Lots of people ask me, “Why is Amazon so successful?” A few years ago, the CEO of a large European insurance company who was attending Bill Gates’s annual CEO summit contacted me through a friend on his board and wanted to meet with me. When we met, he asked, “What are Amazon’s secrets of success?” I told him, as I tell others, “Amazon has no secret management principles.” Jeff talks about them all the time at “all-hands” meetings. He explains them in press interviews that can be viewed on the internet, and they are listed at the bottom of every press release. But, I explained, you have to live by them all of the time, and most businesses are unwilling or unable to do so.
The most important is customer obsession. In his words, too many companies focus on their competitors and not on their customers. As Jeff explained most recently to a Congressional Committee, “Customers are always beautifully, wonderfully dissatisfied. A constant desire to delight customers drives us to constantly invent on their behalf.”
I have seen Jeff many times make decisions that harm Amazon’s bottom line but benefit the customer. As he says, tell me a customer who wants higher prices or slower delivery. Of course, in the long term, these decisions mean a bigger bottom line. A related principle is to think long-term.
The second principle is constant invention and innovation. As noted above, invention is closely linked to customer satisfaction. Constantly invent and apply technologies to solve problems and build new businesses. Customer satisfaction and innovation are powerful touchstones when making decisions. Decisions are far easier when you ask, “What is the best decision for the customer” and “Is there a way to invent our way to a solution?”
The third principle is operational excellence. Examples of innovations in operations include two-pizza teams, one-click shopping, single-threaded leaders, working backward, and up-level hiring (where an employee outside the workgroup also interviews every applicant and has the power to veto their hiring).
Working backward is Amazon’s internal process of beginning a project by writing the press release that would be used to announce a new service or product to the world. At most companies, the press release is the last step in launching a product, written by PR people, after the product and technology teams have created the new product. By starting with the press release, Amazon forces the team to focus on the benefits of the new product to the customer. Then the team must build the product or service to achieve those benefits. The draft press release is accompanied by FAQs answering questions that customers and the press might ask, such as the price, as well as describing technical challenges that need to be overcome.
Think long-term is the fourth touchstone, whether in launching new businesses or investing in new technologies. When businesses were just beginning to recognize the possibilities of machine learning and AI, Jeff told the board that he intended to use AI in every part of the business, and then he proceeded to hire AI experts and to train his existing engineers to use AI. Amazon created and made available to customers AI tools on AWS that they could use in their businesses—even to compete against Amazon.
Amazon also has fourteen leadership principles, some of which surprise people. For example, “leaders are right, a lot” has more than a hint of hubris but is nuanced by commentary that leaders listen a lot and are quick to change their minds (“disconfirm their beliefs”) based on differing evidence. “Have backbone, disagree and commit” is another compelling principle.
I have always thought it difficult to single out any one principle or process that is most important to Amazon’s operations but forced to choose, I suggest the importance of a single-threaded leader, particularly in launching new initiatives but also applicable to solving engineering and other problems.
An example of a single-threaded leader was Jeff’s designation of Steve Kessel in 2004 to head up Amazon’s effort to build a digital media business in books, music, and video, which ultimately involved building equipment like the Kindle, Amazon Fire, Fire TV, and creating content in video and books. Jeff could have asked the existing organization responsible for Amazon’s physical books, music CDs, and videos—which amounted to 80 percent of their business at the time—to expand into virtual goods. However, Jeff recognized that giving authority to a single leader focused exclusively on digital media would more quickly create such a business without the distractions and compromises that might have occurred if the leadership was also running the physical business. This process was replicated with Andy Jassy’s appointment to launch AWS.
Jeff has also publicly described his decision-making process, notably in categorizing decisions into one-way and two-way doors. You can only go through a one-way door in one direction, you cannot undo your decision and come back. Examples are selling your company or quitting your job, although even for this there are examples of comebacks. Amazon’s decision to offer free shipping for an annual Prime fee was likely a one-way door. In two-way doors, you can later reverse your decision or at least terminate the action without enormously bad consequences. Building their mobile phone might have been considered a one-way door, but in actuality, it was dropped and Amazon moved on to building the Echo. One-way decisions require lots of thought and consideration; two-way decisions can be made quickly. It’s OK to make mistakes—failures are learning opportunities at Amazon, as they are often considered by venture capitalists in the startup world. Jeff likes to say “we are experts at failure—because we have made so many of them.”
In the venture world, if your company fails, it is not a black mark; you learn and can go on to start another company and receive funding. Of course, reasons for failures sometimes reflect a deeper problem with a leader. Jeff prefers speed, so he would rather have only 70 percent of the necessary information or belief and proceed with later course connections than wait until having certainty. Jeff, like Steve Jobs, never thought it valuable to do a market survey asking customers whether or not they would like some new product or feature when it has never existed in the past. Prime memberships at $79 and $499 mobile phones would not have been high on a list of customer’s wants.
Perhaps Jeff’s overriding principle, which is not on Amazon’s formal list, is his abiding optimism of the future and how we are only in Day 1. It is as infectious in his meetings with employees as his well-known laugh. His laugh is always near the surface and, although genuine, he subconsciously often uses it to mark some surprising insight or diffuse a tense moment.
At internal meetings, including board meetings, Jeff does not hesitate to use his powerful intellect or position to dominate a discussion of an issue, but he can also be a careful listener looking for new ideas. When I was the lead director, I once asked him what he hoped to get out of our board meetings. He replied, “If I get one good new idea out of every board meeting, it is a success.” I thought it was a low standard and humbling. It also did not seem to represent the give and take at board meetings, which consist not only of management reports but also robust questions, observations, and suggestions by board members. And Jeff is not inhibited from challenging a point made by any of us. Occasionally his comment has a particular bite that signals deeper frustration or concern.
Board meetings span most of two or three days, including committee meetings and two dinners: some of the meetings consist only of board members with Jeff, others with Jeff and the S-team, and always a dinner with one of the S-team without Jeff present. Highly useful parts of every board meeting are private sessions of the board with Jeff. We would raise particular questions on our minds, and he would distribute a list of five important issues that were on his mind for discussion. Many of these issues were long-term or technology. They could include whether we were investing enough in some new technologies, such as AI or quantum computing. The private sessions could last an hour or more.
At Madrona, we have picked up Jeff’s Day 1 philosophy to make the point that we want to help a company from the very beginning of the existence, Day 1. Jeff uses it in a broader sense, meaning that although the internet and Amazon may seem mature and in later phases to many, to Jeff we are still at the beginning. When some suggest, as I did once, that maybe Amazon is in day two, Jeff pounces: “No we still are in Day 1.” It is his ultimate expression of optimism about what the future will bring. He wouldn’t be investing $1 billion of his own money a year in Blue Origin if he didn’t believe we are in Day 1.
Excerpted from Flywheels: How Cities Are Creating Their Own Futures by Tom Alberg, published by Columbia Business School Publishing. Copyright (c) 2021 Tom Alberg. Used by arrangement with the publisher. All rights reserved.
Tom Alberg is cofounder of the venture capital firm Madrona Venture Group. He previously was senior vice president of McCaw Cellular and president of LIN Broadcasting. Alberg was an early investor in Amazon and one of its board members from 1996 to 2019. He has also served on the boards of numerous other companies and was a member of the National Advisory Council on Innovation and Entrepreneurship.