Remember 1997? The year of Titanic, the first Harry Potter book and the best-selling Nokia 610. It was also the first year Jeff Bezos wrote a shareholder letter for his three-year old Amazon.com.
It makes fascinating reading. He talks about expanding staff from 158 to 614, having cash balances of $125mn and establishing strategic relationships with Yahoo, Netscape, GeoCities (I vaguely remember them), @Home (?) and Prodigy (?). He was especially proud of increasing sales from $16 million to $148 million.
But more interesting was his four-point focus:
1. It’s All About the Long Term… “We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model”…”We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.”… “We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages”… “When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.”
- 2. Obsess Over Customers. “We realized that the Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply could not get any other way, and began serving them with books. We brought them much more selection than was possible in a physical store (our store would now occupy 6 football fields), and presented it in useful, easy-to-search,and easy-to-browse format in a store open 365 days a year, 24 hours a day.”… “Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us”.
- 3. Our Employees. “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. It’s not easy to work here (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”), but we are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about.”
- 4. Goals. Our goal remains to continue to solidify and extend our brand and customer base. This requires sustained investment in systems and infrastructure to support outstanding customer convenience, selection, and service while we grow. We are planning to add music to our product offering, and over time we believe that other products may be prudent investments. We also believe there are significant opportunities to better serve our customers overseas, such as reducing delivery times and better tailoring the customer experience.
Fast forward to today and Amazon’s annual revenues are $177bn and it is profitable in its North American retail business, and its web services business. It is now heavily investing abroad. It has over 300,000 employees. As for Bezos’ philosophy, it retains the start-up mindset. When asked what “Day 2” looks like, Bezos replied:
“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
He then went to describe how he intends to retain that “Day 1” mentality:
- Be customer-centric. Why? Because customers are always “wonderfully dissatisfied”
- Don’t manage proxies. An example is process, large companies start to care more about the process being followed than the outcome.
- Embrace external trends. If you fight these trends, you fight the future. A current example is AI and machine learning. Amazon is fully engaging in these
- High-velocity decision making. “Day 2” companies make high-quality decisions, but they make them slowly. Never use one-size-fits-all decision making processes. Many decisions are easily reversible, so they can have a lightweight process. Make decisions on 70% of information, rather than 90% when it is too late. Use the phrase “disagree and commit”
You can’t really disagree with these.