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Kindle Notes & Highlights
by
Colin Bryar
Read between
June 14 - September 16, 2021
An Amazon quarterly business review, for instance, might be broken down like this instead: Introduction Tenets Accomplishments Misses Proposals for Next Period Headcount P&L FAQ Appendices (includes things like supporting data in the form of spreadsheets, tables and charts, mock-ups)
We mentioned earlier the estimated reading speed of three minutes per page, which led to the six-page limit.
Jeff has an uncanny ability to read a narrative and consistently arrive at insights that no one else did, even though we were all reading the same narrative. After one meeting, I asked him how he was able to do that. He responded with a simple and useful tip that I have not forgotten: he assumes each sentence he reads is wrong until he can prove otherwise. He’s challenging the content of the sentence, not the motive of the writer. Jeff, by the way, was usually among the last to finish reading.
“setup time” would consume too much of the meeting: teams, rightfully proud of their recent accomplishments, wanted to talk about them at the expense of the important decisions we needed to know about, so by the time the team recapped their progress, there was not enough time left for what actually needed to get done.
The press release (PR) portion is a few paragraphs, always less than one page. The frequently asked questions (FAQ) should be five pages or less.
Press Release Components These are the key elements of the press release: Heading: Name the product in a way the reader (i.e., your target customers) will understand. One sentence under the title. “Blue Corp. announces the launch of Melinda, the smart mailbox.” Subheading: Describe the customer for the product and what benefits they will gain from using it. One sentence only underneath the heading. “Melinda is the physical mailbox designed to securely receive and keep safe all your e-commerce and grocery deliveries.” Summary Paragraph: Begin with the city, media outlet, and your proposed
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Often FAQs are divided into external (customer focused) and internal (focused on your company).
How many consumers have this need or problem? How big is the need? For how many consumers is this problem big enough that they are willing to spend money to do something about it? If so, how much money would they be willing to spend? How many of these consumers have the characteristics/capabilities/constraints necessary to make use of the product?
What are the per-unit economics of the device? That is, what is the expected gross profit and contribution profit per unit? What is the rationale for the price point you have chosen for the product? How much will we have to invest up front to build this product in terms of people, technology, inventory, warehouse space, and so on?
Some of the best new product proposals set a not-to-exceed price point because it forces the team to innovate within that constraint and face the tough trade-offs early on.
Jeff would say something to the effect of, “We shouldn’t be afraid of taking on hard problems if solving them would unlock substantial value.”
There is no guarantee that an idea expressed in an excellent PR/FAQ will move forward and become a product. As we’ve said, only a small percentage will get the green light. But this is not a drawback. It is, in fact, a huge benefit of the process—a considered, thorough, data-driven method for deciding when and how to invest development resources. Generating and evaluating great ideas is the real benefit of the Working Backwards process.
a well-known Six Sigma process improvement method called DMAIC, an acronym for Define-Measure-Analyze-Improve-Control.
Donald Wheeler, in his book Understanding Variation, explains: Before you can improve any system … you must understand how the inputs affect the outputs of the system. You must be able to change the inputs (and possibly the system) in order to achieve the desired results. This will require a sustained effort, constancy of purpose, and an environment where continual improvement is the operating philosophy.2
As we gathered more data and observed the business, this particular selection metric evolved over time from number of detail pages, which we refined to number of detail page views (you don’t get credit for a new detail page if customers don’t view it), which then became the percentage of detail page views where the products were in stock (you don’t get credit if you add items but can’t keep them in stock), which was ultimately finalized as the percentage of detail page views where the products were in stock and immediately ready for two-day shipping, which ended up being called Fast Track In
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For instance, we decided that in each category, we wanted 95 percent of detail page views to display a product that was in stock and ready for immediate shipping. These new input metrics created a substantial change in the work and behavior of the category teams. Their focus shifted to reviewing other websites and retail stores and combing through Amazon search logs to determine what items people were searching for in each category but weren’t finding on Amazon. From this they could develop a “stack-ranked” or prioritized list of manufacturers to approach and items to acquire that mattered
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Start with the customer and work backwards by aligning your metrics with the customer experience.
Output Metrics Show Results. Input Metrics Provide Guidance.
Amazon has an unshakable conviction that the long-term interests of shareowners are perfectly aligned with the interests of customers.
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. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.”
Jeff wrote. “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.”2 Key word: patiently. Many companies will give up on an initiative if it does not produce the kind of returns they are looking for within a handful of years. Amazon will stick with it for five, six, seven years—all the while keeping the investment manageable, constantly learning and improving—until it gains momentum and
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invention works well where differentiation matters.
what was true yesterday may not be true today.
solve a sufficiently important customer problem or create a notably wonderful customer experience.
Big companies tend to develop a decision-making process that is designed to manage one-way door decisions, precisely because poor decisions can lead to big problems, even disaster. The process is typically slow, cumbersome, and riddled with risk aversion. This process tends to become the dominant one in large companies, and it is routinely, almost thoughtlessly, applied to two-way door decisions. The result is reduced speed, impaired idea generation, stifled innovation, and longer development cycles.
it takes exceptionally patient and unwavering leadership to persevere through the prolonged process of building a new business and navigating through transformative times in an established industry with entrenched interests.
thinking big, thinking long-term, being obsessed with customers, being willing to be misunderstood for long periods of time, and being frugal—
He focused first on how to organize the team and who was the right leader to achieve the right result.
“You don’t want to become Kodak,” he would say, referring to the once-mighty photography giant that had missed the turn from film to digital.
He would frequently describe the two fundamental approaches that each company must choose between when developing new products and services. We could be a fast follower—that is, make a close copy of successful products that other companies had built—or we could invent a new product on behalf of our customers. He said that either approach is valid, but he wanted Amazon to be a company that invents.
Why? For digital in particular, part of the answer was that the industry was changing more rapidly than most. With a fast-follower strategy, by the time we could have built and deployed a reasonable replica of a competitor’s service, they or someone else would have already created something better, and we wouldn’t have had enough time to recoup returns on our existing service before we had to build a different one. The quick evolution of Apple’s music service from a tethered iPod to a Mac to seamless discovery and playback on the iPhone and iPad makes its own case for why the fast-follower
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invention is a more challenging path than fast following. The roadmap for fast following is relatively clear—you study what your competitor has built and copy it. There is no roadmap for invention.
And for new initiatives in Digital (as well as AWS), the PR/FAQ process enabled him to spend weeks or months to gain alignment and clarity at a high level of detail on each project. Once he and the team had aligned on each detailed PR/FAQ, Digital and AWS leaders could then run as hard as possible to build their teams and launch new products, with the knowledge that they were in lockstep with the CEO. This enabled Jeff to direct and influence multiple projects simultaneously. This kind of alignment existed not because Jeff was CEO but because we had a process in place that enabled it. The same
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Steve had hired leaders of the appropriate level and expertise to run each element of our product and business vision and had modified the org structure to accommodate them. With each modification, the scope of each leader’s responsibilities would become narrower, but the intended scale of each role was greater. At most companies, reducing a leader’s scope would be considered a demotion, and in fact there were many VPs and directors who saw each of these changes in that way. At Amazon, it was not a demotion. It was a signal that we were thinking big and investing in digital for the long term.
Once we determined what was necessary to create value for our customers and to differentiate ourselves from our competitors, we didn’t let our lack of ability deter us from achieving this important end result—our own device.
Customer expectations are not static. They rise over time, which means you cannot rest on your laurels.
Jeff exhibits discomfort when presented with an either/or proposition in which both results are mediocre. Viewed through the Customer Obsession and Insist on the Highest Standards leadership principles, the only answer to the question, “Which would you rather have, ‘slow and free’ or ‘fast and expensive’?” is “fast and free.” So the catch was that “fast and free” was where Amazon needed to go next, but our fulfillment capabilities were not up to the task.
The institutional no refers to the tendency for well-meaning people within large organizations to say no to new ideas. The errors caused by the institutional no are typically errors of omission, that is, something a company doesn’t do versus something it does. Staying the current course offers managers comfort and certainty—even if the price of that short-term certainty is instability and value destruction later on.
The “October surprise” email arose out of his realization that you simply could not prove a priori that free shipping would work. You just had to try it.
We had to change the expected payback period of our decision from the next quarter or two to five or even seven years ahead.
As Jeff would say in his 2016 shareholder letter, “We want Prime to be such a good value, you’d be irresponsible to not be a member.”
Jeff had told Steve that it was his job to be like Howard Hughes. From then on, Steve had to run his fingers over each new Amazon product, checking for anything that might reduce the quality, insisting that his team maintain the highest standards. My sense was that Steve was telling me the story for two reasons. First, it was a kind of heads-up. He wanted me to know, as one of his senior team members, that he would be sending me and my team back to the drawing board if a product didn’t measure up. Second, he was telling me indirectly that I too was responsible for setting higher standards for
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There is a difficult chicken-and-egg problem with a subscription service. You need to have a great offering to attract paying subscribers. To be able to afford a great offering, you need a lot of paying subscribers. It’s a challenging cold-start problem that generally requires a large up-front investment, which you can hopefully pay back with subscriber growth in future years. Jeff argued that even if we offered streaming videos to Prime members at no additional cost, the business could still be profitable in the long run. (Long-term thinking = being Amazonian.)
The major benefit of establishing a popular subscription service with a fixed-cost base is that once you exceed a certain number of subscribers, every new dollar of subscription revenue is pure profit.
The “oh-by-the-way” addition would become a “gotta-have” benefit.
as Jeff often mentions, customers are divinely discontented, and “yesterday’s ‘wow’ quickly becomes today’s ‘ordinary.’”
Today, when a new business inside Amazon grows to $10 million, the overall company is growing from $10 billion to $10.01 billion. It would be easy for the senior executives who run our established billion dollar businesses to scoff. But they don’t. They watch the growth rates of the emerging businesses and send emails of congratulations. That’s pretty cool, and we’re proud it’s a part of our culture.4
“undifferentiated heavy lifting,” that is, the tasks that we could do for companies that would enable them to focus on what made them unique. This was an opportunity.
“Cost following” means that your pricing model is driven primarily by your costs, which are then passed on to your customer. This is what construction companies use, because building your customer’s gazebo out of redwood will cost you a lot more than building it out of pine. If we were to use a cost-following strategy, we’d be sacrificing the simplicity of subscription pricing, but both our customers and Amazon would benefit.
We had gotten through those bad meetings and to a place where we could have a discussion about our strategy. At the end of the discussion, we had agreement on the strategy, and we summarized it in five bullet points. Jeff said, “You should write these down and put them at the top of your document every month, so we remember what we decided last time.” And thus, tenets were born. The next month I showed up with my document with the tenets front and center. It helped us all reload the cache, and made the rest of the meeting productive since we didn’t have to rehash our previous decisions.1
