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Why the Zappos Corporate Culture Creates Happy Employees (Interview)

Andrew Tonner
September 26, 2013

It all started with Tony Hsieh's book, Delivering Happiness, which sold over 220,000 copies internationally and topped best-seller lists at the New York Times and elsewhere. Jenn Lim, a consultant for (Nasdaq: AMZN) subsidiary Zappos and producer of the company's now-famous Culture Book, helped launch Delivering Happiness and is now the CEO and Chief Happiness Officer at the Zappos subsidiary of the same name.

In this interview, Fool's Analyst Andrew Tonner chats with Lim. Lim describes the concept behind her Zappos subsidiary, Delivering Happiness, what employee happiness means to businesses in real terms, and why she believes we're at a tipping point as more and more companies recognize the value of promoting the happiness and well-being of their workers.

A full transcript follows the video.

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Andrew Tonner: Hi Fools, Andrew Tonner here. I'm with Jenn Lim. She's the CEO and Chief Happiness Officer with Delivering Happiness, a Zappos subsidiary.

Jenn, just to kick it off, let's hear about this whole Delivering Happiness movement, the book it began with. How did it begin, and how did your involvement with it happen?

Jenn Lim: Sure. There's a book by the same name, called Delivering Happiness, that came out about 2010. Tony Hsieh, the CEO of, essentially asked me when he got the book deal if I wanted to be involved in it.

Since, number one, I'm really into books, and then number two, I've been consulting at Zappos for almost 10 years now, it just kind of made sense.

We collaborated on that together, launched the book, treated it as a start-up and then just put it out there. We thought we would kind of tick it off the to-do list, but lo and behold we heard a demand for happiness, so that's why we evolved it to a company by the same name, today.

Tonner: Right. For people who aren't necessarily familiar with it, what would you say the core premise or mission of Delivering Happiness is?

Lim: Sure. How we look at it is basically increasing sustainable happiness in a measurable way in the three Cs. It's Companies, Communities, and Cities. Now is the first time we can actually measure something as intangible -- just 5, 10 years ago -- like happiness.

As an example in a workplace setting, you can actually show the results of correlating how employee happiness can actually come out to more productivity, more profitability. More engaged employees equals happier customers, equals more sustainable business.

Tonner: Definitely. Could you maybe expand on some of those findings that you have found -- things about happiness in the workplace and the long-term benefits? This is something I think is kind of counterintuitive to a lot of people in the business world, so maybe could you elaborate on that a little bit?

Lim: Sure, yeah. Our typical case study is what we experienced at Zappos, and showing that, from a little start-up that all they want to do is sell shoes to the world, and growing up and realizing they're more than that, and then focus on customer service, and then eventually employee happiness and understanding their higher purpose of delivering happiness to the world.

Through those years since it started, it kind of learned on its own that what we really need to do is actually have a higher goal than "sell shoes," and number one is through our employees.

That was kind of like a petri dish. As the book came out there -- and now it's in 20 languages -- we started hearing more and more people and researchers come out of the woodwork. It seems like, in a weird way, that there's kind of a tipping point in happiness and how it's affecting people and communities, and namely companies.

Since that time, there's been tons of research that came out. The Harvard Business Review, I don't know if you saw about a year ago that one of their -- I think it was January -- on the front cover it had a happy face with dollar signs at the corner.

Essentially, what's the real value of happiness in a workplace? What will happen if you actually increase employee well-being, and how does that affect bottom-line results?

You have the HBR talking about this, you have The Economist talking about it. There's a great book by Shawn Achor called The Happiness Advantage. All these things coming together show that there's such a high level of disengagement in the workforce.

There's a Gallup poll that says 70%, at least, of employees -- just in the U.S. alone -- are disengaged with their everyday work. That comes out to $300 billion, roughly, loss in productivity.

They've come to a number of about $13-15,000 loss per employee that's disengaged. If you think about it, if most of your employees are disengaged, just think about all the lost productivity, but also higher turnover, and then people just not showing up to work because they don't want to be there. It's not a place of positivity.

We're here to flip that around. We're taking what we learned at Zappos, but taking all the new studies being done and all the research, and being able to apply something as academic as the science of happiness and positive psychology, and taking that and using it in a real-world circumstance.

Tonner: Yeah, that's truly amazing.

I think one of the applications as a consultancy is culture change; diagnosing and then helping fix organizations that do have some sort of problem with delivering happiness to their employees, and ultimately to their shareholders as well.

When you enter a scenario where you've diagnosed a company, you've found a company where there was some sort of problem, what's the process like of you actually instituting some kind of change with them?

Lim: The first thing that we talk about is how do you actually create and grow the culture? The first thing that we talk about is essentially the DNA of a company, which are its core values. That's almost the number one thing we say.

Not only what we learned at Zappos, but in all these studies done -- from Jim Collins Good to Great, to Tribal Leadership -- they found that how you actually make a brand long-term and sustainable and weathering the ups and downs of the economy is not what you traditionally think. It's actually having a really strong company culture, and having a higher purpose that your employees can be inspired by.

That's why we say, "OK, let's boil it down to the very basics and let's talk about values. What does your company believe in and is everyone" -- and this is super important -- "is everyone aligned by them?"

Not just senior management saying, "These are our values. Boom. Live by them."

At Delivering Happiness we took a full year to create our values. Same thing at Zappos, and we recommend the same for companies. If they already have them, we say, "Revisit them. Are they of real meaning, and are you actually living by them?"

One of the things that we say is, actually we want to live and hire and fire based on it. If you have an amazing candidate, let's say, whose skill set is amazing in all the ways that you would want that person to be, but let's just say that person isn't a culture fit because they might be a little bit too cocky, or whatever your values are. Then it should be a no-hire.

That's probably one of the hardest things that companies have to make a decision on. Will you really live by those values?

Tonner: I can definitely see that.

In hearing this, it definitely rings. I hear certain overtones that we study at The Fool all the time; the idea of conscious capitalism, and that you have multiple stakeholders that a business, if it needs to thrive over the long term, must address to an equal measure.

As investors, obviously we're always on the lookout for companies that have this kind of competitive advantage. Are there any companies, off the top of your head at least, that serve as great examples of companies that deliver happiness?

Lim: Sure. I think there's different companies that have different flavors of what they do. I personally have a favorite, and that's not one of these that's on the board behind me, but there's a really great hamburger chain on the West Coast called In-N-Out Burger.

They, I thought, have done a really good job. I believe they could expand internationally if they wanted to, but they purposely did not because they really wanted to create and protect their culture.

There's an In-N-Out University. They want to make sure people are living and breathing what they believe in, so therefore every single In-N-Out -- it doesn't matter if you're in the middle of Random Town, U.S.A. -- you go to the In-N-Out and you get the same experience; great food and great customer service, because they purposely did it in a managed, intentional way.

I have much respect for that.

Tonner: Yeah, they're a truly tremendous company, great ownership. Being from Arizona, and someone who's lived on the West Coast for a while, great product as well.

Then maybe can we just take a moment to expand on -- again, coming from an investor's perspective -- some of the things that an investor should be looking for in a company that delivers happiness to all of its stakeholders, and maybe the link between that and the long-term profitability.

A number of things; if you're, say, analyzing a company and understanding a company that delivers happiness, what are some things investors should look for?

Lim: Sure. Our biggest premise is that we can't forget the fundamentals. Bottom line, a company has to be profitable. If you're just thinking about happiness all the time, there's no profits. We know the end of that story.

What we're saying is that we just need a new approach for anyone looking how you build for the long term. Let's just assume the profitability is there and you have good people -- all the traditional metrics.

What we're saying is, by layering the signs of happiness and positive psychology with the thoughts of -- unless you have a passionate workforce, unless you have a higher purpose for your employees, again, to be inspired by -- those kinds of things, if you don't have it, that means you're looking for the short term.

If you want to look at it in more old-school terminology, it really is about employee retention and engagement. If you want good people to hang around and build a better and better company, it is about happiness. Whether we like it or not, it's becoming more of an expectation.

It's not just the young generation, too. There are so many middle to older generations that we talk to, that they've climbed the ladder and they've gotten to this point in their life and they looked back and they said, "I'm a partner, but so what? What happened along the way?" They're coming back to say, "Hey, what do we need to do to make something more meaningful here?"

All we're saying is, beyond the traditional metrics, think about the long term of those sort of criteria. Are the leaders thinking about, "What is going to inspire my employees? What is our higher purpose?"

I like to talk about Simon Sinek's book. He had a TEDTalk called "Start With Why," and that's basically the whole thing. Start with the "Why" first, because then you'll know if you have alignment between your employees, your management, your investors, really quick.

Tonner: Definitely. Thinking to the long term in terms of delivering happiness in your movement, what's your vision for the company and the movement going forward, say, for the next 10 years?

Lim: Sure. I think it's just kind of an incredible time that we had no idea that we were stumbling upon.

When the book came out, like I said, we thought we were just going to cross it off the list, but then something else happened. Alongside all this other research coming out -- the United Nations is participating in happiness too, the U.K., France -- more and more governments are knowing that happiness has to be included in the everyday thing besides, or in addition to, the economics of how we live.

I just feel like we're at the very, very beginning of this all. I think the more generations we have, the more we have benefited from all the sacrifice in the past, therefore giving us more allowance on an everyday basis to think about, "What is this all for?"

If our generation succeeded in giving us happiness -- our forefathers, whatever you want to call it -- then why are we not happy as a global society and what do we do to change that?

I really feel we're at the tipping point of changing that in a very tangible and measurable way so that, who knows, 10 years from now we'll have a significant increase in companies, communities, and cities that are actually putting happiness at the top of their priorities, not just the traditional stuff when you talk about GDP and profitability, but a real balance of what's important in life.

Tonner: OK. To maybe turn the page back, too, toward just analyzing and looking at specific companies from an investor's perspective, beyond the obvious metrics -- things like profit per employee and employee retention -- are there any other key metrics here that we, as investors, can be looking at to find organizations that do deliver happiness and have the makings of potential long-term investments?

Lim: That's a good question. Right now I think the strongest ... I guess the easiest way to ascertain that, since there haven't been so many things developed around those, like happiness-based metrics, but where we're coming from is that if you're measuring all these things at the same time ...

For example, we have a tool that's co-developed by Nic Marks. Nic developed a Happy Planet index, and he had a pretty popular TEDTalk about it. He's a statistician based out of the U.K. We worked with him to create more of a Happy Business Index.

You can use these hardcore data coming from polling your employee workforce and seeing their happiness levels, based on science, and being able to correlate that to the traditional ones, because we now that's already being measured.

If you see that happening in the companies that you're looking to invest in, it's having that duality -- not just, "This is what happened, last quarter results," etcetera, etcetera, but also having the talk about, "This is actually the happiness levels of our employees," then that's a sure indicator that at least they're looking at both of the factors, not just one or the other.

Tonner: Jenn, for the budding entrepreneurs out there -- or anyone just looking to understand how to integrate this Delivering Happiness idea into the core DNA of a business -- if you were, say, getting a company off the ground what would some of the basic first steps you would take to make sure you were the kind of business that actually had Delivering Happiness integrated into its soul?

Lim: Yeah. The first thing is -- and this sounds very simple but it's actually, when it comes down to it, not so -- but number one is commitment. From that, then you can really just do all these different directions around it.

The biggest thing about doing something like happiness and creating core values and culture is that, especially for a starting company, once things get tough the first thing that entrepreneurs think about is, "Oh, we've got to do away with culture." "We can't care about human resources right now. We've got to focus on profits," and that's the number one thing that we've learned, especially at Zappos, that we started working and focusing on culture too late into the company.

It just takes, as everyone knows, one person within a team or a division or the whole company that really changes the whole dynamic of whatever that grouping is, so number one is commitment.

Then after that realizing that, yes, this is an important factor of it. We all know that it's all people-based. Through that, then we start talking about metrics. Start measuring right away, based on your values, assuming you've already developed them.

If you haven't, go through this long exercise of asking everyone what their values are, and going through the process of actually filtering to, "What are our top values?" Through that process you might find people that are not culture fits. It's a really good exercise, actually, because it becomes almost voluntary that they say ... You're looking at this and, "This is not the company I want to be a part of."

For example, someone at Apple (NASDAQ: AAPL) or Target (NYSE: TGT) or IBM (NYSE: IBM), I would highly not recommend going to Zappos because it's such a different culture. To no one's blame, it's just what kind of an environment do you want to thrive in?

Yeah, commitment, start measuring right away, and follow up on your values and make sure that you live and breathe them on a day-to-day basis, and like I said, hire and fire by them.

Tonner: Then for the people viewing this out there, say they maybe identify with some of the things we're saying, and they recognize maybe, "I'm not necessarily working for a business that has Delivering Happiness at its core."

What are some of the questions or minor changes or adjustments they could make to hopefully start either delivering this, or just where should they begin?

Lim: Sure. It, unfortunately, is more common than not that people are in this environment and they're thinking, "Do I really want to be here?"

The simplest question that we always ask first is, "What are your personal core values, and what are your company's core values, and are the aligned?" If they're not, then that's an immediate red flag that it's not the right environment for you.

Or maybe they're not living up to their core values, and doing things that are anti of what they said they believe in. That's another flag.

Unfortunately, the obvious thing is just saying, "Leave the place."

Tonner: "See you later," yeah.

Lim: Yeah, get another job. But of course it's not that easy, and we all have different responsibilities and all that, so what we say is -- and this is, again, going back to the science and positive psychology -- is all we can really affect ... we have, depending on what kind of studies you're reading, from 50 to 90% control of our external happiness, and that basically internalizes it.

Knowing that we have the power, no matter what genetic DNA we were born in, no matter our environment, we always have a certain level of control of our happiness, so that's what we say number one is. "Well, yes. Maybe my management doesn't understand this. Maybe my company doesn't live by its values, but I can control my own perspective on it. I can control at least maybe my team's perspective on it."

I don't know of any decent management team that would look at someone that's being more productive, being more creative, being more profitable, increasing sales, and happy because they're doing their own thing that they thought would increase happiness in their team ... I don't know anyone that would say, "Hey, stop that."

If anything, it would be contagious to other teams wondering, "What are they doing over there, and what can we do differently?"

Tonner: Definitely. Maybe just shifting gears for our readers or viewers who aren't familiar with what positive psychology is, because this is definitely a tradition or a business idea; it's very much steeped in it.

What are some of the basic ideas of positive psychology, as well, just to lay a basic framework for the people out there?

Lim: Sure. Basically, this is data and research done, not focusing primarily on ... traditional psychology is what's wrong with us.

Positive psychology is what actually is OK with us, and how do we increase? What are the different ways, from a scientific basis, to increase our levels of happiness? There's different frameworks in that. We talk about that in the book, but of the frameworks is, these are the levers of increasing happiness.

One is having a perception of progress. Am I growing? Am I developing? Am I getting somewhere in my job, or in my life? That increases happiness.

Another one is sense of control. Do I feel like a decision I'm making at the workplace is actually going somewhere and being executed upon? Control of my life; what are the things that I feel that actually are within my control? If you increase that level, then you increase your happiness.

A third thing, and very important, is connectedness. Just basically your relationships; your breadth and depth of them at work or at home, and the last -- and this is actually one of the most important things -- because what we talk about that's a little different from all the happiness talk out there is that we want to be able to sustain it.

We all know how to create pleasure in our life. Go out and party with your friends, buy a new car; all these things are important, but unfortunately according to the studies, it's very fleeting. The happiness peaks and then goes away. That's why we call it "Rock Star Happiness."

That's why we were looking into, how do you sustain it over time? The next level of happiness is what we call "flow" or "engagement." Engagement is how do you engage with your coworkers or your people at home or your friends? And this concept of flow is actually a psychological term.

Basically, when you're doing something, some activity -- whether it's baking, surfing, gardening, you name it -- hours go by but it just feels like minutes just because you're so into it. You're so synchronized with your state of flow.

Again, the studies show if you increase the number of things that you're in flow, whatever activities that might be -- we call it passion -- whatever you're passionate about. We all have multiple passions, so if you increase that on an everyday basis and an annual basis, you'll actually increase your levels of happiness.

But again, the most sustainable one ... we went from pleasure, which is very fleeting, to passion, which is in the middle. But the most sustainable one is actually having a sense of purpose and having a higher meaning outside of your own body.

What is it that I'm doing that's actually meaningful to the greater good? It doesn't have to be the world. It could just be, maybe your community. Maybe it's your family.

Much respect to that higher purpose of someone saying, "I care about my family, and I care about my pets." That's great. That's huge and noble, but what I'm challenging is that, we call it "to be truly unique to our weird selves," is what we say, internally. Be true to your weird self, and through that realize your passions, and do that.

Find whatever kind of higher purpose th