Blue Nile CEO engages with his customers

(FortuneMagazine) -- In 1998, Mark Vadon, then a 28-year-old management consultant, walked into a Tiffany store to buy an engagement ring only to leave empty-handed - intimidated and frustrated by what he felt was snooty service. He found a ring somewhere else - and saw the glimmer of an opportunity.

Nine years later Vadon's online shop, Blue Nile (Charts), is one of the largest vendors of engagement rings and wedding bands in the U.S., selling $197 million worth last year - ahead of Tiffany in that department. With total revenues of $252 million, the Seattle company's stock was trading at a record high in April. Fortune's Julie Schlosser chatted with Vadon, now 37, about his management style, which these days includes listening to his customers - literally - and a healthy addiction to Post-it notes.

Vadon watches on as one of his jewelers finishes setting a diamond.

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One of the hardest things about the Internet is that you don't see your customers. When you don't have a store to go to, you're trying to find ways to understand what they're experiencing. Every morning, I go through electronic reports that show all the orders coming in. I'll open up 20 or so and read any order that's above $50,000. My phone is also set up with something called service observer. I can hit a button, and it plays our customer calls. I usually listen while I'm doing e-mail. I do this for two reasons: It helps me understand how well our call center's working, and it allows me to hear the customers, which is so critical.

I'm obsessed with Starbucks. I was talking to one of its executives and asked him why they have grown so much when other people have tried and haven't. And he said, "Well, there are 1,000 little things that impact the customer where we're 10 percent better than anybody else." I think that's exactly what we're trying to do: stay focused on all the tiny little details that matter to customers.

Figuring out what's preventing my five direct reports from getting their work done - and then fixing it - is one of the key parts of my job. Every day, I make sure I talk to them at least once, even if it's just sitting in their office and trying to cross-pollinate ideas or remove roadblocks.

I talk to executives who spend a lot of time going to conferences or conferring with "industry experts." You'll never see me doing that. I don't think I've ever spoken at an industry event. My team is filled with some of the smartest people in e-commerce. If we listen to our customers and immerse ourselves in the data, the answers are here. Maybe that's why I don't listen to consultants. And maybe that's one of the reasons we survived the [dot-com] bust.

I'm one of the more cluttered people you're ever going to meet. I joke that I file things like sedimentary layers on the desk. When I'm trying to find something, I think, "When was the last time I saw that?" And then I work my way down the piles until I hit that part of the stack. My entire desk area is covered in Post-it notes. I scrawl everything on Post-its and stick them everywhere. I'm just not going to be able to change myself to [follow] "The Seven Habits of Highly Effective People." That's not the way my mind works.