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Bezos’ letter to shareholders showcases great communication and strategy

 

Reading what Jeff Bezos wrote in his most recent Amazon shareholder letter, we were blown away by the smart communication and business strategy on show. Here we pull out key quotes and unpack the letter for lessons in how to engage and how to do business which we would all do well to emulate:

  1. “The percentages represent the share of physical gross merchandise sales sold on Amazon by independent third-party sellers – mostly small- and medium-sized businesses – as opposed to Amazon retail’s own first party sales. Third-party sales have grown from 3% of the total to 58%. To put it bluntly: Third-party sellers are kicking our first party butt. Badly. –”

Looks like a negative. But it’s a positive i.e. one division of Amazon is besting another! Not often do you see the word “butt” used in a shareholder letter. Bezos’s choice of words is not the jargon of the financial world but a casual and relaxed, yet engaging form.

2. “But in that same time, third-party sales have grown from $0.1 billion to $160 billion – a compound annual growth rate of 52%. To provide an external benchmark, eBay’s gross merchandise sales in that period have grown at a compound rate of 20%, from $2.8 billion to $95 billion.”

Nice dig at the competition. 20% sounds good for eBay, but Amazon has grown 52%! Bezos acknowledges eBay’s growth nonetheless.

3. “We helped independent sellers compete against our first-party business by investing in and offering them the very best-selling tools we could imagine and build. There are many such tools, including tools that help sellers manage inventory, process payments, track shipments, create reports, and sell across borders – and we’re inventing more every year.”

That’s news. We knew Amazon was in the web-hosting business, but now Amazon sees itself in the “tools” business – and they are inventing more each year. Another clearly defined vertical market for Amazon to dominate. Bezos has us hooked – “please tell us more about those tools…”

4. “But of great importance are Fulfillment by Amazon and the Prime membership program. In combination, these two programs meaningfully improved the customer experience of buying from independent sellers.”

The way they are successful is by focussing on the “experience”. It’s not primarily about the product or even the service, it’s about the “experience”. Many organisations still operate under the illusion that they need better products and services to win. They are wrong. What they need to offer are superior experiences, because, in any assessment of value that human beings make, their lived experience is what matters.

5. “With the success of these two programs now so well established, it’s difficult for most people to fully appreciate today just how radical those two offerings were at the time we launched them. We invested in both of these programs at significant financial risk and after much internal debate. We had to continue investing significantly over time as we experimented with different ideas and iterations.”

So many messages here. Amazon produces “radical offerings”. Amazon invests “at significant financial risk”. Amazon encourages “much internal debate” – it’s not all my decision, says Bezos. Amazon takes a long-term view by “investing significantly over time”. Amazon “experiments with different ideas and iterations”. Not just one good idea, but diverse ideas. And not just one version of each idea, but iterations of ideas. Note the language and the messaging this carries about experimentation and innovation being transmitted not just to shareholders but to customers and employees as well.

6. “We could not foresee with certainty what those programs would eventually look like, let alone whether they would succeed, but they were pushed forward with intuition and heart, and nourished with optimism.”

“We could not foresee with certainty” – we started with questions, we had no crystal ball – “let alone whether they would succeed” – we were ready for failure! What Amazon fosters is an open and daring attitude – “they were pushed forward with intuition and heart, and nourished with optimism”. This is really stirring language as well as innovative strategy in its essence – Amazon pushes ideas forward with “intuition and heart”, the very words inspiring courage in the shareholder, the customer and the employee. And they “nourish” ideas not with just money, but with “optimism” – the language of human growth and flourishing at the core of the company’s modus operandi.

7. “From very early on in Amazon’s life, we knew we wanted to create a culture of builders — people who are curious, explorers. They like to invent. Even when they’re experts, they are “fresh” with a beginner’s mind. They see the way we do things as just the way we do things now. A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again. They know the path to success is anything but straight.”

Key elements around culture to focus on here. Firstly, that Amazon is a team of builders who are curious and explorative. The shareholders, like the employees, are being invited to leave behind a fearful, narrow focus on safety, prudence and tradition-bound ways of being and doing, to take on a broad view of an open-ended enterprise. Everyone at Amazon, no matter how great their expertise, takes on a “beginner’s” mindset, with its capacity for questioning the status quo and seeing things afresh, and buys into the democratising, anti-hierarchical culture that flows from valuing this capacity. Great HR message here. And Bezos reminds us that our reality and the roles we play are not at all fixed … “they see the way we do things as just the way we do things now”. Great use of simple language. We love the demystification of the creative process contained in the prosaic notion of a “building mentality” and the “humble conviction” that motivates it. Bezos and Amazon are anything but humble in ambition, but a building mentality powered by a humble conviction in the value of iterations of building, measuring and learning from results is the essence of the Lean Startup methodology and, though the path to success is not straight, it is the surest path we can forge. This paragraph on its own is gold!

8. “Much of what we build at AWS is based on listening to customers. It’s critical to ask customers what they want, listen carefully to their answers, and figure out a plan to provide it thoughtfully and quickly (speed matters in business!). No business could thrive without that kind of customer obsession. But it’s also not enough. The biggest needle movers will be things that customers don’t know to ask for. We must invent on their behalf. We have to tap into our own inner imagination about what’s possible.”

Design-led thinking at its core. Bezos realises that you don’t end up delighting customers by asking them what they want because they can’t identify what they don’t have. If you deeply understand what customers do, you can design experiences that will indeed delight them.

9. “AWS itself — as a whole — is an example. No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS but didn’t know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building — reworking, experimenting, and iterating countless times as we proceeded.”

Once again, people don’t know what they want. So, Amazon is curious, observes closely, develops hunches, places risky bets by building something real, then learns and rebuilds and learns some more. You need to experiment, fail, learn and experiment again to succeed. Re-iterates our previous point on iteration.

10. “As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.”

A brave message on the importance of failure from Bezos. Not only is it important to fail, but the size and scale of the failures needs to grow over time. And multi-billion dollar failures are OK! Bezos regards taking bets like a VC – many will fail, but the one big one will make up for the failures. An amazing outlook.

11. “No customer was asking for Echo. This was definitely us wandering. Market research doesn’t help. If you had gone to a customer in 2013 and said “Would you like a black, always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions, that also turns on your lights and plays music?” I guarantee you they’d have looked at you strangely and said “No, thank you…”

Bezos is making a BIG point here that Amazon’s voice technology is a truly disruptive innovation, for those of you familiar with Clayton Christensen’s theory of disruptive innovation. That is, the market did not exist until Amazon created a new market category for voice products by providing a product that no-one really wanted – until now! Bezos reminds us of the line attributed to Henry Ford, “If I had asked someone what they wanted, they would have said faster horses”

12. “Teams all across Amazon are listening to customers and wandering on their behalf!”

Clever finale that doubles back on the theme of “listening to customers” as well as “wandering” – on their behalf! Not just for the benefit of Amazon shareholders but a pledge to the public and an inspiration to the staff. Strategy and communication at its best!

 

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