The insights of this blog are drawn from: The collective writings of Jeff Bezos – invent and wander.
Reading all of Jeff Bezos’ shareholder letters has long been on our list to do and this book has been a great way to cover all this material in an efficient and convenient way. There is a treasure trove of insights in all of Bezos’ letters and we have highlighted the best points below. Some of the same traits as other 100 baggers including a founder leader + customer obsession + overt culture.
Missionary of Mercenary
Whenever Bezos assesses a business to acquire, he tries to categorize the founder/leader as either in it to make money or because of a true passion for servicing customers. The mercenaries are trying to flip their stock. The missionaries love their product or their service and love their customers and are trying to build a great service. The great Irony Bezos says is the missionaries end up making all the money!
The Amazon Hiring Criteria
Bezos states that “it would be impossible to produce results in an environment as dynamic as the internet without extraordinary people”. During our hiring meetings we ask people to consider 3 things:
Will you admire this person? When you think about the people you admire in life, they are likely to be people you have learned or take an example from. I’ve always tried hard to only work with people I admire, and I encourage folks here to be just as demanding.
Will this person raise the average level of effectiveness of the group they’re entering? We want people to look around in 5 year’s time and be happy they got in when they did because the bar is now so high.
Along what dimension might this person be a superstar? Many people have unique skills, interests and perspectives that enrich the work environment for all of us. It's often not something that relates to their work.
It's all about the long term
Bezos claims in his 1999 shareholder letter that “the current online shopping experience is the worst it will ever be”. It’s still attracting millions of customers and will only get better along the way and we will improve user experience and access with non-PC devices and wireless access to always open stores. This view of long-term tailwinds and growth obviously led Bezos to develop his three pillars of Customer Experience being Selection, Convenience and relentlessly lowering prices.
“The long term interests of shareholders are tightly linked to the interests of our customers: If we do our jobs right, today's customers will buy more tomorrow, well add more customers in the process and it will all add up to more cash flow and more long-term value for the shareholders”.
A dreamy business offering
A dreamy business offering has at least four characteristics:
Customers love it
It can grow to a very large size
It has strong returns on capital
It is durable in time with the potential to endure for decades
When you find an opportunity that has these four characteristics, don’t just swipe right, get married!
A word about corporate cultures: for better or worse they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture but when you do so, you’re discovering it, uncovering it – not creating it. It is created slowly over time by the people and by events – by the stores of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture while someone who loves to pioneer and invent may choose another. The world thankfully is full of many high performing, highly distinctive corporate cultures. We think we are good at failing but failure and invention are inseparable twins.
How do you hire and retain great people? By giving them, first of all, a great mission – something that has a real purpose, that has meaning. People want meaning in their lives this is why the US military has been so successful – people have a real mission.
The Amazon decision-making mechanism
1) Firstly, don’t use a one size fits all framework, remember decisions fall into Type 1/Type 2 decisions:
Type 1 - Irreversible: These decisions should be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through this door and don’t like what you see on the other side, you can’t get back to where you were before. Most decisions aren’t like this.
Type 2 - Consequential and Irreversible – Type 2: These decisions are easily reversible, and you don’t have to live with the consequences for that long. These decisions should be made quickly by high judgement individuals or small groups.
2) Secondly most decisions should probably be made with ~70% of available information you wish you had. If you wait for 90% of the information in most cases, you are being too slow. If you are good at course correcting being wrong may be less costly than you think but being slow will be expensive for sure.
3) Thirdly use the phrase “Disagree and Commit”. This saves an enormous amount of time considering how much time it takes to convince a team member rather than simply get a commitment.
Two types of Failure
“I always point out that there are two types of failure”:
Experimental Failure: This is the kind of failure you should be happy with, when you are developing a new product or service or experimenting in some way, and it doesn’t work, that’s okay. That’s a great failure. And you need to ensure that this failure is distinguished from operational failure.
Operational Failure: We’ve built hundreds of fulfilment centres at Amazon over the years, and we know how to do that. If we build a new fulfilment centre and it’s a disaster that’s just bad execution. That’s not a good failure and that’s not acceptable.
To sustain experimentation, you need to attract the right people, innovative people will flee an organisation if they can’t make decisions and take risks.
Regret Minimization Framework
Everyone knows the decision-making story of Bezos and his walk-through central park with David Shaw (owner of the hedge fund David E Shaw) and his 48-hour cooling-off period while he finalized his decision to start what is now Amazon. The interesting point about this is Bezos’ decision-making process, he explains what is famously now referred to as his regret minimization framework. Bezos tried to imagine himself on his 80th birthday and looking back on his life and he knew at that point he wouldn’t regret having tried to participate in this thing called the internet – In fact, the thing he might have regrated is not trying at all. Most regrets are from omission, not commission.
Experiment and build new ideas
The greatest innovation of Bezos has arguably been his development of AWS. The initial ideas which included a software layer known as Elastic Computer Compute and hosting operation known as Simple Storage Service alongside several other ideas came together to create a service that would “enable developers and companies to web services to build sophisticated and scalable applications”. This development supercharged internet entrepreneurship worldwide as it enabled any business no matter the size to experiment with ideas and build new services without the barrier of infrastructure. For while after developing the solution to one of the long-held problems a miracle happened: for a few years no other companies competed with us. Bezos says “it was the greatest piece of business luck in the history of business, so far as I know”
Beware of Market Research and Customer Surveys
This data can become proxies for customers – something that’s especially dangerous when you’re inventing and designing products. Good inventors and designers 'Deeply' understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the averages you’ll find on surveys. They Live with the design.
You must understand the customer, have a vision, and love the offering. Then beta testing and research can help you find your blind spots. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste, and you won’t find any of it in a survey.
“I believe in the power of wandering. All my best decisions in business and in life have been made with heart, intuition, and guts, not analysis. When you can make decisions with the analysis you should do so, but it turns out in life that your most important decisions are always made with instinct, intuition, taste, and heart.