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DownloadHave you ever wondered how Amazon managed to grow from the first online bookstore to a global technology leader in just 20 years?
Risk and growth expert Steve Anderson along with author and director Karen Anderson identify specific Cycles of Growth and 14 "Growth Principles" based on patterns they observed within shareholder letters written by Jeff Bezos between 1997 and 2018.
From The Bezos Letters: 14 Principles to Grow Your Business Like Amazon, learn how these same growth principles can be applied to any business and help you get into the same mindset that made Amazon a trillion-dollar company.
Right out of the gate, Bezos identified growth as the most important focus for the company. Ever since, this decision has provided Amazon leaders with a compass that guides all strategy. Inside his annual letters to shareholders, Bezos left a trail of innovative mindsets, leadership techniques and company priorities that allowed Amazon to become the trillion-dollar behemoth it is today. Take advantage of these growth principles and help your business discover and implement new avenues of meaningful growth.
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Some of Amazon's biggest achievements were made possible by its most "successful" failures. While many business leaders shy away from risk, Bezos encourages it at all levels of his company with one stipulation: you must learn from failures.
Amazon Auctions, Bezos' answer to eBay, taught him that customers expected to pay a low, fixed price on Amazon but had a different mindset when bidding on eBay that didn't translate. The failed zShops proved too complicated for third-party sellers and customers but later evolved into the wildly successful Amazon Marketplace.
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The Fire Phone was created to give AT&T customers exclusive mobile access to Amazon – something we now take for granted. The failed idea cost Amazon $178 million dollars in losses. But Amazon's teams took what they learned from Fire Phone and put it into Alexa, which continues to yield billions.
When Bezos launched Amazon, no one knew what an online bookstore was and most consumers didn't have internet in their homes. The company, itself, was a bet on big ideas, but that tradition continues to this day.
In 2002, shipping costs prevented many customers from purchasing online. Super Saver Shipping was an experiment to see if free, albeit slow, shipping for orders over $25 would encourage more purchases. It was such a success that the idea evolved into Amazon Prime.
So bet on big ideas, but start slow. "Super saver" shipping was a way to test different features and get to the root of what customers wanted before asking them to pay upfront for free shipping. The same goes for infrastructure. Amazon Web Services began as an internal infrastructure for the company's own use, which could be privately tested before offering it as a service to the world.
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In a 2018 interview, Bezos relayed a story about packing boxes on his hands and knees. When he told his associate they needed knee pads, the man replied that they needed packing tables. And he was right.
Have you ever made a suggestion at work about how to make your job more efficient, only to have it shot down or worse, given an insincere pat on the head never to hear about it again? Bezos encourages experimentation at all levels of Amazon and in every department. In fact, invention is a part of each person's job description.
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Everyone is expected to try new things, ask questions, and look at processes differently from their first day on the job. Invention and innovation are part of Amazon's core growth principles. It allows the company to identify its most inventive team members, empowers employees to make their own jobs better and keeps the company moving forward.
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Being customer-obsessed means to be proactive rather than reactive. Instead of saying, "the customer is always right," which tells employees to defer to the customer whenever there is a problem, Amazon says to be "customer-obsessed," which translates to solution-based planning. That's why customer service agents are given the authorization to solve many issues without supervisor approval.
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Many businesses spend too much time thinking about how to improve existing features rather than market new ones. Think like a customer, then work your way backward.
Questions that Amazon always asks:
Long-term thinking allows businesses to create a legacy for their future employees. Anderson calls this "being a good ancestor to your business' future owners and employees."
Bezos is always thinking about the future. He defies the quarterly earnings reports and instead focuses on long-term value propositions. This mindset helped Amazon to be one of the few companies that survived the dot-com bust and set the example for how Apple presents its earnings.
From the very first shareholder letter, Bezos emphasized that long-term growth would remain at the core of Amazon's culture. If you could go back to 1997 and tell your past self what commerce was like, it would sound like science fiction. Imagine where your business will be in five, 10, even 100 years. Then make plans now so that you are on the cutting edge.
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A flywheel is a heavy wheel that requires a large amount of effort to push. Once that wheel gains momentum, however, it begins to turn itself. This analogy for business was coined by Good to Great author Jim Collins. Shortly before the book was published in 2001, he helped Bezos understand Amazon's flywheel.
Your company's primary goal is identified as the center of the flywheel. In Amazon's case, that is growth. Activities on the outside of the flywheel are designed to turn it. It doesn't matter where you apply pressure to the flywheel or where you start; you just have to identify those activities and improve them.
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The "cogs" on Amazon's flywheel add momentum to one another, allowing the company to grow. For example, Prime offers lower prices, which attracts more traffic, which attracts merchants to sell on the site, which increases the product selection, which improves the customer experience, which allows Amazon to grow and maintain a lower cost structure. And the wheel keeps turning.
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No business can stay on the cutting edge or achieve meaningful growth if leaders spend all their time debating and procrastinating choices.
Anderson identifies two types of decisions
Type 1: decisions that hold major consequences and there's no turning back, meaning acquisition or selling the company (What you are doing).
Type 2: decisions that can be changed or reversed, meaning new procedures or pricing structures (How you are doing it).
Amazon can grow as fast as it does because all 60,000 employees are given the ability to make swift Type 2 decisions that will not make or break the company. Employees at Amazon are encouraged to take risks, come up with new ideas and accept small failures.
Bezos advises that you make decisions when you have about 70% of the information you wish you had. Otherwise, your decision-making can be slowed down. Quickly recognize and correct bad decisions. If there is no consensus on an idea, you can ask the other parties to "disagree and commit" or make the choice to do so yourself.
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Books have not changed much since their inception. There is nothing inherently wrong with the traditional book design, but Bezos knew that the internet could make finding and reading them easier than ever. With the introduction of Amazon Kindle, book lovers were given access to more than 110,000 books, blogs, magazines and newspapers at the press of a button. That number is now in the millions.
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Traditional packaging, for example, was designed for brick-and-mortar retail. They advertise the product on a shelf and protect it during shipping. The result, however, is a mess of thick plastic and twist ties. In 2008, Amazon worked with product manufacturers to simplify packaging. Now, customers have a choice of packaging that is traditional or "Frustration-Free."
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Take a look at your industry and observe which elements continue to be used simply because "that's the way it's always been done." Chances are, technology has advanced in a way that can disrupt your industry and you could be the first to do it.
Intentional growth allows companies to take control and scale without the pressure of being left behind. The best way to do this is to identify exponential technologies (new but rapidly growing) that will help your business grow in the long term. Bezos and his team identified cloud computing as a technology that could help Amazon scale and manage its data in a secure environment. The company's fulfillment centers use technology that can tell an employee where a product is anywhere in the storage area. This allows Amazon to store 25% more inventory in the same space as traditional warehouses.
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Ownership is a mindset. In a 2003 letter to shareholders, Bezos related a story in which his friends rented their house to tenants who nailed a Christmas tree directly to the hardwood floor. "No owner would be so short-sighted," he added.
Bezos compared the tenant mentality to many investors who turn their portfolios so quickly that they are "just renting the stocks that they temporarily own." Amazon's leader wants everyone involved in the company from drivers to investors to think like owners. Employee compensation at Amazon has traditionally been tied into stock in the company and beginning in 2002, Bezos began referring to shareholders as "shareowners."
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Amazon promotes ownership by encouraging invention and decision-making so that everyone in the company becomes personally invested in the outcome. In addition, the company offers employees money to quit every year, ranging from $2,000-$5,000 depending on length of employment. First implemented at Zappos, Amazon adopted the practice to encourage employees to stop and think about what they really want. That way, the company only keeps those who want to be there, and employees have the opportunity to make a change for the better, if that's the case.
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Bezos admits that maintaining a company culture becomes more difficult as it grows. Bureaucracy stifles creativity and causes employees to lose sight of what's important. The solution, he said, during a 2018 Forum on Leadership, is to teach everyone how to be a leader and make swift decisions.
Amazon's 14 leadership principles are:
Amazon purposely makes it difficult to work there. Bezos says, "You can work long, hard, or smart, but you can't choose two out of three." Employees are encouraged to only hire those they would admire. This keeps the bar high for performance and expectations.
Third-party merchants and delivery partners must also adhere to strict standards. In 2018, Amazon invited people to start their own businesses. The company maintains strict guidelines for eligibility, however, each one echoing Amazon's own internal principles.
If your customer service is inconsistent, you will never be able to scale. Begin by evaluating the customer experience you want to achieve, then explore ways to improve it. That could be through better quality materials, different manufacturers, new procedures or technology.
Data drives everything at Amazon. The company is constantly testing different ways to improve the customer experience: from allowing customers to answer questions about a product to suggest other things to buy.
Use this A/B testing technique to divide test subjects into two groups, give one option to one group, and another option to the second. Then, measure which option performs better. Amazon has its own internal experimentation platform, called "Weblab" which it uses to evaluate improvements. The company rewards those who view this data and identify new ways to improve the customer experience.
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When you question what has been measured, you make sure that the appropriate data is being looked at. For example, Bezos measures free cash flow per share instead of earnings to illustrate the company's financial health.
Amazon took a huge financial hit when the internet bubble burst. The company's stock fell from $113 to $6. But unlike other companies that folded during that time, Amazon had already generated the income it needed to carry on, so additional funding wasn't needed. The data would say that Amazon was not a healthy company, but the truth was far different.
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At the end of the day, leaders need to trust their gut. Anderson says that there will always be tension between data and gut instincts, but you always have to have both.
Every year, Bezos refers back to his original 1997 letter to shareholders. In this way, he maintains "Day 1" as a concept, not a date. When a business first opens, few things are more important than being the best and satisfying the customer. As soon as you lose that mindset, Bezos warns, the company dies.
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As Bezos wrote in his 2016 letter: "Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. That is why it is always Day 1."
The idea of it always being "Day One" of your business is that leaders should not take anything for granted. "Day One" business owners are aware of the latest trends, what their competitors are doing, and consistently look for ways to provide the best customer service or product. You don't need a million dollars to disrupt your industry. All you need is a risk and growth mindset. And never stop thinking like a start-up.
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