Business: 8 Powerful Business Lessons You Can Learn From Amazon
My socks have been slowly disappearing for the past few months.
I’m not sure if the washing machine has been eating them, or my dog Romeo has been secretly hoarding them.
But I needed to buy some socks, and I didn’t feel like walking to Marshall’s. So I went to Amazon Prime and ordered some Adidas socks.
A few hours later, I got a notification that my socks arrived.
I thought, What kind of black magic sorcery is this?
What kind of insane logistics were required for this to happen?
It’s hard for me to imagine life without Amazon. Seriously, I order almost everything I can through Prime to save me time (even though I live in NYC)
I remember living in Asia for a few years and the thing I missed the most about America was Amazon Prime.
I recently realized that I’m familiar with the stories of Apple, Google, and Facebook, but I didn’t know too much about Amazon.
So I ordered the book, The Everything Store and devoured it in a few days. It’s about the rise of Jeff Bezos and Amazon.
It’s one of the best business books I’ve ever read, and I plan on reading it at least ten times more within my over the course of my life.
Why? Because Bezos knows what he’s doing.
- Amazon is the second company in history to reach $1 trillion evaluation
- Jeff Bezos is the richest man in the world, with a net worth of $162.5 billion (as of 9/7/2018)
I know Amazon’s not the most admirable company out there. They’ve put countless mom and pop shops out of business. And their two-day shipping can harm the environment depending on how it’s done.
And Bezos isn’t known for being the nicest boss to his employees.
But despite all that, Amazon is a huge success story that we all can learn from.
Here are 8 of my biggest takeaways from reading this book. I highly encourage you to read the book yourself.
#1 – Frugality is Good
Bezos is a frugal guy.
When they opened their first office, they needed desks. But he didn’t go to Home Depot like most people would.
He noticed that doors were a lot cheaper.
Yes, the doors in houses.
So he went to the Home Depot to buy doors and then put legs. The “door desk” was born and has become a symbol of Amazon.
They ended up saving a few thousand dollars.
How else is Jeff frugal?
While some companies have their executives fly business, first class, or on private jets, Jeff makes everyone fly economy.
If employees are traveling together, they’re not staying at the Mandarin Oriental and getting their own rooms. They’re sharing a room at a discount hotel.
One time Jeff walked into the office and saw new flat screen TV’s in the conference rooms. He took them all down and made the office staff return them.
Employees don’t get free food, and they have to pay for their own parking.
Why is Jeff so frugal?
It’s because the customer is #1.
Any excess spending means that the company is robbing value from the customer.
I learned this same lesson when I studied Wal-Mart.
You can’t be the best at everything. You need to strategically choose what to be good at and what to suck at.
Wal-Mart offers low prices, but it comes at a cost. Their stores don’t have the best ambiance.
What does Amazon want to achieve? They want to offer the lowest prices, and they want to be innovative.
Those come at a cost.
How do employees having nice desks directly increase value for Amazon customers? It doesn’t.
The money has to come from somewhere.
However, there are some downsides to Amazon being so frugal.
Amazon has had a tough time recruiting the best talent since they don’t offer as many perks as other Silicon Valley companies.
Some of the best and the brightest dream of working for Facebook or Google, and Amazon is not at the top of many people’s list (though that could be changing soon).
Frugality is something that I’ve been striving for myself.
I remember treating affiliate friends to $500 dinners. Whenever I was at a conference I would stay in ridiculous hotel rooms.
Do I enjoy luxury? Hell yea.
But was it worth it? Not really.
Bottom line: There’s an opportunity cost to every decision you make.
#2 – Think Long Term
Jeff always thinks long term.
I’ve heard him say that a lot of companies plan for the next year, and some might plan ahead up to three years.
But how many companies plan ten or twenty years ahead? Not many. But they should.
There’s not a lot of competition when you’re thinking that far ahead.
How do you plan that far ahead?
This didn’t appear in the book, but it’s one of my favorite Jeff Bezos quotes and something I’ve spent a tremendous amount of time thinking about.
I very frequently get the question: “What’s going to change in the next 10 years?”
And that is a very interesting question; it’s a very common one. I almost never get the question: “What’s not going to change in the next 10 years?” And I submit to you that the second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection.
It’s impossible to imagine a future 10 years from now where a customer comes up and says, “Jeff, I love Amazon; I just wish the prices were a little higher.” “I love Amazon; I just wish you’d deliver a little more slowly.” Impossible.
And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.
Bottom line: Plan long term based on what won’t change.
#3 – Stand on the Shoulders of Giants
It’s interesting to see how many companies influenced Amazon.
Wal-Mart was a huge inspiration. You could say that Bezos is the modern day Sam Walton. Bezos studied Walton extensively and you can easily see how some of Walton’s values have influenced Bezos.
Amazon Prime was hugely influenced by Costco. He once met the CEO of Costco for lunch, and the CEO explained the business model of Costco.
Essentially, Costco makes prices of goods as cheap as possible for customers. But they also charge a $99 a year membership. That $99 recurring membership is where all their profit is.
Jeff learned a lot about lean manufacturing from Toyota.
Apple also inspired Bezos. Apple created iPods and also sold music. They controlled the entire ecosystem to serve the customer better, and to have a huge competitive advantage.
Amazon did the same thing with the Kindle and eBooks.
The richest man in the world got to where he is by studying others.
Bottom line: If you want to succeed, study others who have already succeeded.
#4 – The Flywheel Effect
This is a concept from the book, Good to Great.
It’s better if you read the concept from the author himself.
Picture a huge, heavy flywheel—a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and long as possible.
Pushing with great effort, you get the flywheel to inch forward, moving almost imperceptibly at first. You keep pushing and, after two or three hours of persistent effort, you get the flywheel to complete one entire turn.
You keep pushing, and the flywheel begins to move a bit faster, and with continued great effort, you move it around a second rotation. You keep pushing in a consistent direction. Three turns … four … five … six … the flywheel builds up speed … seven … eight … you keep pushing … nine … ten … it builds momentum … eleven … twelve … moving faster with each turn … twenty … thirty … fifty … a hundred.
Then, at some point—breakthrough! The momentum of the thing kicks in your favor, hurling the flywheel forward, turn after turn … whoosh! … its own heavy weight working for you. You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.
Now suppose someone came along and asked, “What was the one big push that caused this thing to go so fast?”
You wouldn’t be able to answer; it’s just a nonsensical question. Was it the first push? The second? The fifth? The hundredth? No! It was all of them added together in an overall accumulation of effort applied in a consistent direction. Some pushes may have been bigger than others, but any single heave—no matter how large—reflects a small fraction of the entire cumulative effect upon the flywheel.
The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process—step by step, action by action, decision by decision, turn by turn of the flywheel—that adds up to sustained and spectacular results.
The good-to-great companies understood a simple truth: tremendous power exists in the fact of continued improvement and the delivery of results. Point to tangible accomplishments—however incremental at first—and show how these steps fit into the context of an overall concept that will work. When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm. We came to call this the flywheel effect, and it applies not only to outside investors but also to internal constituent groups.
Let me share a story from the research. At a pivotal point in the study, members of the research team nearly revolted. Throwing their interview notes on the table, they asked, “Do we have to keep asking that stupid question?”
“What stupid question?” I asked.
“The one about commitment, alignment, and how they managed change.”
“That’s not a stupid question,” I replied. “It’s one of the most important.”
“Well,” said one team member, “a lot of the executives who made the transition—well, they think it’s a stupid question. Some don’t even understand the question!”
“Yes, we need to keep asking it,” I said. “We need to be consistent across the interviews. And, besides, it’s even more interesting that they don’t understand the question. So, keep probing. We’ve got to understand how they overcame resistance to change and got people lined up.”
I fully expected to find that getting everyone lined up— “creating alignment,” to use the jargon—would be one of the top challenges faced by executives working to turn good into great. After all, nearly every executive who’d visited the laboratory had asked this question in one form or another. “How do we get the boat turned?” “How do we get people committed to the new vision?” “How do we motivate people to line up?” “How do we get people to embrace change?”
To my great surprise, we did not find the question of alignment to be a key challenge faced by the good-to-great leaders.
Clearly, the good-to-great companies did get incredible commitment and alignment—they artfully managed change—but they never really spent much time thinking about it. It was utterly transparent to them. We learned that under the right conditions, the problems of commitment, alignment, motivation, and change just melt away. They largely take care of themselves.
Amazon wanted to apply the flywheel effect
Here’s how The Everything Store describes it:
“Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.”
This makes me think about what the flywheel effect would be for affiliate marketers.
I need to spend some time thinking about this.
I think once you become profitable with a campaign, you need to re-invest the profits into growth. Whether it’s launching more campaigns or investing that money into acquiring more competitive advantages (whether it’s hiring, building internal technology, etc.)
Spending that profit on bottles in the club doesn’t accelerate the flywheel effect.
Bottom Line: Figure out what your “flywheel” is and then constantly take action to move it.
#5 – The High Bar For Talent
Something I’ve learned about hiring is that the “best” people for the job aren’t looking for a job right now.
They’re not on Monster or Craigslist.
They’re already working for someone else.
Jeff would find the best people for a job and be persistent in getting them to work for Amazon. He would pursue them for years until he finally convinced them to join his team.
Bottom Line: Find the best people for the job and do whatever it takes to hire them.
#6 – Kill Yourself or Someone Else Will
Amazon is the biggest bookseller in the world.
But in the 2000’s, a new technology was emerging that could kill their book sales: eBooks.
They were entering the digital age and knew that eBooks would someday become the #1 format.
That’s the innovator’s dilemma.
You’re #1 now, but you know that disruptive technology is coming.
You’re between a rock and a hard place. Investing in new technology doesn’t satisfy short-term growth requirements (aka it doesn’t make investors happy), and you’re taking a risk of killing your traditional business.
But if you don’t embrace the new technology, then you might end up like Kodak, who was killed by digital cameras.
What did Bezos do?
He wanted to own the eBook business the same way that Apple controlled the music business with iTunes.
“It is far better to cannibalize yourself than to have someone else do it,” he said.
If Amazon didn’t invest in and dominate eBooks, then someone else would.
Companies that fail to adapt go the way of Sears, Kodak, and Blockbuster.
It’s always interesting to see how companies do adapt. Netflix embraced streaming even though their DVD model was lucrative.
Right now Uber is investing in self-driving technology in anticipation of the future.
Bottom Line: See what’s coming and then embrace it before your competitors do.
#7 – Figuring Out The One Thing
Bezos knows what customers want and he’ll go to any lengths to get it.
Amazon Echo was sitting in the labs for years before it ever got released to the public.
The problem? It took an average of 2.5 to 3 seconds for the Echo to respond.
Jeff knew that it had to respond in under one second for customers to actually use it.
Guess what? They got it to under one second.
Same thing with eBooks.
Jeff loved how every song on Apple was $.99. It was simple to understand. He wanted the same thing for Ebooks. Every single eBook would be $9.99.
There wasn’t any fancy data or studies backing this up. It just sounded like a nice number.
The Kindle store launched with every book priced at $9.99. That didn’t last long. Apple released iBooks and publishers could set the price to whatever they want. Amazon had to allow that.
Regardless, Bezos still is always fighting hard to get what customers want.
Bottom Line: Whenever you’re coming out with a product, figure out what the one thing your customers want and pursue it relentlessly.
#8 – Create A Culture of Learning
Bezos loves to read (Amazon started off selling books, after all).
Here’s a list of books that Bezos recommends all his top leaders read.
- The Remains Of the Day by Kazuo Ishiguro
- Sam Walton: Made in America by Sam Walton
- Memos from the Chairman by Alan Greenberg
- The Mythical Man-Month by Frederick P. Brooks Jr.
- Built to Last: Successful Habits of Visionary Companies by Jim Collins
- Good to Great by Jim Collins
- Creation: Life and How to Make It by Steve Grand (influenced the creation of AWS)
- The Innovator’s Dilemma by Clayton M. Christensen
- The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt and Jeff Cox
- Lean Thinking by James P. Womack
- Data-Driven Marketing by Mark Jeffery
- The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb
Learn From The Best
This is probably like 5% of the knowledge bombs that I took away from this book, but I hope they show you why this book is so great.
Apple, Amazon, Google, and Facebook are considered the “big four” of tech. Someone once asked me to guess which company will still be relevant 25 years from now.
I think about substitutes.
I can use Android or Microsoft instead of Apple.
People can live without social media.
Google’s a brilliant company but too much of their income comes from Adwords.
There’s no replacement for Amazon.
It’s amazing to see all the innovations that Bezos has done over the past twenty years.
I think he’s just getting started.