Supported by Greenhaven Road Capital, finding value off the beaten path.
Courtesy of some nudging on Twitter, I re-read Delivering Happiness by Tony Hsieh (pronounced “Shay”), the CEO of Zappos. It was great.
What struck me on the re-read was how much I missed! Or, how much I now understood. Shane Parrish wrote why:
That’s how I felt about this entire book. My first read had been BBM (before Buffett & Munger) and I missed all the parallels to them. It was before I wrote a short book on failed start-ups. It was before so much.
Reading the book also confirmed my hypothesis that podcasts make for excellent book previews and summaries. The big ideas from the book were in the How I Built This episode with Hsieh. The Russ Roberts interview with Sam Quinones was a preview of Dreamland. Podcasts are great.
Ready for my notes?
1/ Experiments. Hsieh writes, “I tried to expose myself to as many interesting things in high school as possible.” That meant classes in Morse code and Japanese. His first start-up, Link Exchange, was an experiment too. “It was more like, we were bored, let’s see what happens,” Hsieh tells Guy Roz in How I Built This. The early version of Zappos was also an experiment. If visitors ordered from Shoesite.com someone would go and buy the shows from a brick and mortar store.
Experimentation is important. “The big secret,” about business success, says Brent Beshore, “is there is no secret.” His advice is to experiment, and “do more of what works and less of what doesn’t.”
What you want to get to are that’s interesting moments. Hsieh almost passed on Zappos until he heard from founder Nick Swinmurn that catalog sales were 5% of the industry – and growing. Hsieh went from thinking ‘people won’t buy shoes without trying them on’ to thinking ‘oh, wow, people are already buying shoes without trying them on.’ The experiment of Shoesite.com started with some knowledge of how the world works.
People buy shoes without ever trying them on? That’s interesting.
2/ Snooze buttons. In college, Hsieh often slept through his first class. When it was time to rise for the second one he reasoned that he could skip one class he could skip two – and so on.
Hsieh graduated – thanks to some clever solutions he shares in the book – and got a job at Oracle. Soon after Hsieh and his roommate discovered, “we didn’t want to work at Oracle.” Onto the start-up!
That start-up became Link Exchange and Yahoo offered twenty million dollars for the company. ‘Okay’ thought Hsieh, if I had that much money what would I do with it? He wanted a new computer and TV. Maybe upgrade his home too. As Hsieh made the list he realized he already could do everything on his list – expect one. Run a company he loved.
“ I was already helping run a company I was excited about. It seemed kind of silly to sell a company I was excited about in order to start another company to be excited about.”
Peter Thiel recalled Mark Zuckerberg saying the same thing about his offer from Yahoo.
Hsieh concluded this by getting to the end state. What do you want from our lives? He writes:
“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.”
With this conclusion, Hsieh turned down the Yahoo offer. Later Hsieh woke up and realized something went wrong. “I was the co-founder of Link Exchange and yet the company was no longer a place I wanted to be at.” The culture and company had grown into something Hsieh didn’t like. The endstate he wanted had changed.
Hsieh’s path shows us a clear signal; do I want to wake up and do this? In high school, the answer was yes because he got to choose the classes. In college, it was no. At Oracle, it was no. At the start-up, it was yes, then no.
Mohnish Pabrai said the same thing about an alarm clock as a signal. I loved this advice.
To a point.
The key is to find balance. How many days do you push the snooze button and how many days do you jump out of bed?
3/ Having your cake and eating it too.
Guy Raz: “Customer service wasn’t baked into the model from the beginning?”
Tony Hsieh: “In the beginning, we always wanted to offer good service but it wasn’t until we decided that’s what we wanted our brand to be about that it was the most important thing. It led us to do many things that would not have made any sense if that wasn’t our north star.”
In episode #102 of Exponent.fm, Ben Thompson and James Allworth talk about this idea as it relates to technology. “You have to understand what your advantages are,” Thompson says. For Samsung, the advantages are manufacturing and distribution. For Facebook, the advantage is 500 million users. For Harry’s, the advantage is brand.
These advantages go by another name; moats. “There is no sustainable business model,” Thompson says, “built on features alone.” Companies need an advantage and that advantage will preclude other things. Amazon’s advantage is low prices on a wide selection. My local hardware store’s advantage is advice and convenience.
Companies need to realize this because it means doubling down on your strengths and punting your weaknesses. It means copying.
Throughout the Exponent episode, Allworth praises Instagram for swallowing their pride and copying Snapchat. Thompson points out that Nokia did something innovative – rather than copy – “and they went to the grave.”
The advantage for Zappos is their customer service (brand). What that means though is that they can’t be anything else.
4/ Lessons from the poker table. This was my favorite quote from the book:
“Understanding the mathematics behind hold’em and playing against players who didn’t was like owning a coin that would land on heads one-third of the time and tails the other two-thirds of the time and always being allowed to bet on tails.”
This part of the book was so good I took pictures of the pages and saved them to Evernote.
5/ Watch that basket! “Well, if you think we should put more money into Zappos, then we really should be spending more time with them in order to protect our investment.” – Alfred Lin
To catch you up. Hsieh leaves Oracle, starts Link Exchange, sells it to Microsoft, starts a venture capital fund, invests in Zappos and others, sees the other investments fail, and sees the funding landscape dry up. The moment of truth arrives when it’s time to double down on Zappos or let it whither. Hsieh doubles down.
Warren Buffett has used different metaphors – flashlights rather than lanterns – but the idea is to pay attention to the important things.
Putting your eggs in one basket can be great, but you have to watch that basket.
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