Hsieh on Culture and Change: ‘It’s Just a Matter of Prioritization’

October 5, 2015

6:25 pm

Kicking off the first day of Celebrate in Las Vegas, Zappos CEO Tony Hsieh and Tech.Co CEO Frank Gruber took the stage to discuss change and culture. For Hsieh, some notable examples come from the company he’s built and a project focused on improving community.

For nearly 20 years Zappos has changed the way people purchase shoes and clothing, disrupting the markets in a huge way. In the past three and a half years, Hsieh also launched and advised the Downtown Project, a five year plan to make downtown Vegas a place of inspiration and entrepreneurial energy. Between both, there have been some misconceptions about how they are run, how Hsieh is involved, and how culture affects each. To clear things up, Hsieh dug into holacracy, the latest updates to the Downtown Project, and about living in an Airstream Trailer with an Alpaca named Marley.

Establishing Culture and Implementing Holacracy

For a business to be successful, culture is an important component that sets a company’s direction. For Zappos, they’ve recently implemented a holacracy, a new organizational model that distributes authority and decision-making through self-organizing teams. This is in place of traditional management structures with various levels of management.

“In comparison to a normal business, press gets it wrong. There is a hierarchy. We have circles with sub circles, and it trickles all the way down. A person can fulfill multiple roles in multiple circles,” says Hsieh.

In some cases someone may have the authority in one circle, but not in another. In some cases people misinterpret this to mean that there is no hierarchy, but in reality their holacracy creates a hierarchy of purpose rather than people. Some coverage over the move to a holacracy also suggests that there may have been an increase in turnover as a result, but Hsieh reinforced that there is more to the story.

“The sky is not falling. The most interesting number, looking at the end of the year, is what was the turnover over for the year. My hunch is that it won’t be that different from before. It temporarily sped up turnover, but should be the same,” says Hsieh.

At the end of the day it’s about establishing culture and having people be accountable for change. At the base of their holacracy model are Zappos’ 10 core values, which feed directly into their culture:

  1. Deliver WOW Through Service
  2. Embrace and Drive Change
  3. Create Fun and A Little Weirdness
  4. Be Adventurous, Creative, and Open-Minded
  5. Pursue Growth and Learning
  6. Build Open and Honest Relationships With Communication
  7. Build a Positive Team and Family Spirit
  8. Do More With Less
  9. Be Passionate and Determined
  10. Be Humble

When asked if any company could implement a holacracy model, including startups, Hsieh recommended doing so as early on as possible.

“The reality is, no matter what business or startup your in, there is never enough time to do what you really want. Accept that reality. You are never going to check everything on your to-do list. With that then, it’s just a matter of prioritization,” says Hsieh. “Getting clarity amongst your team, it’s a small team, so hopefully you can arrive at some sort of agreement, and call each other out when that’s not happening.”

If he had to go back and do it all over again, they would have implemented these changes from the beginning. Because they were already an established organization, it was a year long process. After asking the team what the values should consist of they had a list of 37.

“It wasn’t a democracy, but everyone had a chance to have their voice heard. It was helpful for employees to feel they were part of the process. Not everyone was happy with all of the core values,” says Hsieh.

In particular, core value 3, Create Fun and A Little Weirdness, was a bit of a concern for one member of the legal team. They wanted to know how they could measure what a little weirdness meant and exactly how much fun should be created.

Adoption of the values didn’t occur all at once; it took about 6-9 months. The timeline was based on managing people out of the company and in other cases people had yet to embrace them.

“The difference is there is a lot of people that are standing on the sidelines because they don’t want to risk supporting something if the company is really serious about it, that was the biggest tipping point. For me the most interesting part was when employees were naturally applying the core values to conversations,” says Hsieh.

Downtown Project and Creating Community

More than halfway through the Downtown Project’s five year timeline, their goal is still focused on the 3 C’s: collisions, co-learning, and connectedness. At a high level that means creating a positive cash flow across all of their investments and companies. Currently they own and invest in 300 companies with more than 900 employees.

Of the businesses, several are located at the Downtown Container Yard, a thriving scene with boutique shops, restaurants, and live entertainment located in the heart of Las Vegas. Prior to bringing the shops in, it was an unused lot. Each business is housed in a converted container, reducing overhead cost and works very similar to how Local Motors tests new markets with their micro-factories. At the end of the day it’s about creating community. According to Hsieh, community can mean several different things, but for the Downtown Project it’s tied to their 3 C’s.

“Combined with diversity, bringing in entrepreneurs in a small space, the magic sort of happens on it’s own,” said Hsieh.

Photo credit – Scott Kosch

On October 4-6, Tech Cocktail Celebrate Conference is gathering hundreds of attendees, industry leaders, and inspiring speakers in downtown Vegas to meet the hottest startups and investors from around the country, learn and collaborate with others turning their communities into startup cities, and enjoy music, parties, and llama spotting. Check out more Tech Cocktail Celebrate Conference coverage here.

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Elliot is an award winning journalist deeply ingrained in the startup world and is often digging into emerging technology and data. When not writing, he's likely either running or training for a triathlon. You can contact him by email at elliot(@)elliotvolkman.com or follow him on Twitter @thejournalizer.

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