Jeff Bezos just became the world's richest man. His creation, Amazon, is an incredible company. The consistency and breadth of innovation it has produced over the past two decades is awe-inspiring. Bezos is undoubtedly the force behind this relentlessness, and I find him fascinating to listen to and study. In the following 38-minute interview, he gives us a compelling glimpse into the mindset he’s created at Amazon that underpins its success. Some of the points struck a chord with me, so I’ve made a short summary below.
The 3 principles of Amazon
People see Amazon differently. Is it an ecommerce site, a retailer, an innovative tech company? Its products and services range from cloud computing, original content, direct publishing platform, Alexa, and many other things. So how should we think about Amazon?
Bezos sees Amazon more as an approach:
“We have a very distinctive approach that we have been honing and refining, and thinking about for 22 years. It’s really just a few principles that we use, as we go about thinking through the different activities we work on.”
Those few principles are:
1. Customer obsession
This is the fundamental driving force behind Amazon’s business. Instead of say, a competitor obsession, technology obsession, or product obsession model. These other models can work just fine. A competitor obsession can be a very good strategy for some companies: you have to watch your competitors very closely, if they latch onto something that’s working, you duplicate it as quickly as possible. It means you don’t have to be a pioneer, and you don’t have to venture down many blind alleys. But there are disadvantages, and the customer obsession model is the one Bezos believes is right for Amazon, in combination with the following two principles.
2. A willingness, or even an eagerness to invent and pioneer
This marries very well with the customer obsession. According to Bezos, customers are always dissatisfied, even when they think they are happy. They actually do want a better way, they just don’t know what that way should be yet.
Customer obsession is not just listening to your customers, but it means inventing on their behalf. It’s not their job to invent for themselves, you must be the inventor and the pioneer for them.
3. Long-term oriented
Bezos encourages his employees not to think in 2-3 year timeframes, but in 5-7 year timeframes. People often congratulate Bezos on quarterly results, but for Bezos these results were actually baked in about three years ago. Today, he’s thinking about a quarter that’s going to happen in 2020. Next quarter, for all practical purposes, is probably already done, and has been done for a couple of years. But this mentality is not a natural way for humans to think. Bezos believes it’s a discipline that you have to train and build for.
“If you start thinking this way, it changes how you spend your time, how you plan, where you put your energy. Your ability to look around corners improves. Many things just get better.”
In conclusion, Amazon is an approach and a collection of principles that they embed into how they think and work.
Failure and the importance of experimentation
Despite being the world's richest person, and Amazon being wildly successful, what keeps Bezos sharp and focused? It’s the fear of Amazon losing its way in one of the key areas mentioned above (customer obsession, inventiveness, long-term orientation). Or that they become overly cautious, or failure adverse, and therefore become unable to invent and pioneer.
“You cannot invent and pioneer, if you cannot accept failure. To invent, you need to experiment. If you know in advance that it’s going to work, it is not an experiment.”
Failure and invention are inseparable twins. But, it’s embarrassing to fail. If you have a 10% chance of a 100x return, you should take that bet every time, but you will still be wrong 9 times out of 10, and you’ll feel bad about every one of those 9 failures, even embarrassed. Overcoming this fear is vital, particularly in the technology business.
In technology, the outcomes can be very long-tailed, with an asymmetric payoff. This is why you need to do so much experimentation. As an illustration:
“In baseball, everybody knows that if you swing for the fences, you hit more homeruns, but you also strike out more. But baseball doesn’t go far enough [as an analogy for technology]. No matter how well you connect with the ball, you can only get four runs. The success is capped at those four runs. But in the technology business, every once in a while you step up to the plate, and you hit the ball so hard you get a 1,000 runs.”
This asymmetric payoff makes it obvious to experiment more, increasing the chances of that 1,000 run hit.
It’s important to make this distinction on failure though: the right kind of failure is when working on an invention, an experiment that you cannot know the outcome of. The wrong kind of failure is when you have some operational history in the task, where you know what you’re doing, but you just screw it up. This is not a good failure. An example from Bezos:
“We’ve opened 130 fulfillment centers now, we’re on the 8th generation of our fulfillment center technology, so if we opened a new center, and just messed it up, that’s not an experiment, that’s bad execution.”
Any entrepreneur, organization, or governmental institution, should identify their big ideas that encapsulate what they’re trying to do. There should only be two or three of these big ideas. The main job of a senior leader is to identify those important ideas, and then to enforce great execution on them throughout the organization. The good news is that the big ideas are usually incredibly easy to identify, and in most cases you’ll already know what they are.
For Amazon’s consumer business, the three big ideas are:
- Low prices
- Fast delivery
- Vast selection
“How do we always deliver things a little faster? How do we always reduce our cost structure, so that we can have prices that are a little lower?”
The big ideas are stable, they will most probably be the same in ten years time. Customers will still like low prices, and faster delivery. No matter what happens with technology, these things will still remain true.
“When you have your big ideas, you can keep putting energy into them. You spin up flywheels around them, and they’ll still be paying you dividends ten years from now."
Bezos also discusses machine learning, renewable energy, and space exploration, but not once in the entire discussion does he mention the word innovation. A reminder that those who really do innovate, don't talk about innovation.