If you love business, and life, this book contains more wisdom than meets the eye.
For the first time ever, Amazon’s 14 leadership principles are illustrated with real-world in-the-room examples.
Written by former executives who worked directly with Jeff Bezos. This insider's guide shares what “Being Amazonian” is like.
If you like marketing, The 22 Immutable Laws of Marketing has the best marketing mental models.
- To say that Amazon is an unconventional company is an understatement. Its most significant initiatives have often been criticized and even derided as folly.
- In a talk at the 2018 Air, Space and Cyber Conference, Jeff described Amazon this way: “Our culture is four things: customer obsession instead of competitor obsession; willingness to think long term, with a longer investment horizon than most of our peers; eagerness to invent, which of course goes hand in hand with failure; and then, finally, taking professional pride in operational excellence.”
- Amazon motto, “Work hard, have fun, make history.”
- “We need to plant many seeds,” he [Jeff Bezos] would say, “because we don’t know which one of those seeds will grow into a mighty oak.”
- Typical of the kind of thing we heard in our work was this remark by the CEO of a Fortune 100 company: “I don’t understand how Amazon does it. They are able to build and win in so many different businesses from retail, to AWS, to digital media. Meanwhile, we have been at this for more than 30 years, and we still haven’t mastered our core business.”
- We realized that there was a gap in the marketplace. There was no source, no book to answer the questions and explain Amazon’s peculiar behavior and how it has produced exceptional results. We know the answers to those questions, and that is what we will share with you in these pages.
- We're here to tell you that you do not need Amazon's capital (in fact Amazon was capital constrained for most of our years there), nor do you need Jeff Bezos (though if he is available to work on your project, we'd highly recommend him!). Amazon's concrete, replicable principles and practices can be learned by anyone and refined and scaled throughout a company. After reading this book, we hope you'll see that being Amazonian is not a mystical leadership cult but a flexible mindset.
Part One: Being Amazonian
Introduction to Part One
Hand in hand with the Leadership Principles go the mechanisms, which we also discuss in chapter one. These are he consistent, repeated processes that ensure the Leadership Principles are reinforced year to year and day to day in the company.
The Bar Raiser provides teams with methods to make the strongest hires efficiently and quickly, but without cutting corners.
The basic premise is, for each initiative or project, there is a single leader whose focus is that project and that project alone, and that leader oversees teams of people whose attention is similarly focused on that one project.
We found, instead, that a six-page narrative by a given team is the method that best enables everyone in a meeting to get up to speed quickly and efficiently on the project that team is working on.
Our emphasis is on what we call controllable input metrics, rather than output metrics.
1: Building Blocks
Leadership Principles and Mechanisms
- From the tone of customer emails to the condition of the books and their packaging, Jeff had one simple rule: “It has to be perfect.” He’d remind his team that one bad customer experience would undo the goodwill of hundreds of perfect ones.
- Another of Jeff’s frequent exhortations to his small staff was that Amazon should always underpromise and overdeliver, to ensure that ensure that customer expectations were exceeded.
- Because these processes and practices are embedded in every meeting, document, decision, interview, and performance discussion, following them becomes second nature over time. And any employee who violates them draws attention to themselves like a person loudly scratching their fingernails across a chalkboard.
- “Leaders do not believe their body odor smells of perfume.”
- In early 2005, with the principles completed, Jeff sent an email to all managers at Amazon, formally announcing the ten Amazon Leadership Principles.
- “Leaders have relentlessly high standards—many people may think these standards are unreasonably high.”
- Another important Amazon phrase often appears alongside the Amazon Leadership Principles and key tenets: “Unless you know better ones.” This reminds people to always seek to improve the status quo.
- Amazon now has 14 Leadership Principles.
- The longer you work at Amazon, the more these 14 principles become part of you and how you look at the world.
- If you expose the workings of any major Amazon process, you’ll see these principles playing a prominent role.
- Amazon’s Leadership Principles are the company’s living, breathing constitution.
Amazon’s Leadership Principles
- 1. Customer Obsession. Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.
- 2. Ownership. Leaders are owners. They think long term and don't sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say, "that's not my job."
- 3. Invent and Simplify. Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here." As we do new things, we accept that we may be misunderstood for long periods of time.
- 4. Are Right, A Lot. Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.
- 5. Learn and Be Curious. Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.
- 6. Hire and Develop the Best. Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice.
- 7. Insist on the Highest Standards. Leaders have relentlessly high standards-many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high-quality products, services, and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.
- 8. 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.
- 9. Bias for Action. Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk-taking.
- 10. Frugality. Accomplish more with less. Constraints breed resourcefulness, self-sufficiency, and invention. There are no extra points for growing headcount, budget size, or fixed expense.
- 11. Earn Trust. Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team's body odor smells of perfume. They benchmark themselves and their teams against the best.
- 12. Dive Deep. Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdotes differ. No task is beneath them.
- 13. Have Backbone; Disagree and Commit. Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.
- 14. Deliver Results. Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.
- The nature of the Amazon Leadership Principles is borne out in processes and practices throughout the company.
Mechanisms: Reinforcing the Leadership Principles
- There’s a saying often heard at Amazon: “Good intentions don’t work. Mechanisms do.”
- Amazon realized early on that if you don’t change the underlying condition that created a problem, you should expect the problem to recur.
- Over time, Amazon refined such broad goals into a longer list of increasingly detailed objectives. Examples have included:
revenue growth targets by geography and business segment; operating leverage targets; improving productivity and giving back those savings to customers in the form of lower prices; generating strong free cash flow; and understanding the level of investment in new businesses, products, and services.
- Once these high-level expectations are established, each group begins work on its own more granular operating plan-known as OP1-which sets out the individual group's "bottom-up" proposal.
- Through the narrative process (described in chapter four), Amazon aims to evaluate about ten times as much information as the typical company does in a similar time frame.
The main components of an OP1 narrative are:
- Assessment of past performance, including goals achieved, goals missed, and lessons learned
- Key initiatives for the following year
- A detailed income statement
- Requests (and justifications) for resources, which may include things like new hires, marketing spend, equipment, and other fixed assets
- S-Team goals are mainly input-focused metrics that measure the specific activities teams need to perform during the year that, if achieved, will yield the desired business results
- S-Team goals must be Specific, Measurable, Attainable, Relevant, and Timely (SMART).
- At many companies, when the senior leadership meets, they tend to focus more on big-picture, high-level strategy issues than on execution. At Amazon, it's the opposite. Amazon leaders toil over the execution details and regularly embody the Dive Deep leadership principle, which states: "Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdotes differ. No task is beneath them."
- The finance team tracks the S-Team goals throughout the year with a status of green, yellow, and red. Green means you are on track, yellow means there is some risk of missing the goal, and red means you are not likely to hit the goal unless something meaningful changes.
Amazon Compensation Reinforces Long-Term Thinking
- Money talks-if your leadership principles, your yearly plan, and your financial incentives are not closely aligned, you won't get the right results.
- Amazon believes that the "performance" in performance-based compensation must refer to the company's overall performance, that is, the best interests of shareholders, which in turn are perfectly aligned with the best interests of customers. Accordingly, the compensation of Amazon S-Team members and all senior leaders is heavily weighted toward equity earned over a period of several years. The maximum salary itself is set well below that of industry peers in the United States.
- The wrong kind of compensation practice can cause misalignment in two ways: (1) by rewarding short-term goals at the expense of long-term value creation, and (2) by rewarding the achievement of localized departmental milestones whether or not they benefit the company as a whole.
- Amazon’s compensation is, by contrast, simple and oriented towards the long term. As one is promoted at Amazon, the ratio of cash to equity compensation becomes more and more skewed toward long-term equity.
- Our early emphasis on finding people with high SAT scores who could answer hard questions like "How many windows are there in Seattle?" produced people who were smart, but the process didn't tell us whether they would thrive at Amazon. Jeff often said in those days, “We want missionaries, not mercenaries.”
- We wanted people who would thrive and work at Amazon for five-plus years, not the 18-24 months typical of Silicon Valley.
- It is impossible to quantify how successful this process, which we called the Bar Raiser, has been or to establish its importance relative to other factors, in Amazon's rapid growth.
- What we can promise is that it is significantly better than the methods (or lack of methods) many companies rely on, and that it will likely raise your ratio of hits to misses significantly.
- The Bar Raiser process was one of Amazon’s first and most successful scalable, repeatable, and teachable operational practices.
- [Common hiring issues:] urgency bias, hiring questions had lacked specificity and purpose, confirmation bias, groupthink, personal bias, lack of a formal process and training.
The Effects of Personal Bias and Hiring Urgency
- According to Sequoia capital, the average start up in Silicon Valley spends 990 hours to hire twelve 12 software engineers!
- It takes almost no time to spot the superstars and to weed out the duds, but the majority of candidates, alas, Falls somewhere in between, and that is when biases tend to kick in.
- Another force that works against successful hiring is the lack of a formal process and training.
- Brent Gleeson, a leadership coach and Navy SEAL combat veteran, writes, “Organizational culture comes about in one of two ways. It's either decisively defined, nurtured and protected from the inception of the organization; or—more typically—it comes about haphazardly as a collective sum of the beliefs, experiences and behaviors of those on the team. Either way, you will have a culture. For better or worse.
Hiring at Amazon Before the Bar Raiser
- As company lore has it, Jeff also liked to ask random quiz questions, such as “How many passengers fly through LAX in a year?” or “Why our manhole covers round?”
- It gradually became clear that questions like these could be helpful in assessing the candidate’s raw intellect and ability to think on their feet, but they aren't good indicators of how well an individual will perform in a given job or how effectively they will lead inside your organization.
- Good intentions we're not going to solve the hiring problem at a company growing as rapidly as Amazon, which jumped from roughly 600 employees in 1997 two 9,000 in 2000, and then to 100,000 by 2013. But a mechanism would.
- From the start, they fixated on the core problem of maintaining a consistent hiring standard as the company grew.
The Bar Raiser Solution
- The Amazon Bar Raiser program has the goal of creating a scalable, repeatable, formal process for consistently making appropriate and successful hiring decisions. Like all good processes, it's simple to understand, can be easily taught to new people, does not depend on scarce resources (such as a single individual), and has a feedback loop to ensure continual improvement.
- Amazon Bar Raisers receive special training in the process. The name was intended to signal to everyone involved in the hiring process that every new hire should "raise the bar,” that is, the better in one important way (or more) then the other members of the team they join.
- There is no substitute for working long and hard and smart at Amazon.
- The idea worked: of the hundreds of processes developed at Amazon over more than 20 years, Bar Raiser is perhaps the most widely used and enduring.
There are eight steps in the Bar Raiser process:
- Job Description
- Resume Review
- Phone Screen
- In-House Interview
- Written Feedback
- Debrief/Hiring Meeting
- Reference Check
- Offer Through Onboarding
- At Amazon, it is the hiring manager's responsibility to write the description, which the Bar Raiser can review for clarify. A good job description (JD) must be specific and focused.
- The hiring process will inevitably run into trouble—even fail—if the JD does not clearly articulate the job responsibilities and required skills period
- The recruiter—usually but not always an Amazon employee—and the hiring manager search for candidates by networking, using LinkedIn, and reviewing the resumes collected in response to a job posting. The recruiter selects the most worthy candidates based on how their resumes fulfill the job requirements as defined in the JD.
- Once the candidates have been selected for the resume pool, the hiring manager (or their designate in the case of technical roles) conducts a one-hour phone interview with each person.
- During the phone screen, the hiring manager describes the position to the candidate in detail and seeks to establish some rapport with them by describing their own background, and why they chose to join Amazon.
- Roughly 45 minutes of that hour should consist of the manager questioning the candidate and following up where necessary. The questions formulated in advance by the hiring manager, are designed to solicit examples of the candidate’s past behavior (“Tell me about a time when you…”) and focus on a subset of the Amazon Leadership Principles. Typically, the final 15 minutes of the call are reserved for the candidate to ask questions.
- After this detailed phone screen, the hiring manager decides whether they aren inclined to hire the candidate based on the data they've collected so far.
- The hiring manager should not bring a candidate in for the time-consuming and expensive interview loop unless they are inclined to hire them after the phone interview.
- One in four is a reasonable average [for how many candidates pass the phone screen]
In-Hour Interview Loop
- The in-house interview loop takes five to seven hours to complete and requires the participation of several people who undoubtedly have many other responsibilities and tasks on their plate, so this stuff must be carefully planned, prepared, and executed.
- Typically, the most effective loops consist of five to seven interviewers.
- Whatever the exact number of participants, the loop always includes the hiring manager, the recruiter, and a Bar Raiser.
- There are a few important qualifications for the loop participants. First, everyone must have been properly trained in the company’s interviewing process. Amazon runs a half-day course on how the interview process works and how to conduct an interview.
- Second, no loop participant should be more than one level below the level of the position candidate will hold.
- It is a mistake for direct reports to interview a prospective boss.
- There are two distinctive features in an Amazon in-house interview loop: behavioral interviewing and Bar Raiser.
1. Behavioral Interviewing
- Eventually the most important goals for the interview process became clear: to assess how well it candidate’s past behavior and ways of working map to the Amazon Leadership Principles.
- This involves assigning one or more of the 14 Leadership Principles to each member of the interview panel, who in turn poses questions that map to their assigned leadership principle, seeking to elicit two kinds of data.
- First, the interviewer wants the candidate to provide detailed examples of what they personally contributed to solving hard problems or how they performed in work situations like the ones they will experience at Amazon.
- Second, the interviewer wants to learn how the candidate accomplished their goals and whether their methods align with the Amazon Leadership Principles. General, open ended questions such as “Tell me about your career” and “ Walk me through your resume” are usually a waste of time and will not produce the kind of specific information you're after.
- Instead the questions are mapped to their assigned principles.
The method that Amazon interviewers use for drilling down goes by the acronym STAR (Situation, Task, Action, Result):
- “What was the situation?”
- “What were you tasked with?”
- What actions did you take?”
- “What was the result?”
- A good interviewer continues to ask questions until they feel they have a good understanding of what the interviewee personally accomplished versus what the team did.
- Other questions that can reveal this information include “if you were assigned to work on a different project instead of Project X, what would have changed about Project X?” and “What was the toughest call on Project X, and who made it?”
- Interviewers are also trained to maintain control of the interview.
2. The Bar Raiser
- The Bar Raiser is involved in every interview, and ensures the process is followed and bad hiring decisions are avoided.
- Bar Raisers are trained to become experts in every aspect of the interviewing process.
- Written feedback is essential to an effective hiring process, and this means that every interviewer must take detailed notes—as close to verbatim record as possible.
- If you do not take complete and detailed notes, expect a visit from your Bar Raiser.
- We found it wise to block out 15 minutes immediately afterward to complete the feedback.
- There are only four options—strongly inclined to hire, inclined to hire, not inclined to hire, or strongly not inclined to hire.
- To avoid bias, the interviewer may not see or discuss other members’ votes, comments, or feedback until their own feedback has been submitted.
- Once the in-house interviews are complete in the written feedback and votes have been collected, the interviewers get together in person or via video conference to debrief and make a hiring decision.
- The Bar Raiser leads the meeting, which should be held as soon as possible, usually no more than a few days after the interviews have been completed.
- The meeting begins with everyone reading all the interview feedback.
- “Now that everyone has had a chance to read all the feedback, would anyone like to change their vote?”
- There is no shame in changing your vote based on the presence of additional data.
- Another method for the Bar Raiser to help get the meeting started is to create a two-column list on a whiteboard of Leadership Principles where the candidate meets the bar in one column and falls short and the other.
- The meeting is concluded with a decision from the hiring manager (validated by the Var Raiser) to hire or not hire. If the hiring manager or Bar Raiser feels that they don't have enough information to make a decision, then there was a failure in the process upstream.
- It is extremely rare for a Bar Raiser to exercise their veto power.
- The role of the interviewers is to help the hiring manager gather data and make an informed decision, not to block the hire.
- The best practice for the hiring manager is to listen and learn to speak infrequently.
- One question that often gets a telling response is, “If given the chance, would you hire this person again?” Another is, “Of the people you have managed or worked with, and what percentile would replace this candidate?”
Offer Through Onboarding
- The hiring manager should personally make the offer and sell him/her on the role and company. You may have chosen the candidate, but that doesn't mean the candidate has chosen you.
- It's important to keep the candidate excited, not only about the company but also about the team members they’ll be working with.
- After the offer is made, a team member should check in with the candidate at least once a week until he or she makes a final decision.
Hire and Develop the Best
- The Amazon Bar Raiser process has been instrumental in reinforcing a key Amazon Leadership principle: Hire and Develop the Best.
- Ideally, the bar continues to be set higher, so much that, eventually, employees should be able to say to themselves, “I'm glad I joined when I did. If I interviewed for a job today I'm not sure I’d get hired!”
Separable, Single-Threaded Leadership
- With all other things being equal, the organization that moves faster will innovate more, simple because it will be able to conduct a higher number of experiments per unit of time.
- The answer lies in an Amazon innovation called “single-threaded leadership,” in which a single person, unencumbered by competing responsibilities, owns a single major initiative and heads up a separable, largely autonomous team to deliver its goals.
Growth Multiplied Our Challenges
- As Amazon crew, we realized that despite our best efforts, we were spending too much time coordinating and not enough time building.
Dependencies—A Practical Example
- The project did launch successfully. But I noticed that in the areas where we controlled our own destiny—that is, the reporting, accounting, and payment changes, as well as our marketing plan—we were able to move fast. And in the areas where we had to make very minor changes to Obidos and acb, we moved painfully slow. Why was that? Dependencies.
- The variations in technical dependencies are endless, but each one binds teams more tightly together, turning a rapid sprint into a stumbling sack race where only the most coordinated will cross the finish line.
- Our organizational chart created extra work in a similar fashion, forcing teams to slog through layers of people to secure project approval, prioritization, and allocation of shared resources that were required to deliver a project.
- These organizational dependencies were just as debilitating as the technical ones.
- Too much of any kind of dependency not only slows down the pace of innovation but also creates a dispiriting second-order effect: disempowered teams.
- Disempowered workers increasingly became discouraged, unable to pursue innovative ideas in the face of so much structural resistance.
Better Coordination Was the Wrong Answer
- It wasn't just that we had had the wrong solution in mind; we'd been trying to solve the wrong problem altogether.
- We didn't yet have the new solution, but we finally grasped the true identity of our problem: the ever expanding cost of coordination among teams.
NPI—An Early Response to Organizational Dependencies
- Meanwhile, we faced no shortage of good business ideas. Indeed, we had many more ideas than we could support or execute—we could only take on a few big projects each quarter.
- This gave rise to a process called New Project Initiative (NPI), whose job was global prioritization.
Choosing our Priorities
- The toughest job for many project teams was to accurately predict consumer behavior. Time and time again, we learned that consumers would behave in ways we hadn't imagined during the development phase—especially for brand-new features or products.
- Even the most rigorous models were used to predict consumer adoption could be well off the mark.
- Amazon approach two morale was to attract world-class talent and create an environment in which they had maximum latitude to invent and build things to delight customers.
- Morale is, in a sense, an output metric, whereas freedom to invent and build is an input metric. If you clear the impediment to building, morale takes care of itself.
First Proposed Solution: Two-Pizza Team
- These largely independent teams could do their work in parallel. Instead of coordinating better they could coordinate less and build more.
- … then came back with a clearly defined model that people would talk about for years to come: the two-pizza team, so named because the teams would be no larger than the number of people that could be adequately fed by two large pizzas.
A two-pizza team will:
- Be small
- Be autonomous
- Be evaluated by a well-defined "fitness function"
- Be monitored in real time
- Be the business owner
- Be led by a multidisciplined top-flight leader
- Be self-funding
- Be approved in advance by the S-Team
Tearing Down Monoliths
- Today the advantages of a microservices-based architecture are well understood, and the approach has been adopted by many tech companies.
- The benefits include improved agility, developer productivity, scalability, any a better ability to resolve and recover from outages and failures.
- In addition, with microservices, it becomes possible to establish small, autonomous teams that can assume a level of ownership of their code that isn't possible with a monolithic approach.
- The switch to microservices removed the shackles that had prevented the Amazon software teams from moving fast, and enabled transition to small, autonomous teams.
The First Autonomous Teams
- Autonomous teams are built for speed. When they are aligned toward a common destination, they can go a long way in a short time.
- The most successful teams invested much of their early time and and removing dependencies and building “instrumentation”—our term for infrastructure used to measure every important action—before they began to innovate, meaning, add new features.
- A well-instrumented two-person team had another powerful benefit. They were better at course correcting—detecting and fixing mistakes as they arose.
- Jeff suggested that “most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you're probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you're good at course correcting, being wrong maybe less costly than you think, where is being slow is going to be expensive for sure.”
- Good examples like the Picking team demonstrated how long-term thinking, in the form of their up-front investments, generated compound returns overtime.
- Sometimes it's best to start slow in order to move fast.
Some Challenges Still Remained
Two-Pizza Teams Worked Best in Product Development
Fitness Functions Were Actually Worse Than Their Component Metrics
- After experimenting over many months across many teams, we realized that as long as we did the up-front work to agree on the specific metrics for a team, and we agreed on specific goals for each input metric, that was sufficient to ensure the team would move in the right direction.
Sometimes You Need More Than Two Pizzas
- But we later came to realize that the biggest predictor of a team's success was not whether it was small but whether it had a leader with the appropriate skills, authority, and experienced to staff and manage a team whose sole focus was to get the job done.
Bigger and Bitter Still—The Single-Threaded Leader
- What was originally known as a two-pizza team leader (2PTL) evolved into what is now known as a single-threaded leader (STL).
- Amazon’s SVP of Devices, Dave Limp, summed up nicely what might happen next: “The best way to fail at inventing something is by making it somebody's part-time job.”
- The other crucial component of the STL model is a separable, single-threaded team being run by a single-threaded leader like Tom. As Jeff Wilke explains, “Separable means almost as separable organizationally as APIs are for software. Single-threaded means they won't work on anything else.”
- But it was worth it, because where we landed was an approach to innovation that is so fundamentally sound and adaptable that it survives at Amazon to this day.
- This journey is also a great example of another phrase you'll hear that Amazon: be stubborn on the vision but flexible on the details.
Narratives and the Six-Pager
- Amazon relies far more on the written word to develop and communicate ideas than most companies, and this difference makes for a huge competitive advantage.
- Amazon uses two main forms of narrative. The first is known as the “six-pager.” It is used to describe, review, or propose just about any type of idea, process, or business.
- The second narrative form is the PR/FAQ. This one is specifically linked to the Working Backwards process for new product development.
The end of PowerPoint at S-Team Meetings
- Tufte identified in one sentence the problem we’d been experiencing: “As analysis becomes more casual, multivariate, comparative, evidence based, and resolution-intense,” he writes, “the more damaging the bullet list becomes.”
- That description fits our discussions at the S-Team meetings: complex, interconnected, requiring plenty of information to explore, with greater and greater consequences connected to decisions. Such analysis is not well served by a linear progression of slides that makes it difficult to refer one idea to another, sparsely worded bits of text that don't fully express an idea, and visual effects that are more distracting than enlightening.
Jeff offered a short explanation of the reason behind the change.
- “The reason writing a good 4 page memo is harder than “writing” a 20 page powerpoint is because the narrative structure of a good memo forces better thought and better understanding of what's more important than what, and how things are related. Powerpoint-style presentations somehow give permission to gloss over ideas, flatten out any sense of relative importance, and ignore the interconnectedness of ideas.”
- Gradually, we settled on a standard format. Maximum blank: six pages, no desperate tricks in formatting please. Appendices with further information or supporting detail could be attached, but would not be required reading in the meeting.
How to Write an Effective Six-Pager
- Narratives also allow for nonlinear, interconnected arguments to unfold naturally—something that the rigid linearity of PP does not permit. Such interconnectedness defines many of our most important business opportunities.
- Moreover, better informed people make higher-quality decisions, and can deliver better, more detailed feedback on the presenting teams’ tactical strategic plans.
- If our executives are better informed, have a deeper level, and a wider array of important Company initiatives, we will gain a substantial competitive advantage over executives elsewhere who rely on traditional low bandwidth methods of communication (e.g. PP).
- The act of writing will force the writer to think and synthesize more deeply than they would in the act of crafting a PP deck.
- Unlike a PP deck, a solid narrative can—and must—demonstrate how it's many, often disparate, facts and analyses are interconnected.
- The old essay-writing adage “State, support, conclude” forms the basis of putting a convincing argument forward. Successful narratives will connect the dots for the reader and thus create a persuasive argument, rather than presenting a disconnected stream of bullet points graphics.
Six-Pagers Vary in Structure and Content
- This section optional section, perhaps more commonly used, is the inclusion of an FAQ. Strong six-pagers don't just make their case, they anticipate counter arguments, points of contention, or statements that might be easily misinterpreted.
- The six-pager can be used to explore any argument or idea you want to present to a group of people—an investment, a potential acquisition, a new product or feature, a monthly or quarterly business update, an operating plan, or even an idea on how to improve the food at the company cafeteria.
- It takes practice to master the discipline of writing these narratives. First-time writers will do well to review and learn from successful examples.
The New Meeting Format
- We mentioned earlier the estimated reading speed of three minutes per page, which led to the six-page limit. If yours is a 30-minute meeting, a three-page a narrative would therefore be more appropriate. Our goal has been to leave two-thirds thirds of the meeting time for discussing what we've read.
- First-time presenters often start by saying, “Let me orally walk you through the document.” Resist the temptation.
- The key goal of the meeting, after all, it is to seek the truth about the proposed idea or topic.
- During the discussion stage, it's also important that notes be taken on behalf of the entire audience, preferably by someone knowledgeable about the subject who was not the primary presenter.
Feedback as Collaboration
- …when the reader takes the narrative process just as seriously as the writer does, the comments can have a real, significant, and long-lasting impact. You are not just commenting on a document, you're helping to shape an idea, and thereby becoming a key team member for that business.
- Jeff has an uncanny ability to read a narrative and consistently arrive insights that know what else did, even though we were all reading the same narrative.
- After one meeting, I asked him how he was able to do that. He responded with a simple and useful tip that I have not forgotten: he assumes each sentence he reads is wrong until he can prove otherwise. He's challenging the content of the sentence, not the motive of the writer. Jeff, by the way, was usually among the last to finish reading.
Final Thoughts About Narratives
- Narratives are designed to increase the quantity and quality of effective communication in your organization—buy an order of magnitude over traditional methods. Creating solid narratives requires hard work and some risk-taking.
5: Working Backwards
Start with the Desired Customer Experience
- Most of Amazon's major products and initiatives since 2004 have one very Amazonian thing in common-they were created through a process called Working Backwards.
Trial and Error, Then Success
- In the end, what turned out to work best was relying on the core Amazon principle of customer obsession in a simple yet flexible way of writing narrative documents.
- These two elements from the Working Backwards process—starting from the customer experience and working backwards from that by writing a press release that literally announces the product as if it were ready to launch and an FAQ anticipating the tough questions.
Where Are the Mock-Ups? Bill and the Launch of Digital
- Writing up our ideas was hard work. It required us to be thorough and precise we had to describe features, pricing, how the service woodwork, why consumers want it.
- Half-baked thinking was harder to disguise on the written page then in PowerPoint slides. It could not be glossed over through personal charm and the presentation.
The Kindle Press Release
- In other words, the FAQ section is where the writer shares the details of the plan from a consumer point of view and addresses the various risks and challenges from internal operations, technical, product, marketing, legal, business development, and financial points of view.
- The Working Backwards document became known as the PR/FAQ.
The Features and Benefits of the PR/FAQ
- The primary point of the process is to shift from an internal/company perspective to a customer perspective.
- If the press release doesn't describe any product that is meaningfully better (faster, easier, cheaper) than what is already out there, or results in some stepwise change in customer experience, than it isn't worth building.
- What's your organization learns how to use this valuable tool, it is addicting. People start to use it for everything.
- The press release (PR) portion is a few paragraphs, always less than one page. The frequently asked questions (FAQ) should be five pages or less.
- Once everyone has given their high-level responses, the writer asks for specific comments, line by line, paragraph by paragraph. This discussion of the details is the critical part of the meeting.
- People ask hard questions. They engage in intense debate and discussion of the key ideas and the way they are expressed. They point out things that should be omitted or things that are missing.
Press Release Components
- Heading: name the product in a way the reader (i.e., your target customers) will understand. One sentence under the title.
- “Blue Corp. announces the launch of Melinda, the smart mailbox.”
- Subheading: Describe the customer for the product and what benefits they will gain from using it. One sentence only underneath the heading.
- “Melinda is the physical mailbox design to securely receive and keep safe all your e-commerce and grocery deliveries.”
- Summary paragraph: Begin with the city, media outlet, and your proposed launch date. Give a summary of the product and the benefit.
- “PR Newswire, Atlanta, GA, November 5, 2019. Today Blue Corp. Announced the launch of Melinda, a smart mailbox that ensures secure and properly chilled delivery and storage for your online purchases and groceries.”
- Problem paragraph: this is where you describe the problem that your product is designed to solve. Make sure that you write this paragraph from the customers point of view.
- “Today, 23% of online shoppers report having packages stolen from their front porch, and 19% complain of grocery delivery is being spoiled.”
- Solution paragraph(s): Describe your product in some detail and how it simply and easily solves the customer’s problem. For more complex products, you may need more than one paragraph.
- “With Melinda, you no longer need to worry about getting your online purchases and deliveries stolen…”
- Quotes and Getting Started: Add one quote from you or your company's spokesperson and a second quote from a hypothetical customer in which they describe the benefits they're getting from using your new product. Describe how easy it is to get started, and provide a link to your website where customers can get more information and purchase the product.
- “Melinda is a breakthrough in safety and convenience for online shoppers…”
- Unlike the PR, the FAQ section has a more free-form feel to it—there are no mandatory FAQs.
…It is more appropriate to include tables, graphs, and charts in the FAQ.
- You must include things like your pro forma P&L for a new business for product. If you have high-quality mock-ups for wireframes, they can be included as an appendix.
Consumer Needs and Total Addressable Market (TAM)
- How many consumers have this need or problem?
- How big is the need?
- For how many consumers is the problem big enough that they are willing to spend money to do something about it?
- If so, how much money would they be willing to spend?
- How many of these consumers have the characteristics/capabilities/constraints necessary to make use of the product?
These consumer questions will enable you to identify, the core customers by filtering out those who don't meet the product constraints.
- don’t have enough space on their front porch for this product.
- don’t have a suitable source of electricity
Economics and P&L
- What are the per-unit economics of the device? That is, what is the expected gross profit and contribution profit per unit?
- What is the rationale for the price point you have chosen for the product?
- How much will we have to invest up front to build this product in terms of people, technology, inventory, warehouse space, and so on?
- Price is a key variable in the authoring of your PR/FAQ period
- How will we convince couriers (USPS, UPS, FedEx, Amazon fulfillment, Instacart, etc.) To actually use this device instead of their current/standard delivery methods?
- Won't it take more time (which is precious) for them to make a delivery then it does today?
- What are the challenging product engineering problems we will need to solve?
- What are the challenging customer UI problems we will need to solve?
- What are the third-party dependencies we will need to solve?
- How will we manage the risk of the up-front investment required?
- It is important to note that, during our time with Amazon, most PR/FAQs never made it to a stage where they were launched as actual products.
- The fact that most pR/FAQs don't get approved is a feature, not a bug.
- Another one of the biggest benefits of a written PR/FAQ is that it enables the team to truly understand the specific constraints and problems that would prevent a new product idea from being viable and aligning on them.
- Leadership and management are often about deciding what not to do rather than what to do.
- Above all, keep in mind that the PR/FAQ is a living document.
- Generating and evaluating great ideas is the real benefit of the Working Backwards process.
Manage Your Inputs, Not Your Outputs
- The deeper lesson, one that we'll explore in this chapter, is this: share price is what Amazon calls an “output metric.”
- The CEO, and in general, have very little ability to directly control output metrics.
- What's really important is to focus on the “controllable input metrics,” the activities you directly control, which ultimately affect output metrics such as share price.
- Amazon chooses its metrics by focusing on controllable input metrics, which are the drivers that, when managed well, can lead to profitable growth.
- Unlike the topics covered in previous chapters, there is no single playbook or written set of rules for how Amazon uses metrics to run its businesses.
The Metrics Life Cycle
- Should you decide to implement a Weekly Business Review for your business, we recommend the following DMAIC steps as well.
- First, you need to select and define the metrics you want to measure. The right metrics will deliver clear, actionable guidance.
- Amazon takes this philosophy to heart, focusing most of its efforts on leading indicators (we call these “controllable input metrics”) rather than lagging indicators (“output metrics”).
- Input metrics measure things that, done right, bring about the desired results in your output metrics.
The Flywheel: Input Metrics Lead to Output Metrics and Back Again
- Better customer experience leads to more traffic.
- More traffic attracts more sellers seeking those buyers.
- More sellers lead to wider selection.
- Wider selection enhances customer experience, completing the circle.
- The cycle drives growth, which in turn lowers cost structure.
- Lower costs lead to lower prices, improving customer experience, and the flywheel spins faster.
- The Amazon flywheel captures the major aspect of what makes Amazon’s retail business successful.
2. Identify the Correct, Controllable Input Metric
- This step sounds easy but can be deceptively tricky, and the details matter.
- You'll notice a pattern of trial and error with metrics…and this is an essential part of the process. The key is to persistently test and debate as you go.
- Once you have metrics solidified, you can then set a standard measure teams against that standard.
- The right input metrics get the entire organization focused on the things that matter most. Finding exactly the right one is an iterative process that needs to happen with every input metric.
- A big mistake people make is not getting started. Most WBRs have humble beginnings and undergo substantial changes and improvements over time.
- …we’ve found that it takes time and concerted effort to get the collection tools right.
- … the finance team should “have no skin in the game other than to call it like they see it”
- The next step after determining which tools to use this to collect the data and present it in a usable format.
- Often the data you want will be scattered across different systems and may take some serious software resources to compile, aggregate, and display correctly. Do not compromise here. Make the investment.
- As you develop the collection tools, make sure they are measuring what you think they are measuring. Diving deep to understand exactly how the data is collected helps spot potential problems.
- One often-overlooked piece of the puzzle is determining how to audit metrics.
- Unless you have a regular process to independently validate the metric, assume that overtime something will cause it to drift and skew the numbers.
- But the Analyze stage is all about developing a comprehensive understanding of what drives your metrics.
- The objective in this stage is separating signals from noise in data and then identifying and addressing root causes.
- When Amazon teams come across a surprise for a perplexing problem with the data, they are relentless until they discover the root cause.
- Perhaps the most widely used technique at Amazon for the situation is the Correction of Errors (COE) process, based upon the “Five Whys” method developed at Toyota…
- When you see an anomaly, ask why it happened and iterate with another “Why?” Until you get to the underlying factor that was the real culprit.
- … drill down on what caused it by asking and answering “Why?” five times in order to get to the true root cause.
- If you have progressed through the prior three steps, then your actions to improve the metric will have a higher chance of succeeding because you'll be responding to signals instead of noise.
- If you immediately jump to the improve stage, you'll be working with imperfect information on a process you likely don't fully understand yet, and the actions you take will be much less likely to generate desired results.
- The final stage is all about ensuring that your processes are operating normally and performance is not degrading overtime.
- Another thing that can happen in this stage is that you'll identify processes that can be automated.
The WBR: Metrics at Work
- At Amazon, the Weekly Business Review (WBR) is the place where metrics are put into action.
- Each meeting begins with a virtual or printed distribution of the data package, which contains the weekly snapshot of graphs, tables, and occasional explanatory notes for all your metrics.
Amazon deck's distinctive features:
- The deck represents a data-driven, end-to-end view of the business.
- It's mostly charts, graphs, and data tables.
- How many metrics should you review? There is no magic number or formula.
- Emerging patterns are a key point of focus.
- Graphs plot results against comparable prior periods.
- Graphs show two or more to timelines, for example, trailing 6-week and trailing 12-month.
- Anecdotes and exception reporting or woven into the deck.
- … the data in the deck are certified as accurate by finance.
- Metrics dashboards and reports are established by every engineering, operations, and business unit at the company.
- In many cases metrics are monitored in real time, and each critical technical and operational service receives an “alarm” to ensure that failures and outages are identified instantly.
- We use consistent and familiar formatting to speed interpretation. Amazon thereby looks at the same set of data every week, in the same order, and gets a holistic view of the business.
- We focus on variances and don't waste time on expected
- Our business owners own metrics and are prepared to explain variances. By the time the WBR meeting occurs, each metric owner should have thoroughly analyzed the metrics they own.
- We keep operational and strategic discussions separate
- We try not to browbeat (it’s not the Inquisition). It's okay to dig into a meaningful variation that needs more attention, and to point out when high standards have not been met. Still, success demands an environment where people don't feel intimidated when talking about something that went wrong in their area. If people become afraid of pointing out their own mistakes because they will feel humiliated in front of their peers, it's human nature for them to do whatever they can to hide those mistakes in future meetings.…we think it's better to establish a culture where it's not just okay, it's actually encouraged to openly discuss mistakes.
- We make transitions easy. The WBR is most expensive and impactful weekly meeting, and every second counts—plan ahead and run the meeting efficiently.
Anatomy of a Metrics Chart
- Eight WBR can easily include charts that number in the hundreds, and that much data benefits enormously from consistency a presentation.
Data Combined with Anecdote to Tell the Whole Story
- The Deep Dive leadership principle states, “Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdotes differ. No task is beneath them.”
- At Amazon, such cases were regularly attended to because they would happen again because the investigation often revealed adjacent problems that needed to be solved. What at first looked to be just an edge case turned out to be more significant.
- Every two years the corporate employee is required to become a customer service agent for a few days. Jeff is not exempted from this program.
- It turns out that the Amazon version of the Andon Cord empowered the right people, those on the front lines who were talking directly to customers.
- It proved once again that giving employees the right tools to solve problems and relying on their good judgment is a powerful combination. It is widely used across Amazon.
- Now, as effective as the WBR process can be, it can also go straight in several ways, including poor meeting management, focusing on normal variations rather than signals, and looking at the right data but in the wrong way.
Pitfall 1: Disaster Meetings
- One issue was that the attendee list got more and more bloated, and we had to keep finding bigger conference rooms to fit everyone. Likewise, the number of metrics we were trying to track kept ballooning—sometimes for the better, but more often for the worse.
- The meetings were also just really unpleasant. There was a lack of ground rules and decorum, with quite a bit of interruption and sniping.
- What should we have done?… the most senior person should be responsible for setting the tone and ground rules every week.
- That person should also, in this case, have limited attendance to owners in key stakeholders, and also limited the metrics to be reviewed to a specific, essential set: irrelevant metrics should have been deleted from the deck.
- The key to these meetings is to create a balance between extremely high standards and an atmosphere where people feel comfortable talking about mistakes.
One Amazonian still recalls those disaster meetings even though they occurred more than 15 years ago. He said,
- You're really looking for teams to be willing to take themselves apart, to become naked in front of everyone, to say: “I screwed up. This wasn't right. Here's where it broke.” But I remember one particular leader who said instead, “Who is the person with poor judgment who did that?”
- The problem with statements like that is that people are basically convicted and sentenced before they've even responded.
- The leader should have reserved judgment instead of attacking, then begun to understand what actually happened.
- People are only trying to do the right thing; they're not trying to sabotage the business, and they don't hate customers.
Pitfall 2: Noise Obscuring the Signal
- Contradictory as this may sound, variation data is normal. And unavoidable. It's therefore critical to differentiate normal variation (noise) from some fundamental change or defect in a process (signal).
- At Amazon, understanding what's normal is the responsibility of the metrics owner, whether that's an individual contributor or a manager of thousands.
- For us, however, experience and a deep understanding of the customer most often turned out to be the best way to filter out the signal from the background noise.
- If you look at the input metrics for Amazon, they often describe things customers care about, such as low prices, lots of available products, fast shipping, few customer service contacts, and a speedy website for app.
- Controllable input metrics are a quantitative (diving deep with data) and qualitative (anecdotes) way of measuring how well the organization is satisfying these customer interests so that the output metrics trend the way the company desires.
- Properly evaluating your business and striving to improve each week requires a willingness to openly discuss failures, learn from them, and always look for inventions that will delight customers even more.
Part Two: The Invention Machine at Work
Introduction to Part Two
- In 2015 Jeff wrote, “We want to be a large company that’s also an invention machine. We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness, and risk-acceptance mentality normally associated with entrepreneurial start-ups.”
- Of course, Jeff also wrote in that same shareholder letter, "I believe we are the best place in he world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.”
- Being Amazonian means approaching invention with long-term thinking and customer obsession, ensuring that the leadership Principles guide the way, and deploying the practices to drive execution. “Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate,”
- Key word: patiently.
- The other key is frugality.
- You can’t afford to pursue inventions for very long if you spend your money on things that don’t lead to a better customer experience, like trade show booths, big teams, and splashy marketing campaigns.
- Patience and carefully managed investment over many years can pay off greatly.
- The reason: invention works well where differentiation matters.
- Differentiation with customers is often one of the key reasons to invent.
- When we have invented, our long-term, patient approach—driven by customer need—has been fundamentally different from the more conventional “skills-forward” approach to invention, in which a company looks for new business opportunities that neatly fit with its existing skills and competencies.
- While this approach can be rewarding, there is a fundamental problem with it: the company will never be driven to master new skills and develop new competencies, hire new kinds of leaders, or create different types of organizations.
- Amazon’s Working Backwards process—starting with customer needs, not corporate needs or competencies—often demands that, in Jeff’s words, we “exercise new muscles, never mind how uncomfortable and awkward-feeling those first steps might be.”
- Indeed, the failure of the Fire Phone did not cause Jeff to question the process that created it. “We all know that if you swing for the fences,” he wrote, “you’re going to strike out a lot, but you’re also going to hit some home runs.” Unlike baseball, where a home run can bring in no more than four runs, a big business hit can score an almost infinite number of runs.
- The magnitude of your inventions, and therefore your mistakes, needs to grow in lockstep with the growth of your organization. If it doesn’t, your inventions will likely not be big enough to move the needle.
- In 1999 Jeff wrote, “We must be committed to constant improvement, experimentation, and innovation in every initiative. We love to be pioneers, it’s in the DNA of the company, and it’s a good thing, too, because we’ll need that pioneering spirit to succeed.”
- Over our long march to building Amazon’s digital business, we proved a powerful lessons: it takes exceptionally patient and unwavering leadership to persevere through the prolonged process of building a new business and navigating through transformative times in an established industry with entrenched interests.
- The fact that we entered as total beginners and emerged as industry leaders is in no small part a result of our adherence to Being Amazonian in our principles and our way of thinking, including thinking big, thinking long-term, being obsessed with customers, being willing to be misunderstood for long periods of time, and being frugal—principles that few companies are capable of maintaining in the face of quarterly reporting requirements and the daily gyrations of the stock market.
Making the Turn to Digital
- In other words, his first action was not a “what” decision, it was a “who” and “how” decision.
- This is an incredibly important difference. Jeff did not jump straight to focusing on what product to build, which seems like the straightest line from A to B.
- Instead, the choices he made suggest he believed that the scale of the opportunity was large and that the scope of work required to achieve success was equally large and complex.
- He focused first on how to organize the team and who was the right leader to achieve the right result.
The Startup Phase for Amazon Digital Media and Devices
- We had many meetings with Jeff where Steve and I would present our ideas for our music product or a company we might acquire. Each time we had these meetings, Jeff would reject what he saw as copycat thinking, emphasizing again and again that whatever music product we built, it had to offer a truly unique vale proposition for the customer.
- He would frequently describe the two fundamental approaches that each company must choose between when developing new products and services.
- We could be a fast follower—that is, make a close copy of successful products that other companies had built—or we could invent a new product on behalf of our customers.
- He said that either approach is valid, but he wanted Amazon to be a company that invents.
- Jeff demonstrated his belief that true invention leads to greater long-term value for customers and shareholders.
- My team and I quickly learned that invention is a more challenging path than fast following. The roadmap for fast following is relatively clear—you study what your competitor has built and copy it. There is no roadmap for invention.
- With each modification, the scope of each leader’s responsibilities would become narrower, but the intended scale of each role was greater.
- At most companies, reducing a leader’s scope would be considered a demotion, and in fact there were many VPs and directors who saw each of these changes in that way. At Amazon, it was not a demotion. It was a signal that we were thinking big and investing in digital for the long term.
Amazon: A Device Maker?!
- Our competitive advantage in physical media was based on having the broadest selection of items available on a single website. But this could not be a competitive advantage in digital media, where the barrier to entry was low.
- Another key element of our competitive advantage in the physical retail business was our ability to offer consistently low prices.
- But cost structure was not a factor in digital. The process and costs associated with hosting and serving digital files were basically the same whether you were Amazon, Google, Apple, or a startup.
- In physical retail, Amazon operated at the middle of the value chain. We added value by sourcing and aggregating a vast selection of goods, tens of millions of them, on a single website and delivering them quickly and cheaply to customers.
- To win in digital, we needed to identify other parts of the value chain where we could differentiate and serve customers well.
- Jeff told Steve that this meant moving out of the middle and venturing to either end of the value chain.
- On one end was content, where the value creators were book authors, filmmakers, TV producers, publishers, musicians, record companies, and movie studios.
- On the other end was distribution and consumption of content. In digital, that meant focusing on applications and devices consumers used to read, watch, or listen to content, as Apple had already done with iTunes and the iPod.
- Steve did not let this get in the way. In one of our meetings, he said that a typical company that wanted to grow would take stock of its existing capabilities and ask, “What can we do next with our skill set?” He emphasized that Amazon’s approach was always to start from the customer and work backwards.
- We would figure out what the customers’ needs were and then ask ourselves, “Do we have the skills necessary to build something that meets those needs? If not, how can we build or acquire them?”
- There was another reason we decided to build the device ourselves. If we had outsourced the work and succeeded in creating the first great reader device, much of the knowledge and know-how would accrue outside Amazon, in the minds and methods of the outsourcer.
- We wanted to be the keepers of the intellectual property.
- The overarching theme in the design stage was that our electronic book reader should “get out of the way” so the reader could make a direct connection with the content.
- Once the person started reading, they should not notice they were using a device.
- At some point in the debate, someone asked Jeff point blank: “How much more money are you willing to invest in Kindle?” Jeff calmly turned to our CFO, Tom Szkutak, smiled, shrugged his shoulders, and asked the rhetorical question, “How much money do we have?”
Kindle Takes Shape
- The feature that really attracted us was BlackBerry’s constant connectivity. Like everyone, Jeff loved that his phone was always connected and automatically refreshed itself to display new email.
- Jeff saw this as an opportunity. He wanted the Kindle to be like the BlackBerry—no wires, never a need to connect to your PC.
- Not only did he want us to eliminate sideloading altogether, new e-books as soon as they were available. he wanted to build the bookstore right into the device so you could shop and read on the go.
- For this to work, he pushed hard for the Kindle to have a 3G modem so that it could connect to a wireless carrier network (Spring was our first partner) and automatically download new e-books as soon as they were available.
- With the ability to download any book almost instantly and never have to link up to a PC, the customer could become engrossed in their reading much faster and with less friction.
- These two features—wireless delivery and the E Ink screen—proved to be two of the keys to making the Kindle great.
- Jeff insisted on this path, which resulted in Amazon Prime.
- The good news is that you don’t need a Jeff to make this type of decisions. You only need to ruthlessly stick to the simple-to-understand (but sometimes hard-to-follow) principles and process that insist on customer obsessions, encourage thinking long term, value innovation, and stay connected to the details.
The need for Growth
- Throughout 2004, Amazon sales had continued to grow, but the rate of growth decreased from the prior year, across all lines of business.
- The output metric of sales revenue was not growing as fast as we wanted.
Amazon customers cared about three main things that we could deliver for them:
- 1. Price.
- 2. Selection.
- 3. Convenience.
- The answer to our stalling growth was likely somewhere inside the triangle of price, selection, and convenience.
- And that’s where we focused our patient but persistent search for new ways to grow.
- Only over time did the answer become clearer; we were driving up selection and driving down price, but we still had to do something about convenience. And that, most likely, would involve something related to shipping.
Free Shipping 1.0—Super Saver Shipping
- Everyone in e-commerce knew customers were laser focused on shipping costs.
- In every survey, the top answers remained the same: one of the biggest reasons people didn’t order online was that they didn’t want to pay for shipping.
- Free shipping drove sales.
- We just had to figure out a sustainable way to offer free shipping.
- Relying on promotions over the long term can be a slippery slope for any retailer, especially one-off promotions.
- There is danger in training your customers to delay purchases until the next deal comes along.
- ….a free shipping promotion for orders over $25.
- Despite the last-minute time crunch, the promotion launched on time—and was such a hit with customers that we decided to turn it into a permanent program after the holidays.
- We formally launched Super Saver Shipping on January 22, 2002, albeit with a higher minimum order of $99.
- So Super Saver Shipping reduced our costs and lowered prices for the customer.
- The program, which seems laughably primitive today, offered a valuable insight into what our customers wanted.
- They were delighted to be given a free shipping option, even if the trade-off was “slow and free” or “fast and expensive.”
There Was a Catch
- So, while Super Saver Shipping was popular, it did not appeal to large segments of our customer base.
- We realized that we needed something better, some kind of friction-free program that would appeal to our entire customer base, regardless of their time or price sensitivity.
- To optimize the ship-to-deliver segment, we would need many more fulfillment centers, and they would have to be located so that free, one-to-two-day delivery was both possible and cost effective.
- That meant a much greater presence near urban areas.
- Now that customers had gotten a taste of free shipping, they no longer wanted to be forced to choose between “slow and free” and “fast and expensive.”
- So the catch was that “fast and free” was where Amazon needed to go next, but our fulfillment capabilities were not up to the task.
- But it would take years to build out the new fulfillment network required to reduce delivery time affordably.
- It had to be affordable
- It had to drive the right customer behavior
- It had to be a better use of funds than the obvious alternative…
- One promising approach, however, was to create some kind of loyalty program.
- Many companies have the “business people” tell the “technical people” what to build.
- There’s little discussion back and forth, and the teams stay in their own lanes.
- Amazon is not like this at all.
- It’s everyone’s job to obsess over customers and think of inventive ways to delight them.
- The institutional no refers to the tendency for well-meaning people within large organizations to say no to new ideas.
- Staying the current course offers managers comfort and certainty—even if the price of that short-term certainty is instability and value destruction later on.
Walking the Store
- …Jeff’s preferred walking-the-store time was early Saturday and Sunday mornings.
- It was not unusual for me to wake up at 7 a.m. on a weekend, check my email, and read five or six messages from Jeff to the relevant teams on issues he had found while walking the store that morning.
- …a clear expression of another one of Amazon’s Leadership Principles in action, Have Backbone; Disagree and Commit: “Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting.”
- “Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion.”
- “Once a decision is determined, they commit wholly.”
- Jeff said he wanted to build a moat around our best customers.
- Prime would be a premium experience for convenience-oriented customers.
- Prime transformed Amazon from a fairly successful company in the e-commerce space to a top player in the retail space.
- And Prime changed the way people think about shopping online—and shopping, period.
- As one journalist wrote, “Amazon single-handedly—and permanently—raised the bar for convenience in online shopping.”
- As Jeff announced to shareholders in 2018, “13 years post-launch, we have exceeded 100 million paid Prime members globally.”
9: Prime Video
Unbox: A Misstep on the Long and Winding Road to the Living Room
- In retrospect, it is easy to see the mistakes.
- We had rushed Unbox out the door before it was ready.
- In the weeks leading up to launch, rumors had been swirling around Hollywood and in the press that Apple was close to launching a digital video service.
- We didn’t want to come in second to Apple so we were in a frenzy to ship Unbox and ship it fast.
- This was directly antithetical to the notion of focusing on the customer, not the competitor.
- We were just focused on shipping.
- We had prioritized speed, press coverage, and competitor obsession over the customer experience.
- We had been decidedly un-Amazonian.
- Jeff would say something like this to a leader who had just laid an egg: “Why would I fire you now? I just made a million-dollar investment in you. Now you have an obligation to make that investment pay off.”
- “Figure out and clearly document where you went wrong. Share what you have learned with other leaders throughout the company.”
- “Be sure you don’t make the same mistake again, and help others avoid making it the first time.”
The Issue of Rights
- As with all media companies, the decisions made by top Hollywood brass were then, and still are, all about achieving short-term financial goals.
Prime Instant Video: An Oh-by-the-Way Benefit
- At some point, Jeff came up with a simple idea: “Let’s make videos free for Prime members.”
- There is a difficult chicken-and-egg problem with a subscription service.
- You need to have a great offering to attract paying subscribers.
- To be able to afford a great offering, you need a lot of paying subscribers.
- It’s a challenging cold-start problem that generally requires a large up=front investment, which you can hopefully pay back with subscriber growth in future years.
- Jeff argued that even if we offered streaming videos to Prime members at no additional cost, the business could still be profitable in the long run. (Long-term thinking = being Amazonian.)
- The major benefit of establishing a popular subscription service with a fixed-cost base is that once you exceed a certain number of subscribers, every new dollar of subscription revenue is pure profit.
Amazon, Hollywood Producer
- We’d known since our first experiments began in 2010 that we wanted our own TV series and movies.
- We made no exceptions for the fact that this was Hollywood.
- We used the Bar Raiser process to hire each member of the Studios team, and they would have to get accustomed to our frugal ways, including working in small, shared offices or open workspaces, a base salary capped at $160K, no cash bonus program, and riding in coach, not first class.
- This made for some hard conversations.
- Now we began to operate like a Hollywood studio, with the continuing and important difference that we compensated our team in the same way we compensated all Amazon leaders: no short-term performance targets.
- We made all the pilots available to view for free on Amazon before making a decision as to which to greenlight.
- Through this process, we were able to gather viewership data and ratings and reviews from real customers in order to make better-informed decisions about which show would attract the most viewers.
- So, after all, we did find a way to make the process more customer centric than the studios’, and therefore more Amazonian.
- Throughout, we were stubborn on the vision and flexible on the details.
- …in the early 2000s,…Roughly 75 percent of Amazon’s business at that time consisted of selling physical books, CDs, and DVDs to customers.
- We had to invent or risk becoming an irrelevant has-been in media sales.
- Unlike Digital or Prime, however, Amazon Web Services had nothing to do with the core business.
- The term “cloud computing”—…wasn’t widely used in the early 2000s, and Amazon was likely not on many people’s list of companies that were well positioned to offer it.
- Further, it involved an entirely new class of customer for Amazon: software developers.
- …we will attempt to answer the following two questions, which can help you incorporate key elements of being Amazonian into your organization:
- 1. What elements of being Amazonian enabled Amazon to move into this completely separate line of business?
- 2. Why was Amazon able to master cloud computing well before its potential competitors, including entrenched companies with large businesses to protect and well-capitalized web-based tech companies?
- The answers to both questions come down to single-threaded teams ruthlessly iterating with the Working Backwards process, and obsessing over the customer experience, in order to discover the fundamental needs of the software developer in the new paradigm of cloud computing.
Web Services Proof of Concept
- Like any company, we have a corporate culture formed not only by our intentions but also as a result of our history.
- For Amazon, that history is fairly fresh and, fortunately, it includes several examples of tiny seeds growing into big trees.
- We have many people at our company who have watched multiple $10 million seeds turn into billion dollar businesses.
- That first-had experience and the culture that has grown up around those successes is, in my opinion, a big part of why we can start businesses from scratch.
- I opened this chapter with a question: How was it that Amazon got to cloud computing first and became the largest provider of web services?
- Jeff provides the answer in his letter: it is because of Amazon’s innovative spirit combined with the patience that comes with long-term thinking.
The Primitives Are Known, They Just Haven’t Been Exposed as Web Services
- They worked on scaling their databases, web servers, software, and hardware.
- Stewart said they did not spend as much time as he would like on innovating things that were unique to Flickr.
- We’d both noticed the same thing—a phenomenon that Amazon would later refer to as “undifferentiated heavy lifting,” that is, the tasks that we could do for companies that would enable them to focus on what made them unique.
- This was an opportunity.
AWS as It Started
- The Working Backwards process is all about starting from the customer perspective and following a step-by-step process where you question assumptions relentlessly until you have a complete understanding of what you want to build.
- It’s about seeking truth.
- Since we didn’t know how developers would use S3, was there a way to structure our pricing so that no matter how it was used, we could ensure that it would be affordable to our customers and to Amazon?
- Thus, the discussion moved away from a tiered subscription pricing strategy and toward a cost-following strategy.
- “Cost following” means that your pricing model is driven primarily by your cost, which are then passed on to your customer.
- This is what construction companies use, because building your customer’s gazebo out of redwood will cost you a lot more than building it out of pine.
- Based on my experience of going through the Working Backwards process with Jeff for well over a dozen different product teams across AWS, Digital, and other services, I can say confidently that the extra time we spent slowing down to uncover the necessary truths was ultimately a faster path to a large and successful business.
- Bias for Action is an important leadership principle at Amazon,…
- To put it another way, Working Backwards was the process that enabled us to put into action the principle of Customer Obsession.
Being Amazonian Beyond Amazon
- What’s most fascinating to us, and reason we have written this book, is that the elements of being Amazonian are so applicable to other companies, businesses, industries, and endeavors—as well as endeavors outside business, such as not-for-profit or community organizations.
- We do not suggest that becoming Amazonian is easy—for an entire organization or for the individuals within it.
- The rewards, however, are clear and distinct for both the company and the person.
- Amazon is clear up front about seeking people who obsess over the customer experience and who value long-term success and continuous innovation over making a quick buck or earning a fancy title.
- Even when a project does not achieve its goals or is deemed a failure, if the effort was admirable and adherent to Amazon practices and principles, the result for the individual is neither dismissal nor shame.
- Failure is almost always understood as the failure of a group, a process, a system, as much as that of a single person—many people have been involved, made comments, shaped the idea, and given approvals along the way.
- For the company, then, failure is typically viewed as an experiment from which a great deal can be learned that can lead to change and improvement.
- Very often, failure is temporary and eventually gives birth to success.
- The questions that typically follow a presentation of the ideas in this book are, “How do I start? Where do I start? What do I actually do to bring some of the aspects of being Amazonian into my business?”
Here are a few suggestions:
- Ban PowerPoint.
- Establish the Bar Raiser hiring process.
- Focus on controllable input metrics.
- Move to an organizational structure that accommodates autonomous teams with single-threaded leaders.
- Revise the compensation structure for leaders.
- Articulate the core elements of the company’s culture.
- Define a set of leadership principles.
- Depict your flywheel.