Jeff Bezos just became the world's richest man. His creation, Amazon, is an incredible company. The consistency and breadth of innovation it has produced over the past two decades are awe-inspiring. Bezos is undoubtedly the force behind this relentlessness, and I find him fascinating to listen to. In this blog post, I am going through the mindset and the main three principles that helped him to create Amazon the way it is right now. 

The three principles of Amazon

People see Amazon differently. It is an e-commerce site, a retailer, and an innovative tech company. Its products and services range from cloud computing, content, direct publishing platform, Alexa, and many others. So how should we think about Amazon?

Bezos sees Amazon more as an approach:

“We have a very distinctive approach that we have been honing and refining, and thinking about for 22 years. It’s really just a few principles that we use, as we go about thinking through the different activities we work on.”

Those few principles are:

1. Customer obsession

This is the fundamental driving force behind Amazon’s business. They don't have a competitor obsession, technology obsession, or product obsession model. They practice a customer obsession model. A competitor obsession can be a very successful strategy for some companies, he said, but you have to watch your competitors very closely because if they latch onto something that’s working, you duplicate it as quickly as possible. It means you don’t have to be a creative pioneer and you don’t have to venture down many blind alleys. There are disadvantages, of course. Bezos, however, believes the customer obsession model is the one right for Amazon, in combination with the following two principles.

2. A willingness to invent and pioneer

This marries very well with the customer obsession. According to Bezos, customers are always dissatisfied, even when they think they are happy. They actually do want a better way, they just don’t know what that way should be yet.

Customer obsession is not just listening to your customers, but also inventing on their behalf. It’s not their job to invent for themselves, you must be the inventor and the pioneer for them. This necessary creativity can lead to products and other innovations the customer doesn't even know they're missing. 

3. Long-term oriented

Bezos encourages his employees not to think in 2-3 year timeframes, but in 5-7 year timeframes. People often congratulate Bezos on quarterly results, but for Bezos, these results were actually baked in about three years ago. Today, he’s thinking about a quarter that’s going to happen in 2020. Next quarter, for all practical purposes, is probably already done, and has been done for a couple of years. But this mentality is not a natural way for humans to think. Bezos believes it’s a discipline that you have to train and build for.

“If you start thinking this way, it changes how you spend your time, how you plan, where you put your energy. Your ability to look around corners improves. Many things just get better.”

In conclusion, Amazon has an approach and a collection of principles that they embed into the way they think and work.

Failure and the importance of experimentation

Despite being the world's richest person and Amazon being wildly successful, there are a few things that keep Bezos sharp and focused. The fear of Amazon losing its strategy in one of the key areas mentioned above (customer obsession, inventiveness, long-term orientation) and that they become overly cautious or failure adverse, and therefore become unable to invent and pioneer.

"One area where I think we are especially distinctive is failure. I believe we are the best place in the 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." -Jeff Bezos' 2015 Letter to Amazon Shareholders

"Failure and invention are inseparable twins," Bezos says, but, it can embarrassing to fail. "If you have a ten percent chance of a 100 times payoff, you should take that bet every time.  But you’re still going to be wrong nine times out of ten."  You may feel bad about every one of those 9 failures, even embarrassed, but overcoming this fear is vital, particularly in the world of technology.

In technology, the outcomes may result with an asymmetric payoff. This is why you need to do so much experimentation. Jeff Bezos continued, "we all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments."

It’s important to make a distinction on the two types of failure. The right kind of failure occurs when experimentation on a new invention doesn't end well. Keeping in mind an important Bezos takeaway that if you already know the outcome, "it's not an experiment."  The wrong kind of failure, on the other hand, "Is not what you want. That’s where you have operating history, and you do know what you’re doing, and you just screw it up. That’s not a good failure. That’s just bad operational excellence."

Defining your big ideas

Any entrepreneur, organization or governmental institution should identify big ideas that encompass their overall strategy. There should only be two or three of these big ideas. The main job of a senior leader is to identify those important ideas and then to enforce them throughout the organization. The good news is that the big ideas are usually incredibly easy to identify and in most cases, you’ll already know what they are.

For Amazon’s consumer business, three of their big ideas are:

  • Low prices
  • Fast delivery
  • Vast selection

"How do we always deliver things a little faster? How do we always reduce our cost structure, so that we can have prices that are a little lower?”

These encompassing ideas are stable and will probably be the same in ten years. Ask: "What's not going to change in the next five to ten years?" Customers will still like low prices and fast delivery. No matter what happens with technology, these things will still remain true. 

"At Amazon, we're always trying to figure that out, because you can really spin up flywheels around those things. All the energy you invest in them today will still be paying you dividends ten years from now."

Bezos also discusses machine learning, renewable energy, and space exploration, but not once in the entire discussion does he mention the word innovation. A reminder that those who really do innovate don't talk about innovation.

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