This is why Amazon is unbeatable
The 4 stages of growth
Amazon is doing something right. And in the Bezos Letters, Steve Anderson reveals the exact reason why it has become the behemoth that it is.
The main takeaway from the book is:
Keep experimenting.
I know, it’s a kind of cliché these days, but give me 5 minutes to show you why the way Amazon does it really sets them apart.
“Yes, every business takes risks, but haphazard risk-taking is like rolling the dice.
You never know what’s going to come up.
…I believe what has fueled Amazon’s growth comes down to Jeff Bezos’ unique approach to taking and leveraging risk and his commitment to creating a culture for experimentation and invention.”
Bezos believes that what made Amazon the first company to reach 100 billion in sales is the risk-taking culture he created and the evaluation of RoR (Return on Risk).
Today we’ll see how to do it the Amazon way.
Embracing ‘Successful Failures’
“I’ve made billions of dollars of failures at Amazon.com. Literally billions of dollars of failures. You might remember Pets.com or Kosmo.com. It was like getting a root canal with no anesthesia. None of those things are fun. But they also don’t matter.”
– Jeff Bezos, 2014
Bezos's philosophy goes as follows:
failure and invention are inseparable twins; to invent, one must experiment, and experiments by their nature can fail.
All Amazon employees are told they are expected to look at every task they perform and ask how to make it better. Everyone is encouraged to try new things and share what works.
And the sharing doesn’t end with just telling your superiors. If an employee comes up with something good, they are tasked with creating a training program for all of Amazon’s employees.
And if an idea fails, there’s a process that starts with extracting lessons, through sharing and applying insights to moving on and continuing to innovate.
Customer obsessions
“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us—right up until the second that someone else offers them a better service.”
– Jeff Bezos, 1998
The most important thing for Amazon is happy customers. And to make it work, Amazon starts with the customer. The shareholders are last.
Lots of companies focus hard on trying to make their products better, but at Amazon, they ask the following questions:
Who is the customer?
What is the customer problem or opportunity here?
What is the most important customer benefit?
How do you know what the customer needs?
What does the customer experience look like?
That way, Amazon put their customers in every consideration and plan.
They also require all third-party vendors on their platform to be customer-focused as well, using performance metrics, customer feedback, policies and agreements, etc.
Make high-velocity decisions
“The senior team at Amazon is determined to keep our decision-making velocity high. Speed matters in business—plus a high-velocity decision-making environment is more fun too.”
– Jeff Bezos
In Amazon, any critical decision you have to take is either a Type 1 or a Type 2 decision.
Type 1
These are the high-stakes and often irreversible decisions.
Examples: making substantial investments, entering new markets, or, in my case, choosing to go with native app development rather than, the obvious choice, cross-platform.
Repercussions: The consequences of Type 1 decisions are substantial. A good decision can propel a company forward, open new markets, and create new revenue streams. Conversely, a poor decision can lead to significant financial losses, company reputation damage, or missed opportunities.
Who Makes Them: Type 1 decisions are typically made by higher-level executives or the board of directors. These decisions require careful deliberation because of their significant long-term impact on the organization.
Type 2
Operational and more flexible decisions, which can be reversed if needed.
Examples: Price adjustments, minor product tweaks or hiring.
Repercussions: The impact of Type 2 decisions is generally less dramatic than Type 1 decisions. They can be corrected if they turn out to be wrong, and the cost of reversal is usually not costly. However, a pattern of poor Type 2 decisions can still lead to inefficiencies, employee dissatisfaction, or gradual erosion of market position.
Who Makes Them: Type 2 decisions are often delegated to mid-level managers or team leaders. Since these decisions are reversible, they can be made more quickly and with less information than Type 1 decisions.
Why this system?
The main reason is to prevent bottlenecks. Many times, small, insignificant decisions can be made swiftly and in many organizations, each of these changes requires several levels of approval.
Amazon decided to reduce this huge friction, which most of the time wastes people's time and the company’s money.
Plus, the more options you have, the more confusing things get. So 2 is a safe bet, I guess…
Believe it’s always Day 1
“There’s so much stuff that has yet to be invented. There’s so much new that’s going to happen. People don’t have any idea yet how impactful the Internet is going to be and that this is still Day 1 in such a big way.”
– Jeff Bezos, 1997
That quote is from Bezos’s very first letter to Amazon shareholders. To make it stick, with each new shareholder letter that is published, he includes his 1997 letter.
The concept of Day 1 is a mindset that Bezos wanted to ingrain in Amazon’s culture. A mindset that your job is to find ways to delight customers. You have to stay focused on achieving that and on doing what’s right for the customer. The size of Amazon doesn’t matter.
“You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.”
– Jeff Bezos, 2016
In Bezos’s view, Amazon needs to act like a startup. At any phase. A Day 1 mindset means that speed is more important than perfection.
You have to make the best decision you can with the information at hand, and then move quickly.
An organization is a group of people and disorder is the natural state.
Aligning into a common vocabulary is what I see best at Amazon.
Just dropping terms of Amazon culture I think everyone would benefit from googling and learning:
- Optimizing for the short-term is a Day-2 culture. Optimizing for the long-term is a Day-1 culture.
- Slow down on 1-way door decisions. Move fast in 2-way door decisions.
- Everyone is encouraged to challenge when something doesn't benefit the customer. Either you help pivot the idea or you get an end-to-end understanding of how it contributes to the customer.
- Jeff set the culture of Amazon to be the most customer-obsessed company. And Blue Origin to be the most decisive company. Both are reflected in the culture.
- Make data-driven decisions
- Create flywheels, virtuous cycles that reinforce themselves
- Set mechanisms and not good intentions
- Define tenets, "unless you know better ones"
- Everybody has to exercise the leadership principles in their role and scope
- Right to left planning. Work backward, always from the customer.
- Culture of writing. Prohibit slides. After writing a well-structured 6-pager, there's no way your understanding is not polished.
Have you guys listened to the Founders Podcast by David Senra? He does a deep dive on these letters along with a bunch more on not just Bezos, but great founders/figures in general (like MJ and Kobe). I think you guys would really enjoy it!!
great article btw!! I re-read some of bezos’s most famous letters often, they’re timeless