20 years of Biz Wisdom from Amazon's Famous Founder

“The balance of power is shifting toward Customers and away from products. The right way to respond to this is, put the vast majority of your energy, attention & $$$ into finding out what your Customers need & want” Famous Founder Jeff Bazos, Amazon

Famous Founder Topics: Learning form Mistakes, Cutting $$$, Long-Term Thinking, Cash Flow, Judgement, Opportunity, Goals, AI, Gate-Keeper, Cust-focused, 2-way Doors, Need for Speed, Standards (Core Values

Over the last 20 years, Amazon‘s Famous Founder & CEO, Jeff Bezos has been putting pen to paper and churning out the same type of “actionable” wisdom we should all be reading. Here’s the most important nugget from each one of those 20 letters.

1997: We’re focused on the Long Term

From the outset, Bezos made it clear that he would ignore Wall Street’s Modus Operandi and focus on the long-term: Because of our emphasis on the long term, we may make decisions and weigh trade-offs differently than some companies.

1998: Here’s how you Hire right.

During our hiring meetings, we ask people to consider three questions before making a decision:

Will you admire this person? …
Will this person raise the average level of effectiveness of the group they’re entering? …

1999: E-shopping is as “bad” as it’ll ever be.

It might seem obvious now, but Bezos very clearly foresaw how eCommerce would change over time.

2000: We’re learning fm our Mistakes

Like all Dot-coms, Amazon suffered when the tech bubble burst. Bezos admits that he, too, got carried away: In retrospect, we significantly under-estimated how much time would be available to enter these categories and under-estimated how difficult it would be for single-category eCommerce companies to achieve the scale necessary to succeed.

2001: Here’s why we’ve started Cutting $$$

Focus on “cost improvement” makes it possible for us to afford to lower prices – which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this + it’s good for shareholders. Please expect us to repeat this loop.

2002: We can have our Cake & Eat it, too (low prices & customer service)

If a brick-&-mortar wants outstanding service, it needs to spend more money on hiring + bells & whistles. Not so with eCommerce: People see that we’re determined to offer both world-leading customer experience and the lowest possible prices, but to some, this dual goal seems paradoxical, if not downright unrealistic.

2003: Let’s re-visit what Long-Term thinking looks like

Bezos comes back to long-term thinking a lot. Here, he explains the difference between “owners” of Amazon stock & “tenants.” Many investors are effectively short-term tenants, turning their portfolios so quickly they are really just renting the stocks that they temporarily “own.”

2004: Cash Flow is more important than Earnings

Bezos provides an example of a business that can generate outstanding profits on paper and be a cash-losing business when it comes to money in the bank. A company can actually impair shareholder value in certain circumstances by growing earnings.

2005: Data is good, but long-term Judgement is better

Another long-term differentiator of Bezos, is that he balances when to use data to make decisions, and when to ignore it and focus on what data can’t measure: We can estimate what a price reduction will do this week & this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on our business over 5 years or 10 years or more. Our judgment is that, this creates a virtuous cycle that leads over the long term to a much larger dollar amount of Cash Flow.

2006: How to decide to go after a new Opportunity,

or being able to pursue multiple lines of business moving forward – is a key characteristic of Amazon. Bezos looks for three things in such lines of business: 1) we must convince ourselves that the new opportunity can generate the returns on capital our investors expected when they invested in Amazon, 2) that the new business can grow to a scale where it can be significant in the context of our overall company & 3) that the opportunity is currently under-served and that we have the capabilities needed to bring strong customer-response to the marketplace.

2007: Can we really replace a 500-year old Invention (the book)?

To get an idea for the kind of outside-the-box thinking that happens in Amazon’s C-Suite, look at how Bezos described the mindset used when designing the Kindle. We identified what we believe is the book’s most important feature. It disappears. When you read a book, you don’t notice the paper, the font (unless it’s too hard to read) & the binding. All of that dissolves, and what remains is “You’re living it the author’s world”.

2008: Should we “focus” on our unique skills or our Customers?

Lots of companies like to focus on their strengths. There’s nothing wrong with that. As Bezos describes, though, there’s a better long-term way. However, if used exclusively, the company employing it will never be driven to develop fresh skills. Eventually, the existing skills will become outmoded. Working from customer needs often demands that we acquire new competencies to meet them.

2009: How to set Goals (Smartly – specific, measurable, attainable, relevant & timely)

Amazon sets a lot of goals. Almost none of them have to do with financial outcomes. Instead, they focus on what they can control. Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs. Focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.

2010: We’re using AI, and it’s making a difference.

Amazon constructs its technology to make the business better. The most important takeaway: its forging into unexplored territory. Many of the problems we face have no textbook solutions, and so we — happily — invent new approaches.

2011: Eliminating Gate-Keepers helps the world & us.

Some believe Amazon is a monopoly that needs to be dis-banded. But detractors must acknowledge that Amazon Web Services (AWS), Kindle Direct, and Fulfillment by Amazon (FBA) have eliminated gate-keepers has allowed smaller businesses & authors to flourish for a relatively small fee: Even well-meaning gate-keepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gate-keeper ready to say “That will never work” And guess what – many of those improbable ideas do work, and society is the beneficiary of that diversity

2012: Be Customer-focused, not Competition-focused.

One advantage – perhaps a somewhat subtle one – of a customer-driven Focus is that it aids a certain type of pro & pre-activity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our products & services, adding features & benefits. We lower prices and increase value for customers.

2013: How we Create at Amazon.

The embrace of failure at Amazon is legendary – leading to lots of small failures and a few huge wins. Failure is part of creation. We understand that and believe in failing early and iterating until we get it right. When this process works, it means our failures are relatively small in size (most experiments can start small), and when we hit on something that is really working for customers, we double-down on it with hopes to turn it into an even bigger success

2014: Amazon is now Married to these 3 Biz

Starting in 2014, Bezos made it clear that three lines of business were driving most of Amazon’s results: the online market place, Prime, & Amazon Web Service. A “dreamy” business offering has at least 4 characteristics: 1) Customers love it, 2) it can grow to very large size, 3) it has strong returns on capital, &4) it’s durable in time (ie, decades). When you find one of these, don’t just propose, get married !!!

2015: Two-way doors vs. One-way doors.

Bezos realizes that most decisions are reversible – depending on the situation. However, some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made knowledgeably & carefully, but don’t forget to use your intuition for the final step. Most decisions are changeable, reversible; They’re two-way doors.

2016: How to make high-velocity, high-quality Decisions.

Continuing last year’s two-way door theme, Bezos makes it clear that he intends to continue pushing “very hard” to make such decisions as fast as possible, because you can always reverse – if you have to. Easy for start-ups, but very challenging for medium & large organizations.

2017: Got Standards?

Finally, as many a Famous Founder, Bezos reflects on high standards. To achieve high standards (your Core Values), you need to form and pre-actively communicate these beliefs – to your management & working team.

Conclusion: The great thing about the 20 years of Wisdom above from this Famous Founder, is that it’s valuable to use as a “strategy” for your business. Focus your time & attention of your company to emulate many of the values above, and you’re likely to be winning customers & investors – that help you achieve your company’s financial dreams.

Comments: What has been your experience using some of Jeff Bezos’ wisdom?

from Motley Fool 8/04/18, enhanced by Peter/CXO Wiz4.biz

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