• Brandminds 2020

Jeff Bezos: 8 business lessons from his letters to shareholders

According to recent industry figures, Amazon is the leading eCommerce retailer in the United States with 38,7% share of retail eCommerce sales (source).

Here are the latest Amazon statistics:

  • $280.5 billion in net sales
  • $11.59 billion in net income
  • The most popular product categories: Electronics
  • Number of paying Amazon Prime members worldwide: 150 million
  • Share of US Amazon customers who are Amazon Prime members: 65%
  • Unique monthly US visitors to Amazon sites: 208 million
  • Share of direct traffic to Amazon.com: 56.47%
  • US Amazon Prime Day conversion rate: 13.5%
  • Average annual spending of Amazon Prime members: $1,400
  • The most important reason for US shoppers to shop on Amazon: fast, free shipping

Amazon is #1 in the U.S. Let’s zoom out and take a global approach.

Is the giant retailer maintaining its top place when compared to other eCommerce retailers?

As you can see below, the answer is yes.

top-10-global-ecommerce-retailers-min
image source: webretailer.com

Amazon.com receives twice the monthly number of visitors as #2, the Japanese retailer PayPay Mall.

If the eCommerce retail industry were a marathon, Amazon would be the front runner, leading the other runners and winning by a landslide.

What makes Amazon so successful and powerful?

What drives this marathon runner to push harder year after year?

How is Jeff Bezos coaching the Amazon collective?

For the purpose of this article, I have analysed Jeff Bezos’ annual letters to shareholders from 2016, 2017, 2018 and 2019. As any Jeff Bezos fan knows, each of his letters ends with a copy of his famous 1997 letter so I have included it in my analysis.

Jeff Bezos: 8 business lessons from his annual letters to shareholders

1. Move quickly to solidify and extend your current position

At the end of 1997, in just three years since starting the company, Amazon.com’ revenue had increased by 838%, selling to more than 1.5 million customers while extending its market leadership in an increasingly aggressive competitive environment (source).

amazon-1997
image source: latimes.com

1997 is the year Amazon filed to go public and was preparing to compete with big tech companies AOL and Microsoft which had announced their intention to derive a substantial portion of their revenues from online commerce.

I remind you that Amazon was still selling books at that time.

But that didn’t discourage Bezos who had a strong belief in the online opportunity as expressed in his 1997 letter:

We have a window of opportunity as larger players marshal the resources to pursue the online opportunity and as customers, new to purchasing online, are receptive to forming new relationships. The competitive landscape has continued to evolve at a fast pace. Many large players have moved online with credible offerings and have devoted substantial energy and resources to building awareness, traffic, and sales. 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 markets we are targeting.

2. Set out to delight your customers

After reading Jeff’s letters, if I were to choose only one factor responsible for Amazon’s success it would be his focus on customers.

Complaining customers are a company’s most valuable resource for growth. They reveal blind spots that employees or managers could not otherwise identify giving the business the opportunity to improve and develop.

In his 2016 letter, Jeff says “customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great.” In his 2018 letter, he defines them as “divinely discontent”.

amazon-worker-min
image source: blog.aboutamazon.com

Achieving the goal of delighting customers means to develop a powerful system built on true customer obsession.

So here’s the Amazon customer-focused trifecta:

  • Listen to your customers and use this data to offer them something they simply could not get any other way
  • Improving the shopping experience never ends so pursue it with tenacity and persistence
  • Invent on behalf of your customers. Your customers will always want something better and it’s up to you to figure out what exactly it is they expect because, and here’s your challenge, they don’t know what to ask for.

We must invent on their behalf. We have to tap into our own inner imagination about what’s possible.

Jeff Bezos

That’s how AWS, one of Amazon’s most successful services came to be. No customer specifically asked for it and yet that’s what they needed. In 2019, AWS generated $10.2 billion in net sales, up 33% from last year.

Remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste. You won’t find any of it in a survey.

Jeff Bezos

3. Make bold investment decisions

In his 1997 letter, Jeff talks about investments and the criteria underlining his investment decisions.

At the heart of Amazon’s investments is the customer. Every investment that Amazon makes is to further improve customer satisfaction and experience by developing systems, infrastructure and service.

Is the investment going to help the company come closer to its goal of achieving market leadership? Is the investment going to support the company achieve its long-term business objectives? If the answer is yes, then the investment gets the green light.

Always measure the effectiveness of your investments. Establish a set of KPIs to measure the results of your investments, discard the ones that don’t perform as expected and double down on the investments that work. Learn from both your failures and your successes.

If you see a sufficient probability of gaining market leadership advantages, go for it and be bold. There’s no need to start small, go bold!

4. Become aware of proxies

What is a proxy? Proxy is something or someone who acts as a substitute. In his 2016 letter, Jeff talks about the danger of allowing proxies to gain power within the company.

Have you ever heard someone say when referring to a bad outcome Well, we followed the process? That is when the process has become more important than the result and replaced it. It’s the process as a substitute for the outcome.

image source: amazon.com

This is a dangerous place for a company and could contribute to its downfall. Jeff’s advice is to become aware of any proxies influencing your business outcomes and eliminate them. Don’t allow market research and customer surveys to become proxies for your customers.

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’ll find on surveys. They live with the design.

Jeff Bezos

5. Your employees must think like an owner

Jeff acknowledged early on that hiring the right people was paramount if Amazon was to be successful and achieve its objectives. “Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com’s success.”

Amazonians are committed to the company’s core values and goals. They are passionate about working to build something important, something that matters to their customers, something that they can all tell their grandchildren about. Jeff and his hiring team focus on attracting and retaining versatile and talented employees.

“When I interview people I tell them, You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three”, Jeff said in his 1997 letter.

image source: amazon.com

How is Amazon motivating its valuable employees?

The company provides them with two options to choose from: receive compensation in Amazon stock or cash. The retailer would rather compensate its employees in Amazon stock than cash because becoming stockholders changes their mindset. Jeff expects employees to think and act like an owner. To achieve this, employees must actually be owners.

How do you support your employees to take ownership of their work? Do you believe employees thinking and acting like owners makes a difference in the quality of their work?

6. Embrace external trends

Today the business environment is shaped by a wide variety of external factors ranging from technology, online and digital to cultural shifts, changes in customer behaviour etc. Businesses that have adapted to these trends and transformed, as a result, survived. Businesses that have resisted change, didn’t.

Jeff talks about external trends and why businesses should embrace them in his 2016 letter. His advice to every company founder is to acknowledge powerful external trends and embrace them quickly.

Depending on the size of your organization, achieving this could be easy or difficult. It’s somewhat easier for a startup to embrace trends than for a large organization. That’s why it’s imperative for large companies to become agile.

When talking about external trends, Jeff is referring to machine learning and AI.

image source: aws.amazon.com

Amazon.com has been working on developing its own machine learning-powered recommendation algorithm since the late 1990s.

In 2003, the development team at Amazon published a paper describing a new recommendation algorithm. The recommendation algorithm they created was called the item-to-item collaborative filter and allowed the online store to radically change for each customer based on their interests.

A 2013 McKinsey article reported that Amazon’s machine learning engine was responsible for 35% of its online sales. I’m sure this number is higher today.

Jeff points out that machine learning drives Amazon’s algorithms for demand forecasting, product search ranking, product and deals recommendations, merchandising placements, fraud detection, translations.

But much of the impact of machine learning is less visible but equally important. Machine learning and AI have a prominent role in the company’s future.

7. Make high-quality decisions fast

Amazon is leading the global eCommerce landscape falling back on 26 years of experience in the industry. It’s one of the big five tech companies, FAAMG—Facebook, Amazon, Apple, Microsoft, and Google and the largest employer among them, with 840,000 employees.

Large organizations have many things going for them (attracting talent, high-value wages, global development, technology advancements etc) with one downside: they are slow at making decisions.

Day 1 Amazon Building

Jeff calls these established large organizations Day 2 companies. Day 1 companies are startups, nimble and agile, bursting with vitality. Day 2 companies are already heading for the end.

Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.

Jeff Bezos

Twenty-six-year-old Amazon is technically a Day 2 company but with a Day 1 mindset. It’s what allows the giant retailer to keep the energy and dynamism of a lean startup while being #1 in the global eCommerce industry.

How do you make high-quality decisions fast?

Jeff gives the following pointers in this regard:

  • Never use a one-size-fits-all decision-making process;
  • Make decisions with around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow;
  • Be good at quickly recognizing and correcting bad decisions. Being wrong may be less costly than you think, whereas being slow is going to be expensive for sure;
  • Recognize true misalignment issues early and escalate them immediately;
  • Use the phrase “disagree and commit”. If you have a conviction on a particular direction even though there’s no consensus, ask everyone else to gamble with you on it and you’ll probably get a quick yes.

Choose to have the scope and capabilities of a large company and the spirit and heart of a small one.

Jeff Bezos

8. Implement high standards

Staying ahead of the ever-rising customer expectations is one of Amazon’s objectives.

The giant retailer’s obsession with customer satisfaction has led to a number of product innovations (Alexa, AWS) and excellent customer experience (Amazon Go, the no checkout lines physical store, Prime Air, Amazon’s 30-minute delivery service via drones, one-click purchases).

What does it take to achieve such results?

A high-standard mindset.

Here’s what Jeff says about implementing high standards in your company:

  • Expose your people to high standards. High standards are teachable and contagious;
  • Articulate a few core principles of high standards which helps accelerate the rate of learning;
  • Teach high standards in every arena of interest. High standards are domain-specific;
  • Recognize the standard and have realistic expectations on scope. To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be.

What are the benefits of high standards?

Building better products and services for customers, recruiting and retaining talent and teaching employees how to be professional starting with doing the most invisible work.

People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’.

Jeff Bezos

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