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“Obsess over Customers.” Each annual letter reinforces that mantra. “We intend to build the world’s most customer-centric company,” he wrote the following year. “We hold as axiomatic that customers are perceptive and smart.… But there is no rest for the weary. I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers.”
Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand.
We will continue to focus relentlessly on our customers.
We understand the importance of continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.
we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.
We know our success 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.
Word of mouth remains the most powerful customer acquisition tool we have,
Repeat purchases and word of mouth
The percentage of orders from repeat customers grew from over 46 percent in the fourth quarter of 1996 to over 58 percent in the same period in 1997.
We’re fortunate to benefit from a business model that is cash-favored and capital efficient. As we do not need to build physical stores or stock those stores with inventory, our centralized distribution model has allowed us to build our business to a billion-dollar sales rate with just $30 million in inventory and $30 million in net plant and equipment. In 1998, we generated $31 million in operating cash flow which more than offset net fixed asset additions of $28 million.
The percentage of orders placed by repeat customers grew from over 64 percent in the fourth quarter of 1998 to greater than 73 percent in the same period in 1999.
business with over $2 billion in annualized sales but requiring just $220 million in inventory and $318 million in fixed assets. Over the last five years, we’ve cumulatively used just $62 million in operating cash.
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.
Online selling (relative to traditional retailing) is a scale business characterized by high fixed costs and relatively low variable costs. This makes it difficult to be a medium-sized e-commerce company. With a long enough financing runway, Pets.com and living.com may have been able to acquire enough customers to achieve the needed scale.
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.
