Secrets of the Fastest-Growing Startups

from Their Founding Entrepreneurs

D a v i d S. K i d d e r
New York Times Bestselling Author
With Hanny Hindi
Foreword by LinkedIn founder Reid Hoffman


The Startup Playbook

F O U N D E R:

introducing tony hsieh
In his recent memoir, Delivering Happiness, Tony Hsieh clearly
lays out the key themes of his personal and professional life,
especially when he describes the moment when Zappos’


culture truly began to cohere. The major struggle the company


faced in its early years was finding employees as committed

C E O:


to customer service as the executives were. After realizing that
they weren’t going to find them in California, Tony and his team
decided to move somewhere with a much stronger culture of
service. They considered many options, but ultimately chose
Las Vegas. As Tony writes, “We had about ninety employees
in San Francisco at the time, and I had thought maybe half of
them would decide to uproot their lives and move with the
company. A week later, I was pleasantly surprised to learn that
seventy employees were willing to give Vegas a shot.”
Employees who decided to make the move were making a major commitment to
Zappos. “Probably the biggest benefit of moving to Vegas was that nobody had
any friends outside of Zappos, so we were all sort of forced to hang out with each
other outside the office.” That proximity forced Tony to clearly define the culture
he was building. He eventually settled on ten core values, but the last value is
the most profound. It consists of only two words: “Be humble.”
Tony is a humble leader with a strong commitment to his partners, his employees, and his customers. If past performance is the greatest predictor of future
outcomes, then we should expect great things from Tony in the years to come.
He’s only in his mid-thirties, but with the founding of LinkExchange and his
leadership of Zappos, he has had a huge career already. I have no doubt that he
will continue to repeat his successes and learn from his failures. With genuine
honesty and perspective, Tony knows that nobody has it all figured out.

Tony Hsieh / LinkExchange, Venture Frogs


tony’s story
With the sale of LinkExchange to Microsoft, Tony Hsieh achieved major success
very early in his career. His next move was to cofound Venture Frogs, a fund that
invested in and incubated Internet companies. One of their investments was an
online shoe retailer.
Tony Hsieh: Venture Frogs was invested in about twenty-seven different

companies; Zappos just happened to be one of them. At the time, we were
running an incubator and providing office services and so on. Zappos
was one of the companies that moved into the incubator. I didn’t go into
it thinking, “I’m going to find a shoe company to invest in, and then I’m
going to bring people along with me and try to make it work.” I just started
working more and more with them. Over the course of a year, I slowly
got sucked into working with them full-time. [This is Tony’s characteristic humility at work: he didn’t just start working “full-time” at Zappos;
he became the CEO of Zappos.] If it hadn’t worked out, I wouldn’t have
become emotionally invested in the company.

Tony and his partner, Sanjay Madan,
founded LinkExchange in 1996 after
graduating from Harvard University.
Within a year, ads powered by
LinkExchange were reaching nearly
half of all Internet-enabled households. In late 1998, Microsoft purchased LinkExchange for $265 million.
Tony was twenty-four.


Second-time entrepreneurs are sometimes reluctant to devote real time and
energy to the hard work of building a new company, especially if they had a
major success with their first venture. This was never Tony’s problem.
Being successful is just about doing whatever it takes to get stuff done.
In the early days of Zappos, we did everything. If we had 100 orders that
needed to go out, everybody stayed late at night packing boxes and chipping in. That was true for all of us, not just me.
Creativity and persistence in solving problems would always characterize Tony’s
work at Zappos. In some cases, it was a simple matter of working through the
next day’s order. At other times, it involved major operational issues.
Many brands said we needed to have a physical store before we could sell
their shoes. That wasn’t part of our original business model, so we just
turned our reception area into a shoe store, took a picture of our “shoe
store,” and sent it into the brands. That worked for some of them, but
others were more diligent. Their reps would actually visit and see that it
wasn’t a real store. They were right, of course, the “store” probably sold one
pair of shoes a day.

Tony Hsieh is not the founder of




founded the company in 1999, Tony
was an early investor through his fund,
Venture Frogs. He became CEO of the
company the following year. Today,
Zappos is the world’s largest online
shoe vendor. They have an inventory of more than five million shoes
in 200,000 styles from 1,200 shoemakers, including Bruno Magli, Nike,
and Ugg. On November 1, 2009, purchased Zappos for
$1.2 billion. At the time, it was
Amazon’s largest acquisition.


The Startup Playbook

To attract the brands we wanted, we had two options: start a real shoe store
or find a real shoe store. Starting a real shoe store would have been a big
pain, and we would still have to convince brands to sell to that store.
We decided to find an old mom-and-pop store somewhere in the middle
of nowhere that we could buy cheaply. That’s how we ended up buying the shoe store in Willows, California. As it turned out, there was
an abandoned department store across the street. We were expanding at the time, and we ended up turning that space into a two-story,
30,000-square-foot warehouse.
There was no way we could possibly have predicted how things would turn
out. We were just looking at all of our options and trying to find creative
ways of getting things done.
In the years that followed, Zappos experienced extraordinary growth, but it took
an extremely risky and difficult path that could have ended very differently.
For a vivid example of the challenges the Zappos team faced, look up the chapter
“Improvising Inventory” in Tony’s book Delivering Happiness. In 2002, Zappos decided to move their warehouse from Willows, California, to a spot near
the UPS hub in Kentucky. Tony and his team packed five semis with 40,000
shoes before taking a “minivacation” to New
Orleans. While on their trip, they got some
bad news: one of the semis had overturned.
The driver was fine, but the cargo wasn’t. “The
shoes are strewn all over the side of the highway,” they were told. “I don’t think we’ll be able
to recover any of them.” In one shot, Zappos
lost 20 percent of its inventory. Zappos overcame that challenge as well as others, but it
was a clear reminder that there’s no such thing
as “overnight success.”

“You sometimes feel
very lonely as an


You sometimes feel very lonely as an entrepreneur. Every time you fail
at something, you wonder how all these other companies are doing it so
effortlessly. But those ups and downs are part of every eventual success
story. Very few entrepreneurs are successful in the first thing they try.
From the outside, Zappos might seem like an overnight success. The truth
is that we made a lot of mistakes along the way and learned a lot of lessons.

Tony Hsieh / LinkExchange, Venture Frogs


“The people in overly proud
companies start believing their own
press releases . . .”

tony hsieh
Be Humble

Adopt a “MacGyver” Mentality

Just because you were once a great company doesn’t guarantee that

My favorite TV show growing up was MacGyver. He could combine

you always will be. Businesses that have gone from being great to

duct tape with a pencil and a paperclip and make a sailboat out of it.

going under or becoming irrelevant have often lost their sense of

He never had exactly what he needed, but he figured out how to make

humility. That’s step one of falling or failing. The people in overly

things happen. For me, that’s what the entrepreneurial spirit is about.

proud companies start believing their own press releases and feeling

It’s about being able to combine optimism and creativity, kind of with

like they can do no wrong. To help protect us against this, one of our

the faith that it’s going to work out somehow in the end, only you

core values at Zappos is being humble.

don’t know exactly how. So being an entrepreneur, I think, is really just

Embrace and Drive Change
Another core value at Zappos is to embrace and drive change. Never
accept or be too comfortable with the status quo. Historically, the
companies that get into trouble are the ones that aren’t able to quickly
respond and adapt to change. At Zappos, we are constantly evolving.
If we want to stay ahead of our competition, we have to continually
change and keep them guessing. As long as embracing constant
change is a part of our culture, nobody will evolve as fast as we can.

about playing MacGyver with business.


The Startup Playbook

tony ’s best advice



Overcome Complexity with Acquisitions

Prioritize Progress over Process

We needed to have a physical shoe store in order to work with certain

Stuff needs to get done, and you need to do whatever it takes to get

brands. An acquisition with a clear purpose helped us avoid the com-

things done. Sometimes you just don’t have all the resources you

plexity of starting a real store and allowed us to quickly add fifteen to

would like, but you just have to fight through it; that’s part of the pro-

twenty new brands.

cess. You’re going to have to cut some corners in the process, but you


can’t let that stall your progress.

Don’t Be Afraid to Fail Your Way to Success


So many people label themselves a “failure” when they fail at some-

Avoid Top-Heavy Titles

thing. Instead, the entrepreneurial spirit is realizing that these failures

Giving early managers and executives top-heavy titles inhibits growth.

are a necessary part of the path to wherever you’re going to end up.

If your company grows and becomes successful, you are going to out-


grow the capabilities of the people who were with you at the beginning. Chances are very small that your first ten people are going to be

Prioritize Passion over Profits

the ten VPs you want five or ten years down the line. In the beginning,

Make sure you’re passionate about whatever you do. It has to be

be very stingy about giving away titles.

something you’d be happy doing for ten years, even if you never made
any money from it. The irony is that your passion will greatly increase


the chances that you’ll end up doing well. There are going to be hard

Don’t Let Your Vision Inhibit Change

times, and your passion will get you through them. It will also rub off

Don’t lock yourself into a specific business model when you start

on the other people in your company.

out, especially if you’re going into a new industry. You just don’t


even know what you don’t know. Because nothing ever turns out
the way you expect it to, you have to be open-minded about the path

Make Sure Early Hires Are Willing to Take on Any Role

your company takes. Don’t get stuck on what you envisioned when the

Every company needs people with different skill sets and passions.

company first started.

But early on, everybody should be willing to wear ten different hats.
They can’t have the attitude that something isn’t “their job” or “their
responsibility.” They have to have the MacGyver mentality and do
whatever it takes to get the job done.

Tony Hsieh / LinkExchange, Venture Frogs

Choose Partners You Enjoy Spending Time With
It’s important to choose partners you would want to be around even
if you weren’t in business together. Would you go on a cross-country
road trip with them? I would actually recommend taking a vacation


TO N Y ’ S

with whoever you’re going to be working with. When you’re with
somebody 24/7, it accelerates that process of acclimating to each
other. This can help show you what working together is going to be
like after six months or a year.

Recently, Tony has shifted his focus from delivering
footwear to “delivering happiness.” This is the title
of the book he wrote and then promoted on a crosscountry bus tour. From Las Vegas to Chicago, from
Boston to Miami and back to Portland and Seattle,
Tony spread his message of delivering happiness
one individual, employee, and company at a time. As
ever, Tony wasn’t content to do things the traditional
way. The book’s website didn’t simply promote sales;
it acted as the hub of a movement. Readers were
encouraged to start clubs to build happiness at their
workplaces or in their communities, and to share their
stories on the Delivering Happiness site, on Facebook,
or on Twitter.
Tony also achieved the high point of traditional publishing success: on June 22, 2010, Delivering Happiness
reached the number-one spot on the New York Times
Bestseller list.

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