Frequently Asked Questions
Q&A with the Author of The Bezos Letters
How did you come to determine that Amazon’s success revolves around the 14 principles identified in your book, <em>The Bezos Letters</em>?
I’ve been studying the relationship between risk and growth for many years. In order for a business to grow, they have to take risks, but what exactly does that mean? In my research, I came upon the letters to Amazon shareholders written by Jeff Bezos. As I studied the letters, I realized Bezos had “hidden in plain sight” how he had grown Amazon by taking intentional and calculated risks. I discovered there were recurring themes (principles) that any business could use to grow like Amazon.
Why do you feel other businesses in different industries can also apply them to be successful?
Since every business must experiment and take risks to grow (and by definition, have some failures), by understanding how Bezos leveraged his “failures” with Amazon, companies can learn from his mistakes without having to go down that (expensive) road themselves. He has also cleared a path for other businesses to move forward with his successes. Though there are many concepts universal in business (i.e., managing cash flow), Bezos gives each a unique spin. The ways he looks at business, as he reveals in his letters to shareholders, allows others to see the unique ways he evaluates and approaches risk and opportunity.
You’ve assessed the business side of risk for 35 years. How does your background uniquely qualify you to dissect how Jeff Bezos built Amazon to be the fastest company in history to reach $100 billion in sales?
The insurance industry is all about risk and risk management. Having looked at thousands of coverage providers and businesses over the years, most businesses want to be protected from risk. But I realized that Bezos was embracing risk intentionally and strategically. He uses risk to his advantage. Because of my experience, I can have a 30,000-foot view, which gives me a perspective most don’t have.
The 14 principles come down to Test, Build, Accelerate, and Scale. Which of those four areas is the most important? Why?
I call each of these four areas cycles because each individual cycle relies upon and builds on other cycles. It’s like asking which part of a car is most important, tires, engine, body, or the brakes? They all work together to allow the driver to get where they want to go quickly and easily. The growth cycles work the same way. A new startup company might spend more time in the test and build cycles, but they also need to understand how to accelerate and scale if they are going to be able to grow into a long-term viable and profitable organization. Larger, established companies always need to be testing and building to create their next new product, platform, or service.
You coined a term, “return on risk.” What does that mean, and how does that pertain to Bezos, whom you labeled “the master of risk”?
When a business makes a financial investment in machinery, marketing, or expanding their sales team, they evaluate their return on investment or ROI. They want to know for the money they put in, what will they get back? (Hopefully, more than they put in!) But few businesses think of risk-taking as an investment, yet it should be treated the same way as other investments. “If we take this risk, what will it cost, and what will we get back?” Bezos is a master of taking small risks (well, his definition of small) and looking at the results in a way similar to ROI. He looks at what he learns from taking risks and then can use that “investment” to create the next experiment and build upon it.
Can anyone really create another Amazon?
Probably not. Bezos created Amazon at a unique point in history when the Internet was in its infancy. In 1994, he came across the fact that Internet usage was growing at 2,300% per year and decided that kind of exponential growth doesn’t happen often. But, the point of the book is not to become another Amazon, but to learn how your organization can grow like Amazon.
Some people don’t like Amazon and see them as bad corporate citizens. Others see them as a savior. Why should businesses emulate their model?
Amazon isn’t perfect. Jeff Bezos isn’t perfect either. You may love Amazon or hate Amazon. You may love Jeff Bezos or hate him, but he’s done some things that have grown Amazon into what it is today. I’m suggesting that you suspend your feelings about Amazon/Bezos and step back and see what Bezos (and Amazon) has done to secure its historic role as the fastest-growing company in the world to reach $100 billion in sales.
In studying 21 letters to shareholders that Bezos has issued annually, what patterns emerge of the wealthiest man in the world?
Bezos is focused, determined, and smart. He started Amazon like any start-up business borrowing money from his parents to get started. He has high standards, and he expects people who work for him to have similarly high standards. In his first letter to shareholders, he states, “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 tell our grandchildren about. Such things aren’t meant to be easy.”
He also thinks long-term in a way that is unique in the business world (like generations out, not just the next 3-5 years). His focus is extreme and often counter-intuitive. He makes fast decisions, doesn’t sweat the small stuff, and focuses on experimentation and invention. And he tests and measures everything (while still trusting his “gut”).
If leadership is at the center of business growth and deeply ingrained in the core of Amazon, what will the company be like once Bezos no longer runs it?
Bezos continues to be the driving force for the vision and long-term view of Amazon. He also knows that at some point in the future Amazon will become obsolete – every company does. He does hope it happens after he’s gone. That’s also why one of the Anderson Growth Principles is “Maintain Your Culture.” While I think it will be hard for the company when Bezos is no longer leading it, he is building a culture that might be able to sustain his vision long after he’s gone.
Bezos obsesses over the customer. How is what he does differ from what other companies do?
There are lots of words used to describe how a company thinks about and treats its customers. Customer service, customer experience, the customer journey, the customer is always right, and many more. “Obsess Over Customers” brings it to a different level. Dave Johnson, an Amazon executive, described the difference when he said before coming to Amazon, he had worked at two big-name companies that were “customer-focused,” and they were really good. “But,” he said, “at Amazon… We are customer obsessed.” It’s not just about focusing on what the customer wants, like other successful companies, it is inventing on behalf of the customer to provide what they will want before they even know they want it. Amazon knows that if they’re not obsessed with their customers, they’ll go somewhere else — to the point, they even allow third-party sellers access to their customers because if it is good for the customer, it will ultimately be good for Amazon. That’s what Amazon Marketplace is all about with its third-party sellers.
Amazon encourages successful failure. What does that mean?
Most organizations punish failure. Companies know they need to be innovative but struggle with the failures that are necessary when experimenting with new ideas and processes. Successful failure recognizes that while something might not work the way you hope (experiments by their very nature are prone to fail), the key is learning what didn’t work and why so you can make adjustments for the next experiment (and possible failure). Creating a “safe to fail” culture encourages employees to try out crazy ideas that might work. The Amazon Fire Phone was a massive failure at Amazon but also led to the Echo and Alexa.
If Amazon is basically an internet retailer, why can’t others outsell them online?
Several established retail businesses today are learning lessons from Amazon and starting to compete with them more effectively. An increasing number of physical retailers are learning to compete online with Amazon effectively; Walmart, Target, and Best Buy are examples. Several of the Anderson Growth Principles, such as “Understand Your Flywheel,” “Generate High-Velocity Decisions,” and “Make Complexity Simple,” are tools that Amazon uses to move fast and “break” things to create better things.
What are some of the biggest failures and successes of Amazon?
The three customer pillars at Amazon are wide selection, low prices, and fast delivery. These principles will not apply to every business. For example, your business may be a premium brand with high prices. The question is, are you clear about what your customer pillars are for your own business and how you fulfill that promise?
How does Amazon think long-term when the demands of the marketplace and Wall Street are short-term?
Bezos set the standard for his long-term thinking in the 1997 letter to shareholders where he said, “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.” Bezos “walks his talk” by not being swayed by Wall Street numbers but by looking at internal metrics that more accurately define how Amazon is performing.
What should others model when looking at Bezos’ leadership style?
His view of risk-taking is something that many leaders should be more intentional about. Long-term thinking is something to emulate, but it’s hard. As he said in his 1997 letter, we are building “something that we can all tell our grandchildren about.” Also, Bezos has a different take on decision making. He empowers people to make fast decisions at lower levels and yet expects them to give well thought out responses to high-level decision making at the same time – and more importantly, to know the difference.
How can most companies emulate Amazon’s approach to accelerating the growth cycle?
Three fundamental growth principles help accelerate business growth: “Generate High-Velocity Decisions,” “Accelerate Time with Technology,” and “Make Complexity Simple.” For example, many businesses wait too long to embrace technology with a sort of “well, we have to do it” vs. “how can we harness this power to move faster?” In the same way, many businesses have the approach “if it ain’t broke, don’t fix it” when if they can make the process simpler for the customer, they’d get a better return.
Bezos always tells workers and shareholders to believe it’s always Day 1. What does he mean?
For Bezos, Day 1 is a mindset. It is representative of all the leadership principles that help make Amazon what it is today. It is the anchor for acknowledging and remembering Amazon’s values at the beginning, and their dogged focus on serving the needs of customers and even “delighting” customers. Not continuing to focus on your core values begins the process of becoming a Day 2 company. Bezos says, “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it’s always Day 1.”
How has Amazon maintained its culture as it scaled from a few employees to a workforce of 700,000?
Every employee at Amazon is reminded what Day 1 means through the 14 Amazon Leadership Principles. “We use our leadership principles every day, whether we’re discussing ideas for new projects or deciding on the best approach to solving a problem. It is just one of the things that makes Amazon peculiar [a word used by Bezos and most Amazonians].”
If a company is only as successful as the standards it maintains, how does one invest in high standards in their company the way Amazon does?
One of the keys to maintaining high standards at Amazon is only hiring the best. Amazon has a rigorous interview and hiring process (and surprisingly, in interviews, candidates are usually asked about their failures and their approach to failure). Amazon also treats employees like owners by giving them real ownership through stock options and empowers them with decision-making authority.
Most people play to win but you say Bezos plays to learn. What do you mean? Why does he take risks with intentionality, ones that seem counter-intuitive?
It may seem odd to say that the richest man in the world doesn’t play to win. There is no doubt Bezos has a competitive streak. But he learned from an early age that you need to bet wisely to grow. Bezos also discovered that using risks strategically is a competitive advantage. When he started Amazon, it wasn’t because he loved books, per se. He was looking for a business model that had a product with huge potential that could be fulfilled by mail and books best fit those criteria. He knew the Internet was growing, and he looked for ways to leverage that growth. Moving from New York City to Seattle and borrowing money from his parents was a big risk… but one that ultimately paid off.
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Steve Anderson, MA, is a trusted authority on Risk, Technology, Productivity, and Innovation and has over thirty-five years of experience in the insurance industry. He holds a master’s degree in Insurance Law.
Anderson is a professional speaker, writer, and “futurist.” His speaking portfolio includes presentations on the future of technology, the influence of social platforms, how businesses can leverage the internet, and how they can assess and use risk to their advantage. He was chosen as one of the original 150 LinkedIn Influencers and has over 340,000 followers.
Steve and his wife, Karen, have two married daughters, but more importantly, they have seven amazing young grandchildren and can’t help but wonder if one (or more) of them may end up going into space.
They live in historic Franklin, Tennessee.