Summary of “The Bezos Letters: 14 Principles to Grow Your Business Like Amazon” by Steve Anderson: a fascinating book based on an in-depth, original reading of the letters sent by Jeff Bezos to his shareholders – let yourself be inspired by these fourteen clearly laid out theses that serve only one purpose: to help you get your business off the ground!
By Steve Anderson (with Karen Anderson), 2020, 237 pages.
Review and Summary of The Bezos Letters: 14 Principles to Grow Your Business Like Amazon by Steve Anderson
The author and the book
Steve Anderson is a specialist in risk, technology, and productivity. With more than 340,000 followers, he has been chosen as one of the 150 personalities to follow on LinkedIn. His wife, Karen Anderson, is a writer and journalist. She also contributed to the writing of this book.
They created a website to complement the book, with exercises at the end of each chapter: TheBezosLetters.com. Feel free to have a look around and, if you like, to contact the couple via the site.
Introduction: Risk and Growth
According to Steve Anderson, Jeff Bezos is the “master of risk.“ Why? Because he has linked risk to his business in a positive, intuitive, and intentional way. Unlike many other companies, Amazon’s creator believes that risk is an opportunity to learn and that it’s worth following your intuition, provided you have clear goals in mind.
The beginnings
Jeff Bezos founded Amazon at the age of 30. At the time, it was 1994 and the Internet was still little more than an insider’s technology. He wanted to create the world’s largest bookstore, not physically, but online. Today, it’s one of the most successful multinational corporations in the United States and the world.
In 2018, Amazon reached and surpassed a trillion dollars in value. How did it transform its online bookstore project into the most lucrative business of the century? That’s what Steve Anderson sets out to explore by examining the letters its founder sent to shareholders as the company expanded over the years.
Return on risk
Instead of talking about return on investment, the author proposes the concept of “return on risk.” What does this mean? Simply the idea that risk itself is an investment. Taking risks can pay off big!
Part One – Growth Cycle: Test
[At Amazon, testing is a way of life; it means encouraging all team members to try new things to improve the way Amazon does business. If something doesn’t work, they’re not punished – they’re encouraged to look at what doesn’t work and learn from it.] (The Bezos Letters)
In other words, risk here is not seen as something negative, as a failure, but as an opportunity to go further. As we shall see, this is what makes Amazon so creative.
Chapter 1: Encourage “Successful Failure”
Successful failure refers precisely to what you’ve learned from failure, and how you’re going to turn that learning into action.
Risk and space
According to Steve Anderson, it’s likely that Jeff Bezos, born in 1964, was influenced by the conquest of space. The Apollo missions are an example of successful failure. The first mission was a tragedy, but it was also what spurred NASA to greater heights.
One giant step for humanity…
And so, in the decade of the ’60s, NASA gradually succeeded in improving on the Apollo missions that followed. When the American astronauts touched down on the moon on July 20, 1969, it marked the culmination of all these efforts.
“Houston, we have a problem…”
After this first human lunar landing, missions became more routine. One day, however, a problem arose… It was then that the famous “ Houston, we have a problem ” was heard. There was real danger for the people aboard the Apollo 13 shuttle. The return journey was not only a moment of intense suspense but also an essential learning experience.
Of course, you can learn differently. However, it’s in failure that you learn best, and most profoundly. Jeff Bezos knows how to master this dynamic; in other words, he intentionally takes risks. It’s a kind of continuous experimentation within his business model.
Amazon’s most successful failures
The first was Amazon Auctions, the company’s attempt to compete with eBay. It didn’t work, because the two companies’ customers didn’t interact in the same way (Amazon customers relied on fixed prices). The second was zShops, which allowed third-party sellers to use Amazon’s platform for a small fee. What failed was the idea of separating these sellers from Amazon by creating separate pages. What did work – and is still part of the company’s fortune – was to allow these third-party sellers to offer their products on Amazon’s Marketplace.
A $178 million failure
The same was true of the Fire Phone, a cell phone specially designed for shopping on Amazon. It was intended to help users shop on the online site; it was a resounding failure!
Was it that much of a flop? Not really… Despite the fortune invested – $178 million, that is – this technology was used to create the Echo and Alexa, two devices destined for great success.
Successful failure as a mindset for success
Remember this: it’s certainly not a question of incompetence – Amazon doesn’t like that very much – or fearlessness for that matter, but simply the will to achieve the very best you can.
Putting it into practice. Encourage “successful failure.”
First question: Take stock of your company’s “ tolerance for failure.” How is failure managed?
Second question: When was the last time you used a failure as a “case study” to improve your business?
Third question: What can you do, in your business or company, to emphasize that failure is an opportunity to learn and improve? (Source: The Bezos Letters)
Chapter 2: Bet on Big Ideas
The idea of putting third-party sellers on the same page as Amazon (unlike zShops) was a success. This gives the third-party seller access to Amazon’s huge customer base, allows customers to compare and choose, and allows Amazon to earn commissions, while satisfying the customer (even when it’s not Amazon, but a third-party seller, who pockets the sale).
An important point to emphasize is that third-party sellers are selected by Amazon, which demands the same level of quality from them as it offers. Ultimately, these commissions earn Amazon an enormous amount of money.
[In 2018, 58% of products sold on Amazon worldwide came from third-party sellers … creating billions of dollars in revenue for Amazon.]
(The Bezos Letters)
Betting on free shipping: Super Save Shipping and Amazon Prime
For Amazon customers, the cost of delivery was one of the biggest barriers to purchase. This was true despite the assured benefits of online sales. Innovations were needed to change this situation.
Super Save Shipping was the first to be introduced, offering free delivery on purchases of $25 or more.
Amazon Prime followed. The subscription system enabled customers to get rid of shipping costs and benefit from various advantages: one-day delivery, no minimum purchase limit.
The gamble paid off handsomely because Prime customers spend on average about twice as much as non-Prime customers per year ($1,400 vs. $600).
Leveraging infrastructure: Amazon Web Services
Amazon Web Services (AWS) was created around 2003. Its initial purpose was to meet internal IT challenges. Using cloud technology, Amazon wanted to enable each of its departments to benefit from infrastructure services that were both customized and shared.
Eventually, this idea was transformed into a real business. AWS offers cloud services to individuals, companies, and governments, with a simple formula: pay-as-you-go.
Here’s what Jeff Bezos himself thinks of the company’s success:
[I believe AWS is one of those dream businesses that offers what can serve customers and enable financial returns for many years to come. Why am I optimistic? Firstly, the scope of possibilities is great, since it extends to all servers, networks, data centers, software infrastructure, databases, data repositories, and much more. Similar to Amazon, which retails everything, AWS is not constrained by market size.]
(The Bezos Letters)
Betting small on big ideas
This can only be said in relative terms, of course, but it’s fair to say that Amazon doesn’t invest heavily at the outset. However, the more it sees that an idea pays off, the more it invests in it. And the more it adds complementary services to attract customers and increase the sale price.
The next big bets
Jeff Bezos says: he wants a fourth big idea, after Marketplace (third-party sellers), Prime (subscription and free delivery), and AWS (infrastructure). One promising avenue is the creation of bricks-and-mortar stores. This question is, will it be a winning bet? We need to make sure that customers find what they’re looking for.
In any case, Jeff Bezos has already started to bet small, notably by creating physical bookstores and Amazon Go Stores, as well as buying Whole Foods.
Putting it into practice. Betting on big ideas.
First question: When was the last time you bet on a big idea?
Second question: What can you do to encourage your team (or even yourself) to explore new big ideas?
Third question: Name one big idea right now that you’d bet on! (Source: The Bezos Letters)
Chapter 3: Practical Dynamic Invention and Innovation
To be successful, you can’t confine yourself to a single idea or work alone. In fact, you have to innovate constantly, without fear of making mistakes, and surround yourself with the right people. Thomas Edison knew this; so did Jeff Bezos, 200 years later.
At Amazon, experimentation is encouraged at every level of the organization and in every department. Everyone is constantly looking for ways to improve. Whether you’re a new recruit or an executive, Amazon’s work culture makes you a potential innovator or inventor.
It doesn’t matter if you fail. The important thing is to give it a sincere try. And if it succeeds, you’ll be encouraged to develop it and share it with others.
Dynamic invention helps unleash creativity
This is how you recognize which employees are the most creative; it’s also how you motivate them more and encourage them to act independently. The best inventions come from those who put in the work, day in day out!
Deliberately promoting dynamic invention
This internal culture is actually implemented at Amazon, whereas it never comes to fruition at other companies. The company genuinely tries to convince its employees that failure is not fatal: the consequences will not be serious for them (no layoffs, no loss of salary, etc.).
Harnessing its benefits
This is what it does with physical bookstores. Here, the company isn’t looking to sell a particular book (customers who know what they want to read buy directly from Amazon online). Instead, it seeks to offer its customers what they want to read next.
To do this, it offers a wide range of information and organizes its store in a particular way (for example, by presenting each book’s “cover side” rather than “edge side” or “spine”).
Why the practice of dynamic invention and innovation is essential
As Jeff Bezos puts it:
[These platforms (Prime, AWS, etc.) … create win-win situations and create value for developers, entrepreneurs, customers, authors, and readers.]
(The Bezos Letters)
Lab126 – Amazon’s invention lab
Amazon has its own laboratory for invention and innovation. The 1 is linked to the A in Amazon (the first letter of the alphabet) and the 26 to the Z in Amazon (the 26th letter of the alphabet and the place where the brand’s smiling logo ends). This is where the Kindle, Fire Phone, Echo, and other projects were developed. And it’s where many other projects will be born!
Putting it into practice. The practice of dynamic invention and innovation.
First question: Set aside some time in the next thirty days to ask yourself what the next thing you’d like to try out in your business.
Second question: How can you set up a “Lab126” in your company? (Source: The Bezos Letters)
Part Two: Build
[At Amazon, building means turning a promising idea into a stable initiative. Amazon builds by ensuring that every investment is based on what customers want. The good news is that short-term risks help uncover winning initiatives and weed out (and learn from) losers – which is one way to save time, energy, and capital. Amazon uses long-term thinking to ensure a solid foundation for every initiative (and every risk) so that it can last for many years and beyond, even if it means making sacrifices in the immediate term.]
(The Bezos Letters)
Chapter 4: Obsess Over Customers
Obsession is often considered a negative psychological trait. Yet that’s exactly what Jeff Bezos wants to convey: it’s about having customer satisfaction constantly in mind, like a mantra or a fixed idea.
Being a customer-obsessed company
It’s a practical question. You have to put yourself in the customer’s shoes. Sometimes you can answer easily; sometimes you need data on what they prefer. What solutions can you offer them – if possible, before they even realize there’s a problem?
Amazon has designed three pillars of customer experience:
- Low prices
- Best selection
- Fast and convenient delivery
What does the customer really want?
Companies often don’t know exactly what customers want. Instead, they imagine that the way they communicate with them about their new products is inadequate. In fact, these companies are obsessed with the product they’re selling, rather than the customer.
Here are the questions to ask yourself – the ones Amazon is always asking:
- [Who is the customer?
- What is the customer’s problem or opportunity?
- What is the customer’s most important benefit (singular)?
- How do you know what the customer needs?
- What does the customer experience look like?] (The Bezos Letters)
Customer service as an extension of customer obsession
When customers call customer service, they want a rapid response that suits their mode of communication (e-mail, telephone, etc.). Amazon does not keep its customers waiting. The company’s main aim is to avoid customers having to spend a long time trying to find a solution to their problem (chat, e-mail, telephone, etc.). The most important thing is to make the customer feel understood and that an in-depth solution is being sought. The employee is placed in a situation of autonomy: he or she must be able to find the causes and solutions to the problem independently.
This is what Amazon is also trying to implant in the culture of third-party sellers, by having them abide by Frustration-Free Packaging.
The power of automated systems
These systems can detect faulty products or services (e.g., a streaming movie) and proactively refund the customer. This way of anticipating a faulty customer experience (for example, if the movie viewing is of poor quality) guarantees Amazon’s success.
Beyond the expected
Being customer-obsessed has an impact on a company’s culture of innovation. This obsession pushes one to go ever further, beyond what is expected.
Putting it into practice. Obsessing over your customers.
First question: Sit down and write a description of your typical (good) customer. What are his/her three or four main characteristics? What are their main problems that you could solve?
Second question: What can you do today to improve the customer’s experience of your company?
Third question: Challenge your team to come up with a new idea every week to better serve customers, whatever the cost. (Source: The Bezos Letters)
Chapter 5: Apply Long-Term Thinking
[We’re working on something important, something that matters to our customers, something we can tell our grandchildren about.]
(Jeff Bezos quoted in The Bezos Letters)
Being a “good ancestor” for future successors and employees
The idea of being a good ancestor, i.e., of having positively contributed to tomorrow’s world (which may include your grandchildren), is a very good way to think about the long term for your company. What do you want to have achieved in 50 years or more?
Riding Wall Street — Amazon sets an example for Apple
Some companies are cutting through Wall Street’s obsession with the short term. Amazon is at the forefront of this trend. Apple is also following this trend by refusing to publish its quarterly earnings to Wall Street stockbrokers. Both consider these short-term measures to be inadequate.
[Amazon wants to break the trend, and therefore sacrifice this year’s profits to invest in long-term customer loyalty and in creating products that will create greater profits next year and for years to come. Long-term thinking enables Amazon to focus on the numbers that matter. In Amazon’s case, those numbers are customer and revenue growth. Investing – improving – in the customer experience improves repeat purchases and the strength of the company’s brand.]
(The Bezos Letters)
Thinking long-term even when the world rewards short-term thinking
Returning to long-term thinking can be difficult when you’ve become accustomed to the short-term. Based on his analysis of shareholder letters, Steve Anderson offers a few points summarizing the long-term approach that prevails at Amazon, in terms of management and decision-making:
- Focus on the customer.
- Measure the effectiveness of programs and investments over the long term.
- Learn from mistakes and regularly sort out good and bad projects.
- Make courageous investments.
- Focus on maximizing the present value of cash flow.
- Share decision-making procedures.
- Maintain a cost-conscious culture of change.
- Balance a focus on growth and attention to the long term.
- Hire motivated and talented people.
Putting it into practice. Applying long-term thinking.
First question: Do you have a list of long-term (or longer-term) goals for your company – both financial and strategic?
Second question: Is your team only rewarded for annual or quarterly performance, or are they valued when they come up with initiatives that deliver long-term results?
Third question: How can you change short-term rewards to encourage long-term thinking? (Source: The Bezos Letters)
Chapter 6: Understand Your Flywheel
The flywheel is a metaphor that comes from mechanics: it’s a wheel that’s difficult to turn at first, but once set in motion and generating power, becomes almost impossible to stop.
How does a company go from “good” to “excellent”? How does it gain in power and inertia? That’s the question this image helps to answer.
[In business, think of your ‘flywheel’ as a gear with spokes all around it. Each gear spoke is something that brings force to turn the wheel – a key element of your business that creates momentum and gets your company where you want it to go.] (The Bezos Letters)
Momentum-building activities must, of course, go in the same direction. For example, if on a personal level, you want to lose weight, diet and exercise will be two activities (two spokes) that will get your weight-loss flywheel moving faster and faster.
Here are the spokes of Amazon’s flywheel (or virtuous circle):
- Greater choice and shopping convenience
- Customer experience
- Website traffic
- Number of sellers
- Lower structural costs
- Lower prices
These spokes support each other and move in the direction Amazon wants: growth.
How Amazon’s core benefits were designed to turn Amazon’s flywheel
Steve Anderson takes the example of Amazon Prime. Although a risky investment at the outset, Amazon Prime was designed to improve the customer experience, enhance shopping convenience, and attract more traffic to the site – three pillars of the virtuous circle. In addition, Prime’s success has driven down delivery costs. In other words, Amazon Prime enables Amazon to grow, which in turn enables Amazon to improve the services offered by Prime, and thus to continually grow, and so on.
How to understand your own flywheel
Refer to Jim Collins’ books Good to Great (2001) and Turning the Flywheel (2019). In them, the author asks the following questions, echoed by Steve Anderson:
- How does your flywheel turn?
- What are its components?
- What is the sequence of your virtuous circle?
Putting it into practice. Understanding your flywheel.
First question: What’s at the center of your company’s flywheel?
Second question: What are the key factors or activities that drive your flywheel?
Third question: How do these drivers reinforce each other to make your flywheel turn faster? (Source: The Bezos Letters)
Part Three – Growth Cycle: Accelerate
[For Amazon, acceleration is how you do something that has been tested and built and then boosts your growth.]
(The Bezos Letters)
Chapter 7: Generate High-Velocity Decisions
The first principle to implement is rapid decision-making. This means avoiding wasted time.
Jeff Bezos resolves the paradox of the quick decision and the long-term vision by distinguishing two types of decision:
- Type 1 decisions, which are essential and have major consequences with no turning back.
- Type 2 decisions, which can be changed or reversed without bringing the world to a standstill.
He encourages his teams to make Type 2 decisions, insisting that these decisions are singular in nature (there is no ready-made decision), and that they are made in the relative absence of information and consensus.
The most important thing here, for a manager or executive, is to be able to distinguish between Type 1 and Type 2 decisions. Once a decision has been made, it’s important that everyone – even those who disagreed with it – move in the same direction: this is the “disagree and commit” principle.
How to accelerate growth by making lightning-fast decisions
With Type 2 decisions, the risks taken are reversible. Employees have enough autonomy and confidence to make their work more efficient, burdened by the fear of being punished or unable to turn back the clock. This doesn’t mean we have to accept every decision!
However, it is important to leave the door open to risk and to decisions with limited impact, by trusting in the competence of our teams. There’s a reason why Amazon’s recruitment process is so meticulous. Company members must be able to take intelligent, rationally calculated risks.
Bezos’ methodology: the six-page story
It may sound counterproductive, but Jeff Bezos asks every employee who needs to make a decision to create a six-page memo. Why? Because it’s essential to slow down before speeding up. This applies especially to Type 1 decisions.
[The six-page paper is a document created around the new idea, written in the form of a story. It’s a way of telling the idea or project clearly as if you were discussing it with someone and explaining what you have in the back of your mind. When people talk together, they don’t talk with bullet points. The narrative is descriptive and reads like a book, not a pie chart.]
(The Bezos Letters)
The six pages will be used throughout the project. Each of the participants will be able to intervene in the story, and we’ll be able to come back to it if we realize that the idea isn’t working as planned, in order to take stock of what went wrong. It’s a collaborative, iterative process that reduces the number of meetings and makes them more efficient.
The components of the six-page story
Here’s the six-page story framework proposed by Sandy Carter, Amazon’s VP of Web Services, and reproduced by the author:
- Write the press release (the one in which you would like to present your project to the world).
- Write the FAQs (answer any questions you may be asked in advance).
- Define user interaction (explain how it works).
- Design the manual (give instructions on how to make it work).
- Answer these questions:
- Who is the customer?
- What is the customer’s problem or opportunity?
- What is the customer’s most important benefit (pick just one, the most significant one)?
- How do you know the customer’s needs (make sure they’re at the heart of the project)?
- What does the customer experience look like (Anticipate the customer’s reactions and responses)?
Why does this methodology work so well for Amazon?
Because we like to listen to stories, as the success of storytelling has taught us. It boosts the effectiveness of those taking part in a meeting, and it forces the writer to place his or her idea in a more global context, integrating it into Amazon’s virtuous circle process.
On the other hand, as Type 2 decisions are facilitated, it leaves more time to refine Type 1 decisions.
Putting it into practice. Generate high-velocity decisions.
First question: Do you have a mechanism for distinguishing between Type 1 and Type 2 decisions – and does anyone on your team understand this difference?
Second question: Do you have a system in place for making Type 1 decisions? (What’s your version of the six-page memo?)
Third question: Do you have a mechanism in place for making Type 2 decisions quickly? (Source: The Bezos Letters)
Chapter 8: Make Complexity Simple
Creating Kindle to simplify book collecting and portability
With Kindle, Amazon is making life easier for readers, enabling them to increase the number of books they can take with them wherever they go. As a result, they are more likely to buy more books.
In 2007, when Kindle was launched, 88,000 titles could be downloaded. Today, millions of books can be downloaded to the device in less than a minute. New features are also being introduced.
The aim is not to imitate books at all costs but to create a reading experience that is both rich, like a book, and fresh. These days, for example, you can also listen to audiobooks.
Creating Echo and Alexa to make everyday life simpler
The Kindle is the brainchild of Lab126. But it didn’t stop there. It has also developed Alexa, a household robot that makes everyday life easier. How so? Through the power of voice recognition and learning software that enables this machine to improve with use.
Echo (the entry-level speaker) also features this technology, which combines the power of hardware (for listening) and software (for understanding and answering questions).
The Internet of Things makes it possible to go even further. Something Jeff Bezos hadn’t originally thought of.
[The impact of Echo (Alexa) has been heavily influenced by the development of the Internet of Things (IoT) – devices that include everything from your bedroom lights to the refrigerator door shopping list and can be managed from simple voice commands. The Echo speaker can serve as the powerhouse for a myriad of smart home devices coming to market.]
(The Bezos Letters)
Self-Service Checkout and Amazon Go
Jeff Bezos often emphasizes Amazon’s self-service nature. Internet users buy what they need themselves, without the help of salespeople. This is what he wanted to reproduce physically with the Amazon Go stores.
In such a store, you enter after logging into your Amazon account, then start browsing and putting products in your (physical) cart. You leave without going through the checkout: without realizing it, you’ve paid as soon as you’ve taken the action of putting the product in the cart. You receive your bill by e-mail a few minutes later.
Isn’t life simpler? All you have to do is browse around the store and exit. The rest is taken care of.
Using Alexa’s skill blueprints
Alexa offers you another service to make your day-to-day life easier. You can delegate to Alexa things to do or have done by other family members. For example, you can ask Alexa to store a password and pass it on to guests occupying your home, or submit a list of chores for the kids to do.
What’s the advantage of this system? It saves time. As Steve Anderson puts it:
[Amazon has used technology to speed up time for the benefit of its customers.]
(The Bezos Letters)
Beginning to simplify healthcare
One of Amazon’s latest acquisitions, from 2018, is PillPack. What does this company do, and how does it make life easier for its customers? It takes care of delivering medicines to people with complex prescriptions, sorting for them which pills to take, and supplying them in single sachets.
Instead of having to manage several different medication bottles, PillPack provides the exact dose of medication to be taken each day. This service is free of charge for drugs covered by insurance. This makes it easier to manage refills, insurance issues, and prescriptions.
Putting it into practice. Make complexity simple.
First question: What are the biggest “barriers to entry” for new customers doing business with you?
Second question: What can you do to make it easier for existing customers to do business with you?
Third question: What is the most complicated or complex part of the customer experience, and how can you simplify it? (Source: The Bezos Letters)
Chapter 9: Accelerate Time with Technology
[Invention is in our DNA, and technology is a fundamental tool we wield to evolve and improve every aspect of the experience we offer our customers. We still have a lot to learn, and I hope and expect that we’ll continue to have just as much fun learning.]
(Jeff Bezos quoted in The Bezos Letters)
Why accelerating time with technology is easier than ever
The digitization of data and the power of computers are increasing exponentially. Competition around these technologies is also fierce. Amazon remains modest but wants to have its say in this development.
Even if your company isn’t at this stage, simply ask yourself whether its technologies are obsolete. In other words, make sure you’re always taking risks and innovating. One thing’s for sure: today, doing nothing is worse than doing something.
How to use technology to “speed up time”
Some companies gain momentum and strength through new technologies, while others slow down and have to adapt. One of Jeff Bezos’ strengths is his ability to identify emerging technologies that can serve Amazon’s founding principles (such as customer obsession).
AWS and the seven-year lead
That’s pretty much what happened with AWS (Amazon Web Services), in other words, Amazon’s cloud service, sold to other companies, as well as governments. What did Jeff Bezos do here? He transformed the technology that had been used to develop Amazon’s own infrastructure into a service to be offered to other sectors. A service that became very, very profitable!
“Suddenly it was here”
Technology can sometimes give the impression of moving slowly, only gradually showing its effects. However, this is misleading. In fact, a technology can grow exponentially and take hold so quickly that it suddenly seems obvious.
[There are many examples of technologies and platforms becoming disruptive in a short period of time. We can of course mention Uber and Airbnb. But there are many more companies that are changing entire industries completely. Disruption doesn’t always happen at the level of the entire industry … but it can affect part of your business, giving companies that adopt these technologies an advantage over others.]
(The Bezos Letters)
Distribution centers
We have witnessed the development of an in-house cloud infrastructure. And that’s not all. Artificial intelligence and robotics are being put to good use on other levels. In particular, Amazon is using technology to organize the distribution of packages, to deliver quickly and thus satisfy customers.
Since the purchase of Kiva System in 2012, Amazon has been perfecting its storage and distribution techniques. Amazon now has 175 distribution centers in operation worldwide. It has already equipped 25 of these with robots to help human workers, as in the Jeffersonville center for example.
Putting it into practice. Accelerate time with technology.
First question: How do you use technology to accelerate your company’s growth?
Second question: How could you use technology to make part of your business obsolete (before your competitors do it for you)? (Source: The Bezos Letters)
Chapter 10: Promote Ownership
A shareowner takes a share in a company by buying it. He/she thus becomes an owner of the company, not a tenant. This has consequences for Jeff Bezos. First and foremost, he has to take care of the company.
You can’t treat a property as you would any other asset. In other words, you have to behave with your property according to a long-term logic. Ultimately, it’s a very different mindset.
Take ownership
The same applies to employees, especially managers. Jeff Bezos encourages them to see themselves as owners of the company and to think and act that way. An owner can’t say, “That’s not my problem.” He feels involved and invested in solving that problem.
How to promote ownership
Here are the rules for promoting ownership among investors and employees:
- Treat them as owners, using appropriate language.
- Give employees shares in the company.
- Facilitate decision-making.
- Hold meetings to share a “common cause.”
- Provide everyone with opportunities to invent and innovate.
- Offer employees the possibility of disengaging when they wish.
- Accept disagreement within the decision-making process (and move forward anyway).
Customers can feel “ownership” too – Amazon Smile
It’s not about ownership per se, but the feeling of doing business with Amazon. With Amazon Smile, you can donate to a charity of your choice. With every purchase, you’re helping to strengthen a good cause, thanks to and hand in hand with Amazon. This gesture provides a sense of community.
Putting it into practice. Promote ownership.
First question: Do you compensate your team in the form of company ”ownership” – including profit sharing or growth?
Second question: Do you communicate regularly with your team about the short-term goals and long-term goals of your business?
Third question: Is there an incentive (or barrier) for employees to improve or fix certain areas of the business outside their own department or responsibilities? (Source: The Bezos Letters)
Part Four – Growth Cycle: Scale
[At Amazon, scaling is how you achieve exceptional growth without sacrificing who you are or what you offer. This requires creating and sustaining a culture of innovation – a culture capable of taking risks in the service of the customer and involves a heightened focus on high standards and not sacrificing quality on the altar of greater profitability. It means scaling what matters, and continually questioning what you’re scaling to make sure you’re focused on the right statistics – but not forgetting your intuition in the process.]
(The Bezos Letters)
Chapter 11: Maintain Your Culture
How did Jeff Bezos’ company maintain its culture as it grew to 600,000 employees? Probably thanks to his personal leadership, but also to staying focused on the company’s key objectives, with growth in mind. Of course, it’s hard to stay humble and customer-focused once you reach a certain size, but that’s the challenge.
That’s why Amazon’s teams ardently defend the “day one” culture. It’s the mindset employees must have. Amazon has also developed 14 principles that managers should always keep in mind.
Amazon’s 14 leadership principles
- Customer obsession
- Ownership
- Invent and simplify
- Are right, a lot
- Learn and be curious
- Hire and develop the best
- Insist on the highest standards
- Think big
- Bias for action
- Frugality
- Earn trust
- Dive deep
- Have backbone: disagree and commit
- Deliver results
Inner innovations: an approach to building and retaining the workforce
Amazon is developing techniques to prevent team turnover and retain its workforce. It has developed several programs, such as:
- “Career Choice,” which enables employees to use part of their time for training.
- “Pay to Quit,” which makes it easy for employees to leave Amazon if they don’t feel comfortable with their assignments.
- “Virtual Contact Center,” which enables an employee to work from home.
The benefits of remembering the “early days”
Amazon seeks to remind its employees of its history in order to preserve its corporate culture. Jeff Bezos, for example, named his Seattle building “Day 1.” Moreover, the company repeatedly tries to show that it’s still “Day 1.”
Its management principles are imbued with it; the famous “door desks” of the early days (Jeff Bezos built his office by installing legs on a door) have multiplied throughout the buildings, reminding employees (the “Amazonians”) of the frugality and innovation of the early days.
Putting it into practice. Maintain your culture.
First question: Can you articulate/explain what your corporate culture is?
Second question: If you asked your employees the same question, would their answer be identical to yours?
Third question: What are the key positive elements of your corporate culture that you could strengthen? (Source: The Bezos Letters)
Chapter 12: Focus on High Standards
Steve Anderson quotes the following proverb to sum up the idea:
“If you think it’s expensive to hire a professional, wait until you’ve hired an amateur.”
Amazon’s “bar raisers” and job seekers
During job interviews, Amazon uses “bar raisers” who are managers who have demonstrated competence in selecting hired employees. More generally, before hiring someone, the manager must ask him/herself three questions:
- Do you admire this person?
- Will this person increase the average level of efficiency of the group he/she will join?
- In what aspect (competence, interest, etc.) could this person become a superstar?
Invest by maintaining high standards for third parties
The same applies to those who work for Amazon but are not part of the company. This is the case for some delivery drivers who work on a freelance basis.
In 2018, Amazon sought to attract new entrepreneurs with a range of very appealing terms and conditions. Four conditions:
- Be customer-focused.
- Lead and motivate a team of deliverers.
- Work hard and achieve results.
- Be resilient, i.e., the ability to change and adapt.
High standards for “non-Amazonians”
The same is true for third-party sellers who take advantage of Amazon’s Marketplace, as mentioned above.
[In many ways, Amazon’s investment in third-party sellers operates the way franchises ensure franchisees maintain brand standards … Customers know exactly what to expect when they go to a franchised business … ]
(The Bezos Letters)
How to invest in high standards for your business
Focus on the customer experience. This requires a holistic approach. Start by defining the standards you want to achieve and maintain. Then invest in them continuously, until you achieve the very best for your customers.
To do this, you’ll also need to keep that first-day mentality. This simply means not losing sight of growth and innovation. As Jeff Bezos puts it:
[Day 2 is motionlessness. Followed by uselessness. Followed in turn by atrocity and painful decline. Then death. And that’s why it’s always Day 1.]
(Jeff Bezos quoted in The Bezos Letters)
Putting it into practice. Focus on high standards.
First question: What are the three or four important characteristics of your best-performing employees?
Second question: Do you (and your hiring managers) focus on these characteristics when hiring staff?
Third question: Who is responsible for “quality control” in your company — and how do they go about it? (Source: The Bezos Letters)
Chapter 13: Measure What Matters, Question What’s Measured, and Trust Your Gut
[Many of the important decisions we make on Amazon.com can be made with data. There’s a right answer and a wrong answer, a better answer and a worse answer, and the math can tell us which is which. These are our preferred decisions.]
(Jeff Bezos quoted in The Bezos Letters)
Measurement is not just about financial data
Data isn’t just about money spent or raised (although that’s important to Amazon too!). No, even the most anecdotal information can be used to find out how best to serve the customer and provide a better website experience (by offering relevant items, for example).
Web design has become a real science at Amazon, so much so that the company has developed a Weblab that analyzes all possible graphic and ergonomic changes with a view to choosing the best ones. Tests can be carried out to find out whether or not customers prefer the changes made to the online sales platform.
Measuring finances
Amazon’s financial calculation method is unique to Jeff Bezos. He doesn’t calculate earnings, earnings per share, or earnings growth rates, but rather “free cash flow.”
[Free cash flow is defined as net cash provided by operating activities minus purchases of fixed assets, including capitalized internal-use software and website development, both of which are reported in our cash flow statements.]
(Jeff Bezos quoted in The Bezos Letters)
There’s nothing simple about this concept. But the most important thing to remember, for a company large or small, is to focus on a single measure: the one that best corresponds to the type of progress you want to make for your organization. Define the data you can use to calculate this metric and determine whether you’re moving in the right direction.
Trust your instincts
However, numerical data alone are not sufficient guides! Curiosity, questioning, and paying attention to the slightest detail – which are often revealing and valuable – can help you get a feel for how your business is performing and how satisfied your customers are.
And even when you’re analyzing the data – a crucial and obligatory step, especially as the company grows in size – you need to use your intuition. Data doesn’t always (if ever) make sense on its own; it has to be interpreted.
By combining your sense of observation and gut instinct with data, you’ll be able to make sense of it and make better decisions.
Customer confidence
Customers know that you use data to improve their browsing experience. They’re smart and they trust you. So, it’s up to you to honor the credit they give you to constantly improve your service or business proposition.
Putting it into practice. Measure what matters, question what’s measured, and trust your gut.
First question: Have you identified the most important key data in your business?
Second question: Are you able to sort through all the data, measure, and understand what really matters?
Third question: (You are measuring something, aren’t you?) (Source: The Bezos Letters)
Chapter 14: Believe It’s Always “Day 1”
Day 1 is less a date than a concept and a state of mind. Customer obsession is the defining characteristic of this concept. It’s what you never forget, and it’s what you maintain, beyond any procedural routinization.
Jeff Bezos started his entire business online, and he had a compelling need to change scale, winning over more and more customers (since his margins weren’t very high). What’s more, this concept enabled him to create a mythology around the beginning, since, unlike a physical company, no grand unveiling was organized to celebrate the start of the adventure.
Resisting excuses
Day 1 is an idea that also helps to avoid the excuses that come from habit and the complacency that comes with creating procedures. We often blame the method or processes, rather than ourselves. By reminding his employees that things are always in motion, and begin here and now, Jeff Bezos wishes to remind them that they are responsible for their actions.
This is not, of course, to defend anarchy and deny any interest in order and standardization. Every company needs to create routines in order to progress and develop. These routines must help decision-making, but they cannot replace the company’s obsession with serving the customer.
Embracing external trends
This is another reason to always feel like Day 1! Still being Day 1 means still being attentive to the environment from which you emerge, and which surrounds you. In other words, it means not forgetting that there may be forces at work that can render your model obsolete, and it also means being able to take risks to stay in the race and adapt.
Speed trumps perfection
As mentioned, what’s important for Jeff Bezos and Amazon is growth (which means paying constant attention to customer satisfaction). To grow rapidly, it’s important not to aim for perfection, but rather for speed.
You have to act fast, even if it means making a few mistakes, and learn just as quickly. Avoid the procrastination of guilt; learn and act accordingly. This works particularly well for Type 2 decisions.
Commit to “Day 1” by acting and thinking like a start-up
Here is Steve Anderson‘s conclusion about Day 1.
[The Day 1 mindset promoted by Jeff Bezos can be applied to any type of business in any industry, from start-ups to large, established companies. Being a Day 1 company isn’t easy, but it’s important to remember that it’s a state of mind. Applying it within a large company helps you avoid downfall and stay focused on what makes you a successful company.]
(The Bezos Letters)
Putting it into practice. Believe it’s always “Day 1.”
First question: If your business is more than five years old, ask yourself what you were doing at the beginning that you still want to continue doing.
Second question: If your business is less than five years old, ask yourself what, in ten years’ time, you’d like to still be doing (besides making more money).
Third question: Whether your business is young or old, ask yourself what you can do on a regular basis to maintain that “Day 1” mindset. (Source: The Bezos Letters)
Chapter 15: A Risk and Growth Mindset
From Amazon Marketplace to web services (Amason Web Services), Kindle and Prime, Amazon innovates. Not by taking risks blindly, but by learning from its failures and intentionally and boldly going against the grain through belief in its ideas.
Today, Jeff Bezos is no longer at the helm of Amazon’s day-to-day operations. He seeks to anticipate the company’s long-term trajectory and to identify the paths in which he believes it will be profitable to engage.
How did Jeff Bezos develop a risk and growth mindset?
Starting with an investment of $300,000 (a gift from his parents), Bezos became, 20 years later, the richest man in the world (according to Forbes magazine, which declared him such in 2018).
Raised with love and respect by his grandfather on a Texas ranch, he then went to Princeton to study physics – which he abandoned in favor of computer science and electricity – before setting up his family in New York and gauging the pulse of the technological revolution underway.
It was in Seattle – home of Microsoft and Baker & Taylor, a famous book distribution center – that he realized his dream of starting his own business. Amazon was born in July 1994 in a Seattle garage.
Curious, keenly attuned to developments, and a lover of risk and change, Jeff Bezos patiently pondered what he could do best. He then devoted all his energy to developing his project, using all the resources at his disposal.
Faster horses
Steve Anderson talks about this relevant quote from Henri Ford, the famous car manufacturer: if he had asked people what they wanted, says H. Ford, they would have told him they wanted faster horses.
That’s not quite what he gave them: he created the car (the Model T) with the power of several horses inside. It’s the hallmark of a growth-oriented, risk-taking mindset. Henri Ford innovated by defying the conventional wisdom of the time.
Chapter 16: Beyond Amazon
Have you heard of Blue Origin? It’s Jeff Bezos’ space exploration project, created in 2000. It aims to learn from the lessons of commercial aviation to build the foundations of a full-fledged space business, alongside the initiatives of Elon Musk and Richard Branson.
How did Jeff Bezos identify the incalculable role of infrastructure?
Jeff Bezos has always admitted that he has benefited from parallel infrastructures or technologies that have considerably helped his own business. This is true of FedEx, which organized express deliveries long before him; but it’s also true of the development of electronic payment by credit card and the explosion of smartphones.
Jeff Bezos knows he can’t build a space company on his own. What the Amazon founder wants to do today is to create an infrastructure, similar to the one he himself has benefited from, to enable future generations to carry out the project themselves.
Blue Origin’s motto (named after Earth, the blue planet, of course) is Gradatim Ferociter: step by step, ferociously.
[We’re not in a race, and there will be many players in this human endeavor to get into space for the benefit of Earth. Blue Origin’s part in this journey is to build a road to space with our reusable launch vehicles so that our children can build the future. We’re going to take it one step at a time because it’s an illusion to think that skipping steps will get us there faster. Slow issmooth, and smooth is fast.]
(Jeff Bezos quoted in The Bezos Letters)
What is the greatest risk?
After quickly applying his fourteen principles to the Blue Origin project, Steve Anderson concludes his book with these words:
[When you follow the growth cycles and the 14 growth principles, you too can grow your business like Amazon. Because yes, sending people into space is risky. Growing a business is risky business. Life is risky. However, that is the question: what if the greatest risk is not taking enough risks?]
(The Bezos Letters)
Conclusion to the book The Bezos Letters 14 Principles to Grow Your Business Like Amazon by Steve Anderson
A marketing book celebrating Amazon
This book is above all appealing for its methodology. Using letters to shareholders written by Jeff Bezos, Steve Anderson (and his wife) manages to extract principles that were implicit in the Amazon founder’s speeches.
The content is equally interesting because we learn – albeit through the prism of a one-sidedly positive assessment of the American company – a great deal about the company and the man at its helm. If you want to know more, check out Jeff Bezos’ Success Secrets.
Finally, the book offers the reader a sort of blueprint for questioning his or her own business growth and development.
Key takeaways from Steve Anderson’s The Bezos Letters. 14 Principles to Grow Your Business Like Amazon
Here’s a summary of the cycle and the 14 principles outlined by the author.
A) Test
- 1. Encourage successful failure
- 2. Bet on big ideas
- 3. Practice dynamic invention and innovation
B) Build
- 4: Obsess over customers
- 5. Apply long-term thinking
- 6: Understand your flywheel
C) Accelerate
- 7. Generate high-velocity decisions
- 8. Make complexity simple
- 9: Accelerate time with technology
- 10. Promote ownership
D) Scale
- 11. Maintain your culture
- 12: Focus on high standards
- 13. Measure what matters, question what’s measured, and trust your gut
- 14. Believe it’s always ”Day 1”
Strengths and Weaknesses of The Bezos Letters
Strong points:
- 14 crystal-clear theses to take your business to the next level.
- An in-depth look at the online retail giant’s methods.
- Clear follow-up questions at the end of each chapter designed to guide you forward.
Weak point:
- This book takes no critical perspective on Amazon’s shortcomings. Of course, you can find out more about these elsewhere!
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The Handy Guide to The Bezos Letters by Steve Anderson
What are Amazon’s 14 leadership principles?
- Customer obsession
- Ownership
- Invent and simplify
- Are right, a lot
- Learn and be curious
- Hire and develop the best
- Insist on the highest standards
- Think big
- Bias for action
- Frugality
- Earn trust
- Dive deep
- Have backbone: disagree and commit
- Deliver results
Frequently Asked Questions (FAQs) concerning Steve Anderson’s The Bezos Letters
1. How has the book been received by the general public?
Published by John Murray Learning on March 19, 2020, the book has been well received by the public and ranks high on Amazon’s bestseller list.
2. What has been the book’s impact?
The Bezos Letters is packed with valuable insights, making it a useful blueprint that all companies can learn from as they grow their business.
3. Who is the target audience of The Bezos Letters?
The book is for all businesses, and for anyone who wants to start one.
4. What are the three pillars of the Amazon-designed customer experience?
- Low prices
- Best selection
- Fast and convenient delivery
5. What are the rules for promoting ownership among investors and employees?
- Treat them as owners, using appropriate language.
- Give employees shares in the company.
- Facilitate decision-making.
- Hold meetings to share a “common cause.”
- Provide everyone with opportunities to invent and innovate.
- Offer employees the possibility of disengaging when they wish.
- Accept disagreement within the decision-making process (and move forward anyway).
Type one Decisions vs. Type two Decisions
| Decisions Type 1 | Decisions Type 2 |
| Major consequences with no turning back | Risks taken are reversible |
| Make-or-break decisions | Singular decisions |
| Creation of a six-page memo | Autonomy and trust |
Who is Steve Anderson?
Steve Anderson has been invited to be one of the top 150 “opinion leaders/influencers” on LinkedIn and has over 300,000 followers. For over 35 years, he has helped the insurance industry understand, integrate, and leverage current and emerging technologies. From business management systems to social media, Steve analyzes what’s happening now and explains its implications for the future. He currently resides in Franklin, Tennessee.