Excerpts from ‘Delivering Happiness’

Six key sections from Hsieh’s new book, “Delivering Happiness.”

On learning the system:

In middle school, I ended up playing four different musical instruments: piano, violin, trumpet and French horn. During the school year, I was supposed to practice each of them for 30 minutes every day if it was a weekday, and an hour per instrument on Saturdays and Sundays. During the summer, it was an hour per instrument per day, which I believe should be classified as a form of cruel and unusual punishment for kids who want to experience … summer vacation.

So I figured out a way to still enjoy my weekends and summer vacation. I would wake up early, at 6 a.m., while my parents were still sleeping, and go downstairs to where the piano was. Instead of actually playing the piano, I would use a tape recorder and play back an hour-long session that I had recorded earlier. Then, at 7 a.m., I would go up to my room, lock the door and replay an hour-long recording of me playing the violin. I spent the time reading a book or a Boy’s Life magazine instead.

As you can imagine, my piano and violin teachers could not understand why I showed no improvement. … I think they just thought I was a slow learner. From my perspective, I just couldn’t see how learning how to play all these musical instruments would result in any type of benefit that was scalable.

(Hopefully my mom won’t get too mad when she reads this. I should probably pay her back for all the money she spent on my piano and violin lessons.)

On deciding to leave Microsoft and LinkExchange and give up millions:

I made a list of the happiest periods of my life and realized that none of them involved money. I realized that building stuff and being creative and inventive made me happy. Connecting with a friend and talking through the entire night until the sun rose made me happy. Trick-or-treating in middle school with a group of my closest friends made me happy. … Pickles made me happy. (Although, for that one, I’m still unclear why. I think it’s just because they are obviously delicious and I enjoy saying “pickles.”)

I thought about how easily we are all brainwashed by our society and culture to stop thinking and just assume by default that more money equals more success and more happiness, when ultimately, happiness is really just about enjoying life.

I thought about how I enjoyed creating, building and doing stuff that I was passionate about. And there was so much opportunity to create and build stuff, especially with the Internet still exploding, and not enough time to pursue every idea out there. And yet here I was, wasting my time, wasting my life, so that I could make more money even though I had all the money I ever needed for the rest of my life. A lot was going to change about the world. We were on the eve of not only a new century but a new millennium. The world was about to change in a dramatic way, and I was about to miss out on it so that I could make even more money when I had all the money I would ever need.

And then I stopped thinking to myself and started talking to myself: “There will never be another 1999. What are you going to do about it?”

I already knew the answer. In that moment, I had chosen to be true to myself and walk away from all the money that was keeping me at Microsoft.

On the first business:

In elementary school, I had a best friend named Gustav. We used to do everything together, hanging out at each other’s houses, putting on plays for our parents to watch, teaching each other secret languages and codes, and having sleepovers once a week.

During one of my visits to his house, he let me borrow a book called “Free Stuff for Kids.” It was the greatest book ever. Inside were hundreds of offers for free and up-to-a-dollar items that kids could order, including things like free maps, 50-cent pens, free bumper stickers and free samples of products. For each item, all you had to do was write a letter to each of the different mailing addresses, including a SASE (which I learned was short for “self-addressed stamped envelope”) and whatever up-to-a-dollar payment they were asking for, if any. Gustav and I went through the book and ordered all the items that we thought were cool.

[In Boy’s Life magazine], I saw an ad for a button-making kit for $50. The kit allowed you to convert any photo or piece of paper into a pin-on button that you could then wear on your shirt. The cost of the parts to make the button was 25 cents per button.

Excited, I typed up a letter to the publisher of the book and pretended that I was already in the button-making business and wanted to be considered for … next year’s book. In order to look even more like I was running a legitimate business, I added “Dept. FSFK” as part of my mailing address. FSFK was my secret code for “Free Stuff for Kids.” My offer was for kids to send in a photo, a SASE, and $1. I would turn it into a pin-on button, and then send it back in the SASE. My profit would be 75 cents per order.

A couple months later, I received a letter back from the publisher. They said my offer had been selected to be included in the next edition of the book … Two weeks after the book was published, I received my first order. …

By the end of the first month, I had made over $200. I had paid down all my debt and was making pretty good money for a kid in middle school. But making the buttons was taking up to an hour a day. On days when I had a lot of homework, I wouldn’t have time to make the buttons, so sometimes I would let orders pile up until the weekend. Over the weekend, I’d have to spend four or five hours making buttons. The money was great, but having to stay indoors was not, so I decided it was time to upgrade to a $300 semi-automated button machine to improve my efficiency and productivity. My button business brought in a steady $200 a month during my middle school years. I think the biggest lesson I learned was that it was possible to run a successful business by mail order without any face-to-face interaction.

On personal sacrifices he made for Zappos in the early days:

I continued to put some of my own personal cash into the company every few months, but I knew it wasn’t sustainable. The company was still losing too much cash every month.

As the money in my personal bank account started dwindling away, I began selling the real estate that I owned so that I could put the proceeds from each sale back into Zappos. I eventually ended up selling every property I had bought except for the one I lived in and the party loft. I had wanted to sell the party loft, but the economy was so bad that there simply were no interested buyers.

On top of that, the restaurant that my parents were running was not meeting its sales projections, in part due to the economy and in part because none of us had any restaurant experience. The situation was dire. Everything I was involved in was running out of money. …

The only backup plan I had for myself personally was the thought that, whenever the economy would eventually turn around, I would be able to sell the party loft and convert that to cash. That would be my cushion and safety net. …

Nick [Swinmurn], Fred [Mossler] and I looked at other areas in the business where we could try to cut expenses. Even though it would hurt our growth, we decided to cut most of our marketing expenses and refocused our efforts on trying to get the customers who had already bought from us to purchase again more frequently. Little did we know that this was actually a blessing in disguise, as it forced us to focus more on delivering better customer service. In 2003, we would decide to make customer service the focus of our company. Even so, at the time, our No. 1 priority wasn’t customer service. It was simply survival.

The need to survive and figure things out had an unanticipated consequence. It brought all of us closer together because we all shared the same goal of not going out of business. Even though we were going through some tough times … we were all fiercely passionate about what we were doing. We had all made sacrifices in our own way because we all believed in the potential and future of the company. Without realizing it, Zappos had become my new tribe.

On public speaking:

As our media coverage increased, I started receiving more and more speaking requests for different conferences and industry events. One of my first speeches was at the Footwear News CEO Summit in 2005. I remember I was a nervous wreck because I hadn’t really done much public speaking before. At the time, I agreed to do it because it would be a good opportunity to tell the Zappos story to a lot of footwear vendors we were still trying to establish relationships with. I wrote out my entire speech beforehand and then spent a month memorizing it and rehearsing it. I couldn’t sleep the night before my speech. It ended up going OK, and I was relieved when it was finally over so I could catch up on my sleep. Even though I didn’t really enjoy the whole experience, it had a very positive impact on our business, so I was glad I had done it.

During my first year of public speaking, I was diligent about writing out my speeches beforehand and memorizing them. It took a lot of time to do, and I would never sleep well the night before my talks. … With each speech, I found myself slowly improving. But I still didn’t enjoy the actual speaking itself. And then one day, I had an epiphany. I realized that nobody knew what I had written down beforehand. Nobody would ever know if I skipped a sentence, a paragraph, or even an entire section. I also had noticed that while people appreciated the content of my speeches, they generally commented about two things afterward. They told me they really enjoyed the personal stories, and they said that, even though many of them had already read about Zappos in the press, it made a huge difference to actually hear it come from me.

So for my next speech, I tried a completely different approach. I decided not to memorize or rehearse anything. I would just wing it and see what happened. … When I finally got on stage, I still had some jitters for the first minute or two as I adjusted to the audience and the room. After that, the time just flew by. The audience was more engaged than they had been in my previous talks. I even managed to get some unexpected laughs.

On sealing the deal with Amazon:

We had originally been resistant to the idea of exploring an acquisition scenario with Amazon, but [Sequoia Capital’s] Michael Moritz convinced us that it could end up being mutually beneficial and the best possible outcome for shareholders, as well as employees. (And as it would turn out, he was right.)

Initially, Amazon wanted to literally buy Zappos using cash because that’s how they had done most of their previous acquisitions. That didn’t sit well with Alfred [Lin], Fred or myself. In our minds, that felt too much like we were selling the company. Selling our company wasn’t our goal. We wanted to continue building the Zappos brand, business and culture. And we wanted to continue to feel like owners of the company.

So we pushed hard for an all-stock transaction, meaning that Zappos shareholders would simply trade in their stock in exchange for Amazon shares. In our minds, this was much more in the spirit of the marriage that we were envisioning, analogous to when married couples get a joint bank account.

As both sides got to know each other better over the next several months, our levels of mutual trust and respect for each other and for each other’s business grew. When it finally came time to sign the paperwork, we felt incredibly lucky. Amazon was a win-win situation that made everyone happy: It was good for Amazon, good for our board of directors and shareholders, and good for Zappos employees. We could continue working toward our long-term vision and building our culture and our business the way we wanted to.

The hardest part about the whole process was having to keep everything secret from our employees for several months leading up to the signing of the paperwork. We didn’t want to do it, but were legally required to by the [Securities and Exchange Commission] because Amazon was a public company.

Jeff Bezos flew to Vegas and came to my house to meet Alfred, Fred and myself right before the actual signing of the legal paperwork. I barbecued burgers for him in my backyard and we all talked for a few hours. Later that night, Fred and I randomly ended up spending two hours in a recording studio and hanging out with Snoop Dogg. At the end of the night, Fred and I looked at each other and couldn’t help but laugh. The entire day had been surreal.

July 22, 2009, was the day we were planning on signing and announcing the pending acquisition to our employees and to the world. We planned on announcing after the stock market closed. The hours leading up to the public announcement were nerve-racking. We had to coordinate with Amazon to get all the timing down perfectly. We had to communicate with Zappos employees, Zappos vendors, Amazon employees, Amazon vendors, the press calling Amazon, the press calling Zappos, our customers, the SEC, our board of directors, our investors and the general public all within a two-hour window, and it had to be perfectly coordinated. It felt like we were about to launch a rocket to the moon.

 

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