will be in New York City on May 27 doing a live show I will be interviewed by my friend Patrick O 'Shaughnessy at RAMPS headquarters.
The event is free to attend.
I will leave a link down below so you can register.
I'll be doing several live events at RAMPS headquarters over the next 12 to 24 months so even if you can't make this one make sure you register so you'll be notified on the next one.
This event isn't reserved for RAMPS customers but future events will be because space is limited.
So if you aren't already running your business on RAMP you really should be I run my business on ramp most of the top CEOs and founders that I know do so as well and I actually think there's an idea from Jeff Bezos' share holders that I think is related to this and really just good advice for anyone in business.
And it's Jeff's idea on the importance of heavily investing in introductions to new customers.
As you're about to hear, Jeff was very clear from the start that he was going to build an enduring long lasting business he was not interested at all in building an undifferentiated commodity business.
He wanted to build something to deliver value to customers more than anyone else in the world.
And he believed he could succeed at that goal better than anyone else.
And as you hear on this episode, that if you believed what Jeff believed, then you too would do what Jeff was doing.
He believed he was building a winning system.
And if you're doing that, then it makes a lot of sense to say this, this is what Jeff wrote in one of his very first shareholder letters.
We will continue to invest heavily in introductions to new customers.
These are the early days of category formation where many customers are forming relationships for the first time.
we must work hard to grow the number of customers who shop with us.
So he saw that people who started using Amazon tended to stick around because of the value that they received from Amazon.
I was one of those people that Jeff was trying to introduce Amazon to.
I have been a customer of his for 21 straight years.
If you believe you have the best product then you should do everything you can to get more people into your winning system.
RAMP is doing the same thing today and I have a mind blowing stat that demonstrates their right to believe they have built a product that delivers more value to their customers than anyone else in the world.
Last year, 12 ,059 businesses signed up to use the RAMP corporate card and only 8 of the 12 ,059 businesses decided RAMP wasn't for them.
That is a success rate of 99 .9334%.
If you have not yet started running your business on Ramp, go to Ramp .com today, to learn how they can help your business save time and money.
I hope to see you in New York and I hope you enjoy this episode.
This is the fourth or the fifth time that I've read through all of Jeff Bezos's shareholder letters.
I think it's something I should do every year and then make a new episode every year is so important.
In fact, the best description of these letters I've ever read was this description, says to read Jeff Bezos's shareholder letters is to get a crash course in running a high -growth internet business from someone who mastered it before any of the playbooks were written.
So he titles... Jeff titles every single shareholder letter.
We want to start right the beginning in 1997.
He titles this, it's all about the long term.
This is the most important shareholder letter and you can see this because Jeff attaches it to every single subsequent shareholder letter all the way up till the end, his last one that he wrote 23 years later in 2020, from day one, when he said he beat this and he just laid it out here in shareholders, it was very obvious that his goal, he wanted to create a durable, long lasting business, create something valuable, differentiate it and enduring something he repeat over and over again.
So he says, this is day one for the internet.
And if we execute well for amazon .com, today online commerce saves customers money and precious time.
Tomorrow through personalization online commerce will accelerate the very process of discovery.
Amazon .com uses the internet to create real value for its customers and by doing so hopes to create an enduring franchise...
you'll hear that he'll repeat that word enduring over and over again...
so it hopes to create enduring franchise even in established and large markets starting obviously in retail which is a massive and ancient business.
We have a window of opportunity as larger players marshall the resources to pursue the online opportunity, and as customers new to purchasing online are receptive to forming new relationships.
And so that was one of the most interesting ideas that he'll talk about, is the fact, the way to summarize this is in a maximum, get big fast. Somebody asked me one time, who I think, all the people that studied on the podcast so far, who I think is the best strategist, and without hesitation I answered Rockefeller and Bezos, And a lot of the strategy that Bezos utilized, he just lays it out in very plain, easy to understand the language in his shareholder letters.
And one that is set on the internet, you need to be really, really tiny or really, really large.
And obviously he wanted to build a giant, indirect business.
So we're going to get big very fast, and we're going to invest heavily in introductions to new customers.
So this idea, Hey, this is a very, just a technological shift, It's a phenomenon.
People 10 years ago, they were terrified at the time he's writing this, of buying things online.
They're starting to become more and more receptive to this.
Now we want to form a relationship, enduring long -lasting relationships.
I think I went back and looked.
I think I've been a customer of Amazon now for 21 years.
I was one of the people that he's writing about.
Our goal is to move quickly, to solidify and extend our current position, while we begin to pursue the online commerce opportunities in other areas.
We see substantial opportunity in the large market community we are targeting.
This strategy is not without risk.
It requires serious investment and crisp execution against established franchise leaders, and then he gets into the main theme of the shareholder letter in another section called It's All About the Long Term.
We believe that a fundamental measure of our success will be the shareholder value that we create over the long term, and you're going to italicize long term.
The stronger our market leadership, the more powerful our economic model.
Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.
We have invested and will continue to invest aggressively to expand and leverage our customer base, our brand, and infrastructure as we move to establish an enduring franchise.
We are on the second page, maybe five paragraphs into this, and he's already used that the word enduring twice.
Because of our emphasis on the long term, he's probably said long term, I don't know, 10 times already.
We may make decisions and weigh trade -offs differently than some other companies.
We want to share with you our fundamental management and decision making approach. So that you our shareholders may confirm that it's consistent with your investment philosophy.
If you read the first two pages of this, it's obvious.
The first shareholder letter is setting the tone, and he's talking about, we're going to focus on the long term, we're going to focus on cash flow, we're going to invent and we're going to be bold.
These are the things that he repeats for the next 23 years.
This is, we will continue to focus relentlessly on our customers.
There's a funny story, I think most people know about now, but I love the idea that, briefly, Jeff Florida with the idea of naming Amazon uh relentless.
In fact, when you go to relentless .com to this day, he still owns the domain, and it forwards to Amazon.
I just love that. So he's like, we will continue to focus relentlessly on our customers.
We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages.
Some of these investments will pay off, others will not.
And we will have learned another valuable lesson in either case I'll share with you later but he also has a mystic idea that not many people express explicitly that your failures have to if you want to make an impact your failures have to scale as well and he talks about you know we're making a lot of experiments we might invest 10 million dollars at the very beginning when we don't have a lot of assets we will invest 10 million dollars in an idea that's not going to work well later on we might invest 10 billion dollars in an idea that will not work we'll get to there so he says when forced choose
between optimizing the appearance of our gap counting and maximizing the present value of future cash flows.
We'll take the cash flows.
We work hard to spend wisely and maintain our leaning culture." So this is where he talks about the importance of getting big fast, and the importance of being frugal while you do so.
So if you read the Everything store, the biography of Jeff Bezos, that Brad Stone wrote, in fact somebody asked me recently, they're like, and everybody that's still alive, who hasn't written an autobiography, who's the number one person that you want to read an autobiography on?
And my answer was, was Jeff.
Because his life, his biography has only been documented by other people.
And I'm very curious to how he tells us some story, what's interesting to him.
But in that Brad Stone book, it was very fascinating where he would, like, run around with copies, Jeff Wood, copies of Sam Walton's autobiography Made in America, and he'd highlight specific parts and on specific parts, and then go and give those books with his own annotations to early leaders in Amazon, and there's a lot that's when you've read both and you know I've read, I think I read Tim Walton's autobiography at least three times, I've read another biography in twice, but it's you just see a lot of the echoes, a lot of the ideas, the very beginning of the Amazon.
So say, we're going to spend wisely and maintain our lean culture, we understand the importance of continually reinforcing a cost -conscious culture, that sounds like Walton to me, we will balance our focus on growth with emphasis on long term profitability and capital management.
At this stage we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.
So sunrise that one paragraph get big fast. We aren't so bold as to claim that the above is the right investment philosophy but it's ours and we would be remiss if we weren't clear in the approach we have we have taken and will continue to take and so that's why my philosophy maybe different than what you're normally investing in, I'm going to tell you up front so I get the shareholders that are perfectly aligned with our long term mission.
The next section, he calls it obsessed over customers.
My friend told me this one time he observed something that I thought was interesting.
Amazon has this list, and you can find it on a line of 14 company principals.
And my friend read through the list, he's like, oh, if you really think about it, it's like they have one single organizing principal of their entire organization is obsessed over customers.
So, Jeff gets into that.
From the beginning, our focus has been on offering our customers compelling value.
We realize that the web was and still is the World Wide Way.
Actually, I'm going to pause here, and I'll get to this later.
But when Jeff is around 37 years old, he has a life -changing meeting with Jim Sinegal, the founder of Kofco, who's probably two decades older than Jeff.
I went back and read Jeff's interpretation of the meeting and how it changed the trajectory of Amazon.
But I had forgotten, there was a quote from Jim Sinegal in there those.
Excellent. Where he says his belief was that value trumps everything and we see they haven't met yet, but we see that he said, Hey, we're going to build a business that offers compelling value.
And when he analyzes businesses that he wants to do later on, it's like, what is the you have to love the offering as the person making the product or service you to love what you're doing for the customers.
And so you know it has a compelling value.
So he says right now it's not really the worldwide wed. It's a worldwide weight.
Therefore, we set out to offer customers something we simply could not get any other way and begin serving them with books.
We brought them much more selection than was possible in a physical store.
And so even at this point, he points out in, in this letter, he said, Hey, if you've stored all our inventory in a bookstore, the bookstore would be over six football field.
Probably not a bookstore on the planet.
Now I go to bookstores in every single city I ever go to, I love hanging on bookstores.
I don't think I've ever come across one that is as large as six football fields, although Texas has some big books there.
We brought them much more selections than was possible in a physical store and presented them in a useful, easy to search and easy to browse format in a store that's open 365 days a year, 24 hours a day.
We maintained a daunted focus on improving the shopping experience.
We dramatically lowered prices, further increasing customer value.
Word, and why are they doing this?
Because they said, word of mouth remains the most powerful customer acquisition tool that we have. And so, it's very fascinating, when you read his journal letters, when you study him, he is one of these people I felt were completely unstoppable and undeniable.
People were just like, I can't believe Amazon survived when all these other companies died.
So yeah, but they didn't have Jeffrey Betos.
This guy's not normal.
In fact, one of my favorite things I ever heard is, I got to ask Charlie Munger what he thought of Jeff Bezos and he, Charlie had the greatest description I've ever heard of him.
He says he is ferociously intelligent.
The reason I think about this is because he's saying hey, in the shuffle letter, we're establishing all these long -term partnerships with very important strategic partners on the internet in 97, who's he talking about?
American Online, Yahoo, Excite, Netscape, Geo Cities, Alta Vista, At Home, and Prodigy.
Every single one of these is gone.
I think Yahoo kind of exists, I know Apollo still owns it, but really they're just gone.
They didn't have a Jeffery basis.
Another thing I love that he says, setting the bar higher in our approach to hiring has been and will continue to be the single most important element of the amazon .com success.
It is not easy to work here, this is one of the things he never said, I never forgot it.
We're working to build something important, something that matters to our customers, something that we can all tell our grandchildren about.
Such things aren't meant to be easy.
And then he ends the first letter with really good advice in the beginning, good advice forever.
We're still in early stages of learning how to bring new value to our customers through internet commerce.
We know vastly more about online commerce than when Amazon was founded, but we still have so much to learn.
Though we are optimistic, we must remain vigilant and maintain a sense of urgency.
So the very next year, he decides the title, second journal letter as obsessions.
And this is I think is really important, something I talk about over and over again, that I feel is obvious when you read a lot of autographies and it's not present, or it doesn't really occur really in present day.
Reputation, repetition is persuasive.
When you say somebody who had a career that could succeed and thrive and survive for two decades, three decades, four decades, you will see they identify a handful of and they just repeat them over and over and over again.
And many people are unable to do that.
They jump around to the next new idea over and over again.
So it says we're working to build a place where tens of millions of customers can come and find it and cover anything they might want to buy online.
It is truly day one for the internet.
And if we execute our own business plan well it remain day one for Amazon.
We think the opportunities and risks ahead of us are even greater than those behind us.
We will have to make many conscious and deliberate choices some of which will be bold and unconventional.
Hopefully some will turn out to be winners.
Certainly some will be some will turn out to be mistakes.
Head -down focus on customers helped us make substantial progress last year." So then he says 1998 is all about obsessions.
"...We intend to build the world's most customer -centric company, but there's no rest for the weary.
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're the ones with whom we have a relationship and they're 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 so when I read that paragraph I mean we think of this line that Sam Walton has in his autobiography where he says there's only one boss and if the customer and you could fire us anytime he wants by spending his money
elsewhere It's the exact same idea behind what Jeff is writing in the showrunner.
We must be committed to CASA improvement, experimentation and innovation in every initiative.
We love to be pioneers.
It's in the DNA of the company.
It's a good thing, too, because we'll need that pioneering spirit to succeed.
We're proud of the differentiation we built through CASA innovation and relentless focus on customer experience.
It would be impossible to produce results in an environment as dynamic as the internet without extraordinary people.
Working to create a little bit of history is not supposed to be easy, repetition.
And while we're finding that things are as they supposed to be.
Setting the bar high in our approach to hiring has been and will continue to be the single most important element of Amazon success.
Here's a line in the last trailer.
It may be the same message, it might be the exact same words.
Setting them up higher, approach their hiring, has been and will continue to be the single most important element in our success.
During our hiring meetings, so he's giving advice on like, okay, everybody says, work with the very best people out there.
I think every single episode I've ever done, the founder's like, it really pays to work with the best people.
And so, it's like simple advice, that's almost impossible to actually implement, and you see that because almost no one actually implements it.
And so giving, Jeff is giving some advice it's like okay well here's some questions that we ask ourselves before we make a decision to hire this person.
Number one, will you admire this person?
I always tried hard to work only with people I admire.
Life is definitely too short to do otherwise.
Another question, will this person raise the average level of effectiveness of the group that they're entering?
We want to fight entropy.
The bar has to continually go up.
And then third, he looks for unusual talent.
The way this is described to me is like you're hiring for spikes.
Along what dimension might this person be a superstar?
They might be one of the best, if not the best in the world at this specific trait.
Usually, those kind of people come with a lot of variants.
They're very difficult to work with.
One of the favorite examples is Nolan Bushnell, founder of Atari, hires a 19 year old to see jobs.
People that work with see the guy complain that he's barefoot, that he smells, and then he wants to sleep in the Well, it also comes with remarkable talent.
So that's another example of that.
As you look forward, we believe that the overall in -commerce opportunity is enormous.
Although Amazon has established a strong leadership position, it is certain that competition will further accelerate.
We plan to invest aggressively to build the formation for a multi -billion dollar revenue company serving tens of millions of customers with operational excellence and high efficiency.
so it's another thing that he'll repeat over and over again.
He's really shooting for operational excellence.
He talks about later on in life.
So you can read these um Scheherazade Frählein, I'm working out of a book called, Invent and Wander, the collected writings of Jeff Bezos.
The second half of this book is actually transcripts of some great speeches that Jeff has given over the years, and he talks about this in interviews, where he didn't understand what operational excellence was, he had to learn, he had to teach himself what that was.
He He certainly didn't know what it was or what, or how to do it when he started Amazon, but it was very, very important to him.
More about the repetition, making sure the right people both on an employer level and an investor level self -select into Amazon.
The most important thing I could say in this letter was said in last year's letter, which detailed our long term investment approach. Because we have so many new shareholders, we've appended last year's letter immediately after this year's.
I invite you to please read the section titled it is all about the long term.
You might wanna read it twice to make sure that we're the kind of company you wanna be invested in.
As it says there, we do not claim it's the right philosophy.
We just claim that it's ours.
The next letter is titled, Building for the Long -term we can be uniquely positioned to serve new customers best and benefit as a result.
And how do we do this?
We relentlessly focus on customers.
Stay relentlessly focused on the customer.
I wonder if Jeff has that tattooed somewhere, just don't see it.
He's repeat this again that building a valuable company is going to be difficult and you have to invest heavily.
If you think that you have something that's much better anybody else can make and that's what he was certainly trying to do then you certainly should be investing heavily, heavily in getting more customers into your business because they say they're on it.
I don't remember how I found out about Amazon.
Maybe it was from an ad, maybe it was from a friend.
All I know is like, what is the value of that one customer, you know, that had been with him for 21 years.
This is just very smart.
So it starts out, he's giving this talk at Stanford. I thought this part was interesting.
At a recent event in Stanford, a young woman came to the microphone and asked me a great question.
I have 100 shares of Amazon.
What do I own? You want a piece of the leading e -commerce platform.
We believe we have reached a tipping point where this platform allows us to launch new Ecommerce businesses, not products." He didn't say new products.
He said, new businesses faster with a higher quality of customer experience, a lower incremental cost, a higher chance of success, and a faster path to scale and profitability than any other company.
He truly believed what he was offering, what he was building, one is better than anybody else, better than any other offering.
In the current, he's going to be able to build something other people cannot.
This is the reason I bring this up, this is everything that Jeff It describes, it all ties to each other.
So if you believe that, then what is the Net's logical stuff?
Invest heavily, heavily in getting more customers into your winning system.
Our vision is to use this platform to build Earth's most customer -centric company.
And it's probably clear this platform affords an unusually large opportunity, one that should prove very valuable for both customers and shareholders if we can make the most of it.
Despite the many risks and complexities, we are deeply committed to doing so.
We will continue to invest heavily, heavily, in introductions to new customers.
Though it's sometimes hard to imagine with all that has happened in the last five years, this remains day one for e -commerce, and these are the early days of category formation where many customers are forming relationships for the first time.
we must work hard to grow the numbers of customers who shop with us.
Because if I went to somewhere else, I'd probably just ensure inertia.
I think a lot of people overestimate severely.
Like how, like once a customer finds a product, I'm not really, even now, I'm not even looking around like, is there somebody serving me better?
And I was like, Oh, this is good.
I'm comfortable here.
I'm just going to stay here.
We have busy lives.
We're building businesses.
We have our family.
We have friends. We have health.
We have hobbies. I'm not looking around for other products.
It's so important. He just nailed this.
Excellent. And I love this idea because it's not in this year order obviously or not in any of us shareholders But at this time you go back and this is the 1999 Chilver letter right if you go back in the time the way the media would describe him He said oh like he's just a bookseller.
Why are you buying shares?
He's just a bookseller He didn't get it.
He didn't even know what you were looking at And then he's gonna go into operational excellence.
He'd already peak this multiple times So I'm gonna read you my note before I read you these three paragraphs that Jeff writes, they're excellent.
He sees how everything connects and feeds into his overall plan for Amazon.
He's unapologetically extreme.
He sets a very high bar.
He'll use words like world -class experience, excellence, dogged determination, highly focused, bold.
He wanted to be the very best, and this is obvious.
He'll talk about it.
he had the read between the lines.
To us, operational excellence applies two things.
Delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all of our businesses.
Often, this is key, often the best way to drive one of these is to deliver the other.
So he is defining, he's learning on the job, so he's figuring out what is operational excellence.
Operational excellence applies two things, delivering continuous improvement in customer experience, and driving productivity, margin, efficiency, and asset velocity across all of our businesses.
Often the best way to drive one of these is to deliver the other.
For instance, more efficient distribution yields faster delivery times, which in turn lowers contacts per order and customer service costs.
These in turn improve customer experience and build brand, which in turn decreases customer acquisition and retention costs.
Our whole company is highly focused on driving operational excellence in each area of our business.
Being world -class in both customer experience and operations will allow us to grow faster and deliver even higher service levels.
And this relentless list which which he pursues this opportunity makes perfect sense if you understand how he used that opportunity.
Consider the most important point the current online shopping experience is the worst it'll ever be.
It's good enough today to attract 17 million customers, but it will get so much better.
We are doubly blessed.
We have a market -sized, unconstrained opportunity in an area where the underlying foundational technology we employ improves every day." Then the next time we hear from Jep a year later, his stock is down 80%.
He starts his letter with a one -word sentence, ouch. It's been a brutal year for many in markets and certainly for Amazon's shareholders.
As they're writing this writing, our chairs are down more than 80 % from when I wrote the last letter.
Nevertheless, by almost any measure, Amazon the company is in a stronger position now than at any other time in the past. And so there's, this is also in Jeff's biographies, and it's also, he's talked about it later in my interviews, that everyone else was focused on the share price, and Jeff was focused on the internal metrics of his business.
And he hints at that.
He's like, well, but by any measure, the company and much stronger and better positioned at any time in the past. Therefore I'm gonna be able to just endure this." So he continues pushing forward and he talks about the fact that he told you in the very first letter that he's going to be bold, he's going to be relentless, and that we're going to keep inventing, we're going to keep experimenting, we're going to keep taking risks.
Many of you heard me talk about the bold bets that we as a company have made and continue to make.
Our decision to invest in smaller e -commerce companies like Living .com and Pets .com, both of which shut down operations last year, lost a significant amount of money for us.
We made these investments because we knew we wouldn't ourselves be entering these particular categories anytime soon, and we believe passionately in the land -rush metaphor for the internet.
Indeed, that metaphor was an extraordinarily useful decision, aid, for several years, starting in 1994.
But we now believe that its usefulness largely faded over the last couple years.
In retrospect, we significantly underestimated how much time would be available to enter these categories and underestimated how difficult it would be for a single category ecommerce company to achieve the scale necessary to succeed.
So what he's talking about there is get big fast. Online selling relative traditionally he's just finding his thinking here.
Online selling relative to traditional retailing is a scale business characterized by high fixed costs and relatively low variable costs.
This makes it difficult to be a medium -sized e -commerce company like a Petz .com.
And this is something he's mentioned in other places that on the internet you can be either really really small or really really big but the internet tends to destroy the mill.
Why should you be optimistic about the future of Amazon .com?
Industry growth and new customer adoption will be driven over the coming years by relentless improvements in the customer experience of online shopping.
These improvements in customer experience will be driven by innovations made possible by dramatic increases in available bandwidth, disk space and processing power, all of which are getting cheap fast. So it gives an example.
Amazon will be able to use 60 times as much bandwidth per customer five years from now, while holding our bandwidth costs per customer constant.
Similarly, processing power will allow us to do ever more and better real -time and personalization of our website.
I think that's an important point that Jeff's making.
I talked to my friend Kareem, who's the founder and CTO of RAMP.
Just like what Jeff's saying about, we're going to have 60 times as much power and pay the same.
And so our costs go down and we're more profitable.
But Jeff's now making the second point, which is also what my friend Kareem says about it.
It's like, yeah, it can reduce your costs, but what the more important part is that it's actually allowed you to invent new products and serve your customers better, which is exactly what Bezos is about to say here.
In the physical world, retailers will continue to use technology to reduce costs, but not to transform the customer experience.
We too will use technology to reduce costs, he just started talking about that.
We're gonna be able to have 60 times the same, 60 times as much bandwidth per customer, but the second part is more important.
We too will use technology to reduce costs, but the bigger effect is what Bezos is telling us, but the bigger effect, we'll be using technology to drive adoption and revenue.
Amazon is a unique asset.
We have the brand, the customer relationships, the technology, the fulfillment infrastructure, the financial strength, the people and the determination to extend our leadership in this infant industry and to build an important and lasting company.
He said lasting at that time, not enduring.
Did you know that's where he met?
And we will do so by keeping the customer first. Did you just see how he tied all of the strategy and all of his thoughts back into what he says over and over again?
My friend said they don't have 14 principles, they have one, obsessed over customers.
And you can do so by keeping the customer first. He talks about it over and over again.
We will invent on behalf of our customer.
It goes back to very Sam Walton -esque strategy here.
Focus on cost improvement makes it possible for us to afford 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, and it's good for shareholders.
Please expect us to repeat this leak.
Now, on the very next page, another headline, obsessed over customers.
Until July, Amazon had been primarily built on two pillars of customer experience, selection and convenience.
We added a third customer experience pillar, relentlessly lowering prices.
So when I got to this section, I'm pretty sure this was the result of Jeff's meeting with Jim Sinegal.
Jeff was 37 at the time, I already mentioned this earlier.
I asked Sage, which is my own personal AI that's trained on all my notes, highlights and transcripts about this to remind me what I'm gonna read to him here.
I just asked Sage what did Jeff Bezos learn from Jim Sinegal.
One of the most important lessons came when Bezos visited Sinegal to understand the Costco Model.
During their meeting, Sinegal explained that Costco's entire business was built around customer loyalty.
He taught Bezos that the membership fee was a one -time pain, but it reinforced value every time the customer walks in, and sees 47 -inch televisions that are $200 less than any place else.
This concept later inspired Amazon Prime.
Synogal emphasized to Bezos that value must always come first, stating quote, my approach has always been that value trumps everything.
He explained how Costco maintaining extremely low markups, standard across the board around 14%, across all products, never wavering from this principle even when it could charge more.
This commitment to consistent value impressed Bezos deeply.
The impact of this conversation was immediate and profound.
That Monday after meeting with Senegal, Bezos opened an ST meeting declaring that Amazon's pricing strategy was incoherent.
He announced that Amazon should adopt an everyday low -prices approach like Walmart and Costco.
That July, Amazon cut prices on books, music, and videos by 20 -30 % with Bezos declaring there are two kinds of retailers.
There are those folks who try figure out how to charge more, and there are those companies who work to figure out how to charge less.
And we are going to be the second full stock.
What's particularly interesting is that Senegal, when he was asked later on, did not regret educating an entrepreneur who would later become a competitor.
Both men shared similar values.
Both have rejected acquisition offers over the years and focused on building for the long term rather than short term profits.
This This exchange demonstrates how business ideas can transfer between great entrepreneurs, which is the entire, now if we tie all this together, which is the entire point of this podcast, transferring ideas from one great entrepreneur to another.
Going back to this, I'll just point out that one of the most important things we've done to improve convenience and experience for customers also happens to be a huge driver or variable cost productivity, eliminating mistakes and errors at their root, eliminating the root cause of errors asset and we will nourish it with Figure out how to charge more and other ones didn't figure how to charge less.
We're going to be the second one full stop.
One of our most exciting peculiarities is poorly understood.
People see that we are determined to offer both world leading customer experience and the lowest possible prices.
But to some, this dual goal seems paradoxical.
So, if you went back and studied, and I've done a bunch of episode, I think episode 266 might be the best place to start.
I read it, I should every few years, I reread Ford's autobiography, which I think is excellent and do another episode on it.
But what Bezos was saying here, and it's kind of like what Ford definitely said, I don't wanna make a low quality, cheap product.
I wanna make a high quality, inexpensive product.
And the way that you could summarize Henry Ford's operating philosophy down to five words, which is maximum service and minimum cost. And it's very similar to what he said said, Well, we're actually committed to offering both world -leading customer experience and the lowest prices possible.
Our pricing objective is not to discount a small number of products for a limited period of time, but to offer low prices every day and apply them broadly across our entire product range.
The next shareholder letter is called long -term thinking.
I'm not making this up, you can see this online anytime you want.
He just uses that word over and over again, long -term thinking.
This is very fascinating.
whose idea is like, if I'm going to be, I want to build an enduring franchise, I want to be around forever.
So therefore, the logic of working back just now is like, you should design your customer experience with the long term benefit of the customer in mind, not the the money that you make in the short term, because you're gonna make way more money in the long term.
Just look at what the value of Amazon was in 2003, compared to present day.
Look at how many, how much revenue, how much your cashflow was compared to present day, like a completely different company.
As we design our customer experience, we do so with long -term owners in mind.
The point you made in the last shareholder letter, which is the fact that people find it paradoxical.
It's like, no, we're going to do what's best for the customers.
And if we do it with customers over long term, that is what's best for shareholders.
Because the customers will reward you with long -term loyalty.
They're like, why are you putting up reviews?
Don't you know what business you're in?
Your goal is to sell products because you make money as you sell products, but then you have reviews that discourage people to not buy a crappy product.
And Jeff's like, yeah, that makes perfect sense to me.
Any expenses they can get.
We receive complaints from a few vendors, basically wondering if we understood our business.
You make money, and you sell things.
Why would you allow negative reviews on your website?
Speaking as a focus group of one, I know I've sometimes changed my mind before making purchases on Amazon as a result of negative or lukewarm customer reviews.
Though negative reviews cost us some sales in the short term, helping customers make better purchase decisions ultimately pays off for the company, meaning the long -term interest of the customer.
It's going to pay off for the long term to the long term owners of the company.
Again, Bezos is not hiring what he believes in, what's important to him.
He's repeating his beliefs that it's all about the long term, and that the interests of the owners and the customers are aligned over the long term.
And then we see how he ends this shareholder letter, a ridiculously high standards.
This guy has a ridiculous, he says, Your standards make people around you uncomfortable.
He is already the best. What he's about to reference here, and he still wants to be better.
The widely followed American Customer Satisfaction Index gave Amazon a score of 88, the highest customer satisfaction score ever recorded in any service industry.
A representative of the ACSI was quoted as saying, ''If they go any higher, they will get a nosebleed.'' We are working on that.
It's hard to say for sure but I think this part is my favorite idea that he expresses in, throughout any of the shareholders.
The part is actually incredible.
It's on the need for good judgment and why data may lead you to make the wrong decision.
Not all of our important decisions can be made in a math -based way.
Sometimes we have little or no historical data to guide us and proactive experimentation is impossible.
The prime ingredient in these decisions is judgment.
We have made a decision to continuously and significantly lower prices for customers year after year as our efficiency and scale make it possible.
This is an example of a very important decision that cannot be made in a math -based way.
In fact, when we lower prices we go against the math.
He adds a footnote on this page, which is not common in the shirholers, and he's talking about this paper that he read called the Structure of Unstructured Decision Processes.
This is what Jeff says before we get back to the shirholer.
among other gems you will find in this paper is this he quotes from the paper now excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently." In other words, you're going in the wrong direction faster.
This is what you're talking about you're the need for good judgment and why data may actually lead you to make the wrong decision.
So let's go back to the shareholder.
This is an example of a very important decision that cannot be made in a math -based way.
In fact, when we lower prices, we go against the math, which says that the smart move is to raise prices.
We have significant data related to price elasticity.
With rare exceptions, the volume increases in the short term is never enough to pay for the price decrease.
However, our quantitative understanding of elasticity is short term.
We can estimate what a price reduction will do this week and 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 and the italicized judgment or judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices create a virtuous cycle that leads over the long -term to a much larger dollar amount of free cash flow and thereby to a much more valuable Amazon math -based decisions command wide agreement judgment -based decisions are rightly debated and often controversial.
We will start with the customer and work backward. In our judgment, this is the best way to create shareholder value.
That is excellent, that is in a 2005 shareholder letter in case you want to pull that up and read that entire letter, however, you don't mind doing it.
All right, 2006 is all about growing new businesses.
So Bezos is going to answer when you're going to open physical stores.
Remember, this is in 2006.
And really the way I would summarize Bezos's approach He has no interest in building an undifferentiated commodity business.
I often get asked, when are you going to open physical stores?
The potential size of a network of physical stores is exciting.
Physical world retailing is caging and ancient, but it's a business that's already well served and we don't have any ideas for how to build physical world store experiences that are meaningfully differentiated for our customers.
When you do see us enter new businesses, it's because we do believe that the above tests have been passed, which is it can be a return and a rebuilding a meaningfully differentiating experience for our customers.
And so we can give some examples.
Remember this is, you know, almost 20 years ago, 20 years ago, I guess.
These new like rather smallish businesses, they started that they might grow into big businesses and they fulfill these requirements that at this point in time, going into physical world retailing did not.
And this is FBA, Fulfillment by Amazon, and AWS, Fulfillment by Amazon is a set of API that turn our 12 million square foot fulfillment center network into a gigantic and sophisticated computer peripheral.
Pay us $0 .45 per month per cubic foot and you can store your products in our network.
You can make web service calls to alert us to expect inventory to arrive, toss the pick and pack one of more items and tell us where to ship those items. You never have to talk to us.
that he loves, he talked about the importance of self -service platforms over and over again.
He never has talked to us.
It's differentiated, can be large, and passes our returns bar.
Amazon Web Service is another example.
With AWS, we're building a new business focused on a new customer set, software developers.
We're targeting broad needs universally faced by developers.
We have deep expertise in this from scaling amazon .com over the last 12 years.
It's highly differentiated, and it could be significantly financially attractive business over time.
In some large companies, it might be difficult to grow new businesses from tiny seeds because of the patience and nurturing required, but if you really think about just Amazon's a business that builds businesses, a company that builds companies.
Amazon's culture is unusually supportive of small businesses with big potential.
And I believe that's a source of competitive advantage.
We have many people at our company who have watched multiple $10 million seeds turn into billion dollar franchises.
That first hand experience and the culture that had grown up around these successes is a big part of why we can start businesses from scratch. Summarizes this beautifully in the last sentence here.
The culture demands that these new businesses be high -potential, and then they be innovative and differentiated.
but it does not demand that they be large on the day that they are born.
The next shareholder letter is titled Team of Missionaries, it's a shorter shareholder letter, it is about the invention of kindle.
I put this in here selfishly because I'm obsessed with reading.
He said we were missionaries for reading.
I feel the same as in Wake.
And he talked about why it's so important.
He said we were saying this in 2007.
This is real crazy.
We live in present -day.
About the importance of like making sure that we're nurturing and keeping attention to pants along.
A fail is a losing battle, unfortunately.
We humans co -evolve with our tools.
We change our tools, and then our tools change us.
Writing, invented thousands of years ago, is a grand whopper of a tool.
I have no doubt that it changed us dramatically.
Five hundred years ago, Gutenberg, and his invention led to a significant step change in the cost of books.
Physical books ushered in a new way of collaborating and learning.
Lately, network tools such as desktop computers, laptops and cell phones have changed us too.
They shifted us towards more information snacking and I would argue towards shorter attention spans that's 100 % sure.
If our tools make information snacking easier we will shift more towards information snacking and away from long -form reading.
Kindle is purpose -built for long -form reading.
We We hope Kindle may gradually and incrementally move us over the years into a world with a longer spans attention, providing a counterbalance to the recent proliferation of info snacking tools.
I realized my tone here tends towards the missionary, and I can assure you it's heartfelt.
I'm glad about that because missionaries build better products.
Missionaries build better products.
I had somebody ask me one time, they're like have you ever thought?
Because you might not know this but founders is like a complete one person operation.
I do all the reading, you do all the researching.
I pick the topics. I do the editing, just everything.
And people have said, they're like why don't you hire a researcher?
Like, have you ever thought of having somebody else read the books for you?
It's like, you don't understand why I'm doing it.
I'm not doing it for that.
I'm not doing it for that.
I'm doing it because I have a pure unadulterated love of reading.
And as you could see from most of the videos I make about these podcasts now, usually, I'm reading physical books.
This is not efficient.
It's much more efficient to read digitally, but I fell in love as a child with physical books.
This is a missionary.
This is love. This is not, you know, trying to be efficient.
I was watching this video one time, and I think this guy goes around and he visits, I think, like the best bookstores in the world.
It might have been the best libraries.
I'm pretty sure it's the best bookstores in the world, but there was like this like 80 -year -old lady in the video, and she said something that was fascinating, about, you know, why she had this reading.
And she said that reading is forced meditation.
You know the idea, like if you read the book in my hand, from front to back, it's 270 pages.
It was multiple, multiple hours.
It's like, I'm going to be forced to meditate and only think about the words in this book for 10, 15, 20 hours at a time.
It's forced meditation, I love this idea.
And my tone here tends towards the missionary and I can assure you it's heartfelt.
I'm glad about that because missionaries make build better products.
It's really funny back then I bought the first Kindle.
This is a giant, like huge, had like these three buttons on the side.
Looks completely different than it does now.
But I was an early adopter to that.
All right. Working Backwards is the title for 2008.
If you think about this, I got to meet several founders that are still running their businesses.
Normally it's like family businesses and they're in their seventies.
They've told me the same thing.
You are truly longterm oriented.
As the years go by, you'll have fewer and fewer competitors.
By endurance we conquer.
Part of this is because of human nature, if you seek instagramification you're gonna find it proud.
In this turbulent global economy, remember this too, our fundamental approach remains the same.
Stay head down focused on the long term and obsessed over customers.
Long -term thinking lovers our existing abilities and lets us do new things that we couldn't otherwise contemplate.
It supports the failure and iteration required for invention and it frees us to pioneer in unexplored spaces.
Seek instant gratification and chances are you'll find a crowd there ahead of you.
Long -term orientation interacts well with customer obsession.
If we can identify a customer need, and if we can further develop conviction that that need is meaningful and durable, our approach permits us to work patiently for multiple years to deliver a solution.
Working backwards from the customer needs can be contrasted with a skills forward approach where your existing skills and competencies are used to drive business opportunities.
This is where you just get the sense that he's thought all about this very critical thinking.
You see this ferocious intelligence that he has about this.
Not only are we designing, you can design better experiences if you work back from the customer.
But I've never heard anybody else contrast this with what most people do.
Most people say, hey, what am I good at?
Skills Forward. And then where can I take the existing skills I have and just let me apply that to this business?
And he talks about why this is so valuable.
The Skills Forward approach says, we're really good at x, what else can we do with x?
If used exclusively, the company employing it will never be driven to develop fresh skills.
Eventually, the existing skills will become outmoded.
Working backwards for the customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward feeling those first steps might be.
So he gives an example of working backwards in with the invention of the Kindle.
Kindle is a good example of our fundamental approach. More than four years ago we began with a long -term revision.
Every book ever printed in any language all available in less than 60 seconds.
The customer experience we envisioned didn't allow for any hardlines of demarcation between Kindle, the device, and Kindle, the service.
The two had to blend together seamlessly.
Amazon had never designed or built a hardware device.
But rather than change the vision to accommodate our then existing skills, we hired a number of talented and missionary hardware engineers and got started learning a new institutional skill.
One, that we needed to better serve readers in the future.
In other words, if you're working backwards from the customer needs, this will make you, it'll force you to be a more skilled operator over time.
So then Bezos gets into the importance of frugality, the benefit of eliminating waste, actually compounds.
So he says, the customer experience path we've chosen requires us to have an efficient cost structure.
The good news for share owners is that we see much opportunity for improvement in that regard. Everywhere we look, we find what experienced Japanese manufacturers would call muda, translates to waste.
So every look, we find waste.
I find this incredibly energizing.
I see it as potential years and years of variable and fixed productivity gains and more efficient, higher velocity, and more flexible capital expenditures." I have a great story in one of the books I read on Jeff, where one of his employees came to him one time and he said, I would tell Jeff about a problem in our business and he'd get excited.
And this is the exact reason, he's like, oh, this is incredibly energizing, Jeff asked.
At a fulfillment center recently, one of our Kaizen experts asked me, I'm in favor of a clean fulfillment center, but why are you cleaning?
Why don't you eliminate the source of the dirt?
To Jeff said, and he said that to him.
He said, I felt like karate kid.
So then Amazon had an incredible result for 2009.
And he makes the point here.
He says, the financial results for 2009 actually reflect the cumulative effect of 15 years of customer experience improvements.
Something to repeat over and over again.
That's in the book, Zero One from Peter Thiel.
He focused on near term growth above all else.
He missed the most important question you should be asking, will this business still be around a decade from now?
You can even add. Will it be around two, three decades from now?
I just did this episode on Ken Griffin.
talked about, you know, Citadon, I think, is the most successful hedge fund, you know, three decades into that.
And his most the most financial success he's had actually came within the last four years, so 20 years, six years into the company.
The focus on near term growth, above all else, she'll miss the most important question.
Is she asking, will this be, this is the run a decade or two or three decades from now.
We believe that focusing our energy on a controllable inputs of our business is the most effective way to maximize financial outputs over time.
Our fundamental approach will always be start with the customer and work backwards.
The big test is constantly setting down that Amazon is going to lead, they're going to invent, they're not going to follow, they're going to keep experimenting or they're going to be bold.
When you hear Bezos speak, he considers himself an inventor.
That's how he describes himself.
Many of the problems we face have no textbook solutions, so we happily invent new approaches.
He's given examples, did not do it.
He asked before that, didn't have to do the Kindle, all of these new businesses, like, we can't even learn the skills to do what we want to do.
All the effort we put into technology might not matter that much if we kept technology off to the side in some sort of R &D department, but we do not take that approach. Technology abuses all of our teams, all of our processes, our decision -making, and our approach to innovation in each of our businesses.
It is deeply integrated into everything we do.
invention, invention is in our DNA, and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide our customers." And so when he talked about building these new businesses, he heavily is biased towards the self -serve, like building ones that are self -serve, you don't have to talk to us, you can use FBA, AWS.
They're ad business now.
And he says, "...I'm emphasizing the self -service nature of these platforms because it's important for a reason I think is somewhat non -obvious.
Even well -meaning gatekeepers slow innovation.
When a platform is self -service, even though improbable ideas can get tried, because there's no expert gatekeeper ready to say, that'll never work, and guess what?
Many of those improbable ideas do work and society is the beneficiary of that diversity.
Another year, he has an entire letter dedicated to the importance of being internally driven.
Our energy at Amazon comes from the desire to impress customers, rather than the zeal to best our competitors.
One advantage of a customer -driven focus is that it aids a certain type of proactivity.
When we're at our best, we don't wait for external pressures.
We are internally driven to improve our services, adding benefits and features, before we have to.
We lower prices and increase value for customers, before we have to.
We invent, before we have to.
these investments are motivated by customer focus rather than by a reaction to competitors.
Bezos has a great example of this.
We build automated systems that look for occasions, we provide it a customer experience that isn't up to our standards, and those systems then proactively refund customers.
One industry observer recently received an automated email from us that said, we noticed that you experienced poor video playback while watching a rental on Amazon Video on demand.
We are sorry for that inconvenience and have issued a refund for the following amount." So three bucks, it cost you to rent a video.
We didn't like that it was buffering.
It issued a refund without even asking for it.
We hope to see you again soon.
Surprised by the proactive refund, he ended up writing about the experience.
In was unnoticed that I experienced poor video playback, and they decided to give me a refund because of that.
Wow, talk about putting customers first. I love this idea and how Jeff describes it.
These are characteristics of a business that should never sell.
A dreamy business offering has at least four characteristics.
Number one, customers love it.
Number two, it can grow to a very large size.
Number three, it has strong returns on capital.
Number four, it is durable in time with the potential to endure for decades.
When you find one of these, get married.
We are now happily wed to what I believe are three such partners, Marketplace, Prime, and AWS.
And then a little later he talked about from the outside, A lot of people confused, Amazon, the retail company, e -commerce platform, AWS, like these businesses don't seem to have much economies and, oh, no, they actually do.
There's a connection between these two businesses.
They share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles.
This is what I mentioned earlier, it's very obvious if you read about Jeff.
He identified a handful of principles and then just reappeared for 23 years.
And a few years before that, before he went public.
They share a distinctive organization culture that cares deeply about and acts with conviction on a small number of principles.
I'm talking about customer obsession rather than competitor session, eagerness to invent and pioneer, willingness to fail, the patience to think long term, and the taking of professional pride in operational excellence.
Through that lens, AWS and Amazon retail are very similar indeed." This is so important to remember.
I think this is one of his most famous quotes that you see posted online a bunch is excellent.
And it's on that big winners pay for many many experiments.
Outsize returns often come from betting against conventional wisdom, and conventional wisdom is usually right.
Given a 10 % chance of a 100x payoff, you should take that bet every single time, but you're still going to be rolling 9 out of 10.
We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs.
The difference between baseball and business, however, is that baseball has a truncated outcome distribution.
When you swing, no matter how well you connect with the ball, the most runs you can get is 4.
In business, every once in a while, when you step up to the plate, you can score 1000 runs.
This long tail distribution of returns is why it's important to be bold.
Bid winners pay for so many experiments.
I, and every episode's always saying there's always 1 ,000 books to go.
Pretty sure I got that idea from this section right here because it's my version of Bezos's idea of it's always day 1.
The title of this shareholder letter is Fending Off Day 2.
What does day two look like?
That's a question I just got at our most recent All Hands meeting.
I've been reminding people it's day one for a couple of decades.
I worked in an Amazon building named day one and when I moved buildings, I took the name with me.
I spend time thinking about this topic.
Day two is stasis, followed by irrelevance, followed by excruciating, painful decline, followed by death.
And that is why it is always day one.
To be sure, this kind of decline would happen in extreme slow -motion.
An established company might harvest day two for decades, but the final result would still come.
I'm interested in the question how do you fend off day two.
What are the techniques and tactics?
how do you keep the vitality of day one even inside a large organization?
Such a question cannot have a simple answer.
There will be many elements, multiple paths, and many traps.
I don't know the whole answer but I know bits of it.
Here's a starter pack of essentials for day one defense.
Customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high -velocity decision -making.
So I think we got the customer obsession part down back to this content.
So let's go right to resisting proxies.
Very interesting, and you don't hear it repeated in many other places.
As companies get larger and more complex, there's a tendency to manage to proxies.
This comes in many shapes and sizes, and it's dangerous, subtle in day two.
A common example is process as proxy.
Good process serves you so you can serve customers, but if you're not Watchful the process can become the thing.
This can happen very easily in large organizations.
The process becomes a proxy for the result you want.
You stop looking at outcomes and just make sure you're doing the process right.
Gulp. It's not that rare to hear a junior leader defend a bad outcome with something like, while we follow the process.
A more experienced leader will use it as an opportunity to investigate and improve the process.
The process is not the same.
The good inventors and designers deeply understand their customer.
They spend tremendous energy developing that intuition.
They study and understand many anecdotes rather than only the averages you find on surveys.
They live with their design.
I am not against beta testing or surveys.
but you, the product or service owner, must understand the customer.
You must have a vision and you must love the offering.
A remarkable customer experience starts with heart, intuition, curiosity, play, guts and taste.
You will not find it in a survey.
Another way to stay boffing, too, is to embrace external trends.
He's saying this in 2016, the outside world can push into day two if you can't or won't embrace powerful trends quickly.
If you fight them, you're probably fighting the future.
Embrace them and you have a tailwind.
These big trends are not that hard to spot, they get talked and written about a lot, but they can be strangely hard for large organizations to embrace.
We're in the middle of an obvious one, remember when he's saying it's 2016?
We're in the middle of an artificial intelligence.
Another idea in the state of day two, you have to make high -velocity decision -making.
Day two companies make high -quality decisions, but they make high -quality decisions slowly.
You have to somehow make high -quality, high -velocity decisions.
Amazon is determined to keep our decision -making velocity high because speed matters in business.
So he, I don't think it's in this, I think this is in another book by him, but he talks about the importance of this.
I think it might even be one of the speeches He gives them back to the book where if you make your decisions, slowly, you're just going to drive away talented people because taps We were like, okay like the mission now, but I can't build anything here because you guys make your decisions to goddamn slut Amazon is determined to keep our decision -making velocity.
High -speed matters in business He's gonna tell about wall You know been makeup decisions high quality scissors as fast you can so why don't people do this and he makes a lot of this First never using one size fits all decision -making process.
Many decisions are reversible two -way doors I think he was the one to popularize this idea.
One waiting door decision.
You take a lot of time because once you go to that door, you can now reverse course easily.
But most decisions you're making in your business are two -way doors.
You go in, it's not working out, jump back out of the door.
So he says, most decisions should probably be made with somewhere around 70 % of the information you wish you had.
If you wait for 90 % of the information that you want, in most cases, you're probably being slow.
Plus either way, you need to get good at quickly recognizing and correcting bad decisions.
If you're good at course correcting, being wrong may be less costly than you think.
Whereas being slow is going to be expensive for sure.
And so one way he speeded up decisions is because he believes in using the phrase inside your company that you disagree and permit.
I disagree and commit all the time.
We recently green -lit a particular Amazon Studios original.
I told the team that in my view, It was debatable whether it be interesting enough, complicated, or produced and the business terms are not that good and we have a lot of other opportunities.
They had a completely different opinion and wanted to go ahead.
I wrote back right away I disagree and commit and I hope it becomes the most watched thing we've ever made.
Consider how much slower the decision cycle would have been if the team hadn't actually convinced me rather than simply getting my commitment." And here's another one of Jeff's great ideas that high standards are contagious and that you have make sure you eliminate unrealistic beliefs on scope.
He says, I believe high standards are domain -specific and you have to learn high standards separately in every area of interest. Understanding this point is important because it keeps you humble.
You can consider yourself a person of high standards in general and still have debilitating blind spots.
There could be whole arenas of endeavors where you may not even know that your standards are low or non -existent, and certainly not world class.
It is to be open to that likelihood.
And so he gives an example of this by using this metaphor of his friend that decided she wanted to learn how to do a perfect free -standing handstand.
You know, you can't lean against the wall.
It's not just for a few seconds, like you can literally just do a handstand and with no assistance.
And she was having trouble doing this, and so she hired a coach and Jeff was shocked that there's even a coach for such a thing.
but he thought the coach does something that was fascinating.
This is what the coach said, most people think that if they work hard they should be able to master a handstand in about two weeks.
The reality is that it takes about six months in daily practice.
If you think you should be able to do this in two weeks you're just going to end up quitting.
Unrealistic, no this is Jeff writing, unrealistic beliefs on scope are up and hidden and undiscussed and they kill high standards.
Amazon doesn't do powerpoints.
We're going to do six page memos at the beginning of every meeting.
People are like, oh I can write a six page memo, easy, I can do it in a few hours.
No you can't, your six page memo is going to suck if you do that.
When a memo isn't great it's not the writers inability to recognize the high standard but instead a wrong expectation on scope.
They mistakenly believe that a high standard six page memo can be written in one or two days or even a few hours.
When it really might take a week or more they're trying to perfect a handstand in just two weeks, and we're not coaching them right.
The great memos are written and rewritten, shared with a colleague who's asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind.
They simply cannot be done in a day or two.
The key point here is that you can prove results through this simple act of teaching scope that a great memo should probably take a week or more.
Another one of Jeff's ideas is the importance on wandering.
Sometimes in business you do know where you're going and when you do you can be efficient, put in place a player in and execute.
In contrast wandering in business is not efficient but it's also not random.
It's guided by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it's worth being a little messy and tangential to find our way there.
Wandering is an essential counterbalance to efficiency.
The outsider's discoveries, the nonlinear ones, are highly likely to require wandering.
AW itself is an example.
No one asked for AWS, no one.
Turns out the world was, in fact, ready and hungry for an offering like AWS, but it didn't know it yet.
We had a hunch, followed our curiosity, took the necessary financial risks and began building, reworking, experimenting, and iterating countless times as we proceeded.
Anything Wandering is also related to Jeff's idea that your failures need to scale as well.
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 move the needle.
Amazon will be experimenting at the right scale for a company of our size if we occasionally have multi -billion dollar failures.
This kind of large scale risk taking is part of the service we as a large company can provide to our customers and society.
The good news for shareholders is that a single big winning bet can more than cover the cost of many losers.
course, development of the Fire Phone and Echo was started around the same time.
While the Fire Phone was a failure, we were able to take our learnings, as well as our developers, and accelerate our efforts building Echo and Alexa.
No customer was asking for the Echo.
This was definitely us wondering.
Market research doesn't help.
If you had gone to a customer in 2013 and said, would you like a black always -on cylinder in your kitchen about the size of a Pringles can that you could talk to and ask questions that also turns on your lights and plays music, I guarantee you they would have looked at you strangely and said no thank you.
And then since then Amazon has sold a couple hundred million, I think the last time I looked it was something like 500 million of those devices.
And then he ends his very last shareholder letter with one of the most important lessons that he taught over 23 years I've been writing them.
Ping titles it, Differentiation and Survival and the Universe want you to be typical.
This is my last year heard of letter CEO of Amazon and I have one last thing of utmost importance.
I feel compelled to teach." So he's going to quote from this book called The Blind Watchmaker, and it's talking about this basic fact of biology and he's going to tie this into what he wants to teach you.
And I'm going to read the entire excerpt because he got it as important enough to put in here.
This is from the Blind Watchmaker.
Staving off death is a thing you have to work at.
Lept to itself, the body tends to revert to a state of equilibrium with its environment.
If you measure some quantity such as temperature in a living body, you will find that it is markedly different from the corresponding measure in its surroundings.
Our bodies, for instance, are usually hotter than our surroundings and in cold climates they have to work hard to maintain that differential.
When we die, the work stops.
The temperature difference starts to disappear, and we end up the same temperature as our surroundings.
Not all animals work so hard to avoid coming into equilibrium with the surrounding temperature.
But all animals do some comparable work.
For instance, in a dry country, animals and plants work to maintain the fluid content of their cells, work against a natural tendency for water to flow from them into the dry outside world.
And if they fail, they die.
More generally, if living beings didn't work actively to prevent it, they would eventually merge into their surroundings and cease to exist as autonomous beings.
This is what happens when they die.
That is the end of the excerpt.
In what ways does the world pull at you in an attempt to make you normal?
How much does it take to maintain your distinctiveness?
To keep alive the things that make you special.
We all know that distinctiveness, originality, is valuable.
We are all taught to be yourself.
What I'm really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness.
The world wants you to be typical.
In a thousand ways, it pulls at you.
Don't let it happen.
You have to pay a price for your distinctiveness, and it's worth it.
The fairytale version of being yourself is that all the pain stops as soon as you allow your distinctiveness to shine.
That version is misleading.
Being yourself is worth it, but do not expect it to be easy or free.
You have to put energy into it continuously.
and it leaves us excellent parting advice.
To all of you, be kind, be original, create more than you can seal, and never, never, never let the universe smooth you into your surroundings.
It remains day one.
And that is where I'll leave it, highly recommend reading all of your horror letters.
You can read them for free online, I'll put the link down below.
Also, highly recommend buying the book that I was working from, Intent and Wander, the and collect your writings, or get the details, or simply buy the book using the link that's in the show notes on your podcast player, also available at founder'spodcast .com, you can be supported in podcast at the same time.
That is 388 books down, one dozen to go, and I'll talk to you again soon.
