Maybe not as famous as the Buffett shareholder letters, but Bezos’ shareholder letters contain at least the same amount of insight. In The Bezos Letters, Anderson synthesizes key points from the letters and from Bezos’s thinking.
What are some of those key points? Encouraging successful failure, thinking long-term and always keeping the customer in mind, keep building the culture, and remember that it’s always day 1. (Day 2, in Bezos’s thinking, is when stagnation and decline starts.)
The letters are full of insight, but the book is sometimes a bit lacking. It leans very heavily on quotes from the letters and, to be honest, it sometimes fails to provide value beyond that. So it’s good if you want to have a summary of the letters and Bezos’s thinking, but in the end you might as well read the originals…
Book Summary & Notes
All text that is quoted & italicized is taken directly from the book.
Anderson synthesizes a total of 14 principles from Jeff Bezos’s letters and from Amazon that help test ideas, build for the future, accelerate growth, and support the company to scale.
1. Encourage “Successful Failure”
- Nobody likes failure of course, but if you don’t fail it means you don’t take risks – which is essential for growth.
- “What really matters is, companies that don’t continue to experiment, companies that don’t embrace failure, they eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their corporate existence. Whereas companies that are making bets all along, even big bets, but not bet-the-company bets, prevail. I don’t believe in bet-the-company bets. That’s when you’re desperate. That’s the last thing you can do.” (Bezos in a Business Insider Interview)
2. Bet on Big Ideas
- Amazon has made a number of big bets over the years: marketplace, AWS, free shipping, Prime, et cetera. These are the things that move the needle and keep the company innovative.
- Bezos states that the best business ideas have four characteristics: 1) customers love it, 2) it can grow to a large size, 3) it has strong returns on capital, and 4) it’s durable over time (from 2014 letter).
3. Practice Dynamic Invention and Innovation
- Everyone should be responsible for invention and innovation – no matter your place in the organization. It’s part of the culture: you question if something could work better or more efficient, and then try to make it happen.
- This also empowers employees since everyone is allowed and able to come up with ways to improve their own jobs.
- A key part of this strategy is to encourage failure. If people are afraid to fail, they will also be afraid to experiment.
4. Obsess Over Customers
- Most companies pay lip service to customer satisfaction, but only a few put the customer really central in their organization. Obsessing over customers means finding out who the customer is, what problem he or she experiences, defining the exact needs, and working out the best customer experience.
- “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.” (Bezos in the 1998 shareholder letter.)
5. Apply Long-Term Thinking
- Most companies think short-term, usually in quarters, and usually to satisfy investors and Wall Street. But developing the things that matter, and that truly make the difference, requires a long-term mindset. Not many companies have been able to do this, but sacrificing short-term financial results for long-term rewards is something that Amazon has been doing successfully over the last 20 years.
6. Understand Your Flywheel
- A flywheel is something that builds momentum: it takes great effort in the beginning, but over time it generates its own momentum and things keep going. It’s like a snowball rolling downhill.
- Every business needs to understand and (re)create their own flywheel and design actions that have forward momentum. For Amazon this is growth: the more customers, the more sellers, the lower the prices, the better the customer experience, the more customers, et cetera.
- The concept of a flywheel can help you to direct your decisions (does it create a loop with our current strengths?), and help organizations gain momentum.
7. Generate High-Velocity Decisions
- In his letters, Bezos describes the two different types of decision making:
- Type 1 decisions: “Some decisions are consequential and irreversible or nearly irreversible—one-way doors—and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.” (2015 letter)
- Type 2 decisions: “But most decisions aren’t like that—they are changeable, reversible—they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.” (2015 letter)
- Bezos goes on to explain that as organization gets bigger they usually default to type 1 decision making, which results in slowness and limits people to experiment and innovate. It can often be better to make a decision with limited information (which, if you fail, might not be as costly as you think) than being slow which means you can miss out on opportunities.
- Finally, Bezos also advocates using ‘disagree and commit’ approach. Sometimes nobody has the right answer, and there’s no consensus – a gamble must be made. Maybe you disagree, but can you commit to trying it out?
8. Make Complexity Simple
- “Anytime you make something simpler and lower friction, you get more of it.” (2007 letter)
- The above quote relates to the Kindle. Carrying around a library of books all over the world, while simultaneously marking and saving highlights and notes, makes it easier for customers to read widely.
- Simplification of complexity removes barriers and can increase the business that consumers do with you.
9. Accelerate Time with Technology
- New technology makes it easier to do business than ever. If you want to found a startup, you barely need any resources, since so many of the technological elements are scalable and cheap (take computing power, or cloud services – both of which lower initial investment costs).
- Most technological inventions are exponential as well. In the beginning they might seem minor but this can quickly accelerate. AWS was one of the first cloud services and in the beginning nobody was really picking up on it, but over time it’s usage grew and grew exponentially.
10. Promote Ownership
- Ownership is a mindset – when you own something you take care of it and you are usually in it for the long-term. It’s one of the key leadership principles of the company, ‘owners’ should not just take care of their own work, but take care of the whole company too.
- “Leaders are owners. They think long-term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say ‘that’s not my job.'” (From Amazon’s leadership principles.)
- Bezos also refers to shareholders as shareowners, applying this principles not just to employees but also to investors.
- How can ownership be promoted in a company? Not just by referring to people as owners, but also by giving them company equity, by encouraging them to make (type 2) decisions, by allowing them to innovate their own jobs, but also by giving employees a chance to “opt-out” – meaning giving money to those who want to leave the company (pay to quit).
11. Maintain Your Culture
- Creating and holding on to a company culture is a lot easier when the company is small. However, when you start to get thousands of employees (especially those that are not directly customer-facing), it gets a lot more difficult.
- Amazon’s Leadership Principles are designed to keep every new and existing employee part of this company culture. They spell out what is expected of them, how they treat each other, and, more importantly, to keep the focus on the customer.
- Amazon also has physical reminders and cues of the early days of the company (e.g. Day 1 building, “door desk awards”) to help remind people where they are coming from.
12. Focus on High Standards
- “Building a culture of high standards is well worth the effort, and there are many benefits. Naturally and most obviously, you’re going to build better products and services for customers—this would be reason enough! Perhaps a little less obvious: people are drawn to high standards—they help with recruiting and retention. More subtle: a culture of high standards is protective of all the ‘invisible’ but crucial work that goes on in every company. I’m talking about the work that no one sees. The work that gets done when no one is watching. In a high standards culture, doing that work well is its own reward—it’s part of what it means to be a professional.” (2017 letter)
- In another letter Bezos (1998) lists the three questions that hiring managers should consider before hiring someone:
- Will you admire this person? People you admire usually have qualities that you can learn and benefit from.
- Will this person raise the average level of effectiveness of the group they’re entering?
- Along what dimension might this person be a superstar? A lot of people have a unique set of skills and interests that can help the work environment.
13. Measure What Matters, Question What’s Measured, and Trust Your Gut
- Many decisions can be taken based on data and can show a clear path to be taken. These decisions are relatively easy. Then there are also judgement-based decisions which are critical for innovation and long-term developments – these cannot be taken by looking at the data alone and need to be debated.
- But data is not the end-all, anecdotal evidence needs to be taken seriously as well.
- “The thing I have noticed is that when the anecdotes and the data disagree, the anecdotes are usually right. There’s something wrong with the way you’re measuring it.” (From an interview in 2018)
14. Believe It’s Always Day 1
- “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.” (2016 letter)
- Day 1 is a concept and a mindset. The goal is to keep everyone grounded in reality and focused on the future. How? By continually being customer focused, by refusing to participate in excuse management (e.g. company policies, procedures, et cetera), by experimenting and taking risk (something big companies are usually averse to), and by making quick decisions.
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