Zappos' Tony Hsieh steps lively

(CBS News) Millions of Americans still need to find jobs, and millions of consumers will need to keep shopping, if the economy is ever to regain its footing. One up-and-coming company we know of is doing its best to improve things for customers and workers alike, by thinking differently. Erin Moriarty reports our Cover Story:

What if once a year your company holds a Bald and Blue Day? If you want to show company spirit you can either shave your hair or dye it blue?

And imagine if one of the people shaving his head is your boss?

Welcome to the rather wacky world of Zappos.com. It's an online shoe and merchandise company where "business as usual" is anything but.

At a time when many retailers are struggling, Zappos (derived from the Spanish word for shoes, zapatos) is thriving, thanks in part to a unique company culture - and its 36-year-old CEO, Tony Hsieh.

"Our whole belief is that everyone's a little weird somehow," said Hsieh, "and so it's really more just a fun way of saying that we really want people's true personalities to shine in the workplace."

Tony Hsieh so believes he's learned how to create both passion and profits that he's outlined his philosophy in the book "Delivering Happiness: A Path to Profits, Passion, and Purpose" (Business Plus).

"So the book is another way to help spread the message that it's actually possible to make employees happy, make customers happy, and still make investors happy … and you know, still have profits," Hsieh said.

He's not kidding. Zappos is now so successful that last fall Amazon paid $1.2 billion to acquire it.

Hsieh, who works out of a cubicle and earns as CEO less than $37,000 a year, never imagined he would one day run a shoe store.

"I'm not a shoe person at all," he said. "I used to wear one pair of shoes for two years until there were holes in it and it was falling apart and then buy another pair."

In fact, as the oldest of three boys growing up in California, Hsieh was supposed to be a doctor - or at least that's what his parents had in mind.

"I think their mindset was, you know, the goal of childhood is to get into college and then the goal of college is to eventually get into grad school so that could get a Ph.D. or a MD at the end of your signature," he said.

Hsieh was also expected to master music, and one instrument was not enough: "I ended up playing piano, violin, trumpet and French horn."

But even at that early age, he showed a flair for doing things his own way. To avoid practicing every day, Hsieh would lock himself in his bedroom and play recorded tapes of himself on the piano. His mother only learned about his deception when she recently read about it in his book.

"My mom has an interesting reaction: she was like, 'Oh, you know that part about you recording the piano? Like I know that didn't really happen. You just wrote it to make a better story!'"

After graduating from Harvard, naturally, Hsieh joined the dot.com craze.

In 1998, he sold an online venture Link/Exchange, to Microsoft, and walked away with over $30 million. He was just 24!

And then Hsieh decided to invest in a tiny internet start-up.

"I really missed being part of building something. So within a year, I ended up joining fulltime at Zappos and I've been with Zappos ever since," he said.

But selling shoes on the Internet presented a particular challenge: People were used to trying on shoes before buying them. Purchasing online meant customers had to take a risk.

"The challenge is, how do you get customers to try out Zappos for the first time?" said Hsieh (left).

So Zappos began offering something very few other companies do: free shipping and free returns for up to a year. It worked.

And while many companies cut costs by outsourcing their call center overseas, Zappos' center is in Las Vegas where the operators are all members of something called the customer loyalty team.

"We view our call center as branding opportunity," Hsieh said. "Every phone call is a branding opportunity."

Every operator is given discretion to do what it takes to make a customer happy, so there are no planned scripts . . . no time limit to phone calls . . . as we discovered when we called last month:

I went on . . . and on . . . and on . . . for more than twenty minutes, and never did buy a pair of shoes.

27-year-old Christy Martin was on the other end of Moriarty's call (she remembered it!) and worried she had disappointed her.

"Sometimes it's hard to direct people if they don't know what they want," martin said.

"So you'll let someone prattle on as long as they want?" Moriarty asked.

"Yes, pretty much."

Another operator patiently worked with a customer trying to find a pair of boots she saw on a Lifetime Television movie.

But Zappos isn't just about making customers happy. Hsieh was determined to have happy employees as well.

"We want all our employees to really think of their work here not as a job or not as a career or something to build their career, but, really as a calling - as something, a place where they want to be for life."

Along with full medical insurance, there are free meals. Feel like singing? Want a pinball break?

We found happy employees everywhere, even at the Kentucky warehouse where many have what would seem to be physically exhausting and mind-numbing jobs, like shoe picker Mandy Rager who came to Zappos three years ago.

"Friend of mine told me about it, and she suggested that I should check it out," Rager said. "And I was like you, I was skeptical. I'm like, 'Yeah, right. No place is that great, you know? Like, why do they call it work?' But then I got here and I realized, you know, you work hard, but you know, the reward you get is greater than that."

The company is so determined to get dedicated workers that it will test their loyalty by offering them money to quit!

Christy Martin, who started work right before Christmas, turned down $3,000!

"It seems like a lot of money," she reasoned, "but that's going to be gone really quick. And where else are you going to find a job that's as good as this? And especially in this economy, you know? A job that's going to take care of you?"

And that sense of security (as well as company benefits) seems to matter more than the amount of salary. which is on par with Zappos' competitors.

"I think a lot of it boils down to empowerment - employees at Zappos feel empowered," said Stephanie Mehta, executive editor of Fortune Magazine, which for two years running has put Zappos.com on its list of best companies to work for. (This year they're at #15.)

"They feel respected," Mehta said of Zappos' employees. "They feel as though they have the ability to make decisions on their own."

But to an outsider, all these really happy people in one place, all willing to shave their heads for the company, it can be a little off-putting.

"There is a risk with having so many optimistic, like-minded people all working on the same project," Mehta said.

And Mehta wonders if happy employees are always a good thing for a company as it continues to grow.

"I'm not saying that they should start bringing cynics into their organization or actively trying to find sour people for the Zappos team," she said. "But one does wonder if they are getting the full range of perspectives, including customer perspectives, if everybody is so . . . cheerful."

But Tony Hsieh is not only unconcerned by the criticism . . .

"When you have the little Zs on people's cheeks, you could understand why people would say, 'Ooh, it feels a little cult-like.'" Moriarty said.

"You mean, that's not normal?" Hsieh laughed.

. . . He's hoping it's only matter of time before other companies follow his example.

"Ultimately, we believe that it's making the world a better place," Hsieh said.

For more info:

• Zappos.com
• Zappos' Blogs
• "Delivering Happiness: A Path to Profits, Passion, and Purpose" by Tony Hsieh (Business Plus)
• Fortune: 100 Best Companies to Work For