How Jeff Bezos makes decisions

A lot of individuals ask me, “Why is Amazon so profitable?” Just a few years in the past, the CEO of a big European insurance coverage firm who was attending Invoice Gates’s annual CEO summit contacted me by means of a good friend on his board and needed to satisfy with me. After we met, he requested, “What are Amazon’s secrets and techniques of success?” I advised him, as I inform others, “Amazon has no secret administration ideas.” Jeff talks about them on a regular basis at “all-hands” conferences. He explains them in press interviews that may be considered on the web, and they’re listed on the backside of each press launch. However, I defined, you must reside by them the entire time, and most companies are unwilling or unable to take action.

A very powerful is buyer obsession. In his phrases, too many firms give attention to their rivals and never on their clients. As Jeff defined most lately to a Congressional Committee, “Clients are at all times superbly, splendidly dissatisfied. A continuing need to please clients drives us to continuously invent on their behalf.”

I’ve seen Jeff many occasions make decisions that hurt Amazon’s backside line however profit the client. As he says, inform me a buyer who needs increased costs or slower supply. After all, in the long run, these decisions imply a much bigger backside line. A associated precept is to assume long-term.

The second precept is fixed invention and innovation. As famous above, invention is intently linked to buyer satisfaction. Continuously invent and apply applied sciences to unravel issues and construct new companies. Buyer satisfaction and innovation are highly effective touchstones when making decisions. Decisions are far simpler whenever you ask, “What’s the greatest determination for the client” and “Is there a solution to invent our solution to an answer?”

The third precept is operational excellence. Examples of improvements in operations embrace two-pizza groups, one-click procuring, single-threaded leaders, working backward, and up-level hiring (the place an worker outdoors the workgroup additionally interviews each applicant and has the facility to veto their hiring).

Working backward is Amazon’s inner strategy of starting a mission by writing the press launch that may be used to announce a brand new service or product to the world. At most firms, the press launch is the final step in launching a product, written by PR individuals, after the product and expertise groups have created the brand new product. By beginning with the press launch, Amazon forces the crew to give attention to the advantages of the brand new product to the client. Then the crew should construct the services or products to realize these advantages. The draft press launch is accompanied by FAQs answering questions that clients and the press would possibly ask, equivalent to the value, in addition to describing technical challenges that should be overcome.

Assume long-term is the fourth touchstone, whether or not in launching new companies or investing in new applied sciences. When companies had been simply starting to acknowledge the probabilities of machine studying and AI, Jeff advised the board that he supposed to make use of AI in each a part of the enterprise, after which he proceeded to rent AI consultants and to coach his present engineers to make use of AI. Amazon created and made out there to clients AI instruments on AWS that they may use of their companies—even to compete towards Amazon.

Amazon additionally has fourteen management ideas, a few of which shock individuals. For instance, “leaders are proper, loads” has greater than a touch of hubris however is nuanced by commentary that leaders pay attention loads and are fast to alter their minds (“disconfirm their beliefs”) primarily based on differing proof. “Have spine, disagree and commit” is one other compelling precept.

I’ve at all times thought it troublesome to single out anyone precept or course of that’s most necessary to Amazon’s operations however pressured to decide on, I recommend the significance of a single-threaded chief, significantly in launching new initiatives but in addition relevant to fixing engineering and different issues.

An instance of a single-threaded chief was Jeff’s designation of Steve Kessel in 2004 to go up Amazon’s effort to construct a digital media enterprise in books, music, and video, which in the end concerned constructing gear just like the Kindle, Amazon Hearth, Hearth TV, and creating content material in video and books. Jeff may have requested the present group answerable for Amazon’s bodily books, music CDs, and movies—which amounted to 80 p.c of their enterprise on the time—to develop into digital items. Nonetheless, Jeff acknowledged that giving authority to a single chief centered completely on digital media would extra rapidly create such a enterprise with out the distractions and compromises which may have occurred if the management was additionally working the bodily enterprise. This course of was replicated with Andy Jassy’s appointment to launch AWS.

Jeff has additionally publicly described his decision-making course of, notably in categorizing decisions into one-way and two-way doorways. You may solely undergo a one-way door in a single path, you can’t undo your determination and are available again. Examples are promoting your organization or quitting your job, though even for this there are examples of comebacks. Amazon’s determination to supply free transport for an annual Prime price was probably a one-way door. In two-way doorways, you possibly can later reverse your determination or a minimum of terminate the motion with out enormously unhealthy penalties. Constructing their cell phone might need been thought of a one-way door, however actually, it was dropped and Amazon moved on to constructing the Echo. One-way decisions require numerous thought and consideration; two-way decisions could be made rapidly. It’s OK to make errors—failures are studying alternatives at Amazon, as they’re typically thought of by enterprise capitalists within the startup world. Jeff likes to say “we’re consultants at failure—as a result of we’ve got made so lots of them.”

Within the enterprise world, if your organization fails, it’s not a black mark; you study and may go on to start out one other firm and obtain funding. After all, causes for failures generally mirror a deeper downside with a frontrunner. Jeff prefers velocity, so he would moderately have solely 70 p.c of the required data or perception and proceed with later course connections than wait till having certainty. Jeff, like Steve Jobs, by no means thought it priceless to do a market survey asking clients whether or not or not they want some new product or characteristic when it has by no means existed previously. Prime memberships at $79 and $499 cellphones wouldn’t have been excessive on a listing of buyer’s needs.

Maybe Jeff’s overriding precept, which isn’t on Amazon’s formal checklist, is his abiding optimism of the long run and the way we’re solely in Day 1. It’s as infectious in his conferences with workers as his well-known snicker. His snicker is at all times close to the floor and, though real, he subconsciously typically makes use of it to mark some shocking perception or diffuse a tense second.

At inner conferences, together with board conferences, Jeff doesn’t hesitate to make use of his highly effective mind or place to dominate a dialogue of a difficulty, however he will also be a cautious listener on the lookout for new concepts. Once I was the lead director, I as soon as requested him what he hoped to get out of our board conferences. He replied, “If I get one good new thought out of each board assembly, it’s a success.” I assumed it was a low commonplace and humbling. It additionally didn’t appear to signify the give and take at board conferences, which consist not solely of administration stories but in addition strong questions, observations, and ideas by board members. And Jeff shouldn’t be inhibited from difficult a degree made by any of us. Often his remark has a specific chew that alerts deeper frustration or concern.

Board conferences span most of two or three days, together with committee conferences and two dinners: a number of the conferences consist solely of board members with Jeff, others with Jeff and the S-team, and at all times a dinner with one of many S-team with out Jeff current. Extremely helpful components of each board assembly are non-public periods of the board with Jeff. We might increase explicit questions on our minds, and he would distribute a listing of 5 necessary points that had been on his thoughts for dialogue. Many of those points had been long-term or expertise. They may embrace whether or not we had been investing sufficient in some new applied sciences, equivalent to AI or quantum computing. The non-public periods may final an hour or extra.

At Madrona, we’ve got picked up Jeff’s Day 1 philosophy to make the purpose that we wish to assist an organization from the very starting of the existence, Day 1. Jeff makes use of it in a broader sense, which means that though the web and Amazon could seem mature and in later phases to many, to Jeff we’re nonetheless originally. When some recommend, as I did as soon as, that possibly Amazon is in day two, Jeff pounces: “No we nonetheless are in Day 1.” It’s his final expression of optimism about what the long run will convey. He wouldn’t be investing $1 billion of his personal cash a yr in Blue Origin if he didn’t imagine we’re in Day 1.


Excerpted from Flywheels: How Cities Are Creating Their Personal Futures by Tom Alberg, revealed by Columbia Enterprise College Publishing. Copyright (c) 2021 Tom Alberg.  Utilized by association with the writer. All rights reserved.

Tom Alberg is cofounder of the enterprise capital agency Madrona Enterprise Group. He beforehand was senior vp of McCaw Mobile and president of LIN Broadcasting. Alberg was an early investor in Amazon and one among its board members from 1996 to 2019. He has additionally served on the boards of quite a few different firms and was a member of the Nationwide Advisory Council on Innovation and Entrepreneurship.