I was thinking throughout the week about culture again. Obviously, that is a theme, but I was thinking about it from a self-centered perspective. How does the culture of a company impact me personally? I am sure you have thought similarly in the past as you have dealt with different organizations in your day to day activities.

I read a book recently by Tony Hsieh, “Delivering Happiness: A Path to Profits, Passion and Purpose.”  This book is written by Tony Hsieh, founder of Zappos, and highlights the growth of a fledging company that was eventually acquired by Amazon for nearly $900 MM.

I highly recommend it to anyone who wants to see how a radical pursuit of culture can drive a company to immense growth. Now I have not had the pleasure of meeting Tony personally, but just reading that book made me feel like I could speak to him on a first name basis if I met him on the street.

One takeaway I had from the book was the fact that Tony truly wanted his employees to feel happiness and joy while they were at work. He did and continues to do this in a variety of ways.

He hosts epic parties, they have a relaxed work environment and they pay people to quit during the on boarding process. That last part may seem a bit radical, but they basically offer on boarding employees the opportunity to take a severance package if they don’t feel like they are a good fit.

This has a two fold impact; it weeds out those who probably shouldn’t be there and it prompts those writing a blog to mention it in their blog.

Even though Zappos has been around for a while and I am technically a millennial, I had never purchased shoes from the website before. I tend to be a tactile guy who wants to hold something in my hands before I buy, so the concept seemed at odds with my buying style.

After I read the book I decided that I needed to at least try out the service and see what I thought. I chose some shoes that I have worn in the past (I don’t want to dive head first here) and placed my order. Typically you get delivery in two days so before I knew it I had a box on my doorstep. I eagerly opened my box, discarded the paper and put on the shoes… and they didn’t fit.

So at this point I have a conundrum, I never order online for this very reason. Well the book did mention that they offered free returns as a part of their culture and that they actually preferred for you to call, so they could speak directly with you.

Tony has a 24/7 operation where you can call and place orders, make returns and so on. I decided to follow this experiment to its natural conclusion and make the call. This is the opportunity to learn how Zappos’s culture would impact me personally.

I made the call and explained the issue of the shoes being a bit too large. The person I spoke with was nothing but kind. He talked about the weather and things that were going on in his neck of the woods, which happens to be Vegas.

He also placed an order for a smaller size to be sent, as well as a return label so I could ship the other shoes back for free. Now this may sound like standard fare, but the entire call was relaxed, personable and memorable.

Now I am by no means a frequent customer of Zappos, but I know I can rely on them for a quality experience and they are no longer this faceless entity swallowing up my money.

At the heart of it, that is culture’s impact on you and I. We interact everyday with companies and people and we have a takeaway from those interactions.

Sometimes its not a science, its a feeling.

Image credit: Charlie Llewellin

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

It’s a short post today, because there are a number of links well worth reading.

Way back in 2008 I wrote It’s the People, Stupid, about the value of taking care of your people, as exemplified by Zappos, Costco and Trader Joe’s.

I’ve written many posts citing Walmart’s chew-them-up/spit-them-out lack of care and how banks, Yelp, HubSpot and Nest, among others, are following the Walmart model.

Dan Lyons, who spent two years at HubSpot, has written a book about his experiences called “Disrupted: My Misadventure in the Start-Up Bubble.”

You can get a sense of how HubSpot chews and spits from his opinion piece in the NY Times.

The upshot of all this is that you, as a founder, have a choice as to which model you’ll emulate.

Walmart or Zappos.

Just understand that you can’t switch from one to the other based on the employment market or your mood.

Image credit: HikingArtist

Jim Heskett is a very smart guy. At the beginning of each month he asks a question of his readers, then publishes a summation of the general ideas expressed the comments at the end of it.

The topics are always timely, of great interest and the conversation lively.

This month he asked about something that is on many founders’ minds thanks to Tony Hsieh actions at Zappos.

The question was, Is the Time Right for Self-Management.

Here is the summary. I believe you will find it of great value to read all the comments if you are considering adopting/adapting it for your company or just intrigued by the idea.

When and Where Will Holacracy Work Best?

Holacracy, or self-management, is an interesting concept and not entirely new. It can work, but only under the right conditions. And its applications will be limited. That’s what one might conclude from reading responses to this month’s column.

The more thoughtful of them provide a primer on applying the concept. Deborah Nixon’s comment echoed several others when she said the idea has been around a long time in other forms, by other names. “The larger an organization becomes, the tougher one model is to implement. The time has always been ripe for self-management and there are always people who will poke up their heads and insist on managing themselves. But it isn’t a quick fix.” Others cited its long-time application in the London taxi system (Andrew Campbell), the hospital ER (M Iqbal Gentur B), and even Aboriginal societies in ancient Australia (Kai Akerberg).

Stephens Jr., who loves the idea, said, it does not come without extensive time, cost, and involvement in employee development. “I not only say yes (to the question of whether the time is right for self-management), but ‘it’s about time.'” Dyan Porter added, “Holacracy strikes me as a positive way to manage professionals, especially in flat organizations where job advancement is limited.” Brooks Tanner commented, “Regardless of its level of success at Zappos, this form of organization is the way of the future. The rapidly increasing complexity and unpredictability of our world is such that only a highly distributed decision-making structure will be able to adapt and respond effectively, she continued. “Most of us don’t think a centralized planning type economy makes sense. Why should it make the most sense for organizations?”

Others saw limited potential in the concept. As Edward Hare put it, “There are some people capable of managing themselves in a larger organization … but many who can’t… This strikes me as another of those ‘ideas’ promoted by consultants and academics. ” Frank Fabela added, “Holacracy in its form of each individual taking responsibility for their own self-management is absolutely necessary, however it is the responsibility of ‘managers ‘ to ensure effectiveness of the organization through coordination of those objectives. Pure holacracy … absent management is destined to fail.” Krishnan Mak was more succinct when he said: “Culture will eat Holacracy for breakfast.”

Many comments addressed conditions under which Holacracy might work best. “It might not be for everybody,” wrote Maria Rosa Serra, “but if you hire employees aligned with your values and pay them fairly, it seems an interesting proposal for both the company and the individual.” Juan Manuel Salas Guevara commented that the challenge in Holacracy “is a strong communication process from the top level of the organization that enables each member to understand the company’s vision.” Charlie Efford added that “The key to self-management becoming embedded is changing the mindset of the management team. Most corporations haven’t made this shift.” Denis Collet suggested “it’s all about clear goals and deliverables, and the metrics for success. Absent of these it’s bound to fail.”

Personally, I agree with Krishnan Mak when he said, “Culture will eat Holacracy for breakfast.”

Image credit: HBSWK

Culture is recognized as the “make or break” for companies of all sizes, so it’s logical for bosses at all levels to look for insights on creating and retaining a winning culture.

Zappos and Southwest are often held up as icons of good culture, but they also know that sustaining their culture doesn’t happen by accident—it takes consistent hard work at all levels.

They know that certain behaviors and actions must be actively managed, as well as made visible to the organization at large.

Companies with the most effective culture seek out and continually reinforce what Charles Duhigg, author of The Power of Habit: Why We Do What We Do in Life and Business (Random House, 2012), calls “keystone habits.” A keystone habit, Duhigg has noted, is “a pattern that has the power to start a chain reaction, changing other habits as it moves through an organization.” Companies that recognize and encourage such habits stand to build cultures with influence that goes beyond employee engagement and directly boosts performance.

The inherent problem that accounts for why these cultures are rarely created and, when they are, don’t have the lasting power bosses would like to see is a long way from rocket science.

The problem is, in fact, extremely simple.

Culture is more talked than walked.

Good cultures require well-thought-out, planned conscious effort.

And not just at conception, but for as long as they exist.

And sustained, well thought-out, planned, conscious effort requiring ongoing hard work is not the hallmark of most companies from startups through the Fortune 50.

Flickr image credit: David DeHetre

Last week I told you about an entrepreneur who insisted that a new winery was a business, not a startup and why I thought that was ridiculous.

Based on his thoughts, Zappos was not a startup nor was it scalable, but I’m sure that founder Tony Hsieh and acquirer Amazon have more than a billion reasons to disagree.

Now comes Milk& Honey, another startup that sells shoes online—a business using e-commerce; not exactly revolutionary, but one that is scalable and, once it proves itself, a prime acquisition target for someone like Zappos/Amazon.

In Ms. Howard’s case, that meant starting a business with her sister, Ilissa Howard, 39, in a field where neither had any business experience: fashion.

Make that two fields. Milk & Honey Shoes, their shoe company that allows women to design their own stilettos and pumps with the click of a mouse, is also an e-commerce business despite the fact that the sisters had zero tech expertise when they began.

Yes, they added a major tweak so that customers can design their own shoes, but even that isn’t original, Shoes of Prey is a direct competitor and Nike and Converse do it for sneakers.

What’s more, the sisters did the original funding from their savings; Milk & Honey, started in 2011, has already doubled sales, the company is profitable and they are now looking for investors.

Just as entrepreneurs come from many backgrounds, startups come in many flavors.

It’s a good lesson that applying labels and limits to human creativity, let alone human will, is a losing proposition at least 99% of the time.

Flickr image credit: Milk & Honey Shoes

Customer loyalty is a top priority no matter what you are selling—especially in retail.

Just ask Tony Hsieh, whose focus on Zappos’ workforce created the platinum standard of customer service that yielded a storied (and envied) level of customer engagement and loyalty.

The most important component by far is customer engagement. “Retailers should ask themselves, ‘how do I create a partnership with the consumer?’ instead of pulling one over on them,” says Harvard Business School senior lecturer José Alvarez. Many customers see loyalty programs as a way of being ambushed by the retailer.

Many retailers see smartphones as a successful way of engaging customers—but are they?

I have to wonder if they are taking into account the real numbers.

50.4% of the US population uses smartphones

• Asian Americans 67.3%
• Hispanics 57.3%
• African Americans 54.4%
• Whites 44.7%

Now take a look how the money breaks down.

48.5% of all smartphone handsets are Android, while Apple is at 32%, yet I constantly see product and service offers that require an iPhone.

Stop & Shop recently rolled out Scan It! Mobile, an app that turns a customer’s iPhone into a mobile scanner and checkout.

Gender-wise, smartphone use is nearly identical, 50.9% women 50.1% men, but age is a different story, with two out of three 25-34 year-olds having smartphones.

Marketers consistently target the younger demographic, but do they really have the money or are “Millennials the most screwed generation?”

The median net worth of households headed by someone 65 or older is $170,494, 42 percent higher than in 1984, while the median net worth for younger-age households is $3,662, down 68 percent from a quarter century ago, according to an analysis by the Pew Research Center.

I’m a long way from being any kind of expert, but it seems to me that basing a loyalty/customer engagement model on smartphones, let alone iPhones, doesn’t make much sense when viewed through the lens of actual usage and related income stats.

A study by Bain & Company, published in 2001, showed that acquiring a new customer can cost six to seven times more than retaining an existing customer, and that increasing customer retention rates by 5% boosts profits by 25% to 95%.

Why is it that so many managers ignore the connection between happy employees and happy customers?

Why do they insist on putting the cart before the horse and only invest in their people after revenues increase?

In yet another study researchers again found that customer retention is a function of great customer service, in other words, happy employees result in more loyal customers who spend more.

Zappos may be the poster child of the happy workforce, but there are many ways of achieving the same happy results.

2006, American Express, the credit card issuer, started an internal program that involved training and incentivizing its staff to get customers more engaged. The company transformed its traditional service call by getting rid of scripts and taking customer service representatives off the clock — which allowed the representative to decide how long he or she wanted to spend on each call. It also changed its employee compensation structure, directly linking a big portion of incentive pay to customer feedback. The result: Customers increased their spending on Amex products by 8% to 10% and overall service margins widened, according to a case study by Joseph Handelman, a professor at Ross. In the most recent quarter, the company announced that card members spent a record amount on their Amex cards; total revenue was $7.74 billion, up 5% from a year ago.

Underlying Amex’s actions was recognition of the intelligence of their customer service workforce and a decision to trust their people to treat their customers well and the payoff for doing so was substantial.

Lack of trust in employees is the elephant in managerial corridors and while it sometimes stems from a manager’s own insecurity it’s more often the result of poor hiring.

Managers claim that careful hiring is time-consuming and takes too long, but that’s a cop-out to short-term thinking, as is gutting customer service when the economy slows.

“When sales and profits are down, customer service is easy to cut. It [poor customer service] doesn’t show up right away. Where it shows up is in long-term customer profitability.” –Ronald Hess, professor of marketing at William & Mary School of Business, who studies customer satisfaction and loyalty.

And while you can’t control the economy, you can focus on eliminating the elephant within your own organization.

Flickr image credit: Phillip Martyn

Tony Hsieh has a dream to fix the world’s cities one by one, starting with Las Vegas, and he believes it can be accomplished via culture, just as it is at Zappos.

Two Q&A responses in the interview caught my eye, because they get to the crux of great culture.

Q. What is Zappos’ greatest threat?

HSIEH. Probably ourselves. The fundamental premise behind Zappos is culture. The belief is that if we get the culture right then most of the other stuff like doing great service, building a long-term, enduring brand or business will just be a natural byproduct of that. Most companies, as they get bigger, the culture goes downhill. Not only do we want to prevent that, but we actually want it to scale and get stronger and stronger which, generally, I think has never been done before. That is a challenge. The only way we have been able to think of to achieve that is if every employee views living in and inspiring the culture as part of their job description.

Great cultures are envisioned in the broadest strokes from the top—Hsieh wanted a happy place to work—with the visionary enabling people at all levels to contribute to and protect the resulting culture.

Q. If you are not there to do that, will there be someone there to do that?

HSIEH. It kind of goes back to it is everyone’s job to protect our values and to grow the culture. I guess we don’t really have an explicit succession plan. But I can also tell you that the only compensation I’m getting from Amazon is $36,000 a year with no chance of bonuses or stock options or anything. So, in theory, I could walk away at any moment but I haven’t. In a weird way, that only gives me more leverage over Amazon, because they know the only thing keeping me at Zappos is my happiness, and what makes me happy is us being run independently and maintaining our culture.

The bolding is mine and every boss at every level should commit it to memory.

The concept of leaving if not happy is applicable to every person who works no matter the size of their paycheck.

Not everyone can walk on the spur of the moment, but if they aren’t happy eventually they will walk.

Flickr image credit: Brian Nicklaus

A link at SF Gate led me to When You Should Quit Being An Entrepreneur at Business Insider. It’s one of those articles with an interesting premise written by someone with no authority on the subject and little real-world experience. This was mentioned in the comments, which have more value than the article.

The most glaring misstatement was that shutting down your startup equaled failure.

Admitting that you are riding a dead horse does not equal failure.

It’s also stupid to say that a startup fails if it does anything other than go public.

Based on that Zappos was a failure, as are the thousands (millions?) of startups that grow moderately, if at all, but provide a decent living for the entrepreneur, not to mention jobs for others.

And there are those that choose to stay private, such as SAS and its $2.43 billion in sales.

Shutting down a startup doesn’t mean you quit being an entrepreneur; being an entrepreneur is as much a matter of right idea / right time / right place / right circumstances as it is of your MAP.

And entrepreneur is not the same as entrepreneurial, which you can be in any size company, and defaming corporate jobs as of less value and that by working in one you are a failure is pure garbage.

As so many of the comments pointed out, failure only happens when nothing is learned and even that isn’t failure if you consider Einstein’s comment that expecting different results from doing the same thing over and over is insanity, not failure.

In my book the only time you can actually fail is when you are dead and as long as you weren’t the cause you still didn’t fail.

Flickr image credit: taygete05

I don’t think I’ve ever watched a show on TLC (a unit of Discovery Channel), but I plan to this spring; even more surprising to me is that it’s a reality show.

A reality show about great corporate culture in an industry known for the opposite.

“We were interested in working with Southwest,” said Dustin P. Smith, vice president of communications for TLC, “as it is one of the largest airlines in the country and is known for its exuberant corporate culture and for having refreshing and personal customer service that is regarded as unique in the industry.

I doubt that anyone who travels is surprised at the choice of Southwest; and certainly not Southwest.

Ashley Dillon, a spokesperson for Southwest Airlines, said the airline was chosen also because of its tradition of transparency, which relies heavily on the use of social media, blogs and other media.

In a 2009 post citing the airline’s success even during the height of the recession I linked Southwest’s and Zappos’ success to the same core cultural belief—happy employees (one Southwest flight attendant even rapped about its GAAP results).

Contrast all this with the article Sunday abut American Airlines and its “culture of corruption.”

They stowed drugs in secret panels inside planes; stole laptops, lobsters and fine clothing flown as freight; and rifled through passengers’ belongings for perfume, liquor and electronics.

Passenger losses in 2009 totaled 5.3 million dollars and for the last eight years American Airlines was the source of more reports than any other airline.

“What percent of American Airlines employees would you say engaged in this conduct?” a federal prosecutor, Patricia E. Notopoulos, asked Matthew James, a defendant in the case who pleaded guilty and testified for the prosecution. “About 80 percent,” Mr. James answered.

Of course, management claims it’s just a few bad apples.

Over the years I’ve read about and listened to hundreds of reasons why creating a culture that keeps employees happy just can’t be a priority— productivity and profit are the top priorities.

Obviously, they haven’t found the correlation, in spite of the high-profile examples that abound.

Flickr image credit: http://www.flickr.com/photos/zedbee/103147140/