Posted by: John Tozzi on June 11, 2010

What happens when entrepreneurs’ values aren’t aligned with their investors? Read Zappos CEO Tony Hsieh’s account of how his company sold to Amazon last year for $1.18 billion in stock. The excerpt from his new book describes how Zappos rebuffed earlier advances from Amazon, but, in danger of losing a crucial credit line and under pressure from investors from Sequoia Capital who wanted an exit, Hsieh agreed to the deal last year with the understanding that Zappos would remain autonomous within Amazon. (I’ve emailed Sequoia for comment and will update if I hear back.) He now calls the sale a “blessing in disguise,” a phrase he used several times during an interview this week to describe many circumstances that shaped Zappos.

“We actually now have more freedom than we did under the previous board,” Hsieh told me. Amazon, unlike his VC investors, understood that Zappos’ values and culture are baked into the business model. “They believe that our culture is what’s driven our business,” he says. Entrepreneurs shouldn’t take money from investors that don’t share their values, Hsieh says, just as companies shouldn’t hire employees who don’t fit into company culture.

Last month a pricing glitch cost Zappos more than $1.6 million when the company decided to honor sales at the mistaken prices, even wild discounts that it was not required to honor. One way to look at it is that Zappos spent $1.6 million for the kind of marketing boost that no TV spot could deliver. Investors focused on short-term profits might disagree.

To watch Tony Hsieh’s interview on Bloomberg TV, click here.