#282 Jeff Bezos Shareholder Letters
What I learned from rereading Jeff Bezos' Shareholder Letters (for the 3rd time!)
Read Jeff's letters in book form: Invent and Wander: The Collected Writings of Jeff Bezos or for free online: Amazon Investor Relations
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[2:30] Amazon hopes to create an enduring franchise
[3:00] Because of our emphasis on the long term, we may make decisions and weigh trade-offs differently than some companies.
[4:00] We will continue to focus relentlessly on our customers.
[4:00] We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture.
[4:00] We set out to offer customers something they simply could not get any other way.
[5:00] Word of mouth remains the most powerful customer acquisition tool that we have.
[5:00] We are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about. Such things aren't meant to be easy.
[6:00] "To read Bezos’ shareholder letters is to get a crash course in running a high-growth internet business from someone who mastered it before any of the playbooks were written." — From CB Insights
[7:00] Common themes repeated in Jeff’s letters:
More innovation is ahead of us.
It is still early. The opportunity —if we execute well — is enormous.
We will move quickly.
We will endure. Amazon will be a durable, long-lasting company.
We will focus on cash flow.
Once in a lifetime opportunities will be risky. Jeff gave himself a 30% chance of success— at best.
Customer obsession is our North Star. It is what we will bet the company on.
We will be BOLD.
We will have a frugal, lean culture that Sam Walton would approve of.
This will be hard. All valuable things are.
We will have to learn along the way.
[8:00] Sam Walton: Made In America by Sam Walton. (Founders #234)
[11:00] I would love to ask Jeff the question, “If you could only have one word to describe you on your tombstone, what would it be?” My guess is he would pick “relentless.”
[16:00] We believe we have reached a "tipping point," where this platform allows us to launch new ecommerce businesses faster, with a higher quality of customer experience, a lower incremental cost, a higher chance of success, and a faster path to scale and profitability than any other company. (A company that builds companies)
[17:00] Made in Japan: Akio Morita and Sony by Akio Morita. (Founders #102)
[19:00] We will continue to invest heavily in introductions to new customers. Though it's sometimes hard to imagine with all that has happened in the last five years, this remains Day 1 for ecommerce, and these are the early days of category formation where many customers are forming relationships for the first time. We must work hard to grow the number of customers who shop with us. (He was right about this — what is the lifetime value of an Amazon customer over 17 years?)
[21:00] To us, operational excellence implies two things: delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all our businesses.
Often, the best way to drive one of these is to deliver the other.
For instance, more efficient distribution yields faster delivery times, which in turn lowers contacts per order and customer service costs. These, in turn, improve customer experience and build brand, which in turn decreases customer acquisition and retention costs.
[22:00] Creative Selection: Inside Apple's Design Process During the Golden Age of Steve Jobs by Ken Kocienda (Founders #281)
[24:00] Jeff Bezos on The Electricity Metaphor for the Web's Future
[27:00] Repeat this loop: Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it's good for shareholders. Please expect us to repeat this loop.
[29:00] The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone. (Founders #179)
[35:00] My Life and Work by Henry Ford. (Founders #266)
[40:00] Jeff Bezos is unapologetically extreme. He is already the best and still wants to be better.
[41:00] This part is incredible— on the need for good judgement and why data may lead you to make the wrong decision:
Our quantitative understanding of elasticity is short-term. We can estimate what a price reduction will do this week and this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on our business over five years or ten years or more. Our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.
[43:00] Don’t build an undifferentiated commodity business. — Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel. (Founders #278)
[44:00] Differentiation is survival.
[49:00] Missionaries build better products.
[50:00] Long-term thinking levers our existing abilities and lets us do new things we couldn't otherwise contemplate. It supports the failure and iteration required for invention, and it frees us to pioneer in unexplored spaces. Seek instant gratification-or the elusive promise of it-and chances are you'll find a crowd there ahead of you. Long-term orientation interacts well with customer obsession. If we can identify a customer need and if we can further develop conviction that that need is meaningful and durable, our approach permits us to work patiently for multiple years to deliver a solution.
[52:00] Problems are just opportunities in work clothes.
[53:00] Similar idea said two different ways:
Jeff Bezos: The financial results for 2009 reflect the cumulative efforts of 15 years of customer experience improvements.
Peter Thiel: If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now?
[55:00] The most radical and transformative of inventions are often those that empower others to unleash their creativity—to pursue their dreams.
[57:00] A dreamy business offering has at least four characteristics.
—Customers love it
—It can grow to very large size
—It has strong returns on capital
—It's durable in time-with the potential to endure for decades.
When you find one of these get married.
[1:03:00] Be a yardstick of quality. Some people aren't used to an environment where excellence is expected. — Inside Steve’s Brain by Leander Kahney. (Founders #204)
[1:03:00] I believe high standards are teachable. High standards are contagious. —Jeff Bezos
[1:04:00] Leaders have relentlessly high standards. Many people may think these standards are unreasonably high.
[1:07:00] The key point here is that you can improve results through the simple act of teaching scope-that a great memo probably should take a week or more.
[1:10:00] Differentiation is Survival and the Universe Wants You to be Typical
In what ways does the world pull at you in an attempt to make you normal?
How much work does it take to maintain your distinctiveness?
To keep alive the thing or things that make you special?
We all know that distinctiveness – originality – is valuable.
What I’m asking you to do is to embrace how much energy it takes to maintain that distinctiveness.
The world wants you to be typical – in a thousand ways, it pulls at you.
Don’t let it happen.
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