MBD Essentials May 5th, 2019

The Journey To Where We Are Today

On January 22, 2017, Tony did an interview with Guy Raz from NPR for the podcast “How I Built This.”. It focuses on the early history of our company and how the DNA of our success is melding into tomorrow's vision of what success will look like. Check it out through the link below, then join us for a little deeper dive...

Externally, most people think of Zappos as an online shoe retailer(and at times a clothing one). If you quiz Zapponians about what Zappos is, do you think most think we're a online shoe and clothing retailer? Or do you believe they would say as Tony states in the podcast, "We are a customer service company that happens to sell shoes"?

From the time I started at Zappos in May, 2004 (and even well before that), Zappos has always had a philosophy of:

"We're a customer service company that happens to sell ______________."


I remember the above being printed inside an original Zappos vendor "sales pitch" binder that was on display in our old office in San Francisco. Funny, also in that binder was a quote: "In the foreseeable future, all men, women, and children will wear shoes" (or something to that nature).

Another historical and interesting data point around the future focus of customer service was in the creation of the name "Zappos". Our company was officially launched in June 1999, under the name "shoesite.com". In an effort to not pigeon-hole the company's future to just selling footwear, Tony suggested to Nick that we change the name to something else less constraining. (As the story goes, Nick Swinmurn's original idea for a name was “Zapos”, derived from zapatos, which was the Spanish word for “shoes.” Tony convinced Nick to add another "p" to it so that people wouldn’t mispronounce it as "ZAY-pos").

Another interesting point related to this, but would be initiated years out, would be the evolution of our company motto. Today you know it as "Powered by Service", but once upon a time it wasn't:

1999 - "The World's Largest Shoe Store!" 
2000 - "The Web's Most Popular Shoe Store". 
2006 - "We're A Service Company That Happens To Sell...essentially our stuff" 
2007 - "Powered by Service"

See more extensive timeline below...

In another historically important event, Tony's book "Delivering Happiness"(2010) and the book tour he went on, wasn't about being successful in the footwear business, it was a story that reflects on how chasing passion and purpose, using "happiness" as a framework, can produce "profit" in both business and life (In this, Tony admits that "shoes" isn't his passion, it's how "customer service and experience can be a differentiator" that is his passion).

Lastly, the focus on the customer is reflected in every Circle's Purpose throughout Zappos through a customer-focused Policy out of the GCC:

No circle may be created unless:
(1) there is a customer (internal or external) explicitly stated or clearly implied in its purpose or accountabilities and
(2) some thought is given to including the word WOW somewhere. :)

Zappos' Early Evolution

We've always been an evolving company...

1999: Shoesite.com to Zappos.com
1999: "The Worlds Largest Shoes Store!"
2000: "The Web's Most Popular Shoe Store"
2003: 'Service & Selection': Refined focus on Service & Experience
2006: Zappos' Core Values Adopted
2006: "We're A Service Company That Happens To Sell ..."
2007: "Powered by Service" & 'Personal Emotional Connection'
2009: "Delivering Happiness"


Core Values

As the company grew, it became important to find a way to maintain its culture with each new hire. In January of 2005, Tony polled every employee on what they thought Zappos’ core values should be, which resulted in a list of 37 culture ideals. This list provided the foundation and on Valentine’s Day, 2006, Zappos’ 10 Core Values were introduced to the company. The 10 Core Values continue to guide the Zappos culture today in everything we do, including the whys, whats, and hows we self-manage and self-organize.

In 2003...

We launched an internal saying:

"Zappos is a service company that just happens to sell shoes."

In the long run, we want the Zappos brand to be about the very best customer service and customer experience. Our hope is that in the future, people won't even realize we started out selling shoes online, and in fact today we sell a lot more than shoes. We also sell clothing, handbags, and other product categories, and have talked about how there could one day be a Zappos Airlines or Zappos Hotel that's just about delivering the very best customer service and customer experience. Our philosophy is to take most of the money that we would have normally spent on paid advertising or paid marketing and instead invest that money into customer service and the customer experience (such as our Customer Loyalty Team, free shipping both ways, surprise upgrades to overnight shipping, etc.), and let our customers do the marketing for us through word of mouth.

Zappos & Amazon Sitting In A Tree

"Zappos and Amazon sitting in a tree ..."
  • Tony Hsieh

In July of 2009, Zappos announced its plan to join the Amazon.com family, and in November of 2009, the acquisition became official. This partnership not only represents a shared goal of offering the best customer service possible, but also provides Zappos the opportunity to grow while staying true to its culture and roots. The Amazon acquisition is important to our history because it allowed Zappos to remain completely autonomous, something that is rare with Amazon acquisitions.

5 Tenets” of the Zappos/Amazon Relationship

Unlike most other subsidiaries of Amazon, Zappos is run independently of Amazon because of an agreement between Amazon CEO Jeff Bezos and Zappos CEO Tony Hsieh that was made in 2009 as a pre-condition to the acquisition. These were formalized into the “5 Tenets” document that we continue to refer to and can be useful to reference for both Zappos and Amazon employees that joined after 2009 and/or are less senior and have not read the original 5 Tenets document and may therefore be unaware of the degree of independent decision-making authority that Zappos has. For convenience, here are the 5 Tenets (which have been shared both internally and externally, including with the media) have been copied and pasted here:

Since announcing the transaction, Amazon and Zappos have worked on establishing the tenets by which we will manage our relationship. These five tenets will guide how we will work together:

  1. Zappos will operate independently, overseen by a management committee that will function similar to the prior Zappos board of directors. The committee will initially be made up of 3 people from Amazon and 3 people from Zappos.
  2. Zappos' unique culture has been core to its success to date, and we look to protect it.
  3. There will be differences between the customer experiences on Amazon and Zappos, and we will maintain separation so customers understand these differences.
  4. Amazon wants to learn from Zappos and vice versa. We will share information back and forth to facilitate learning.
  5. The only integration "must-haves" are processes legally necessary (for example, there are disclosure restrictions due to Amazon being a public company). These will be clearly defined and communicated.

We believe that these tenets embody the spirit of allowing Zappos to continue to build its business, brand, and culture and allowing Amazon to derive the maximum value from the transaction. In addition, just like Zappos core values, we will refer to these tenets as first principles for making decisions on how we will work together, what we will integrate, and what we wish to remain separate.

Note from Tony to Zappos Employees: If you are interacting with an Amazon or Zappos employee that may not be aware of the 5 Tenets, please feel free to share the 5 Tenets and this document with them and loop me in (and/or cc me) on any conversations that are not aligned with the above tenets so that I can help escalate within Amazon appropriately._

Our Move Downtown

In October of 2013, Zappos said goodbye to its home in Henderson, NV and moved into the former City Hall in downtown Las Vegas. The move downtown built and heighten on our sense of community and entrepreneurialism. A mindset that has always been important to our culture and values, but in downtown, it would be amplified.

Every time the size of a city doubles, innovation or productivity per resident increases by 15%. But when companies get bigger, innovation or productivity per employee generally goes down. Research has shown that most innovation comes from something outside your industry being applied to your own. So integrating Zappos employees into the downtown ecosystem will lead to more serendipitous encounters ("collisions"), more collaboration, more co-learning opportunities, and ultimately more innovation and productivity.

Why Is All This Important?

Tony has been saying for a really, really, really long time (well before 2016 All-Hands talks of SaaS and business diversity (think Virgin), and in even more recent conversations of "Market-Based Systems and Dynamics", Zappos Airlines, and Zappos Hotels, etc..) that down the road, people won’t even realize that Zappos started by selling footwear, but that Zappos is known and remembered as the best customer service and customer experience company in the world.

The aim of the Zappos brand in the early days was to reach beyond footwear, but it would eventually become EVEN BIGGER than that. The vision would become that Zappos is THE brand that provides the very best customer service AND experience.

Evolution Has To Become Inevitable For Us

We were faced with a ton of roadblocks and red tape; we had a lot of resource constraints. We didn't have great ways to channel or process new ideas because our to-do list is so long (and at times, we're working on stuff that really doesn't matter because we're not completely focused on current reality). Nothing against the “hierarchical” organization, it has gotten us to the successful place we are today. However, in order for us to achieve even bigger and better things we have to rethink how we become more effective and efficient as an organization. Companies that do not evolve die. We have a strong culture and we have been able to keep that in spite of the increasing challenges of bureaucracy, but we are ready to move to a system that is more conducive to our culture and core values.

What Is Self-Management / Self-Organization?

At its core, “self-management” means knowing exactly what you are responsible for, and having the freedom to meet those expectations however you think is best. “Self-organization” is being able to make changes to improve things - beyond what is required of you. Simple in theory, but everyone has to truly commit for it to work!

Our Stepping Stones in Self-Management



What Is Holacracy?

There are countless different methods for a company to become more self-managed and self-organized. Holacracy, which was created by [HolacracyOne[(https://www.holacracy.org/holacracyone), is one of them. Holacracy is like an operating system for your organization. It is a predefined set of rules and processes, checks and balances, and guidelines that an organization can use to help them become self-managed and self-organized by giving every employee (instead of just management) the power to innovate, make changes, and have a voice.

More information can be found HERE internal link only

Holacracy - Company-Wide Announcement September, 2013

CEO Tony Hsieh explains how Holacracy can help companies structure and scale for growth: "Research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15 percent. But when companies get bigger, innovation or productivity per employee generally goes down. So we’re trying to figure out how to structure Zappos more like a city, and less like a bureaucratic corporation. In a city, people and businesses are self-organizing. We’re trying to do the same thing by switching from a normal hierarchical structure to a system called Holacracy, which enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.”

Holacracy Timeline

October, 2012:

Tony saw Brian Robertson, the creator of Holacracy, speak at a conference.

November, 2012:

Tony had an introductory meeting about Holacracy to explore the idea.

January, 2013:

A small group of Zapponians went to a 2-day offsite to further explore the potential of Holacracy to help decide if it was right for Zappos.

April, 2013:

Our HR department (consisting of ~70 people at the time) became a pilot group to test Holacracy within Zappos.

September, 2013:

Tony officially announced the plan to use Holacracy at our company-wide All Hands Meeting.

January, 2014:

Holacracy officially began to roll out to Zappos as a whole.

March, 2014:

Zappos’ own implementation team started training all employees on Holacracy in-house (we were originally being trained by HolacracyOne).

March, 2015:

Tony sent out a company-wide e-mail where Zappos employees first received “The Holacracy Offer”. The e-mail contained what our vision of the future was at the time. In the years that followed, we would come to better understand what self-management really was, as well as tailor Holacracy to fit our unique needs.

As one example, the e-mail mentioned that we no longer had a need for "people managers", because Holacracy uses "Lead Links" in their place. As we would later learn, we still very much had a need for the skills, knowledge, experience, and leadership that most formal managers had. It shared what our vision of the future was at the time. In the years that followed, we would come to better understand what self-management really was, as well as tailor Holacracy to fit our unique needs.

June, 2015:

Holacracy training became part of our New Hire onboarding process, ensuring that every new employee to be hired would go through Holacracy training as well

September, 2015:

Holacracy was finally rolled out to the last team in Zappos, marking the technical end of the “implementation” period.

Why Did Zappos Want To Be Self-Managed/Self-Organized?

As our company grew, we became slower to sense and respond to customer feedback, because of the layers employees needed to go through to get things done. Holacracy is a tool that allows every employee to quickly surface and act on customer feedback, so we can continuously provide WOW service, regardless of the size of our company.

Why Holacracy Specifically?

There are a lot of companies self-managing in a lot of different ways, but most of them created and developed their own unique method and honed it over several years. So, why did we go with Holacracy? Aside from it arguably being the most publicly well-known, it is one of the only pre-built, out-of-the-box options that any organization can implement, regardless of size, sector, or industry. Holacracy immediately provided us with a set of rules and processes that everyone could see, with a lot of the nuances and checks-and-balances already figured out for us.

Are We Still Using Holacracy?

Zappos is still using Holacracy and we currently have no plans to change that. However, Holacracy is built to focus on the work, rather than the people, while Zappos is *all *about the people. So, we've evolved how we use Holacracy to find ways to layer our culture, core values, and focus of people into the system in a way that works best for us. One example of how we've kept culture and people top of mind while using Holacracy was by integrating our Oath of Employment into our Holacracy practice.

“Attention Zappos! With all this exciting talk about Holacracy and its implementation across Zappos, you might be wondering… Where and how do the Zappos Core Values fit in all this? Hold that thought. 

If you haven’t yet, you will soon be learning all about Holacracy. One sentiment you will hear frequently is that in Holacracy, we make the implicit, EXPLICIT! :) Or in other words, we use Holacracy to clearly state our work, our accountabilities, and our purposes. No more unspoken or “understood” expectations. All of it goes into Holacracy and Huzzah now yo! 

We all know that our culture and our core values are THE secret sauce behind not only our success, but our love for this company and for being a part of it. 

That said, we want to clearly place our Core Values, the backbone of our Culture, into Holacracy and Huzzah so there is no question that even in this awesome movement towards self-organization, our Core Values come first.”


In March, 2015, "Reinventing Organizations", by Frederick Laloux, as well as the term, “Teal” was introduced to the organization.

What is Teal?

A “Teal Organization” is an emerging organizational paradigm that advocates a level of consciousness including all previous world views within the operations of and organization. The Teal paradigm refers to the next stage in the evolution of human consciousness. When applied to organizations, this paradigm views the organization as an independent force with its own purpose, and not merely as a vehicle for achieving management's objectives. Teal organizations are characterized by self-organization and self-management.




While Holacracy was considered to be the “letter of the law”, Teal was the “spirit of the law”.

The big takeaway... There are *three primary breakthroughs *of “Teal Organizations”:


Teal Organizations have found the key to upgrading their structures from hierarchical, bureaucratic pyramids to powerful and fluid systems of distributed authority and collective intelligence.


Organizations have always been places that encourage people to show up with a narrow “professional” self. Teal Organizations have developed a consistent set of practices that invite us to drop the mask, reclaim our inner wholeness, and bring all of who we are to work.

Evolutionary Purpose

Teal Organizations are seen as having a life and a sense of directions of their own. Instead of trying to predict and control the future, members of the organization are invited to listen and understand what the organization is drawn to become, where it naturally wants to go.

Teal Announcement

Tony sent a letter to the company reflecting on three major topics:

  1. The why behind our path to self-management / self-organization
  2. A reflection of “Reinventing Organizations” and our path to “Teal”, and
  3. A special version of “the offer” was offered on a company-wide scale. If employees felt that self-management, self-organization, and our Best Customers Strategy and strategy statements as published in GlassFrog (now Huzzah) were not the right fit, they could take the said offer.  

The letter can be found HERE internal link only

Market-Based Dynamics (MBD)

Launched as an experiment in March 2017, Market-Based Dynamics (MBD) is a venture that enables a Circle to think and operate as its own autonomous small business, so long as it a) has customers who are willing to pay for their work and b) “break even” financially (don’t spend more money than they earn). Market-Based Dynamics is a methodology that helps us continue our path toward self-organization and self-management (toward our goal of becoming a company that's around in 100 years (an evolutionary organization)).

Customer-Generated Budgeting (CGB)

Holacracy, although a tool to help us self-manage/self-organize, still has traditional, top-down budgeting authorities and mechanisms. Instead of having a top-down approach to budgeting (where budgets are passed down from the GCC to and through each SubCircle), budget conversations and transactions happens between Circles across the organization. The traditional process of hierarchical budgeting no longer exists in 2019 as we move towards a networked approach to budgeting.

CGB framework was built in September 2018 and launched company-wide in January 2019.

Triangle of Accountability

One of our goals in 2019 is that every person and team at Zappos has the minimal number of constraints that enable maximum freedom, but also maximum accountability. We make what this means explicit through the Triangle of Accountability, where any Employee / Circle can do whatever they want so long as they simultaneously deliver on each side of the triangle.

The Triangle of Accountability had a "soft-launch" in September 2018 and launched officially in December 2018.

Next document you can dive in to is: First Steps For Learning and Engaging