to more evenly distribute decision-making and create really more of a level playing field for all team members. But the move has largely been viewed as a failure. And it seems that Zappos has discreetly dropped the initiative in recent years. However, all told Tony Shay and the Zappos team made a lot more of the right moves and became a pioneering company with an incomparable dedication, to both a customer experience and company culture, but dedication, as we all know, isn’t good enough.
Scott Luton (19:52):
Zappos has proven to possess the keen ability to GSD get stuff done that is to impressively execute, to obtain meaningful, if not app hopping bottom line results. August 24th, 2020, Tony Shay officially retired as CEO of Zappos and then a cruel twist of fate. Just three months later, he passed away at the young age of 46. All we know as of the time of this podcast recording is that Tony Shay was injured in a house fire in new London, Connecticut on November 18th, while rescued by emergency personnel. He succumbed to his injuries. Nine days later today, I was stunned when I saw the news, many were waiting to see what big splash, what tremendous project or initiative that Tony Shay would leap into next. Unfortunately, he won’t have that opportunity, but what we all can take the opportunity to do is to learn from and celebrate the legacy that Tony Shay has left behind an enormous legacy that will impact the global business community for decades to come and even bigger personality that never put himself on a pedestal, always brightened every room and consistently made people feel good about their contributions and taught them to value their point of view.
Scott Luton (21:19):
In the words of his former business partner, Ali Partovi quote, Tony taught me that business. Isn’t about making money. It’s about helping others. He put other people’s interests ahead of his own, and that was the secret to his success in quote, rest in peace, Tony Shea, your bright light and extraordinary impact will surely be missed by all. Well that just about wraps up this edition of this week in business history. Those were some of the stories that stood out to us, but what do you think find us on LinkedIn, Twitter, Facebook, or Instagram, and share your comments there. We’re here to listen. Hey, good news though. Here’s a special offer to our listeners of this podcast. If you join our LinkedIn group and comment on our November 29th post about the legacy of Tony Shay, tell us what one aspect of his career that you found to be the most impactful.
Scott Luton (22:18):
We’ll send a copy of Tony’s book, delivering happiness to the first five commenters, and we hope you enjoy it as much as we have on that note. Thanks so much for listening to our podcast. Be sure to check out a wide variety of industry thought firstname.lastname@example.org for the reminder, you can now find this week in business history, wherever you get your podcasts from and be sure to tell us what you think we’d love to earn your review on behalf of the entire team here at this week in business history and supply chain. Now this is Scott Luton wishing all of our listeners, nothing but the best. Hey, do good gift forward and be the change that’s needed. Be like Tony Shea. And on that note, we’ll see. Next time here on this week in business history,
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