#71 Jeff Bezos Shareholder Letters. All of them

Jeff Bezos, founder of Amazon, epitomizes the spirit of innovation and customer obsession. His philosophy, deeply ingrained in Amazon's culture, is exemplified by his annual shareholder letters, which detail the company's growth from a $147 million revenue in 1997 to $241 billion years later. Bezos emphasizes the importance of long-term thinking, relentless customer focus, and the willingness to experiment and accept failures. He believes in high standards, which he argues are teachable and contagious, and that maintaining a day-one mindset is crucial to avoid the stasis that leads to irrelevance and decline. Amazon's success with customer-centric ventures like Prime, AWS, and Marketplace, despite initial skepticism, showcases the power of Bezos's approach to building a durable, innovative, and customer-driven enterprise.

• Bezos' approach to business is unique and breaks traditional rules.
• His philosophy is extensively detailed in Amazon's annual shareholder letters since the company's IPO.
• The letters offer a deep dive into the strategies and mindset behind running a successful high-growth internet company.

"Bezos broke all the rules when he built Amazon. In doing so, he carved out a unique way of looking at the world, at companies and at tech in general."

This quote emphasizes that Bezos did not follow conventional business wisdom when creating Amazon, which led to a distinct perspective on business and technology.

• The 1997 shareholder letter is foundational and is attached to subsequent letters as a reminder of Amazon's long-term philosophy.
• It sets expectations for investors about Amazon's approach and encourages alignment with its long-term strategy.
• Bezos emphasizes that there are many ways to run a successful business, but Amazon has chosen a specific path.

"This isn't a really important Amazon shareholder letter because every single year from 1998 on, Jeff attaches this shareholder letter to the bottom of the other one."

The 1997 letter is highlighted as a critical document because it is repeatedly shared with shareholders, underlining its ongoing relevance and importance in understanding Amazon's approach.

• Amazon experienced significant growth in 1997, with a customer base of over 1.5 million and 800% revenue growth.
• Bezos emphasizes relentless customer focus as a core company value.
• The company's aim is to solidify and extend its position in the market despite the risks associated with competing against established businesses.

"Amazon passed many milestones in 1997. By year end, we had served more than 1.5 million customers, yielding an 800% revenue growth to $147,000,000."

This quote demonstrates the rapid growth of Amazon in its early years and sets the stage for its future expansion.

• Bezos stresses the importance of making decisions based on long-term market leadership rather than short-term profitability.
• Bold investments are made with the expectation that they will lead to market leadership advantages, even if some fail.
• A cost-conscious culture is maintained, and growth is prioritized for the potential of the business model.

"We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall street reactions."

The quote captures Bezos' strategic focus on long-term goals over immediate financial gains, which may not always align with Wall Street's expectations.

• Bezos believes that employees must think and act like owners to drive the company's success.
• The idea of ownership is a recurring theme in Bezos' letters, emphasizing its importance in Amazon's culture.

"We know our successes will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like and therefore must actually be an owner."

This quote underscores the significance Bezos places on cultivating an ownership mentality among Amazon employees as a key to the company's success.

• From the outset, Amazon has been dedicated to providing value to customers.
• Bezos believes that what is best for the customer is the guiding principle for company decisions.
• The company's goal is to build something meaningful and enduring, acknowledging the difficulty of the task.

"From the very beginning, our focus has been offering our customers compelling value."

The quote reflects the customer-centric approach that has been a fundamental aspect of Amazon's business strategy since its inception.

• Bezos recognized the potential of online commerce to transform the customer experience beyond saving time and money.
• He envisioned personalization as a key driver of online commerce in the future.
• Bezos acknowledged the challenges ahead but remained optimistic and vigilant.

"Today, online commerce saves customers money and precious time. Tomorrow, though, personalization, online commerce will accelerate the very process of discovery."

This quote shows Bezos' foresight in predicting the evolution of online commerce and its ability to enhance the customer's journey of discovery.

• Bezos advocates for patience and hard work in achieving long-term goals while maintaining a ferocious pace.
• Amazon's philosophy involves taking calculated risks and learning from both successes and failures.

"Step by step, ferociously."

This succinct quote embodies Bezos' belief in the importance of steady, aggressive progress towards long-term objectives.

• Amazon's core strategy has remained consistent over the years, providing it with a clear decision-making framework.
• This consistency is contrasted with other tech companies that have significantly altered their core concerns over the same period.

"It's kind of interesting that while Apple, Google and Facebook have totally changed their core concerns in the last decade, Amazon is basically still running a strategy from before some of today's founders were even born."

The quote highlights the observation that Amazon has maintained a steady strategic course, unlike its tech counterparts, which have experienced more fundamental shifts in their focus.

• Bezos acknowledges the need for Amazon to take bold risks to survive and thrive.
• He reiterates the goal of building the world's most customer-centric company and the importance of customer loyalty.

"It will be hard and we will survive only by taking bold risks."

This quote captures the essence of Amazon's strategy, which involves taking calculated risks to achieve ambitious goals.

• Bezos describes a virtuous cycle, later known as the Amazon Flywheel, where cost improvements lead to lower prices, driving growth and further cost reduction.
• This cycle is intended to be repeated, benefiting both customers and shareholders.

"Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth."

The quote describes the mechanism of the Amazon Flywheel, a key concept in Amazon's strategy for sustainable growth and customer satisfaction.

• Amazon aims to offer both excellent customer experience and the lowest possible prices, which seems paradoxical to some.
• The company uses technology to transform the customer experience, allowing it to simultaneously reduce costs and enhance the shopping experience.

"People see that we're determined to offer both world leading customer experience and the lowest possible prices."

The quote addresses the perceived contradiction in Amazon's goals and explains how the company uses technology to achieve both.

• Amazon's commitment to customer experience and low prices is highlighted in the 2002 shareholder letter.
• Bezos emphasizes the importance of meticulous price comparison with competitors to ensure Amazon's prices are the lowest.
• Amazon conducted a 6-hour price check in physical bookstores to compare prices with their online offerings, finding a significant cost saving for customers on Amazon.

"We priced all 100 titles by visiting their superstores in both Seattle and New York City. It took us 6 hours in four of their different superstores to find all 100 books on their list. When we added up everything we spent, we discovered that at their stores, these 100 best selling books cost $1,561. At Amazon, the same books cost $1,195, for a total savings of $366, or 23%."

This quote demonstrates Amazon's dedication to ensuring that their prices for books were the lowest compared to physical bookstores, showcasing their commitment to customer experience through cost savings.

• Bezos discusses the importance of long-term thinking and how it influences decision-making and customer experience.
• The concept of true ownership is contrasted with short-term investment strategies.
• Bezos gives an example of empowering customers to write product reviews, a decision that could cost sales short-term but benefits the company and customers in the long run.

"Owners are different from tenants... Similarly, many investors are effectively short-term tenants... our long term views... really does drive making many concrete, nonabstract decisions."

This quote reflects Bezos's view that long-term thinking is essential for making decisions that benefit the company and its stakeholders in the long run, rather than short-term gains.

• Bezos emphasizes the role of judgment alongside data in decision-making, especially when historical data is lacking.
• He highlights the importance of returning efficiency improvements and scale economies to customers as lower prices.
• The virtuous cycle created by lowering prices leads to a larger amount of free cash flow and long-term value for Amazon.

"Sometimes we have little or no historical data to guide us... Though data analysis and math play a role, the prime ingredient in these decisions is judgment."

This quote underscores the balance between data-driven decisions and judgment calls, particularly when it comes to innovative customer-focused strategies that may not have immediate quantifiable proof of success.

• Bezos discusses the challenges of decision-making in complex adaptive systems, referencing a paper on unstructured decision processes.
• He criticizes the overemphasis on quantifiable operating decisions, which can lead to pursuing the wrong actions efficiently.
• The importance of understanding broader themes and learning from history and biographies is highlighted as a means to navigate complex systems.

"Excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently."

This quote illustrates the danger of focusing too much on quantifiable decisions without considering the broader strategic implications, potentially leading to efficient but ultimately incorrect actions.

• Bezos describes the criteria Amazon uses to evaluate new business opportunities, including returns on capital, scale potential, and market underservice.
• The company's culture supports the growth of new businesses from small beginnings, and examples of successful business growth are cited as evidence of this supportive environment.

"Planting seeds that will grow into meaningful new businesses takes some discipline, a bit of patience, and a nurturing culture."

This quote captures the approach Amazon takes towards fostering new business ventures, emphasizing the need for discipline, patience, and a supportive culture to grow successful new enterprises.

• Bezos outlines the design goals for the Kindle, aiming to improve upon the physical book, a medium that has remained largely unchanged for centuries.
• The Kindle was designed to be unobtrusive and to add new capabilities not possible with traditional books.
• The concept of coevolution between humans and tools is discussed, illustrating how tools change us as we change them.

"We started by setting ourselves the admittedly audacious goal of improving upon the physical book... We knew Kindle would have to get out of the way, just like a physical book, so readers could become engrossed in the words and forget they're reading on a device."

This quote highlights the ambitious goal behind the Kindle's design, which was not only to replicate the experience of reading a physical book but also to enhance it with new digital capabilities.

• Writing, invented thousands of years ago, dramatically changed human communication.
• Gutenberg's invention of the printing press 500 years ago reduced the cost of books, fostering collaboration and learning.
• Modern network tools, such as desktop computers and cell phones, have led to "information snacking" and potentially shorter attention spans.
• The shift towards brief, fragmented information consumption contrasts with the immersive experience of reading books.

"They've shifted us more toward information snacking, and, I would argue, towards shorter attention spans."

This quote from the transcript highlights the speaker's view that modern technology has led to a preference for quick, superficial engagement with information, possibly at the cost of sustained attention.

• Reading books is likened to "forced meditation," requiring prolonged focus in contrast to the fleeting nature of digital content.
• The act of reading allows for deep engagement with an author's ideas, often developed over many years.
• Podcasts and audiobooks also enable extended contemplation on a subject, differing from the transient experience of social media.

"Reading is forced meditation."

The speaker emphasizes the meditative quality of reading, suggesting that it necessitates concentration and provides a reprieve from the constant distractions of digital media.

• Podcasts and audiobooks are seen as beneficial and not a waste of time, unlike many social media apps.
• These mediums allow for extended focus and are associated with positive feelings post-consumption.
• The speaker advocates for reading and listening as valuable practices for personal growth.

"Podcast players app... always scores really high on it was beneficial, it wasn't wasted time."

This quote suggests that users find listening to podcasts and audiobooks to be a worthwhile use of time, contrasting with the perceived wastefulness of social media usage.

• Jeff Bezos expresses a desire for Kindle to counteract the trend towards shorter attention spans.
• Bezos's vision for Kindle includes fostering longer spans of attention and providing a counterbalance to information snacking tools.
• The speaker perceives a "missionary" tone in Bezos's approach, reflecting a deep commitment to this cause.

"We hope Kindle and its successors may gradually and incrementally move us over the years into a world with longer spans of attention."

This quote from Bezos reveals his aspiration for Kindle to contribute to a cultural shift towards sustained attention and deeper engagement with content.

• Bezos's strategy during economic turbulence includes a focus on the long term and an obsession with customer satisfaction.
• Long-term thinking is seen as a lever for invention and pioneering in new spaces.
• Bezos warns against seeking instant gratification, which is often crowded and unoriginal.

"Stay heads down, focused on the long term, and obsess over customers."

This directive from Bezos encapsulates his philosophy of prioritizing long-term goals and customer centricity, even in the face of economic instability.

• Amazon's long-term focus aligns with being attentive to customer needs.
• Bezos stresses the importance of addressing durable customer needs through patient, long-term efforts.
• Investments in areas such as lower prices and faster delivery are seen as having enduring benefits.

"If we can identify a customer need and if we can further develop conviction that the need is meaningful and durable, our approach permits us to work patiently for multiple years to deliver a solution."

Bezos explains the rationale behind Amazon's approach to innovation, which involves a deep understanding of customer needs and a willingness to invest time and resources to meet those needs sustainably.

• Amazon's "working backwards" method contrasts with a "skills forward" approach that relies on existing competencies.
• The "working backwards" philosophy requires developing new skills and venturing into uncomfortable territory.
• This approach ensures that Amazon remains innovative and responsive to customer needs.

"Working backwards from customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward feeling those first steps might be."

Bezos emphasizes the need for continuous learning and adaptation to meet customer needs, which may involve stepping outside of comfort zones and developing new capabilities.

• Amazon believes that customers consistently value low prices, vast selection, and fast, convenient delivery.
• These core tenets are expected to remain stable over time, guiding Amazon's investments and strategies.
• Prudent spending and eliminating waste (Muda) are crucial for maintaining an efficient cost structure and enhancing customer experience.

"In our retail business, we have strong conviction that customers value low prices, fast selection, and fast, convenient delivery, and that these needs will remain stable over time."

This quote outlines the foundational beliefs that Amazon holds regarding what customers prioritize, informing the company's focus and innovation efforts.

• Bezos advocates for frugality and careful management of resources.
• Identifying and eliminating waste is seen as a source of potential gains in productivity and efficiency.
• The concept of Kaizen, or continuous improvement, is applied to enhance operations and customer experience.

"The customer experience path we've chosen requires us to have an efficient cost structure."

Bezos connects the necessity of frugality to Amazon's commitment to delivering an optimal customer experience, highlighting the importance of managing costs effectively.

• Bezos repeats key ideas and principles, reinforcing their importance within Amazon's culture.
• The continuous emphasis on customer experience improvements reflects a long-term commitment to serving customers better.
• Bezos encourages a focus on controllable inputs rather than financial outputs as a strategy for long-term success.

"Start with the customer and work backwards. Listen to customers. But don't just listen to customers. Also invent on their behalf."

Bezos's advice encapsulates Amazon's customer-centric philosophy, highlighting the dual importance of understanding customer needs and proactively innovating to meet those needs.

• Amazon's approach to technology is not isolated to an R&D department but is integrated across all teams.
• Services like Whisper sync for Kindle demonstrate Amazon's commitment to continuous innovation and customer convenience.
• Invention and the willingness to explore new approaches are fundamental to Amazon's success.

"All of the effort we put into technology might not matter that much if we kept technology off in the side in some sort of R&D department."

Bezos criticizes the traditional compartmentalization of technology and innovation within companies, advocating for a more pervasive and integrated approach to technological development.

• Amazon's self-service platforms empower others to experiment and pursue their dreams.
• Platforms like AWS, Fulfillment by Amazon, and Kindle Direct Publishing create win-win situations and add value for various stakeholders.
• Bezos opposes gatekeeping, arguing that self-service platforms encourage a wider array of innovative ideas.

"Even well-meaning gatekeepers slow innovation."

This quote from Bezos highlights his belief that innovation thrives in environments where individuals are free to experiment without the need for approval from authorities or experts.

• Amazon prioritizes impressing customers over besting competitors.
• A customer-centric approach fosters proactivity and innovation, leading to better services and preemptive improvements.
• Bezos asserts that aligning with customer interests ultimately benefits shareholders.

"Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas."

Bezos explains that by focusing on customer satisfaction, Amazon builds trust that translates into broader business success, aligning customer and shareholder interests.

• Amazon Prime's success is attributed to its radical and transformative nature, which was initially viewed as risky.
• Bezos emphasizes the importance of experimentation and accepting failure as part of the invention process.
• The increase in Amazon's experimentation rate correlates with its growth, contrary to the trend in larger companies.

"Failure comes part and parcel with invention. It is not optional."

This quote reflects Bezos's acceptance of failure as an integral component of innovation, emphasizing the necessity of taking risks and learning from mistakes.

• A "dreamy" business is loved by customers, has the potential for large growth, offers strong returns on capital, and is durable over time.
• Amazon has identified three such businesses in its portfolio: Marketplace, Prime, and AWS.
• Bezos credits risk-taking, teamwork, and good fortune for Amazon's success in these areas.

"To him, a dreamy business offering has at least four characteristics. Customers love it. It can grow to a very large size. It has strong returns on capital, and it is durable in time, with the potential to endure for decades."

Bezos outlines the ideal qualities of a successful business venture, suggesting that when such opportunities arise, they should be pursued wholeheartedly.

• The Amazon flywheel effect describes a virtuous cycle where each aspect of the business feeds into and energizes others.
• The integration of Marketplace and Prime has led to increased selection, better prices, and a more compelling customer proposition.
• Bezos explains that focusing on what sellers and customers want fuels the flywheel, enhancing the overall ecosystem.

"Marketplace pumps energy into Prime and Prime pumps energy into marketplace."

This quote illustrates how different components of Amazon's business model synergistically contribute to each other's success, creating a self-reinforcing cycle of growth and improvement.

• AWS attracts large enterprises due to the speed and agility it offers, not just cost savings.
• Bezos argues that IT departments value the ability to implement projects quickly and effectively.
• The rapid growth of AWS is attributed to its ability to empower IT departments to be more responsive and innovative.

"What customers really want in this arena is better and faster."

Bezos makes the case that in the realm of IT services, performance and the ability to quickly adapt are more critical to customers than mere cost reductions.

• Jeff Bezos compares AWS to Amazon Retail, noting both started as tiny seeds and grew organically without significant acquisitions.
• Differences between AWS and Amazon Retail are superficial; at their core, they share a customer-centric organizational culture.
• Both AWS and Amazon Retail have reached significant financial milestones, with AWS achieving $10 billion in annual sales at a faster rate than Amazon Retail.

"This year, or the beginning of the retail business says this year Amazon became the fastest company ever to reach 100 billion in annual sales. Also this year, AWS is reaching 10 billion in annual sales, and AWS is doing so at a pace even faster than Amazon achieved that milestone."

The quote explains the rapid growth and success of both Amazon Retail and AWS, emphasizing the speed at which AWS reached a significant financial benchmark.

• Corporate culture is enduring, stable, and hard to change.
• Culture is not created but discovered and developed over time through people, events, and stories.
• Distinctive cultures fit certain people well, leading to self-selection among employees based on the culture's alignment with their personal values and work style.
• Amazon's culture is characterized by customer obsession, willingness to invent and fail, long-term thinking, and operational excellence.

"A word about our corporate a word about corporate cultures, rather, not just theirs. For better or worse, they are enduring, stable, and hard to change."

This quote underscores the permanence and resilience of corporate culture, highlighting its importance and potential impact on a company's success or failure.

• To invent, one must be willing to experiment and accept failures.
• Invention often requires going against conventional wisdom, which is usually right but can lead to significant payoffs when bet against.
• Amazon values boldness and the willingness to take risks, as big winners can fund many experiments.

"To invent, you have to experiment. And if you know in advance that it's going to work, it's not an experiment."

Bezos emphasizes the necessity of risk and uncertainty in the process of invention, differentiating it from predictable outcomes.

• Amazon strives to be an invention machine, combining customer service capabilities with the speed and risk-taking of startups.
• Decision-making can be categorized into two types: consequential and irreversible (type one) and changeable and reversible (type two).
• Type one decisions require careful deliberation, while type two decisions should be made quickly by individuals or small groups with high judgment.
• Large organizations often fall into the trap of using heavyweight decision-making processes for all types of decisions, leading to diminished invention and experimentation.

"One common pitfall for large organizations, one that hurts speed and inventiveness is a one size fits all decision making."

The quote highlights the challenge large organizations face in maintaining agility and innovation, particularly in their decision-making processes.

• Jeff Bezos is often asked about "Day Two," which he describes as stasis, irrelevance, decline, and death.
• To avoid Day Two, Amazon focuses on customer obsession, skepticism of proxies, adoption of external trends, and high-velocity decision-making.
• A Day One culture requires a commitment to experimentation, acceptance of failures, and continuous effort to delight customers.

"Day two is stasis, followed by irrelevance, followed by excruciating painful decline, followed by death. And that is why it's always day one."

This quote encapsulates Bezos' philosophy on maintaining a sense of urgency and continuous innovation to prevent corporate decline.

• Large organizations often manage proxies, such as processes and market research, rather than focusing on actual results.
• Processes can become a proxy for the result, leading to a focus on following the process rather than achieving the desired outcome.
• Customer surveys and market research can mislead; true inventors and designers understand their customers through intuition and firsthand experience.

"A common example is process as a proxy. Good process serves you so you can serve customers. But if you're not watchful, the process can become the thing."

Bezos warns against allowing processes to become the goal instead of the means to achieve customer satisfaction, emphasizing the need to remain outcome-focused.

• High standards are teachable and contagious; exposure to high standards teams can raise an individual's standards.
• High standards are domain-specific, requiring learning and development in each area of interest.
• Recognizing personal or organizational blind spots is crucial to maintaining high standards.

"I believe high standards are teachable. In fact, people are pretty good at learning high standards simply through exposure."

The quote suggests that high standards can be adopted and taught through social and professional interactions, reinforcing the importance of a high-standards culture.

• Wandering, guided by intuition and curiosity, is necessary for discovering nonlinear opportunities and inventing on behalf of customers.
• Efficiency is important, but wandering is essential for innovation.
• AWS exemplifies successful wandering, as it was created without customer demand but met a latent need.

"Wandering in business is not efficient, but it is also not random. It's guided by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough and it's worth being a little messy and tangential to find our way there."

Bezos explains the importance of exploring uncharted paths to achieve breakthrough innovations, highlighting the value of guided exploration in business.

• As a company grows, the scale of its experiments and failures should also grow.
• Large-scale failures are indicative of a company's willingness to innovate at a scale that can impact the market.
• Amazon's development of the Firephone, despite its failure, led to the successful creation of Echo and Alexa.

"If the size of your failures isn't growing, you're not going to be inventing at a scale that can actually move the needle."

This quote emphasizes the importance of scaling the size of experiments and accepting the possibility of large-scale failures as part of the innovation process.