Zappos CEO Tony Hsieh explains why 18% of employees quit during the company's radical management experiment
Two years earlier, Hsieh had a pilot group of employees adopt Holacracy, a self-management system developed by former software developer Brian Robertson that eliminates traditional manager roles and job titles with the intention of creating a faster, more efficient, and more innovative company.
When Hsieh sent the memo in March, 85% of the company had already begun the transition to Holacracy, but the urgency in the email and the weight of the offer shocked even the most loyal Zapponian. By the time the April 30 deadline arrived, 210 employees - 14% of the company - had taken a severance package.
At the same time, there were 150 employees working on outsourcing of all of Zappos' digital infrastructure to its parent company Amazon's servers, an intensive task known internally as the "Super Cloud" project. Those employees asked Hsieh to extend the deadline to Jan. 1, 2016, to avoid disrupting their work flow on such a complicated undertaking, and Hsieh agreed.
Zappos recently announced that 50 of those Super Cloud workers also took the severance package, bringing the total exodus to 260 employees or roughly 18% of the company.
On a recent trip to Zappos headquarters in Las Vegas, Business Insider asked Hsieh if he thought the offers were necessary for Zappos' future. "It's more just in line with how we've always done things at Zappos," he said. "We could've just as easily not given any offer and then just said, 'This is what we're doing,' but we've always prioritized company culture and how we treat employees."
Hsieh made a similar offer in 2004 when Zappos moved its headquarters from San Francisco to Las Vegas, and has long offered new hires $2,000 to quit after undergoing training if they decide the company's not right for them.
"We want to make sure that employees aren't here for just a paycheck and that they truly believe that this is the right place for them," he said.
Hsieh said he decided that self-management was right for Zappos, which has always prided itself on its innovative and quirky culture, due to a nagging feeling that Zappos' growing size was threatening what made it exceptional.
Zappos COO Arun Rajan told Business Insider that, before Zappos moved to adopt self-management, it was becoming a "siloed" organization in which an increasing level of bureaucracy kept teams across the company from working with each other on projects. He agreed with Hsieh that self-management would help keep the startup feel of Zappos even as its ambitions and size grew.
Rajan, who oversees the Super Cloud project, said that the 50 employees who recently left were primarily people and project managers who would have had to not only give up their titles but find something entirely new to do at the company. He also noted that he'd expected about half of the team would quit, rather than the one-third that did.
Hsieh said Zappos is stronger now that it has fully dedicated itself to self-management. He also believes that the employees who chose to leave are happier, regardless of what caused them to take the severance package, which was valued at either three months' salary or a month's salary multiplied by the number of years an employee worked at the company. Those who took the offer could return in a year if they regretted their decision.
"Anecdotally I would guess that about half of them, the reason they took the offer," Hsieh said, "was because it actually had nothing to do with Holacracy or self-management. It was just because they really had wanted to go out and start their own businesses. And now with a year's severance, for example, they had the funds to try it out. And they also knew that they could, 12 months later, come back to Zappos."
And while the Zappos.com Super Cloud transition will be launching in this year's first quarter rather than its original target of last year's fourth quarter, Bunch said that the company was generally able to meet its 2015 financial goals even during a tumultuous time. Zappos declined to reveal its final numbers at this time, but one of its 2015 goals was to make $175 million in operating profit, up 77.9% from the year before.
Hsieh said that self-management allows Zappos to function more like a city, like an ecosystem that doesn't need constant direction from up top to function, and that this will assure its long-term survival even when he's no longer CEO. "As we add more employees, then there's more innovation and more productivity" under Holacracy, he said. "And like a city, mayors come and go but the city remains. We want to constantly evolve."