12 business lessons from Amazon founder and CEO Jeff Bezos. Part 1

    Translated to Alconost .

    If you ask start-up entrepreneurs who they are equal to today, you will hear the usual names: Steve Jobs, Elon Musk, Mark Zuckerberg, some will recall Bill Gates. But unfortunately, few will name Jeff Bezos, the founder and CEO of Amazon. This brilliant, analytical, systemic, and mocking entrepreneurial mind is apparently ignored by the attention it deserves. He does not have the charisma of Steve Jobs, an innovative car brand like Tesla, Zuckerberg's fame (which he even dedicated the whole movie to), or Bill Gates wealth. But I believe that he deserves a place on a par with them, and possibly even at the head of the list.

    This person does not just manage a retail store, he does much more. Bezos is involved in many other businesses, including the Blue Origin private space project (the company is developing technologies that reduce the cost of space travel to make private space travel available).

    We can learn a lot from this Princeton graduate who graduated with honors. Let's talk about some theses of his business philosophy.

    1. Be persistent and flexible.

    Bezos believes that good entrepreneurs should be both persistent and flexible. About Amazon, Bezos says: “We are unshakable in our vision. We are flexible in detail. ” The first part of the phrase is about the need to bend your line, the second is about the flexibility of tactics. Bezos adds: “If there is no stubbornness, you will stop experimenting too quickly. And if there is no flexibility, you will hit your head against the wall and will not see other solutions to the problem you are trying to solve. ”

    Being both stubborn and flexible is a challenge. Bezos warns: “In order to invent, you must be assertive and flexible more or less at the same time. The most difficult thing is to understand when to be what! ”

    I have heard that entrepreneurs are stubborn from birth. They are the very “natural leaders” who like to take responsibility and do everything their own way. But it seems that because of this they are limited in tactics and vision. Being a natural leader is useful, but flexibility remains one of the characteristics of a good entrepreneur. Ask a guy who has grown a company from 0 to 69,000 employees about this. Perhaps he knows something about leadership.

    2. Follow the “two pizza rule”

    Bezos believes in the effectiveness of small autonomous groups. (Probably from the time when he led the startup). He is a supporter of the “ two pizza rule ”, which states: a group must be so small that it can be fed just two pizzas. Usually this is a team of 5-7 people. It was these teams that created the Gold Box, which is still working for Amazon .

    With the increase in teams there is a tendency to decrease their effectiveness. Inefficiency reduces team performance and leads to losses. So make sure that the teams remain small, and see for yourself how it works.

    3. Never stop experimenting.

    I really like this quote by Bezos: “If you double the number of experiments conducted in a year, you will double your inventiveness.”

    Ask most executives and they will tell you that experimentation is necessary for their business. This is how innovations appear, and their business remains competitive in the market. Automobile companies have concept cars; the food industry is experimenting with new products and tastes, retail enterprises - with the placement of goods and the atmosphere of shops; drug manufacturers business is experimenting; technology companies have labs like Google Labs ; and many high-performance companies, the same Google, allow their employees to experiment. Even sports teams are experimenting with new game techniques and / or players. Experiments happen everywhere and always.

    At Amazon, the willingness to experiment and invent has always been part of the culture. This is not a circumstance or something like "you have to do it because everyone does it."

    Do I need advertising on TV?

    At the start of the business, Amazon wanted to know whether to advertise on television. To find out, they decided to find two markets whose demographic audience would most suit the target — Portland and Minneapolis. An experiment was conducted there, which lasted 16 months, much longer than most companies would have decided to experiment. But Bezos said that Amazon’s attitude was “extremely decisive” and that it was “a long and expensive experiment, but we really wanted to find out for the company at all costs once and for all.”

    Despite the fact that the advertisement spurred Amazon sales a little, Bezos decided that this was not enough to justify the cost of it. So, although the experiment was long, it turned out to be useful for the company's strategy.

    Free shipping on orders over $ 25

    Shipping costs stop many people who might order products online. (As well as the non-receipt of the goods on the same day they ordered it.)

    Today Amazon offers free shipping for orders over $ 25, calling it Super Saver Shipping . Count and see that for low-margin companies such as Amazon, this solution cannot be profitable. Have to raise the bar with $ 25 higher.

    Payments are against such free delivery, but buyers are for. Which side did Bezos take, what do you think? On the side of buyers. An unexpected act for Bezos as a person with a technical background and absolutely expected for the client-oriented businessman that he is.

    So, Bezos launched an experiment with free delivery of orders from $ 25 dollars and eventually found out that in the near future it does not bring any benefit, but fully pays off for a longer period - by increasing customer loyalty and, accordingly, the frequency of orders.

    Long-term delivery offers

    But what if the buyer does not want to check the value of each order and reach it up to $ 25? Take Amazon Prime, count and see how it works:

    • Buyer pays Amazon $ 79 per year.
    • The buyer receives free delivery within two days of any order available through Prime of any size.
    • The buyer also gets unlimited access to movies and TV shows in the service streaming video Prime Instant Video.

    In this model, even if the buyer makes only a couple of small orders a year, calculations already confirm its feasibility. But Amazon and Bezos are betting (and hoping) that the Prime user will place dozens of orders. Unfortunately, more orders mean more for Amazon and more shipping costs.

    But there is a positive effect for Amazon: having so many orders from different parts of the world, you can choose from many delivery services and discuss prices . Thus, the company receives leverage by which it can keep its delivery costs at an acceptable level.

    When asked about the most significant decision he had ever made, trusting intuition, Bezos toldabout Prime: “It's like a buffet where you can eat as much as you like for $ 79: you have free delivery for two days of everything you order during the year. If you rely on calculations, they will always speak out against such a decision. ”

    Prime was launched, and today it has more than 3.5 million users . According to Bezos, success happens when the interests of the buyer and the business correspond to each other.

    Another note about Prime: Amazon sees its costs as marketing costs. The company's latest reporting (for the third quarter) states: “Although the costs associated with users of Amazon Prime and other shipping offers are not included in marketing costs, we see these offers as effective global marketing tools and intend to continue to use them indefinitely.”

    Everything suggests that the experiment with Prime benefited Amazon and its customers.

    Measurability of experiments

    As I said, experimentation is part of Amazon's culture. Same as measurability test. When someone comes up with the idea of ​​an experiment, Bezos usually says, "We can measure it." This shows that the first thing he thinks about is whether the experiment is measurable. When someone comes to you with an idea, that is exactly what your first question should be: “Can this be measured?” And if it is possible to measure, but the results show that it is not necessary to undertake the implementation of the idea, this does not always mean that it is not necessary to undertake. Bezos says: "Sometimes we measure something and see that in a short time it will seriously hit sales, but we do it anyway." Yes, a plan may not lead to anything in a short time, but will be beneficial in the long run. If it’s good for consumers, it’s a good sign

    Keep experimenting

    Not all Amazon experiments have been successful. Here are a few unsuccessful ones: A9 search , auctions, PayPhrase .

    But Bezos is not embarrassed by failure. These experiments are simply bets every company makes. During a conference in June 2011, Bezos answered a question about long-term prospects and achievements: “When you look at something like this, just go back to the days when we started working on Kindle, almost seven years ago ... Then you just needed make a bet. And if you make enough of these bets and make them on time, none of them will jeopardize the company. And if you’re already betting on a company, it means that you haven’t invented anything too long. ”

    In another interview, commenting on the failure of the A9 search engine and other experiments, Bezos said: “If you decide to do only those things that you are confident in, you will miss a lot of opportunities. Few people criticize companies for what they could not try to do. But a lot of criticism is addressed to them for what they tried and failed to do. "

    Experimentation can be a harbinger of innovation, so make sure you're constantly experimenting.

    4. Be prepared to invent

    I have mentioned the culture of inventions at Amazon many times, but there is one important point that I want to emphasize.

    Have you ever noticed how many products and services Amazon offers? All this is a consequence of the philosophy of rapid experiments and inventions of Bezos. In this sense, Bezos is anti-Steve Jobs. Apple offers only a few products, while Amazon offers dozens. A complete listing can be seen at the bottom of the Amazon homepage.

    The inventions are really very important for Bezos and his team at Amazon. He often uses the words “pioneers” and “researchers” to describe his team. He is looking for people who love to invent and are always looking for ways to improve products.

    Bezos and the inventor himself. Be it a 10,000 year old watch(that engineering challenge), the aerospace company Blue Origin , a patented airbag for phones , a solar oven assembled in childhood or his efforts at Amazon - Bezos loves to invent. He appreciates and encourages this (along with resourcefulness) in his employees. He once said that one of his favorite activities is teamwork and brainstorming. Obviously, he has a passion for inventions.

    To be an entrepreneur, no matter what sphere, you have to love to invent and create. Whether you are Henry Ford creating a car, or the Wright brothers building an airplane, or some software engineer who invents new software. This is in the genes of every great entrepreneur. A love of brainstorming, experimenting and playing are fundamental characteristics of inventors and entrepreneurs.

    Inventions and inventors move the world forward. One of my favorite quotes is about this: “The day we stop inventing is the day we doom ourselves to a life in a stagnant world devoid of curiosity and dreams.” This was said by Neil Degrass Tyson.

    Bezos, his team at Amazon and entrepreneurs around the world are eternal curious explorers.

    5. Think Long Term

    If you could know only one thing about Bezos, then here it is: he always thinks over the long term.

    Once, when asked about Amazon’s revenue increase, Bezos couldn’t remember the exact percentage of growth that is usually unusual for executives. When asked why he does not know this, Bezos replied: "I am mentally several years ahead, I already forgot these numbers."

    Amazon has been retailing since 1994. Remember those computers and the rise of the internet? Bezos even then knew that people would shop online. He recalls those days as the most difficult period. He tried to raise $ 1 million to launch Amazon, but it was extremely difficult. He said that he was negotiating with 60 people, and 22 people gave him $ 50,000.

    Why was it so hard? People did not know what the Internet was. According to Bezos, "first of all, most of the investors asked what the Internet is." Think about it: most people did not know what the Internet is. Bezos knew, as he did, that people would buy goods over the Internet. Here it is - his vision and thinking over a long-term perspective - in action.

    Is there anything today that we have no idea about, and Bezos already included in his plans? More on that later.

    Obviously, thinking over the long term requires incredible patience. Especially if you are a director who needs to focus more on daily activities. And, if you want to create something new, you will have to remain incomprehensible for a long time.

    Bezos says, that "the success of companies engaged in what is invented before them decreases over time." That is, you need to invent and be prepared for the fact that you will not be understood. Because all the destroyers of foundations are inventors. And the followers are not.

    However, he often admits that Amazon also tried to repeat the success of others: A9 was the inheritance of Google, auctions were the inheritance of eBay, etc. When asked if Amazon was going to acquire its own offline stores, Bezos said: “We don’t have something very successful at Amazon - to offer products that repeat the success of others. I look at offline retail - there it is perfectly served. The people running physical retail stores are very good at that ... The question we will always ask ourselves before doing this is: what's the idea? Can we do something that will be different? How will it be better? "We don’t want to just do something just because we can do it ... We don’t want to be interchangeable."

    He also says that long-term thinking and experimentation should be the basic components of a company: “You need a culture that welcomes small and innovative ideas, and top management that encourages them. And in order for innovative ideas to bear fruit, companies have to wait 5-7 years, but most of them do not withstand such a period. ”

    Thinking over the long term without obsession with quarterly finances is:

    • Good for buyers, as the Amazon example showed with free shipping of goods from $ 25. It makes no sense to focus only on quick profits if you plan to stay in the market for a long time.
    • Good for the company, because you can be much more open to innovation than you think and focus on the long term.

    Refusing to implement the idea at an early stage due to the fact that it can do harm in the short term is a bad strategy. Some things do not pay off right away. Focus on the long term and you will get better results. Short-term results are a poor indicator for long-term ones.

    “If we think over a long-term perspective, we can achieve what is otherwise impossible to achieve.”

    Jeff Bezos

    6. Combine experimentation, ingenuity and innovation

    So, we know that Bezos and his Amazon team love to experiment. And if you like to experiment, then you are ready to invent, and this is one of the cornerstones of Amazon. It is this willingness to experiment and invent that creates innovation. In his speech at the re: Invent conference in November 2012, Bezos explains the formula:

    Innovation = Experiments + Willingness to invent.

    Here is a quote from his speech:

    “There are several things ... that you will have to do if you want to be an innovative company. First of all, I think that innovation is a point of view. You really need to select people who want to create new and explore, because the company consists of them. Being a pioneer company, a research company is not for everyone.

    Some people draw their energy from the question: “What three companies will we surpass this year?” They wake up with this thought in the morning, think about it in their souls, or start their annual planning - anytime. This is the thinking of the conqueror. But it focuses on competitors, not buyers. And such thinking can be successful, by the way, so I do not claim that the approach of pioneer researchers is the only effective way.

    When you attract pioneers and researchers, you create a company of people with similar thinking who want to invent. This is what they think about when they wake up in the morning: how will we work based on the interests of our customers to create an excellent service or product? Here it is - a key element of inventions. This is interesting and fun, by the way, and if you are such a person and like to invent, you will like changes, and you think how you can improve everything that you meet in your path. Over the 18 years of operation, Amazon has attracted many such people, and we really enjoy our work.

    And now about a few not so funny things that are extremely important for innovation and invention. One of them is preparedness for failure. You must be prepared for the fact that you will remain incomprehensible for a long time. If you do something in a new way, as a rule, you will encounter misunderstanding on the part of those around you who are used to acting in the old way. There will also be critics who wish only good, who will doubt whether this new method will really bring the best results. And, of course, there will be critics who have their own financial interest in the traditional way, with which the source of their profit is connected ... If you want to never be criticized, for God's sake, do nothing new!

    So, you are ready for misunderstanding and failures, now it is time to participate in experiments. A successful invention is an invention of consumer interest. In fact, it is very easy to invent new things that no one needs. If you want to get a lot of successful inventions, you will first have to increase the number of experiments and begin to perceive them as a process - that is, think about how to organize your systems, people, assets, your own life and time to ensure this process to experiment more. Because not all of your experiments will be successful. ”

    To be continued

    About the translator.

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