Zappos’ CEO on Using Corporate Relocation to Preserve Customer-Led Culture

In the years since Zappos was founded, we’ve had to make some big decisions. One of the most significant came in early 2004 when we decided to relocate from San Francisco to Las Vegas.

Our biggest problem then was customer service—specifically, finding the right employees to staff our call center. A lot of people may think it’s strange that an internet company would be so focused on the telephone, when only about 5% of our sales happen through that channel. But we’ve found that on average, our customers call us at least once at some point, and if we handle the interaction well, we have an opportunity to create an emotional impact and a lasting memory. But that requires the right type of customer service reps—and our inability to find enough dedicated, high-caliber people near our Bay area headquarters was turning into a huge problem.

When we started to look at new locations for our call center operations, we initially considered outsourcing to India or the Philippines and met with a few potential providers. But we were reluctant to relinquish control of something that is one of Zappo’s core competencies. Our drive to achieve world-class service is what sets us apart from many of our competitors. We put our phone number at the top of every single page of our website because we actually want to talk to our customers. We staff our call center 24/7. We don’t have scripts because we want our reps to let their true personalities shine during every phone call. We don’t hold reps accountable for call times. And we don’t upsell—a practice that usually just annoys people. We care only whether the rep goes above and beyond for every customer.

Our belief is that as unsexy and low-tech as it may sound, the telephone is one of the best branding devices out there. You have the customer’s undivided attention for five or 10 minutes, and if you get the calll right, he or she remembers the experience for a very long time and tells friends about it. Usually when marketing departments do their ROI calculations, they assume that the lifetime value of a customer is fixed. We view it as something that can grow if we create positive emotional associations with our brand. We didn’t trust that a third party would care about our customers as much as we did. So we agreed that Zappos employees should staff the call center.

We settled on Las Vegas for a number of reasons. It’s an all-night city where employees are used to working at any hour, which would help us find people willing to take the overnight shift. And because so much of the city’s economy is focused on hospitality, the city has a customer service mentality—employees there are used to thinking of people as guests. We also thought it was the alternative that would make our current staff the happiest.

Two days after our executive team made the decision, we held a company meeting and announced the move. We explained that we would pay the relocation costs for any employees who came along, and we’d help them find new homes. We had about 90 employees in San Francisco at the time, and I had guessed that maybe half of them would decide to uproot with the company. A week later I was pleasantly surprised to learn that 70 were willing to give Vegas a shot. The move cost about $500,000 altogether, which was a significant amount of money for us at the time. We also lost some good people: Our star software developer loved San Francisco and decided not to leave. And our timing could certainly have been better:  We moved at the height of the real estate boom in Las Vegas, and subsequently property values dropped across the board.

However, our decision to relocate paid off in several ways. When we arrived in Vegas, we had no one to lean on except one another. Our company culture, which had always been strong, became even more so. As we grew, we made sure we hired only people we would enjoy hanging out with after hours, and as it happened, many of our best ideas arose while we were having drinks at a local bar.

By 2008 we had hit $1 billion in gross merchandise sales. But the economic slowdown made for a crazy year. Even though we were still growing, we realized that our expenses were too high for the revenue we were bringing in. In 2009 we agreed to sell ownership of Zappos to Amazon.

Amazon has always described its goal as being the most customer-centric company in the world, but its approach is more high-tech than ours. Ours is more high-touch—we try to make a personal connection. Since the sale, we’ve learned from Amazon’s technology: We’ve started to track some metrics Amazon tracks, and we’re learning how it thinks about warehouse operations. We’ve also expanded far beyond shoes.

Today we have more than 1,800 employees. We offer starting pay for call center reps of around $11 an hour—but because Zappos is known as a great place to work, we have no shortage of applicants. Last year 25,000 people applied for jobs with us, and we hired only 250. Someone told me that statistically it’s harder to get a job at Zappos than it is to get admitted to Harvard, which says a lot about the strength of the culture we’ve created here.

Looking back, I attribute most of our growth over the past few years to the fact that we invested time, money, and resources in three key areas: customer service, company culture, and employee training and development. The move to Las Vegas helped us make progress in each of the three.

If you’d like to hear what our telephone reps sound like, just pick up the phone and give us a call.

Harvard Business Review