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How Sticking to Their Principles Helped Zappos and Tom’s of Maine Step Ahead of Their Competition

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October 18, 2020 7 min read

Opinions expressed by Entrepreneur contributors are their own.

Capturing market share in a competitive industry is a matter of differentiation. When Tesla saw that its rivals favored function over form, it positioned itself as a sleek alternative to more prosaic vehicles like the Toyota Prius or the Chevy Volt. marketed itself as a fresh, authentic alternative to . Uber became the alternative to Lyft. 

That’s standard branding practice. But what about using principles to position your business? Can making character be part of your company’s signature to make you distinctive without seeming gimmicky? 

While there are potential pitfalls to a character-based approach, two enterprises have found surprising success: and Tom’s of Maine. Here’s what they can teach entrepreneurs:

1. Go to extremes for customers

A quirky startup with a funny name, Zappos is no longer a joke. From a modest launch in 1999 to its Amazon acquisition only a decade later for just under a billion dollars, the online shoe store has become Exhibit A for how forging a unique identity can reap dividends.  

Related: 840 Million Reasons to Celebrate

What Zappos did was to make its greatest liability into an asset. The shoe retailer turned its call centers from cost sinks into brand differentiators.

Originally, call centers were a minor part of Zappos’ business plan. After all, only 5 percent of its sales came from phone operators. But even if these reps weren’t moving much merchandise, they were getting lots of contacts. People kept them busy asking all kinds of questions about the shoes they were scrutinizing online. The service they were getting from impatient Zappos employees wasn’t always very good. 

Zappos’ leadership saw an opportunity to shift its culture and brand identity. If customers wanted contact with real people before making online purchases, Zappos would go to extremes to keep its callers satisfied.

That required some changes: It implemented a 365-day return service, for one. Even more impressively, it’s been known to stay on the phone with clients for up to six hours. When word about its strategy of relentless service started spreading, the trajectory was set. The rest is history.

Related: Follow These 9 Steps to Copy Zappos’ Exceptional Customer Service Strategy

2. Go back to nature

Where Zappos built its reputation out of a strategic pivot toward customer service, Tom’s of Maine was stamped from the start with the principles of sustainability and

When Kate and Tom Chappell relocated from Philadelphia to Maine in 1968, they decided to raise their children in a healthier, simpler way. They traded the concrete jungles of Pennsylvania for the wilds of Maine to live closer to nature. Soon, however, they found that there were few personal care products free from artificial colors, flavors or preservatives. Supported by a $5,000 loan from a sympathetic investor, they started a business to fill that void. 

Three values guided Tom’s business development: developing natural products, growing the business sustainably and making the operations responsible to the larger world community. The Chappells adhered to strict principles of natural product development, minimized their company’s carbon footprint and encouraged employees to spend up to 12 paid days giving back to causes that mattered to them. 

At the time, that strategy seemed more aspirational than geared toward market growth. But over time, the Chappells have proven their critics wrong. Customers who sought out natural alternatives also appreciated the brand’s social conscience. Its reach grew. By 2006, Tom’s had grown from a boutique brand to an industry player, selling to industry giant Colgate Palmolive for $100 million.

Related: Toothpaste Magnate finds an Eco-Friendly Encore

3. Be authentic

The remarkable success of companies like Zappos and Tom’s of Maine has inspired others to follow their lead of using corporate values to position their brands. But trumpeting your principles won’t necessarily differentiate your organization. For it to work, those principles must be genuine. 

Attentive customers can spot a gimmick a mile away. What they’re looking for is consistent follow-through, not a cynical strategy. Tom’s was built on principles of well-being and environmental concern, so its social initiatives were seen as serious. Zappos didn’t just tout itself as customer-oriented and hire friendlier representatives; it overhauled its whole call center culture. 

Related: Why Authenticity is a Key Ingredient to Entrepreneurial Success

Donations can help demonstrate authenticity, but they’re not enough. Patagonia, which crafts apparel for serious outdoorsmen and women, backs up its commitments not just with money, but also with socially and ecologically conscious corporate practices. 

Will your initiatives be read as expressions of principle or stunts? Analysts suggest asking these questions:

  • Is this an isolated one-off project or an ongoing commitment?

  • Is the goal to elicit good feelings or create self-sustaining, long-term impacts?

  • Would the company be doing this, even if it didn’t directly generate profits? 

4. Go against the grain

If everyone’s doing it, it doesn’t differentiate anyone, right? 

Zappos worked because the lengths it went to keep customers happy and entertained were without rivals in the online marketplace. What made Tom’s stand out in the aisle was its novelty as a natural alternative; it was way ahead of the curve when it came to social and environmental responsibility. 

Consider just how powerful values can be in a space that isn’t known for them. Keyser, a commercial real estate brokerage, is building its identity as a purveyor of selfless service rather than an instigator of cutthroat rivalry. 

Instead of perpetuating the common practice of making the best deals for the brokers themselves, Keyser’s brokerage focuses on what’s best for clients by following through on commitments and outworking all expectations. In a dog-eat-dog industry like commercial real estate, it’s no surprise Keyser’s alternative strategy resonates. 

Related: 5 Odd Ways Top Entrepreneurs Found Success Going Against the Grain

5. Be relentlessly consistent

Until people experience your principles, it’s all rhetoric. But to really drive those principles home, you have to deliver that experience over and over again. 

Skeptics (including CEO ) thought an online shoe store would struggle — until they got on the phone with one of the famously dedicated Zappos reps. Tom’s, too, seemed destined for co-op stores manned by patchouli-scented staff, but its values eventually became mainstream enough to stand out in supermarkets everywhere. When Starbucks began providing healthcare plans to part-time baristas, it spoke volumes more than a lecture about corporate responsibility would have.  

What do these different companies share? Broadly speaking, integrity. They’re aware of their impacts on their workers and clients, the market, the environment and the larger community, and they showcase that fact over and over again in everything they do. 

Related: 3 Proven Ways to Stay Consisent, Meet Your Goals and Realize Your Dreams

Integrity means following through. Zappos, Tom’s of Maine and Patagonia have been operating this way for years, reflecting a depth of commitment. When they point to their principles, people believe them — and more importantly, they believe in the brand. There’s a lot for aspiring entrepreneurs to learn from these companies about defining your principles and sticking to them no matter what as your business grows.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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