Amazon

Lessons From Amazon to Apply to an On-Demand Economy Business

Latest posts by Scot Wingo (see all)

About two years ago, I made the decision to move from the CEO of a $100 million plus public company to work full-time for a new company I founded and funded that had revenue of less than $1 million per year. You can imagine the number of heads left scratching over that one.

Well, StartupNation community, I’m going to share a secret I haven’t shared with anyone yet on one of the main drivers of that decision and five key secrets that I can summarize in one word: Amazon.

In his original 1997 shareholder letter, Amazon founder Jeff Bezos told shareholders they were going to think on 10 year plus trends. Instead of focusing on short-term external factors (like what competitors are doing or the flavor of the day startup), they picked some long-term customer trends they felt would last a decade or longer.

For example, can you think of a world where customers get tired of low prices, fast shipping or large selection?

Lesson 2: Obsess over customers; start at the customer and work back

Ask any CEO and they say they are customer-centric. Amazon saying they are obsessed with customers isn’t enough to show this one’s importance. I recently saw Stephenie Landry, worldwide vice president of Amazon Prime Now, who runs the Prime Now 1 Hour delivery program, speak.

She summarized this philosophy really well: “One hundred percent of the time, I’d rather deal with a cost challenge than a customer experience challenge.”



Lesson 3: Be a day one company

In his original 1997 shareholder letter, Bezos called Amazon a “day one” company, referring to the early days of the internet. Twenty years later, in his 2016 shareholder letter, he tells the story of when he was asked what a “day two” company looks like:

“Day two is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always day one.”

Lesson 4: High-velocity decision making

One of the most interesting sections of Amazon’s 2016 shareholder letter is around the company’s philosophy on high-velocity decision making

“…most decisions should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”



Lesson 5: Think long-term (and know it is OK to fail)

I already talked about 10 year trends in Lesson 1, but now I would like to share Amazon’s philosophy on failure.  Here’s an excerpt from the 2015 letter:

“Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a 10 percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of 10. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs.

“The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in awhile, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”

As entrepreneurs go through the lifecycle of starting up and begin to find success, a fear of failure starts to creep in. In meetings, you will hear folks say, “But if this happens and that happens, it would be bad.” Before you know it, you are taking little swings at the bat instead of big ones, and when you do that, you have almost no chance at home runs (with long-tailed distribution, as Bezos says).

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