14 Principles that Made Amazon

How You Can Learn from Amazon

Amazon was the fastest company to reach $100 billion in sales ever. It is one of most successful companies in the world. Aren’t you curious how Jeff Bezos did it? And, more importantly, what you can learn? Fortunately, Bezos gave you his plan, if you just know where to look.

Steve Anderson spent his career in the insurance industry focused on risk and business growth. He is a leading authority on insurance, risk management, technology, and innovation. His new book, co-authored with Karen Anderson is a fascinating look at Amazon’s record growth. The Bezos Letters takes you through Jeff Bezos’ shareholder letters and distills them into growth principles you can apply in your company.

 

“The best customer service is if the customer doesn’t need to call you, doesn’t need to talk to you. It just works.” -Jeff Bezos

 

Management Advice from Jeff Bezos

After studying Jeff Bezos’ letters, what surprised you the most?

The biggest surprise after studying the Amazon letters to shareholders written by Jeff Bezos is how much management advice he provides. Here are just three examples:

  • In his original 1997 letter Bezos states, “We will share our strategic thought processes with you when we make bold choices (to the extent competitive pressures allow), so that you may evaluate for yourselves whether we are making rational long-term leadership investments.” From the beginning, Bezos has not hidden behind the curtain like the Wizard of Oz but openly talked about the principles he used to grow Amazon.
  • In the 1998 letter he has a section titled Work Hard, Have Fun, Make History where he details the guidelines Amazon uses to decide who to hire. As Bezos says, “Setting the bar high and our approach to hiring has been and will continue to be, the single most important element of Amazon.com’s success.” He goes on to say, “during our hiring meetings, we ask people to consider three questions before making a final hiring decision.” (Principle 12 – Focus on High Standards)
  • In the 2015 Letter he talks about the benefits of high-velocity decisions. (Principle 7 — Generate High-Velocity Decisions) in the section titled Invention Machine he explains the difference between Type 1 and Type 2 decisions and why understanding the difference is crucial to business growth through invention and innovation.

The “hidden in plain sight” management principles Bezos discussed in the letters is what caught my attention.

 

“As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle.” -Jeff Bezos

 

14 Principles that Made Amazon

You share 14 principles that made Amazon what it is today. For those who haven’t read your book yet, would you share one of them and its importance to business success?

I am often asked which is the most essential principle of the 14 I’ve identified? It is a hard choice. The 14 principles each stand on their own and reinforce and interact with each other. There are a couple of principles which seem to stand out.

  1. Encourage Successful Failure (Principle 1). Experimentation, by its very nature, requires failure. “Failure comes part and parcel with invention” (Bezos 2013 letter). If you are not building an organizational culture that rewards “Successful Failure,” employees will not take the initiative to experiment and invent new products and services. “One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins.” (Bezos 2015 Letter) To be clear, Amazon has an “intolerance for incompetence.” Everyone is always expected to give their absolute best.
  2. Understand Your Flywheel (Principle 6). This is the hardest principle to explain and grasp. And it may be the most important to long-term success. It is based on chapter 8 of Jim Collins book Good to Great. Bezos invited Collins to Amazon a few months before Collin’s book was published in 2001 to teach the senior leadership team the flywheel concept. The S-Team (senior leadership team) developed Amazon’s flywheel. It is still a core tool used at Amazon today. Given Amazon success, wouldn’t you want to understand and develop the flywheel that runs your business?

 

“What’s dangerous is not to evolve.” -Jeff Bezos

 

Focus Relentlessly on Customers

How would you say “customer obsession” is different at Amazon from other definitions?

Bezos LettersThere are many words and phrases used to explain the interaction and relationship between a business and its customers. Some of these phrases include customer service, customer focus, customer experience, customer journey, and whatever the latest customer engagement fad is today. In the very first 1997 letter Bezos explains that “we will continue to focus relentlessly on our customers.” In that same letter he has a whole section titled Obsess Over Customers.

“Obsession,” in the truest sense, describes Amazon’s focus on being persistent and preoccupied with the wants and needs of customers — often even before the customer themselves know what it is they want.

At Amazon, being Customer Obsessed means every decision, every new product, every new service, every change of the website, starts with the lens of, “is this better for our customer?” Does your business have the same obsessive focus?

 

“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.” -Jeff Bezos

 

Learn the 2 Pizza Rule

What’s the 2-pizza rule, and how can all business leaders learn from it?

Bezos realized early on that high-velocity decisions (Principle 7) are much easier within small teams that have been given the responsibility and authority to move a particular aspect of a larger project forward. These teams are generally small, from 6 to 10 people (defined by being able to feed them with two pizzas). The small size is only one aspect of the importance of this concept. Members of the team are given responsibility for a particular metric (either standalone or one part of a larger project). Once that metric is decided, the team is free to execute improvements with little interference. This allows the team to pursue creative strategies and to set its internal priorities. It’s also an excellent opportunity for the team leader to show initiative and be recognized by managers.

 

“My view is there’s no bad time to innovate.” -Jeff Bezos

 

As you studied Jeff Bezos, his letters, and Amazon, what struck you in terms of his leadership style that others should emulate?

Bezos’ leadership style has needed to change over the past 25 years. Running a startup is not the same as running an organization with almost 650,000 employees. In the beginning — startup mode — he hand-packed books in packages and drove them in his car to the post office. As Amazon grew, his focus began to shift to long-term thinking (Principle 5). Today his time is spent focusing on the next 3 to 5 years (and longer). He is also focused on maintaining the Amazon culture (Principle 11) by spending time with junior executives making sure they understand the Amazon culture and their role in helping it grow.

Bezos describes his thoughts on corporate culture in the 2015 letter saying, “A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it – not creating it. It is created slowly over time by the people and by events – by the stories of past success and failure that become a deep part of the company lore.”

“If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one – just that it’s ours – and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.”

 

“It’s not an experiment if you know it’s going to work.” -Jeff Bezos

 

Believe It’s Always Day One

Let’s end at the beginning: Day 1. “Believe It’s Always Day 1” is the last of the principles you share. Would you share how this belief works practically, how all of us can use this to better ourselves and our businesses?

Bezos’ office is in a building named “Day 1.” Every letter to shareholder ends with the phrase, “As always, I attach a copy of our original 1997 letter. It remains Day 1.”

Day 1 is a concept, not a date. Day 1 is representative of all the leadership principles that have helped make Amazon what it is today. It is the anchor for acknowledging and remembering their beginning values and their dogged focus on serving the needs of customers and even “delighting customers.” It is also a mindset, not a list of steps or strategies. It is designed to keep everyone in the company focused on doing what is right in each situation, not just what is possible given Amazon’s size and influence.

It can be exhausting to maintain the focus and passion you had when your business was truly in Day 1 if you aren’t intentional. Because Bezos describes a Day 2 company as, “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.” (Bezos 2016 Letter)

To put it in other words, your business is either growing or dying. There is no middle ground. And the only way to avoid Day 2 is to believe it is always Day 1.

For more information, see The Bezos Letters.

 

 

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