This Is What You Need to Know about How Tony Hsieh’s Pioneering Philosophy Put Company Culture First

Tony Hsieh

When news of Tony Hsieh’s tragic death emerged in November, the tributes poured in from far and wide. Some praised his entrepreneurial brilliance, others marveled at his innovative and innovative approach to business. However, the focus of most tributes to Hsieh were on his obsessive commitment to a radical, and at times divisive, approach to company culture known as ‘Holacracy.’

Hsieh was best known for his 21 years as CEO of Zappos. He transformed the online footwear and clothing retailer from a company making $1.6 million in annual sales in 2000 to one that was sold to Amazon in 2009 for $1.2 billion. His death at the age of 46, having sustained injuries in a house fire, came just months after he retired.

Central to Zappos’ success was a radical company culture implemented by Hsieh. He went to great lengths to implement and preserve his holacratic approach. It won him many admirers and some fiercely loyal colleagues. It also attracted critics and doubters.

What is ‘Holacracy’?

Holacracy is a system of organizational governance within a company that relies on a self-management where all employees, including the CEO, hold equal privileges and powers. Employees work in circles responsible for specific functions of the company and these circles overlap. Instead of a pyramid structure most commonly found in companies, a holacratic approach distributes power evenly across the circles.

With its absence of job titles and employees choosing which circles to work in, on the surface holacracy appears to be a carefree system. However, it is actually tightly regimented, with specific software used to effectively implement the strategy and defined lingo and vocabulary that employees must use to communicate with each other.

How Hsieh Implemented Holacracy at Zappos

On the Zappos website, there is a timeline to how holacracy came to be adopted by the company. In October 2012, Hsieh attended a conference where he saw Brian Robertson, the creator of holacracy, speak on the topic. In April 2013, the Zappos HR department became the test group for holacracy and by January 2014, the philosophy began to be rolled out company wide.

“Many years prior to meeting Brian, I had a nagging sensation that as we kept getting bigger, we kept getting more bureaucracy built into the corporate structure,” Hsieh told Business Insider in 2016. “Because I wanted to stop this trend, I was spending a lot of time thinking about how we could avoid losing a startup edge and how we could empower every employee to act like an entrepreneur.”

Overcoming Employee Skepticism

Unsurprisingly, moving away from a traditional company structure and implementing a philosophy as radical as holacracy was met with resistance by some employees. Recognizing the challenges in trying to convert the entire workforce to the new way of thinking and working, Hsieh sent an email to all employees: either adopt holacracy or take a three-month severance package and leave Zappos. Around 14 percent (210 employees) took the offer and left.

Hsieh’s dedication to this approach to company culture was also evident in the recruitment of new staff. All incoming employees went through a five-week training program and were offered $2,000 at the end to quit, no judgement, no questions asked. “We want to make sure that employees aren’t here just for paychecks and truly believe this is the right place for them,” Hsieh said.

About Hsieh’s Motivation

The Zappos CEO believed holacracy would encourage greater innovation and creativity among the company’s staff. This was largely because employees would no longer have to go through formal processes of consulting management and navigating bureaucracy to get ideas approved. It was evident that Hsieh placed great importance on having a workforce that shared his same visions for how Zappos could be run most effectively.

This company culture was reflected in the Zappos customer experience and helped to deliver one of its core values: to “create fun and a little weirdness.” It was also the foundation upon which the business soared past a $1 billion valuation. In addition to being a structure that he felt best reflected the values of his company, Hsieh believed that adopting a holacratic approach was the most efficient way of conducting business.

What Can Be Learned from Hsieh and Holacracy?

Like any management strategy, the merits of holacracy have been disputed by its critics and revered by its supporters. Whatever any individual’s personal position on the method, Hsieh’s complete dedication should be viewed as a shining example as to the lengths a business needs to go through to adopt a company culture that allows the business and its employees to thrive.

Hsieh was unquestionably a talented and innovative businessman. More than that, however, he recognized that his success in business could only be achieved by a strong company culture.

Featured Image by Silicon Prairie News | Flickr