Lessons Learned : Amazon Letters to the Stakeholders write what you learned from this Amazon Letters Why this assignment : In Digital Transformation you need to focus on Explore and Exp

2021

COVER OPTION 2

24 Lessons From Jeff Bezos’ Annual Letters To Shareholders

CB Insights helps the world’s leading companies make smarter technology decisions with data, not opinion.

Our Technology Insights Platform provides companies with comprehensive data, expert insights and work management tools to drive growth and improve operations with technology.

WHAT IS CB INSIGHTS?

SIGN UP FOR A FREE TRIAL

324 Lessons From Jeff Bezos’ Annual Letters To Shareholders

2020: Company culture can be both employee-centric and customer-centric 6

2019: In times of crisis, be aggressive and agile 10

2018: Wandering is an essential counterbalance to efficiency 13

2017: Build high standards into company culture 16

2016: Move fast and focus on outcomes 19

2015: Don’t deliberate over easily reversible decisions 22

2014: Bet on ideas that have unlimited upside 25

2013: Decentralize decision-making to generate innovation 28

2012: Surprise and delight your customers to build long-term trust 31

2011: Self-service platforms unlock innovation 33

2010: R&D should pervade every department 35

2009: Focus on inputs — the outputs will take care of themselves 37

2008: Work backwards from customer needs to know what to build next 40

2007: Missionaries build better products 42

2006: Nurture your seedlings to build big lines of business 45

2005: Don’t get fixated on short-term numbers 47

2004: Free cash flow enables more innovation 49

2003: Long-term thinking is rooted in ownership 51

2002: Build your business on your fixed costs 53

2001: Measure your company by your free cash flow 55

2000: In lean times, build a cash moat 57

1999: Build on top of infrastructure that’s improving on its own 59

1998: Stay terrified of your customers 61

1997: Bring on shareholders who align with your values 63

Links to Jeff Bezos’ Shareholder Letters (1997-2020) 66

Table of Contents

424 Lessons From Jeff Bezos’ Annual Letters To Shareholders

Each year, Jeff Bezos writes an open letter to Amazon’s shareholders. Over the last 2 decades, these letters have become an unparalleled source of insight into how the world’s richest man thinks about efficiency, online customer experience, retention, managing through crises, and more.

Amazon is a hugely successful, precedent-breaking company. The online bookseller didn’t turn a profit for 6 years — today, it’s the second publicly traded company ever to hit a $1T market cap.

Since founding Amazon in 1994, Jeff Bezos has run his company according to an unconventional set of core principles: don’t worry about competitors, don’t worry about making money for shareholders, and don’t worry about the short term. Focus on the customers, and everything else will fall into place.

Bezos broke all the rules when he built Amazon. In doing so, he carved out a unique way of looking at the world, at companies, and at tech in general. And nowhere is Bezos’ philosophy of business, technology, and leadership better articulated than in his annual shareholder letters, which he has written every year since the company’s IPO in 1997.

524 Lessons From Jeff Bezos’ Annual Letters To Shareholders

Since 1997, Amazon’s stock price has risen from $5 per share to over $3,000 per share.

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.

Below, we analyze the letters and unpack the most important wisdom in each. We also include an appendix linking to each letter at the bottom of the post.

Together, these letters form a library of Jeff Bezos’ most distilled thinking on running a successful, high-growth company.

624 Lessons From Jeff Bezos’ Annual Letters To Shareholders

“You have to pay a price for your distinctiveness, and it’s worth it. The fairy tale version of ‘be yourself’ is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading. Being yourself is worth it, but don’t expect it to be easy or free. You’ll have to put energy into it continuously.

The world will always try to make Amazon more typical – to bring us into equilibrium with our environment. It will take continuous effort, but we can and must be better than that.”

TAKEAWAY

In his last annual shareholder letter as the CEO of Amazon, Bezos argues that success in business and in life boils down to one rule: create more value than you consume. Companies that fail to do so are on the way out, even if they appear successful on the surface.

And creating value isn’t only about enriching shareholders. It’s also about paying employees well, supporting third-party sellers, and saving time and money for consumer customers and AWS customers. Bezos calculates that Amazon created $301B in total value in 2020 for all 4 of these groups.

What made such value creation possible is the willingness of Amazon to put in the hard work needed to become and stay different. Bezos says that businesses and employees have to be “realistic about 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.”

2020: Company culture can be both employee-centric and customer-centric

724 Lessons From Jeff Bezos’ Annual Letters To Shareholders

CHALLENGE

But while Amazon has succeeded in pursuing innovation, Bezos admits that the tech giant was less successful on other fronts. He says that he takes no comfort in the outcome of the union vote in Bessemer, Alabama, which saw most workers voting against forming a union.

While countering claims that Amazon does not care for its employees, he says the company needs “a better vision for how we create value for employees – a vision for their success.” Bezos also recognizes that some shareholders may think that focusing on employees will make Amazon less customer-centric, an opinion he strongly disagrees with.

Reacting to the effects of climate change is another challenge today’s businesses face, according to Bezos. The global economy needs to be steered toward a more sustainable future, but many companies are reluctant to change — they fear losing their competitive edge and profits. Getting everyone to commit to tackling climate change requires coordination and compromises.

SOLUTION

Bezos believes that combining training programs, cutting-edge technologies, and new safety policies into a cohesive effort will improve labor practices. He wants Amazon to become “Earth’s Best Employer and Earth’s Safest Place to Work.”

To achieve this ambitious goal, the company will continue implementing WorkingWell, a program that trains employees on body mechanics, safety, and proactive wellness. Amazon is also developing automated staffing schedules that use algorithms to ensure employees regularly rotate between jobs that use different muscle groups.

824 Lessons From Jeff Bezos’ Annual Letters To Shareholders

The goal is to reduce repetitive motions that can lead to musculoskeletal disorders. Furthermore, Amazon will invest over $300M in developing new safety practices, including technologies that can prevent collisions with forklifts and other machines.

Satisfied employees lead to satisfied customers. In other words, employee-centric and customer-centric visions of Amazon reinforce each other and are not at odds. Bezos says, “If we can operate two businesses as different as consumer ecommerce and AWS, and do both at the highest level, we can certainly do the same with these two vision statements. In fact, I’m confident they will reinforce each other.”

But how to change the behavior of other companies when it comes to tackling climate change? One way is to fund scientific and business projects that will lead to greener technologies. Big companies will then have more tools to choose from when they decide to seriously commit to fighting climate change.

924 Lessons From Jeff Bezos’ Annual Letters To Shareholders

Another important lesson is that moving the needle in a meaningful way requires leading by example. For instance, Amazon invested over $1B in Rivian and ordered 100,000 electric vans from the company. Bezos has also personally pledged $10B to provide grants to scientists, NGOs, and others working to tackle climate change.

Bezos uses the 2020 shareholder letter to remind everyone of the value Amazon created during his tenure as well as to lay out the vision for the future. He also welcomes Andy Jassy as the new CEO and reminds everyone at Amazon that “It remains Day 1.”

1024 Lessons From Jeff Bezos’ Annual Letters To Shareholders

“Reflect on this from Theodor Seuss Geisel: ‘When something bad happens you have three choices. You can either let it define you, let it destroy you, or you can let it strengthen you.’ I am very optimistic about which of these civilization is going to choose.”

TAKEAWAY

Bezos’ 2019 letter has a different tenor than letters of years past. Most of it is focused on the threat posed by Covid-19, both to Amazon and to the world.

But there are also some echoes of previous Amazon missives, especially the 2000 letter, which was designed to ease the concerns of Amazon shareholders after the huge sell-off that followed the dot-com boom.

This one is similarly designed to demonstrate resilience in the middle of a crisis, though in a dramatically different context — both in terms of Amazon’s scale and the scale of the unfolding situation around the company.

The key message of the letter is simple: Bezos wants the world to know that Amazon is acting aggressively to simultaneously create value and keep people safe.

CHALLENGE

The Covid-19 pandemic has generated waves of first- and second-order effects on the global economy, with millions laid off, furloughed, or ordered to stay home.

2019: In times of crisis, be aggressive and agile

1124 Lessons From Jeff Bezos’ Annual Letters To Shareholders

Meanwhile, the majority of Amazon’s nearly 800,000 employees cannot work from home. From warehouse stockers to delivery drivers, Amazon’s workforce is made up of mostly “essential employees” responsible for the company’s vital shipping and logistics infrastructure.

While Amazon has seen sharp increases in sales since the beginning of the pandemic, the company has also come under a corresponding amount of criticism for labor practices, poor handling of warehouse safety, and its climate record.

The challenge of this shareholder letter, for Bezos, was how to provide an update that would project strength and preparedness, despite the chaos.

SOLUTION

In what is unconventional style for an Amazon shareholder letter, Bezos spends much of the beginning of the document running through a list of initiatives that the company has undertaken to support the efforts of healthcare workers around the world and protect employees.

Among these measures are the prioritization of delivery on essential goods, closure of non-essential Amazon retail stores, various social distancing measures, and internal work on building out greater Covid-19 testing capacity.

The clear message of the letter is that Amazon is responding to Covid-19 by acting aggressively to keep its workers healthy, hiring additional workers to meet demand, and helping governments, healthcare organizations, and others collect valuable data on how the virus works and spreads.

1224 Lessons From Jeff Bezos’ Annual Letters To Shareholders

The letter is relatively light on Bezos’ usual brand of insight into business and leadership strategy, but instead focuses on the argument that Amazon will emerge from this crisis not merely alive, but strengthened. This is the implicit message of the Dr. Seuss quote near the end of the letter: “When something bad happens you have three choices. You can either let it define you, let it destroy you, or you can let it strengthen you.”

Bezos considers the new stress that Amazon has been put under to be a productive stress — it’s something that will, in the long run, help Amazon by teaching it how to operate under a chaotic set of circumstances.

In the context of a traditional shareholder letter, the 2019 letter may look unlike previous iterations in terms of the density of Bezos’ philosophizing, but it still sheds light on Amazon’s priorities and core beliefs as a company.

1324 Lessons From Jeff Bezos’ Annual Letters To Shareholders

“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.’”

TAKEAWAY

Businesses are great at putting plans together. When they know exactly what needs to be built, many companies can execute on their ideas.

Where it gets messier and riskier is when you don’t know exactly what should be built. This is the most fertile and profitable territory for a business, according to Bezos.

To him, wandering — away from the obvious, away from old ideas — is key to Amazon’s success.

CHALLENGE

When you’re a small company, virtually everything you try is an experiment. The bigger you get, though, the more you have to lose, and the less tolerant to risk-taking you can become.

For Bezos, it’s not enough for big companies to prioritize taking risks and “wandering” as much as smaller, more nimble companies do.

2018: Wandering is an essential counterbalance to efficiency

1424 Lessons From Jeff Bezos’ Annual Letters To Shareholders

It’s that big companies need to scale everything up, “including the size of their failed experiments,” he writes.

“Wandering” isn’t an efficient practice for a business, but it isn’t random. It requires a culture of builders. It requires a deep customer obsession. And it requires an understanding that you should always listen to the people who use your products, but you ultimately must imagine and invent on their behalf. This is inevitably risky. But great companies, he argues, must take those risks.

SOLUTION

For Jeff Bezos, the key to staying innovative and growing is constantly urging employees to “wander” — to pursue creative ideas that, while they might sound odd or useless today, stand to deliver extraordinary value to your customers.

Some experiments will fail: the bigger you are, the bigger your failures should be. But one big success can often make up for all those failed experiments, and more.

“Wandering is an essential counter-balance to efficiency,” he writes. “You need to employ both. The outsized discoveries – the ‘non-linear’ ones – are highly likely to require wandering.”

Bezos traces Amazon’s history of hiring “builders” back to the early days of the company. Year by year, Amazon pushed the online retail space forward, and it grew from an online bookstore to a big box retail store competitor to a global e-commerce juggernaut.

That constant innovation, according to Bezos, came mostly out of Amazon’s willingness to “wander” — to imagine and build the new things that customers might love.

1524 Lessons From Jeff Bezos’ Annual Letters To Shareholders

For proof, he points to Amazon Web Services. Today a pillar of Amazon’s business, AWS was at one point nothing more than a hunch. No customer asked for it, but it found immediate demand upon its release. “That same pattern has recurred many times,” he writes, citing Amazon’s development of tools like DynamoDB, Amazon Aurora, ElastiCache, Amazon Go, and the Amazon Echo.

“No customer was asking for Echo,” Bezos writes, “This was definitely us wandering.”

Market research won’t tell you about most of the great inventions that your customers want, Bezos warns, but that doesn’t mean you should ignore them. “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 while customers can tell you what they want, they can never tell you what to build.

“The biggest needle movers will be things that customers don’t know to ask for. We must invent on their behalf,” he says. “We have to tap into our own inner imagination about what’s possible.”

1624 Lessons From Jeff Bezos’ Annual Letters To Shareholders

“How do you stay ahead of ever-rising customer expectations? There’s no single way to do it — it’s a combination of many things. But high standards (widely deployed and at all levels of detail) are certainly a big part of it. We’ve had some successes over the years in our quest to meet the high expectations of customers. We’ve also had billions of dollars’ worth of failures along the way. With those experiences as backdrop, I’d like to share with you the essentials of what we’ve learned (so far) about high standards inside an organization.”

TAKEAWAY

Great companies, like Amazon, are built on high standards.

Bezos argues that despite common thinking that high standards are intrinsic to certain people, high standards can be taught in virtually any domain. And if a company wants to stay competitive, it must teach high standards.

As you grow, you need to make an effort to not just get your own standards up, but to build an organization that can develop and recruit new people with high standards.

CHALLENGE

Today, when people are shopping, they can read reviews of items, compare prices across stores, and research products from their mobile devices with unprecedented ease. The customer is more empowered than ever, and as a retailer, that means you’re never safe from your competition.

2017: Build high standards into company culture

1724 Lessons From Jeff Bezos’ Annual Letters To Shareholders

Big companies like Amazon are especially at risk in this kind of environment. They need to get technologically ahead of more nimble startup competition — who often have hyperfocus, and little to lose — and do it with far larger organizations.

SOLUTION

To stay competitive, companies need to ensure that standards internally don’t stagnate, but constantly rise along with the customer’s expectations.

Two things hinder the ability to cultivate high standards, according to Bezos:

• Scope: Employees are able to recognize high quality in the field, but they have an incorrect idea of how long it’ll take to reach that level themselves

• Recognition: They lack the ability to recognize high quality in the field

Whether it’s creating a great deck or responding perfectly to a customer question, a major prerequisite of high standards is understanding how difficult it will be to achieve greatness.

1824 Lessons From Jeff Bezos’ Annual Letters To Shareholders

For Bezos, it’s possible to become great at virtually anything, if you can both recognize the level you need to get to and accurately estimate how long it will take to make it.

“To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be,” writes Bezos.

“Unrealistic beliefs on scope — often hidden and undiscussed — kill high standards.”

The second ingredient is recognition, or being able to understand the difference between bad, good, and great.

If you have leaders who can help the people on their teams both recognize quality and understand scope, Bezos concludes, you will end up building better products and services for your customers.

1924 Lessons From Jeff Bezos’ Annual Letters To Shareholders

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

TAKEAWAY

Companies that get complacent die.

Bigger companies are even more at risk because growth and scale make it harder to move quickly when you spot an opportunity.

To stay alive, big companies must strive to make decisions and act faster than startups.

CHALLENGE

At Amazon, it is always Day 1— it’s a powerful refrain that has featured in every shareholder letter since the original.

Day 1 represents originality, enthusiasm, and an eagerness to delight customers.

Day 2, for Bezos, is a powerful concept that embodies everything he fears could happen to Amazon and that does happen to many large organizations.

It is the idea that all of the tools you used to grow, all of the processes you used to scale, and all of the work you did to get to where you are become the company’s undoing. People get stuck in their processes.

Day 2 is the failure to adapt. And the bigger an organization gets, the harder it needs to work to stave off complacency.

2016: Move fast and focus on outcomes

2024 Lessons From Jeff Bezos’ Annual Letters To Shareholders

SOLUTION

Bezos offers four strategies to fight complacency:

• Stay focused on the customer

• Be skeptical of proxies

• Stay alert for and quickly adopt trends

• Make high-quality, high-velocity decisions

First, measure yourself by your customers. They are always “beautifully, wonderfully dissatisfied,” in Bezos’ words, and if you focus on always trying to make them happier, it’s hard to go wrong.

Second, Bezos warns against allowing process to turn into proxy. When you abstract a task into a process, it’s easy to start managing to the process rather than to the outcome you want. Soon, you have people getting the wrong end result and justifying their actions by saying they “followed the process.”

Bezos suggests that you always keep one eye on the outcome, not whether someone has ticked off every box on a list of steps.

2124 Lessons From Jeff Bezos’ Annual Letters To Shareholders

Amazon has responded to emerging trends in part through acquisitions, like Whole Foods ($13.7 billion) and Souq ($750 million).

Third, trends like AI and machine learning are big today and will be bigger tomorrow. While it’s not always easy to incorporate these kinds of trends into the work that you do, avoiding them means fighting that future.

Finally, keep up fast decision-making as you grow. Make a point to “disagree and commit” so you can keep things moving forward even in ambiguous, debatable situations.

2224 Lessons From Jeff Bezos’ Annual Letters To Shareholders

“Some decisions are consequential and irreversible or nearly irreversible – one-way doors — and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. . . . But most decisions aren’t like that — they are changeable, reversible — they’re two-way doors. . . . [These] decisions can and should be made quickly by high judgment individuals or small groups.”

TAKEAWAY

Big companies stop being creative because, in large part, their decision-making processes become slower and more drawn out as they scale. Caution creeps in, and people are less likely to move quickly or place risky bets.

For Bezos, the problem is that people treat reversible decisions like momentous problems requiring caution. They miss opportunities that nimbler companies don’t.

To remain innovative as you grow, you need to understand which decisions are reversible and should be executed on quickly, and which have lasting consequences and should therefore be mulled over more slowly.

CHALLENGE

Big companies are less tolerant of failure because they have more to lose, especially if they are public and have shareholders. Companies say they want to remain innovative, but they’re often not willing “to suffer the string of failed experiments necessary to get there.”

2015: Don’t deliberate over easily reversible decisions

2324 Lessons From Jeff Bezos’ Annual Letters To Shareholders

But it’s a mistake to take the overly cautious approach. “Every once in a while, when you step up to the plate, you can score 1,000 runs,” Bezos writes.

The key is figuring out how to marry the innovative spirit with the reality of risk aversion that exists at any large organization.

SOLUTION

Amazon’s success, according to Bezos, is rooted in the company’s acceptance of risk.

“I believe we are the best place in the world to fail,” he writes, “and 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.”

The way Amazon achieves its risk acceptance mentality, according to Bezos, is through acknowledging which decisions can be easily reversed (and should therefore be decided on by small, fast- moving teams) and which cannot (and should therefore be more carefully considered).

“Failure and invention are inseparable twins.”

He refers to these as two different types of decisions, Type 1 and Type 2.

Type 1 decisions are almost impossible to reverse. They’re “one- way doors.” Type 2 decisions, on the other hand, can

Collepals.com Plagiarism Free Papers

Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.

Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS

Why Hire Collepals.com writers to do your paper?

Quality- We are experienced and have access to ample research materials.

We write plagiarism Free Content

Confidential- We never share or sell your personal information to third parties.

Support-Chat with us today! We are always waiting to answer all your questions.