This is a mix of a set of interviews with JEFF BEZOS, CEO of Amazon.
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What I would hope Amazon’s legacy would be is Earth’s most customer-centric company. Jeff Bezos
Jeff continues: What we have always wanted to do is raise the standard for what it means to be customer-centric to such a degree that other organizations, whether they be other companies or whether they be hospitals or government agencies, whatever the organization is, they should look at Amazon as a role model and say how can we be as customer-centric as Amazon. Competitors as well, but if we could make that our legacy, that we kind of raised the general idea of what it means to be customer-centric, that would be a huge accomplishment. It would be accomplishing a mission that’s much bigger than ourselves.
Harvard Business Review called you, Jeff Bezos, recently the most successful living CEO. Steve Jobs obviously was listed as well. What does that mean to you as you consider your own leadership style?
Jeff: Well, I think if you look at the big ideas at Amazon, what we’re really focused on is thinking long-term, putting the customer at the center of our universe, and inventing. Those are the three big ideas, and they work well together. I don’t think you can invent on behalf of customers unless you’re willing to think long-term because a lot of invention doesn’t work.
If you’re going to invent, it means you’re going to experiment, and if you’re going to experiment, it means you’re going to fail. If you’re going to fail, you have to think long-term. So these three ideas, customer centricity, long-term thinking, and a passion for invention, go together, and that’s kind of the Amazon cocktail. And, by the way, we have a lot of fun doing it that way.
Good leaders are right a lot
One of our leadership principles is good leaders are right a lot.
“How great, but is there some way that I could practice being right a lot?”
And, in fact, you can practice that. You could be right often, and I’ve observed people who are right a lot, and I notice a few things about them.
The first is that people who are right a lot, listen a lot, and people who are right a lot change their minds a lot, and people who are right a lot, seek to disconfirm their most profoundly held convictions, which is very unnatural for humans.
So mostly, as we go about life, we’re very selective with the evidence that we let seep into us, and we like to observe the evidence that confirms our pre-existing beliefs. And people who are right a lot work very hard to do that unnatural thing of trying to disconfirm their beliefs.
By the way, changing your mind a lot is so important. You should never let anybody trap you with anything you’ve said in the past. Life is complicated, the world is complicated, and sometimes you get new data, and when you get new data, you should change your mind.
Sometimes you don’t get new data, and you just reanalyze the situation, and you realize it’s more complicated than you initially thought it was, and you change your mind. This is something you have to do. It’s frustrating to watch, and I will not get into politics here tonight, but it’s frustrating to watch politicians because they’re almost not allowed to change their minds. As soon as they change their mind, they get accused of being flip-floppers. But the reality is anybody who doesn’t change their mind a lot is dramatically underestimating the complexity of the world that we live in.
“2-pizza teams” is something that we’ve been preaching at Amazon almost from the very beginning, and it’s a simple idea, which is no team should be so large that it cannot be fed with just two pizzas.
And obviously, to do great things, you need big teams, but you need to subdivide them. We, humans, grew up around campfires telling each other stories, and you’re sitting at a table tonight, I’ve got ten people at each table, 10 people or maybe 12 people is the perfect size to have natural human coordination without a lot of structure. And if you want to have a big group of a hundred people or 500 people, you need to have a lot of structure to make that work. And so if you can arrange to do big things with a multitude of small teams, and that takes a lot of effort to organize that way, but if you can figure that out, the communication of those small teams will be very natural and easy.
Hire and develop the best
What do you do, though, as a leader of a major online company, to make sure that you are in touch with people like some 19-year-old in his bedroom with a computer changing profoundly so much that all the record companies want to see him? How do you stay in touch with that kind of experimentation and that kind of energy?
Jeff: Hire smart people. Because no single individual can keep in touch with the plethora of new things happening. So what you have to do is you have to put in place a recruiting process that attracts and retains smart, talented, hard-working people who want to be a part of your mission.
But then, when you talk to them and they bring out the CEO to talk to these people, what’s the mission statement you tell them?
Jeff: First, it’s Earth’s most customer-centric company, and we have a very precise definition of customer-centric. It means listen, invent, and personalize. So first, you have to listen to customers. Companies that don’t listen to customers fail.
Second, you have to invent for customers because companies that only listen to customers fail. It’s not the customer’s job to invent for themselves. It’s our job at Amazon.com to invent things like one-click and other things like sales rank going from 1 to 18 million. Those kinds of things that customers really like, that’s our job, not theirs to think of that.
And third is personalized. Take every individual customer and put them at the center of their own universe. And then, when we talk about Earth’s most customer-centric company, we mean that in a very broad way. This is bigger than Amazon. What we want to do is uplift the worldwide standards for customer service and customer-centricity.
So this is sort of like Sony, born right after World War II, is a company that set out if you go and look at their early mission statement. It was not to be known for quality. It was to make Japan known for quality, not Sony, Japan. And that’s sort of what we want to do. We want to do something bigger than Amazon.com to make what would define it one. It would be that we set a new example for customer service and customer centricity that other companies look at, admire, and want to emulate, and that is a mission that people can get excited about.
Interviewer: What do you say to employees when you obviously have some stock traders who are unhappy, and suddenly the stock is down 25% after a quarter?
Jeff: Well, since 1997, at almost every All Hands meeting (we have two All Hands meetings a year), I remind employees that if the stock is up 10% this month, they shouldn’t feel 10% smarter. Because when the stock is down 10% some months, they’re going to have to feel 10% dumber, and it won’t feel as good.
Ownership is key. We give most of our compensation in terms of stock, and part and parcel with ownership is the mentality of long-term thinking. Owners think longer term than renters do. For example, I have a friend who rented his house to some tenants, and instead of getting a Christmas tree stand at Christmas, they just nailed the Christmas tree into the house’s hardwood floors. No owner would ever do that. That’s a bad tenant. This is the same old thing about how nobody ever washes a rental car. You take better care of the things that you own.
One of the responsibilities of ownership, and definitely deep inside the Amazon culture, is to think about the business’s fundamentals, not the daily fluctuations in the stock price.
Insist on the Highest Standards
Interviewer: A little while back, Amazon was criticised for having a harsh work culture. I’m just wondering if you guys came out and defended yourselves and explained it. I have kind of a two-part question. One, whether you considered it fair at all or not, whether it made you rethink anything about your work culture. The second question is a little bit of a setup.
Jeff: I’m very proud of the culture that we have at Amazon, and you know, it’s a gold standard culture for innovation and pioneering work. The people I work with are missionaries for what they do. If you’re giving great customer experience, the only way to do that is with happy people. You can’t do it with a set of miserable people. Watching the clock all day.
Does that include work-life balance and all those things?
Yes, but I use, I teach three leadership classes a year at Amazon. I’m a part of it. They’re bigger classes, but I come in and teach a session, and I always talk about work-life balance. Except, I like to use the phrase work-life harmony rather than balance because to me, balance implies a strict trade, whereas I find that when I am happy at work, I come home more energized. I’m a better husband, a better dad, and when I’m happy at home, I come in and better boss and better colleague. So that, it’s not you could be out of work and have terrible work-life balance, even though you’ve got all the time in the world, right? You could just feel like, “Oh my God, I’m miserable,” and you would be draining energy. So you have to find that harmony. It’s a much better word. And I think for most people, it’s about meaning.
People want to know that they’re doing something interesting and useful. And for us, because of the challenges that we have chosen for ourselves, we get to work in the future, and it’s super fun to work in the future. For the right kind of person, there are people who ours is an environment that embraces a lot of change. We have to because the internet is changing, the technologies that we use are changing. We operate at the intersection of technology and retail, both of which are highly competitive industries. But it’s a really, for somebody who hates change, high tech would be a pretty bad career. It would be very tough. And there are much more stable industries, and they should probably choose one of those more stable industries with less change, and they’d probably be happier there. That industry would be tough for me. So for me, a job that would be hard would be like, I know insurance claims adjuster or something, you know, where I had the same job every day and it didn’t change frequently. That would be hard. I’d do it, but it would and I’d do it at a high-quality level, but I wouldn’t like it.
Learn and be curious
As the leader of Amazon, one of my jobs is to encourage people to take bold bets. People love to focus on things that aren’t yet working, and that’s good. That kind of divine discontent can be very helpful. However, it’s incredibly hard to get people to take bold bets, and you need to encourage that. If you’re going to take bold bets, they’re going to be experiments, and experiments are, by their very nature, prone to failure.
But big successes compensate for dozens and dozens of things that didn’t work. Bold bets like AWS, Kindle, Amazon Prime, and our 3rd party seller business are all examples of bold bets that did work and paid for a lot of experiments.
I’ve made billions of dollars of failures at amazon.com, literally billions of dollars of failures. You might remember pets.com or Cosmo or give myself a root canal with no anesthesia. None of those things were fun, but they don’t matter. What really matters is companies that don’t continue to experiment, companies that don’t embrace failure, eventually get in a desperate position where the only thing they can do is make a kind of Hail Mary bet at the very end of their corporate existence.
Whereas companies that are making bets all along, even big bets but not “bet the company” bets. I don’t believe in “bet the company” bets. That’s when you’re desperate. That’s the last thing you can do.
At what point can the Earth’s best customer experience deliver start raising prices?
Jeff: We’re not going to raise prices. So if you’re waiting for us to raise prices, give up now. But we’re going to lower prices.
Interviewer: Let me jump in on that because I think that’s an important point. Not just because of questions everybody raises about cash flow and profitability, but because it looks like shopping online is not price sensitive. In other words, all these reports that I read about people who are forced to raise their prices in order to generate more cash, they’re finding that customers are continuing to buy online. So, price point sensitivity doesn’t seem to be a critical factor.
Jeff: Just because you could raise prices, doesn’t mean you should. We have huge economic advantages over physical stores in terms of a centralized distribution model, in terms of not having an expensive retail real estate. We have never been one of those companies that lowered prices to unreasonable levels. So, our pricing is sustainable. And as we get more efficient, and as we get more scale, and as we’re buying cooperatives, not for 20 million customers but for 40 million customers, we’re going to be able to lower prices even further.
Interviewer: And that’s a good idea. But I’m just asking, if in fact you could sell your products at a higher price and customers be willing to pay a higher price, you wouldn’t do it to generate more cash.
Jeff: No, not necessarily. So, think about the thing that benefits us the most. There’s an equation here: when you lower prices, you also increase the number of customers you have and the level of revenues you have. One of the things that people make a mistake on is they think that you’re trying to optimize for percentage margins. But actually, you’re trying to maximize dollar margins. And often, that causes you to want a lower price.
Another point I would make is that, unlike physical world retailing which is a variable cost business (so if you double your sales, you double your costs), online retailing is a fixed cost business. When you double your sales, you don’t come anywhere near doubling your costs. As a result, one of the intuitions that’s wrong about the physical world is that whatever place has the best service can’t have the lowest prices. Online, I think that’s wrong. I think online you can have the best service and the lowest prices if you have enough scale.
Interviewer: I’ve been a shareholder for a long time, incredibly happy. I wrote it up in the bubble, wrote all the way down, hung out for those seven lean years, and then suddenly it takes off like a rocket ship. I’m a very much believer in the long term, the investment cycle, the big bets, all that stuff. Even I, last quarter, had a little bit of a gulp when I saw the fact that you are not just breaking even anymore but losing a boatload of money, and in fact way more than you even said you were going to lose, which I thought was sandbagging. Oh, they just said they’re going to lose and they’re going to come in with a profit, that stock’s going to soar. It was worse than you said. So when do you begin to say, okay, that’s it, go rein it in a little bit?
Where is this part were you are extra nice to me because I’m an investor? haha
Interviewer: I know I’m asking as a shareholder.
We would all love all of our numbers to be smooth lines up and to the right, and that would be terrific. But that’s not how it works. Those numbers are our output measures, and you, I mean, I guess you could try to manage your quarterly earnings very precisely, but I think personally that would be a mistake. Most of the work that we put into any particular quarter happened years ago. So, there aren’t that many knobs you can turn during a quarter. I mean, you can, but they’re very low. Like eating your seed corn, if you turn those knobs, you don’t want to do that.
If you focus on the controllable inputs to your business, instead of the outputs, in the long term you get better results. The Benjamin Graham quote here is that, in the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.
And I think people are well-advised to build a company that wants to be weighed, and not voted upon. That means having good return on invested capital and having lots of free cash flow. But if you said to me, “If I said here’s a job, I would reject it. If somebody came to me and said, Jeff, I want your job to be to drive up the Amazon stock price and just manage that directly.” Now, this might sound ridiculous to some of you, but many companies actually do this. They actually go out and they try to sell the stock. That’s kind of the final output, and it’s much better to say, ‘Okay, let’s not do that. That’s not going to be sustainable. It’s kind of a silly approach. What are the inputs to a higher stock price?’ Yes, okay, well, free cash flow and return on invested capital are inputs to a higher stock price. So let’s keep working backwards. What are the inputs to free cash flow? And you keep working backwards until you get to something that’s controllable.
Reducing defects & Operational excellence
A controllable input for free cash flow would be something like a lower cost structure. And they back up from there and you say, ‘Okay, well, you know, if we can improve our pick efficiency in our fulfillment centers and reduce defects – defects are very, very costly – it’s probably known that reducing defects at the root is one of the best ways to lower cost structure.’
That starts to be a job you would accept. If you’re a reasonable person, you would say, ‘I have no idea how to drive up the stock price. I can’t manage that directly. It’s not a controllable input. But I can make your picking algorithms more efficient, and that will reduce cost structure.’ And then, you know, follow that chain all along the way. That’s what you do in all of these businesses. You want customer obsession. You want to invent your way out of boxes. You want to invent your way to the future. You want to be patient. You want to have operational excellence so that you’re finding defects at the root and fixing them.
My email address is famous and I keep it. It’s email@example.com. I don’t see every email that I get anymore because I get too many, but I see a lot of them. I use my curiosity to pick out certain emails. I’ll get one from a customer and if there’s a defect, if we’ve done something wrong. That’s usually why people are writing us – not always, but usually. I look at this, and for some reason, something seems a little odd about that one. So I’ll ask the team to do a case study and find the real root causes and fixes. It’s usually causes, real root causes, and then real root fixes so that when you fix it, you’re not just fixing it for that one customer, you’re fixing it for every customer. That process is a gigantic part of what we do. So, if I have a failed order or some bad customer experience, I would treat it just like that.
But I’m actually a big fan of anecdotes in business, not necessarily building a narrative structure around them, but I still have an email address that customers can write to. I see most of those emails, and I don’t answer very many of them anymore, but I see them, and I forward some of them – the ones that catch my curiosity – to the executives in charge of that area with a question mark. That question mark is just a shorthand for “Can you look into this? Why is this happening? What’s going on?”
What I find that’s very interesting is that we have tons of metrics. We have weekly business reviews with these metric decks, and we know so many things about customers – whether we’re delivering on time, whether the packages have too much air in them and are wasteful of packaging, and so on. We have so many metrics that we monitor. But when the anecdotes and the data disagree, the anecdotes are usually right. There’s something wrong with the way you’re measuring it. That’s why it’s so important to keep your intuition and instincts sharp.
Invent and Simplify
“I believe you have to be willing to be misunderstood if you’re going to innovate.”
Interviewer: How are you misunderstood if you’re going to do anything new or innovative?
Jeff: You have to be willing to be misunderstood, and if you can’t tolerate that, then for God’s sake, don’t do anything new or innovative. Every important thing we’ve done has been misunderstood. Often by well-meaning sincere critics, sometimes, of course, by self-interested insincere critics. But, you know, I’ll give you an example. A thousand years ago, we started this thing called customer reviews, and we let customers review books (we only sold books at that time). Customers could come in and write a book between one and five stars, and they could write a text-based review. You guys are very familiar with this; it’s now a very normal thing. But back then, this was crazy, and the publishers (the book publishers) did not like this because, of course, not all the reviews are positive. I got a letter from one publisher that said, ‘I have a good idea for you. Why don’t you just publish the positive customer reviews?’ I thought about this, and because the argument he was making to me is that our sales would go up if we just published positive customer reviews. I thought about this, and I don’t actually believe that because I don’t think we make money when we sell something; we make money when we help someone make a purchase decision. It’s just a slightly different way of looking at it because people are part of what they’re paying us for, helping them make a purchase decision. And if you think about it that way, then you want the negative reviews too. And of course, it has been extremely helpful for people to have negative customer reviews. And by the way, it’s come full circle now where the product manufacturers use the customer reviews to improve the next generation of the product, so it’s actually helping the whole ecosystem. Now nobody criticizes customer reviews, and in fact, if you were in the year 2018, if some e-commerce company were to say, ‘We’re only going to publish the positive customer reviews,’ that would be the crazy thing that would get criticized. So the new and innovative quickly becomes the new normal, and then it’s the new incumbent idea, and then it doesn’t get criticized. When, by the way, more generally, what I preach at Amazon to all of our employees is when we are criticized, there is a simple process that you need to go through, which is first, you look yourself in the mirror and decide, is your critic right? Do you agree? Are we doing something wrong? If you are, change. And by the way, if you look yourself in the mirror and you decide that your critic is wrong, as we did with the customer reviews, then do not change, no matter how much pressure is brought to bear. Do the right thing in that case as well. Have a deep keel; you have to have a deep keel.
Success and Scale Bring Broad Responsibility
We have sent robotic probes to every planet in the solar system. We humans have done that. This is the good one. There are no other good planets in this solar system. We have to take care of this one.
This is something that is going to take collective action all over the world. These problems, you know, you can go back 10 years and 20 years and there were people who just did not acknowledge that climate change is real, people. Anybody today who is not acknowledging that climate change is real, that we humans are affecting this planet in a very significant and dangerous way, those people are not being reasonable.
This is a big problem and it’s going to take collective action all over the world if we’re going to make progress on that problem. I’m very proud of what Amazon is doing. We just announced the Climate Pledge. Climate Pledge is to reach the goals of the Paris Accord 10 years early. Amazon is going to be 100 percent sustainable electricity by 2030 as a step on the way to that Climate Pledge. We’ve announced the acquisition of 100,000 electric delivery vehicles. We’ve announced here in India that we’re going to eliminate all plastic by coming right out of June 2020, just six months from now.
And one of the things that large companies like Amazon can do, if Amazon were a 500-person company, you know, we could announce the Climate Pledge and it would be a very nice thing to do, and I encourage small companies to do what they can for climate change. But when a large company like Amazon with 700,000 employees and a big global footprint, when we do something like the Climate Pledge, it really can be a needle mover because it’s not just Amazon, it’s our supply chain, all of the partners and companies and delivery companies that we work with. For us to meet that pledge, they have to meet that pledge, and so it has a multiplier effect. When a big company like Amazon gets very serious about meeting the goals of the Paris Accord 10 years earlier, it can have a big impact.
And so you had mentioned at a shareholders meeting maybe last year the previous year about how Amazon’s going to use its scale for sustainability and environment. Anything you want to appreciate? We have done a couple of things that I think where I think everybody inside the organization is very proud of, and it’s been hard work, but it’s paying off. We have a program called Frustration-Free Packaging. Been working on for roughly 10 years, and it’s a simple idea but incredibly hard to execute. We go to manufacturers and we say, look, you are producing this thing in a four-color printed package with a cellophane window and lots of twisty wire ties or worst case, the what do they call those things, the clamshell packaging where they seal it in indestructible plastic. And you know, I actually looked it up, there is a Wikipedia entry for packaging rage or something like that. There’s a term for this, and that Wikipedia entry has the number, I don’t remember the number now, but it’s thousands, the number of people who go to the emergency room per year trying to open that indestructible bubble packaging. But why do people, why do manufacturers put things in that packaging? That kind of packaging, it’s not cheap. That packaging is expensive. It’s hard to recycle. It has a bunch of flaws, but it shows off the product well.