Author: Brad Stone
ASIN: B00DJ3ITKS
An interesting book, but can't say it's really worth reading. For me the excerpts would suffice.
EXCERPTS
“We are genuinely customer-centric, we are genuinely long-term oriented and we genuinely like to invent. Most companies are not those things. They are focused on the competitor, rather than the customer. They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else. And they prefer to be close-followers rather than inventors, because it’s safer. So if you want to capture the truth about Amazon, that is why we are different. Very few companies have all of those three elements.”
“When you are in the thick of things, you can get confused by small stuff,” Bezos said a few years later. “I knew when I was eighty that I would never, for example, think about why I walked away from my 1994 Wall Street bonus right in the middle of the year at the worst possible time. That kind of thing just isn’t something you worry about when you’re eighty years old. At the same time, I knew that I might sincerely regret not having participated in this thing called the Internet that I thought was going to be a revolutionizing event. When I thought about it that way … it was incredibly easy to make the decision.”
Usenet bulletin-board posting, August 21, 1994: Well-capitalized start-up seeks extremely talented C/C++/Unix developers to help pioneer commerce on the Internet. You must have experience designing and building large and complex (yet maintainable) systems, and you should be able to do so in about one-third the time that most competent people think possible. You should have a BS, MS, or PhD in Computer Science or the equivalent. Top-notch communication skills are essential. Familiarity with web servers and HTML would be helpful but is not necessary. Expect talented, motivated, intense, and interesting co-workers. Must be willing to relocate to the Seattle area (we will help cover moving costs). Your compensation will include meaningful equity ownership. Send resume and cover letter to Jeff Bezos. US mail: Cadabra, Inc. 10704 N.E. 28th St., Bellevue, WA 98004 We are an equal opportunity employer.
“It’s easier to invent the future than to predict it.” — Alan Kay
In early 1995, Bezos’s parents, Jackie and Mike Bezos, invested $100,000 in Amazon. Exxon had covered most of the couple’s living expenses when Mike worked in Norway, Colombia, and Venezuela, so the couple had a considerable nest egg and were willing to spend a good portion of it on their oldest child. “We saw the business plan, but all of that went over our heads to a large extent,” says Mike Bezos. “As corny as it sounds, we were betting on Jeff.” Bezos told his parents there was a 70 percent chance they could lose it all. “I want you to know what the risks are, because I still want to come home for Thanksgiving if this doesn’t work,” he said.
“As crazy as it might sound, it did appear that the first challenge was to do something better than these other guys,” Davis says. “There was competition already. It wasn’t as if Jeff was coming up with something completely new.”
Bezos felt that hiring only the best and brightest was key to Amazon’s success. For years he interviewed all potential hires himself and asked them for their SAT scores.
As Amazon grew, it badly needed additional manpower, and early employees eagerly recommended their friends, many of whom were as accomplished as they were.
And if the potential employees made the mistake of talking about wanting a harmonious balance between work and home life, Bezos rejected them.
On one walk, Kaphan asked Bezos why, now that they had accomplished some of their earliest goals, he was so bent on rapid expansion. “When you are small, someone else that is bigger can always come along and take away what you have,” Bezos told him. “We have to level the playing field in terms of purchasing power with the established booksellers.”
“Look, you should wake up worried, terrified every morning,” he told his employees. “But don’t be worried about our competitors because they`re never going to send us any money anyway. Let’s be worried about our customers and stay heads-down focused.”
The company would make decisions based on long-term prospects of boosting free cash flow and growing market share rather than on short-term profitability.
The high-tech community was getting a lesson in the dynamics of network effects—products or services become increasingly valuable as more people use them. In online marketplaces, the network effect was pervasive; sellers stuck around for access to a critical mass of buyers, and vice versa. In the auctions category, eBay already had an insurmountable advantage.
With door-desks and minimal subsidies for employee parking, he was constantly reinforcing the value of frugality.
They agreed on five core values and wrote them down on a whiteboard in a conference room: customer obsession, frugality, bias for action, ownership, and high bar for talent. Later Amazon would add a sixth value, innovation.
Bar raisers at Amazon—the program still exists today—are designated employees who have proven themselves to be intuitive recruiters of talent.
At least one anointed bar raiser would participate in every interview process and would have the power to veto a candidate who did not meet the goal of raising the company’s overall hiring bar. Even the hiring manager was unable to override a bar raiser’s veto. “Many companies as they grow begin to compromise their standards in order to fill their resource needs,” says Dalzell. “We wanted to make sure that did not happen at Amazon.
Bezos instituted the Just Do It award—an acknowledgment of an employee who did something notable on his own initiative, typically outside his primary job responsibilities. Even if the action turned out to be an egregious mistake, an employee could still earn the prize as long as he or she had taken risks and shown resourcefulness in the process. Considering his emphasis on frugality, Bezos reasoned that the award could not be something of high monetary value. So he bought a pair of size 15 Nike sneakers from former Northwestern University basketball player Dan Kreft, who worked at Amazon as an engineer. Those ratty shoes, and the successors that Kreft periodically supplied, became the prize.
“He believed in work-life harmony. I guess the idea is you might be able to do everything all at once.”
Instead of Get Big Fast, the company adopted a new operating mantra: Get Our House in Order. The watchwords were discipline, efficiency, and eliminating waste.
Amazon lost a few dollars on each of about 255,000 orders, just the kind of money-losing gambit that frustrated Wall Street. But Bezos refused to see it as anything other than a move to build customer loyalty. “That either-or mentality, that if you are doing something good for customers it must be bad for shareholders, is very amateurish,” he said in our interview that summer.
The fact that third-party selling on Amazon wasn’t working meant, to Bezos, only that it wasn’t working at that particular moment.
That fall, Amazon announced a new initiative called Marketplace. The effort started with used books. Other sellers of books were invited to advertise their wares directly within a box on Amazon’s own book pages. Customers got to choose whether to purchase the item from Amazon itself or from a third-party seller. If they chose the latter, either because the seller had a lower price or because the product was out of stock at Amazon, the company would lose the sale but collect a small commission. “Jeff was super clear from the beginning,” says Neil Roseman. “If somebody else can sell it cheaper than us, we should let them and figure out how they are able to do it.” Marketplace launched in November 2000 in the books category and immediately drew protests. Two trade groups, the Association of American Publishers and the Authors Guild, each posted a public letter on its website complaining that Amazon was undermining the sale of new books in favor of used books and in the process taking royalties out of the pockets of authors.
Sinegal explained the Costco model to Bezos: it was all about customer loyalty.
“It reinforces the value of the concept. Customers know they will find really cheap stuff at Costco.”
Though they didn’t share it openly, many just couldn’t take working for Bezos any longer. He demanded more than they could possibly deliver and was extremely stingy with praise. At the same time, many felt a tremendous loyalty to Bezos and would later marvel at how much they accomplished at Amazon. Kim Rachmeler shared a favorite quote she heard from a colleague around that time. “If you’re not good, Jeff will chew you up and spit you out. And if you’re good, he will jump on your back and ride you into the ground.”
Bezos grew up in a tight-knit family, with two deeply involved and caring parents, Jackie and Mike, and two close younger siblings. I got the sense that Jackie and Mike were the kinds of parents who always encouraged Jeff and nurtured his creativity.
Bezos vowed to run Amazon with an emphasis on decentralization and independent decision-making. “A hierarchy isn’t responsive enough to change,” he said.
Bezos’s counterintuitive point was that coordination among employees wasted time, and that the people closest to problems were usually in the best position to solve them.
IBM veteran and computer science professor Frederick Brooks argued that adding manpower to complex software projects actually delayed progress. One reason was that the time and money spent on communication increased in proportion to the number of people on a project.
At the end of the day, Bezos, Wilke, and their colleagues reached a conclusion: the equipment and software from third-party vendors simply wasn’t designed for the task at hand. To escape from batches and move toward a continuous and predictable flow of orders through the facility, Amazon would have to rewrite all the software code. Instead of exiting the business of distribution, they had to reinvest in it.
Steve Jobs was known for the clarity of his insights about what customers wanted, but he was also known for his volatility with coworkers. Apple’s founder reportedly fired employees in the elevator and screamed at underperforming executives. Perhaps there is something endemic in the fast-paced technology business that causes this behavior, because such intensity is not exactly rare among its CEOs. Bill Gates used to throw epic tantrums. Steve Ballmer, his successor at Microsoft, had a propensity for throwing chairs. Andy Grove, the longtime CEO of Intel, was known to be so harsh and intimidating that a subordinate once fainted during a performance review. Jeff Bezos fit comfortably into this mold. His manic drive and boldness trumped other conventional leadership ideals, such as building consensus and promoting civility. While he was charming and capable of great humor in public, in private, Bezos could bite an employee’s head right off.
Some Amazon employees currently advance the theory that Bezos, like Steve Jobs, Bill Gates, and Larry Ellison, lacks a certain degree of empathy and that as a result he treats workers like expendable resources without taking into account their contributions to the company. That in turn allows him to coldly allocate capital and manpower and make hyperrational business decisions while another executive might let emotion and personal relationships intrude.
Amazon’s ability to ship products efficiently and offer precise delivery times to customers gave the company a competitive edge over its rivals, particularly eBay, which avoided this part of the business altogether. Fulfillment was a lever that Bezos had invested in, and he started using it to guide strategy.
Amazon tried to combat employee delinquency by using a point system to track how workers performed their jobs. Arriving late cost an employee half a point; failing to show up altogether was three points. Even calling in sick cost a point. An employee who collected six such demerits was let go. “They laid out their expectations and if you didn’t meet them, they had people waiting to take your job,” says Krause. “They wouldn’t give you a second chance.”
Mechanical Turk quietly launched in November 2005. Now any Internet user could perform what Amazon called human-intelligence tasks, typically earning a few cents per job. Other companies could list jobs on the Mechanical Turk website, with Amazon taking a 10 percent cut of the payments.11 One of the first applications, from a company called Casting Words, paid workers a few cents per minute to listen to and transcribe podcasts.
Bill Miller, the chief investment officer at Legg Mason Capital Management and a major Amazon shareholder, asked Bezos at the time about the profitability prospects for AWS. Bezos predicted they would be good over the long term but said that he didn’t want to repeat “Steve Jobs’s mistake” of pricing the iPhone in a way that was so fantastically profitable that the smartphone market became a magnet for competition. The comment reflected his distinctive business philosophy. Bezos believed that high margins justified rivals’ investments in research and development and attracted more competition, while low margins attracted customers and were more defensible. (He was partly right about the iPhone; its sizable profits did indeed attract a deluge of competition, starting with smartphones running Google’s Android operating system. But the pioneering smartphone is also a fantastically lucrative product for Apple and its shareholders in a way that AWS has not been, at least so far.)
Christensen wrote that great companies fail not because they want to avoid disruptive change but because they are reluctant to embrace promising new markets that might undermine their traditional businesses and that do not appear to satisfy their short-term growth requirements.
The companies that solved the innovator’s dilemma, Christensen wrote, succeeded when they “set up autonomous organizations charged with building new and independent businesses around the disruptive technology.”
Every major company faces decisions over whether it should build or buy new capabilities. “Jeff almost always prefers to build it,” Blackburn says. Bezos had absorbed the lessons of the business bible Good to Great, whose author, Jim Collins, counseled companies to acquire other firms only when they had fully mastered their virtuous circles, and then “as an accelerator of flywheel momentum, not a creator of it.”
Hsieh, like Bezos, nurtured a quirky internal culture and frequently talked about it in public to reinforce the Zappos brand in customers’ minds. But he took it even further. New employees were each offered a flat one thousand dollars to quit during the first week on the job, the assumption being that those who took the bounty were not right for the firm anyway.
Hsieh felt strongly that everyone, even senior executives, should take below-market compensation to work there because of the great internal culture the company offered.
Like Bezos, Hsieh was obsessed with the customer experience. Zappos promised free five-to seven-day delivery on orders and aimed to surprise customers with two-day delivery in most major urban areas.
Hsieh encouraged his call-center representatives to spend as much time as necessary talking to customers to solve their problems.
“Some big companies develop ardent fan bases, are widely loved by their customers, and are even perceived as cool,” he wrote. “For different reasons, in different ways and to different degrees, companies like Apple, Nike, Disney, Google, Whole Foods, Costco and even UPS strike me as examples of large companies that are well-liked by their customers.” On the other end of spectrum, he added, companies like Walmart, Microsoft, Goldman Sachs, and ExxonMobil tended to be feared.
But Bezos was dissatisfied with that simplistic conclusion and applied his usual analytical sensibility to parse out why some companies were loved and others feared. Rudeness is not cool. Defeating tiny guys is not cool. Close-following is not cool. Young is cool. Risk taking is cool. Winning is cool. Polite is cool. Defeating bigger, unsympathetic guys is cool. Inventing is cool. Explorers are cool. Conquerors are not cool. Obsessing over competitors is not cool. Empowering others is cool. Capturing all the value only for the company is not cool. Leadership is cool. Conviction is cool. Straightforwardness is cool. Pandering to the crowd is not cool. Hypocrisy is not cool. Authenticity is cool. Thinking big is cool. The unexpected is cool. Missionaries are cool. Mercenaries are not cool.
Being polite and reliable or customer-obsessed was not sufficient. Being perceived as inventive, as an explorer rather than a conqueror, was critically important. “I actually believe the four ‘unloved’ companies are inventive as a matter of substance. But they are not perceived as inventors and pioneers. It is not enough to be inventive—that pioneering spirit must also come across and be perceivable by the customer base,” he wrote.
New hires are given an industry-average base salary, a signing bonus spread over two years, and a grant of restricted stock units over four years. But unlike other technology companies, such as Google and Microsoft, which spread out their stock grants evenly, Amazon backloads the grant toward the end of the four-year period. Employees typically get 5 percent of their shares at the end of their first year, 15 percent their second year, and then 20 percent every six months over the final two years. Ensuing grants vest over two years and are also backloaded, to ensure that employees keep working hard and are never inclined to coast.
Managers in departments of fifty people or more are required to “top-grade” their subordinates along a curve and must dismiss the least effective performers.
We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency and invention.
The numbers alone are a proxy for what is working and what is broken, how customers are behaving, and, ultimately, how well the company overall is performing.
Think Big: Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.
