This is a mix of a set of interviews with JEFF BEZOS, CEO of Amazon.
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.
A little while back, Amazon was criticized for having a harsh work culture, and I’m just wondering if and you guys came out and defended yourselves and explained it. I have kind of a two-part question. One is whether you considered it fair at all or not, whether it made you rethink anything about your work culture.
Yeah, you know, it really has not. I’m very proud of the culture that we have at Amazon, and I think of it as a gold standard culture for innovation and pioneering work. And the people I work with, these people who they’re missionaries for what they do, they are, you know, if you’re giving great customer experience, there’s 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.
So does that include work-life balance and all those things?
I teach three leadership classes a year at Amazon. I’m a part of it. They’re bigger classes when 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 a better boss and better colleague. And so that, that it’s not, you could be out of work and we have terrible work-life balance, you know, even though you’ve got all the time in the world, right? You could just feel like, “Oh my god, you know, 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, our environment embraces a lot of change. We have to because the internet is changing, and the technologies that we use are changing. We operate at the intersection of technology and retail, both of which are highly competitive industries. For somebody who hates change, I imagine high-tech would be a pretty bad career. It would be very tough, and there are much more stable industries. And so 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 we’re not all the same. And for me, a job that would be the right fit is something that doesn’t involve doing the same thing every day, unlike an insurance claims adjuster. I would do it at a high-quality level, but I wouldn’t enjoy 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.
- Amazon CEO, Jeff Bezos, sat down with Henry Blodget at Business Insider’s Ignition 2014 for an in-depth interview on a variety of topics. Watch full interview.
- 2016 Pathfinder Awards at Seattle’s Museum of Flight. Bezos is interviewed by Steve Taylor, chief pilot for Boeing Flight Services.
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