On this episode of the Startup Savants podcast, hosts Annaka and Ethan chat with Dr. David Vik (“Doc”), a former chiropractor turned startup advisor and investor. Dr. Vik is best known for his contribution to making online shoe and clothing retailer Zappos a success. He discusses his experiences in advising and mentoring founders of a variety of companies and reveals his recipe for success, including the “secret sauce.”
How did your business career begin?
“I started a chiropractic clinic back in 1982. And I didn’t know what I was doing. Like a lot of people, they start a business, but they don’t know business … But after about a year, I was borrowing money to keep afloat and so forth.”
Did you consider getting professional help?
“I would get different coaches, and I stumbled upon one coach, Kirby Landis, and Dr. Ward. And this was in 1983, I think. And I said, Hey, I’d like to have a great clinic, but I’m having trouble here growing and scaling. And they just talked to me, and they said, ‘Hey, for one thing, you have to have three unique factors.’”
What did they mean by three unique factors?
“They said you need three unique factors to set you apart from everybody else out there. It doesn’t matter what you sell … you have to have three unique factors. So back in the day, I started to figure out what was broken in my industry. And the three things that were the biggest broken parts were people had to do their own insurance.
Number two, you always waited for a half hour or an hour, any doctor you went to … and number three, you couldn’t get a hold of the doctor at any time you call the office … so very simply, the three unique factors were: everybody got the doctor’s home phone number … we had an insurance department that was staffed with insurance experts … and no one waited. They all got seen within a minute or two.”
How did you go about implementing this three-factor approach?
“We had to change our process and procedures to go ahead and have everything work properly. Like we had to have an insurance department, and we had to run on time and not overbook, and overschedule, all that kind of stuff to make sure people got seen right away … Well, first of all, we always call the patient after the first visit, say, if there are any questions or concerns and people go, wow, the doctor called me to check on me, you know? And he gave me the home number. He says, call anytime, because you know, we’re not treating patients, we’re treating the person.”
How does what you were doing compare with the typical chiropractor?
“The average chiropractor sees maybe seven people a day, and we saw 200 with bursts way up there past that a day.”
You became an angel investor through your clientele, right?
“I’m right in the heart of Silicon Valley, I took care of a lot of the big wigs of the Silicon Valley. I invested with startups that were really cool. They had cool cultures. Everybody lived and breathed, what they did, kind of like we did in that clinic. And that I set up in my clinic because I had to create the culture that supported our three unique factors. And basically, it was delivering ‘wow’ — that’s how we kind of over umbrella it … So, I invested in private companies. I’ve had some excellent exits.”
Zappos was a great success story. How did you become involved with them?
“[Nick, founder of Zappos] was raising money to start his shoe company. And he asked me, he goes, ‘Hey, do you want to, I hear you invest in companies. I’m going to start a shoe company.’”
How did that introduction develop?
“I said, ‘Okay, what’s the name?’ And he goes ‘It’s shoesite.com,’ and it’s like, whoa. That’s hard to find on the internet. You know, when you type in ‘shoe,’ then a billion things come up.
So anyway, I kept saying, ‘No … it doesn’t sound right.’ You know, you can’t feel, you can’t touch the shoes, you can’t do anything.’ And I don’t know how you can be unique online. You know, there’s some real trouble out there, as far as shipping time, it was two to four weeks, and you had to pay for shipping and all that kind of stuff.
And so anyway, I finally gave him some money, and then he started, and then he had to change the name … ‘Zapatos’ is Spanish for shoes, so we changed it to ‘Zappos.’ And then you started to be able to find it on the internet, you type it in, that came up top. So it was great. And initially it had one ‘P’ in it. So it was ‘Z-A-P-O-S.’ But then in about a year, when Tony came on board, he says it looks like ‘Zapos’ … so Tony added the ‘P.’ So that was really cool.”
And so you applied the three-factor approach to Zappos, right?
“The product was a commodity really. I mean, everybody sold them for the same amount … So we had to do something different. We couldn’t change the color of the Converse that people were buying and stuff. That was it. And so we had to work on the delivery. So just again, just like what I did with my clinic, look at the three broken parts. And that was: shipping was very expensive, two to four weeks and you had to pay money.
And number two is the selection. Like when you go into a store, Foot Locker, for instance, there’s only a couple Nike’s in there of styles, but Nike has 500 different styles. A matter of fact, that’s the reason Nick started the shoe company. He tried to find a certain boot, and he went all over the Bay Area. He couldn’t find it. He goes, ‘This is ridiculous.’
And also when you bought shoes, you had a 30-day window to return them, and you had a restocking fee for any shoe. And so just doing the opposite of the three sticking points that people hated with the shoes is we had fast free shipping to overtake the expensive, costly shipping. And we had huge selection, which was the opposite of the very narrowed selection at shoe stores. And we had 365-day return policy for the shoes, which took care of the 30-day window that you had with shoe companies or shoe stores and the restocking fee.”
So those are the three factors?
“Those are the three unique ‘wow’ factors. And our whole umbrella at Zappos too was ‘deliver wow.’ And so having the three unique factors, again, we had to get the process and procedures. So whether it’s the call center or the fulfillment center in Shepherdsville, Kentucky, they had to make sure that the shipping was quick and it continued to get quicker. So that’s where a lot of assets went because that was a unique factor. We had to keep making it better. And the same with the selection of the shoes and the return policy. So we had to set all of our processes and procedures to support that because those are our big wows. And then we wowed them all the way up and down every which way you can in between there.”
Are you still working with Zappos?
“No … I retired at 45 … and after about a year … I went down to Zappos and gave… a talk about delivering ‘wow’ for a couple days to all the teams and departments and individuals. And then Tony, unbeknownst to me, said, ‘Hey, I had everybody vote on you if they wanted you to come down here … we’d like you to come down here and help us out.’ And so what I did is I worked with all the teams, departments, and individuals and so forth to make sure the wow was getting sunk in the DNA. But we got bought by Amazon in, I believe it was 2009. And I went down there in 2004. So when that happened, the DNA was so strong in everybody, and everybody was wowing and slapping high fives. It wasn’t even a need for me anymore. Man, I was just, I was a coach that wasn’t needed because everybody was like coaching themselves.”
It seems you’ve become quite attached to the people you’ve worked with — is it just Zappos or do you get that feeling with every company that you work with?
“Well, I tell you what, I mean, I’m one person. When I left, there were 2000, right? So it is not about me at all, at all. You know, it’s about ‘we.’ And matter of fact, ‘60 Minutes’ called me to get me on a show because I was engaging the employees and they wanted to do a segment … I said, ‘You know what, this isn’t about me… the culture that we created here is about them. So what, I would love to have you guys just go ahead and do a segment on Zappos, forget about me’ … So anyway, so they came down and so we were on ‘60 Minutes.’”
What does your role as startup advisor entail?
“What I do with startups is I’m kind of the guy behind the scenes. So many people work so hard in the business that they don’t pull the lens back and work on the business … So I help them get out of their own way, so to speak sometimes, with high turnover or whatever it is, but to help them scale. And a lot of times companies just aren’t set up with unique factors. You know, they’re not set up with a flywheel that supports what they’re doing internally.”
What is this flywheel you’ve referred to?
“The flywheel is the most important. Amazon has a good one. We had a flywheel, and probably why Amazon bought us … A flywheel basically gains momentum over time. And so what you want to do in business, it depends on what you’re doing, but you want to have the experience, number one. And like Amazon has a flywheel where they have low costs. So that attracts buyers. And when you have a lot of buyers that attracts vendors. And when that attracts vendors, you make more money. And then you come back up, and you put investments in the fixed cost experience.
And in Amazon, the fixed cost experience is delivery. So it was like three days and then two days, and then one day and then the same day, right? So they keep getting better and better. And it’s like, oh, by the way, let’s give you music too. You know, let’s give you Amazon Prime. When you get that, let’s go ahead and give you movies. You know, they give you a lot of stuff that is like, wow, I get this also. So we did that at Zappos, where we would do the description of our shoes and so forth, and they’d always get better and better. And then we took it and showed videos of our shoes. So we kept on investing capital into that and making that flywheel, so the wow gets bigger and bigger, and it attracts more people which attracts more customers, then more vendors. And it just keeps going around. It gets better and better over time.”
Generally, you prefer to wear two hats: advisor and investor, right?
“I used to invest in a lot of companies, and they call it ‘spray and pray.’ But the problem with that is after a while I did that, and I’d see these people just go off a cliff and I couldn’t do anything. Wouldn’t listen to me. So it’s like, ‘You know what, I’ll be your advisor, first. And then once you guys show me you get in the right direction, boom. I can invest some.’ I’ll invest with the people in the future or by myself.”
What exactly is the ‘wow’ factor?
“Well, I got it from Ward … I’ve worked with companies that we had out-of-state guests that are flying in. It’s like, ‘Hey, great. You’re flying in — when does your plane arrive?’ And we send a limo to pick them up … Wow. I mean, they flew five hours, pay $80 and give them a limo or an Uber or something it’s like, and ‘Hey, you’re traveling to San Francisco’ — this was a San Francisco company — ‘Great. What do you like to do?’ And they go, ‘Well, like to do this, this and this.’ So you send them an itinerary of all these different things and where to go and what to do when they come here. So what do they do? They go, ‘Wow. You know, I travel to a lot of places. No one else does this for me.’ But it’s not that big of a deal, right? It’s just doing the right thing and treating people like they matter.”
How can companies identify and apply their wow factor?
“First of all, when you have a company there’s three things, any company sells, it’s a product, service or knowledge … and the thing is a lot of them if they had a product, that’s all they sell, which is good. But if they add a little service to that product and maybe give them a little knowledge, like its origin, all that kind of stuff, you’re wrapping all three of these things. And that’s what people want. That’s what Amazon does. That’s what we did at Zappos.
That, and then basically look at what’s broken out there and then do the opposite. And try not to worry too much about the how at that point. And we started with Zappos it was like, I think seven-day shipping, because everything else was two to four weeks, right?
It was expensive. But with the flywheel, six days, five days, four days, three, it’s the same day. Right. So in doing that, we had our first fulfillment center at Zappos in Northern California. But the thing is everything ships out of Kentucky where the UPS hub is. And so it was always one day to ship it there, but we wanted to have same-day shipping from the very beginning again, we didn’t know how.
So we basically said, ‘Hey, well this process and procedure, our fulfillment center or warehouse cannot be in Northern California.’ So that’s when they moved it to Shepherdsville, Kentucky, which is 20 minutes outside of UPS. So, we have to set things up. So that’s how little things incrementally go towards the ultimate goal of what you have, but you didn’t know how you’re going to get there.”
So having identified the wow factors, how does your marketing team articulate them?
“We didn’t really market that much at the beginning, as far as our wow factors. We just, we gave them the experience, and they experienced the wow factors. But the one thing you want to do is clearly articulate the wow factors, has to be six words or less … Some people say what they do. And it’s like, ‘We’re the greatest company. We do this and that.’ And it’s like, no, what does the customer get? With the wow factor. So the customer Zappos got free shipping, free return, right? Not great shipping policies or something goofy. Right. It’s not like what the company delivers. It’s what they experience. So that’s what has to be, what the customer experiences. It has to be clearly articulated. So someone could remember it, repeat it, tell somebody else.”
But identifying the wow factors and communicating them are just pieces of the puzzle, right?
“You have to have the vision and purpose, and then you have to create the culture that will support and drive the wow. And live and breathe it. So there’s these different moving parts, but we did it there at Zappos, and I’ve done it other places. So it’s not that difficult, once you know how. But there’s different pieces you want to go ahead and align. Everything has to be in alignment.”
Having all the pieces is necessary for success; yet, it’s still not sufficient, right?
“Yeah. They could have all the parts. They could have no parts, but they really have to think about ‘What can we do to be customer-centric?’ Let’s look at it from the customer’s eyes … maybe we’re charging too much money … because the customer’s going to bounce if something feels a little bit sketchy.”
Can you give us an example of when that customer focus was absent?
“I had a company one time … it was a recruiting company. But the choices that they made … I was talking to the founder, and he says, ‘Hey, we have a little too much churn because people want to use our site for like a couple months, and that’s it. Then they stop paying.’ And I said, ‘Well, you got to get them more engaged, deliver some, a little bit of knowledge, just say, okay, this is the salaries range of candidates …so they stay on and all that kind of stuff.’ He says, ‘Well, you know what, I’m going to just go ahead and make them sign up for a year contract.’ I said, ‘Really, you’re going to piss them off for 10 months, when they really only want two?’ He goes, ‘Yeah. But you know, we get paid for a year.’
Well I think you can guess what happened. They were gone after about a year, year and a half … So if you’re thinking like that, just a money grab without thinking about the person you’re going to go downhill. And so many things, things are so pedestrian, it’s just unbelievable that that happens. But look at all the websites, look at all the platforms you go to. It happens a lot, right?”
How do you improve user experience?
“Well, if everything’s aligned, it really is good. You know you don’t have like about 12 clicks … and when you put a credit card in, you don’t have to keep doing it and doing it. And then all of a sudden it rejects it, and you do it again … you know what I mean? So with that customer-centric thing, it’s just beautiful. You know, if everybody knows it and the front-end team wireframes it up really nice. And then the back-end team gets the navigation going well and so forth. Because you know, the simple thing of just scrolling, if I’m looking at a page and I just scroll the bounce rate goes up exponentially…
And you probably look at with text, you want to have more infographics on the website and on your site and so forth. So people can pick up what you’re trying to do and what you’re trying to say and what you’re trying to deliver and provide right at a glance versus reading. Probably when you get a text or an email where you have to scroll, you delete it. Right?”
Can you tell us about a time when you gave a founder some unconventional advice?
“Some of the biggest problems that I have is basically the unconventional advice I guess. Could be, is they overvalue themselves, especially at the start … people were coming in at a $10 million valuation. It’s like, ‘Okay, what do you got?’ And they go, ‘Well, we need $500,000 or a million to produce an MVP.’ And that’s a minimal viable product. And it’s like, ‘So you want money so you could go ahead and create a minimal viable product? Why don’t you have that right now? What have you invested in this?’
And so a lot of these founders … they’ll show screenshots and everything, [and] you go, ‘Wow, that looks really good. Can I see any navigation in the back end?’ They go, ‘No, these are just screenshots.’ And so they probably took a couple months, made a pitch deck, and did some screenshots, and then want money at a $5 or $10 million valuation. It’s like, ‘Okay, so we can sell your company with screenshots for $10 million right now. That’s what it’s worth. Right?’”
What unconventional advice do you give to founders who overvalue their companies?
“I don’t want to take money and give away more equity at the very beginning. But here’s the deal … if it’s valued low at the first round, you’re going to have a stock split, or they’re going to get a better round, and it’s going to gain, and it will attract more people anyway. But the harder you make it and the more difficult and expensive you make it just shrinks the market of people [who] don’t even want to.
Because it’s always a big bet, nine out of ten, I’m going to lose my money. So I’d rather lose less money and less valuation than leave in less money at a higher valuation. So that’s kind of the stuff, don’t overvalue your deal, especially if you have nothing … the best thing is if you don’t want to give away a lot of equity and have high valuation, create something, bootstrap it. And so you have something really cool to show that really has some impact and some wow. That’s not just another me-too company. That’s what I can say to startup founders, ‘Take a little time, man … and then you know what, in two months you might not even need money. You might just be able to go off that MVP and keep it all for yourself.’”
How does culture figure into all of this?
“Since we had a great culture at Zappos … I’ve helped do other cultures … [People] kind of short step it and just say, ‘Hey, we got a great culture, and we have ping pong tables, and we have great food, and we have skits and all that kind of stuff.’
And the thing is, it’s like a chair manufacturing company, and it has nothing to do with getting their stuff out the door to have the customer. And they don’t have any unique factors that will wow the customers, they’re just creating a lot of fun inside, which probably makes happier employees, but maybe not more productive employees because they’re not aligned on the throughput of what they have to deliver or provide to the customers — you follow me? I mean, to grow and advance in your career and have a company that’s really scaling. It’s all about the customers because if all your customers go away, you’re done in a single day, right? And conversely, if no employee comes in, you’re done. So it’s always about the employees and the customers, but the customers first and then the employees, first really, but then they have to support and align with the throughput to our customers.”
You’ve written two books on startups and entrepreneurship, ‘Take it to The Next Level’ and ‘The Culture Secret.’ What are a few of the main takeaways for entrepreneurs from either of them?
“‘Taking it to The Next Level’ is a DVD I made as a coach at Zappos. And it’s basically a lot of self-talk. You know, a lot of people, they talk to themselves poorly, and if I talk to them the way they talk to themselves, they’d probably hate me.
And so that’s a big thing … So we just want to, ‘you’re the greatest, you’re the best,’ you know? And then things will start fulfilling. It’s the Pygmalion effect. So I would definitely up that self-talk. Self-esteem too, just get your self-esteem where it needs to be with self-talk. We’re only got one go around in this life and why not just go for the gusto and treat yourself right? And know your worth and know your value and so forth and contribute. And if you’re not contributing in some way, contribute because you’re never going to feel better in your life than if you help someone out or help nature or help animals and all that kind of stuff. So just help.”
Can you tell us more about the pep talks you conducted?
“I gave workshops at Zappos. I’d ask them all the same question: ‘On your way to work today, how many red cars did you see on the road?’ And they’d say maybe one or a lot of people say, ‘I don’t know, I didn’t really see any.’ I’d say, ‘Okay, we’re going to meet tomorrow. Let me know on your way to work how many red cars you see’ … and they all had finite exact numbers, right? Like 14, 12, 6, whatever. But the thing is because they focused on it. So whatever you want to focus on, you’ll see. So if you focus on the good, you’ll see the good. But if you wake up and say, you know what? This is such a crappy day. I feel like crap. You know what? I hate this, this is a crappy day. You’ll get up. You’ll spill your coffee, and everything you’ll do will support your mindset, right?”
What’s the most common mistake you see startups or their founders make?
“Overvaluing themselves … that’s one of those mistakes.”
Name another mistake founders tend to make?
“Not a real business model. When they come in, they go, ‘Hey, this is what I’m making and I know it’s going to sell.’ So they have no business model and no flywheel, no ‘wow’ factors. And then they put it on Instagram or wherever they’re putting it, and it’s not selling. And so when it’s not selling, they just say, ‘Well, we got to go ahead and do marketing.’ And so they spend half their $500,000 on marketing, but they’re marketing something that doesn’t sell. And … they go belly up.
I see a lot of that kind of stuff because if … you’re not customer-centric, don’t have the wow factors, don’t have the culture to support it, you don’t have the values — everything aligned — and you just have a product or a service, that’s great, but it may not even be articulated. So whoever gets to product or service is not going to be able to remember it, repeat it, tell a friend.”
What trends have you noticed in the startup ecosystem?
“I think the landscape of funding is changing a bit for VCs. There’s a lot of hedge funds now, and I think there will be even more hedge funds in the future that they’re going to have an arm of venture. And family offices, they’re going to have an arm of venture… So… I think it’s going to be more dispersed as far as funding. People make money, they’re going to fund it personally. There’s GoFundMe, all that kind of stuff. I think it’s going to be more of a ground swell of starts where people have a product, and they put it on whatever they put it on.
And then like a TikTok … all of a sudden it goes big … I don’t know if it’s going to be more of the entertainment that’s being produced by individuals, OnlyFans, all that kind of stuff. Or it’s going to be actual companies that change the way the world works. And I think it’s going to be a little bit of both.”
What is your number one piece of advice for aspiring entrepreneurs?
“Make sure you like what you’re going to do. Once you commit, I would commit like that pig in a ham and egg breakfast, and just go for it, man.”
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