The story of Amazon and Jeff Bezos

I always like reading a book on an organisation. The kind of perspective that is provided by an author in a book is always a comprehensive account of how an organisation thinks and operates. I find that the equivalent of this cannot be achieved by reading annual reports or magazine articles. Here are my thoughts on Amazon, based on my reading of the book – Everything Store by Brad Stone.

Amazon is driven by a man with relentless work ethics and insatiable desire for customer obsession. I suspect working for Bezos is no different to working for Elon Musk and/or Steve Jobs. He is driven and holds people accountable to highest standards. He can be rude and oftentimes downright brutal when people are not delivering upto his standards. There is a saying that – “If you are not upto his standard, he will chew you and spit you out, if you are good, he will ride your back into the ground’.  This can be unbearable at a personal level but results in the best for the company and ultimately for the customer.

I sense that Bezos saw a hero, a mentor in Sam Watlon. If Sam Watlon was alive today, he would be a pretty happy with what Bezos has built by applying his principles.

The beauty about Amazon is that it is not driven by profits, it truly is driven by customer obsession.

Since its early days, it offered customers value for money, convenience and large collection of books. Amazon tried to differentiate itself by having reviews of the books and hoping, that it would provide enough reason for customers to come back.

During the early days of dotcom boom, capital was cheap and Bezos was focused on making Amazon big with the motto – Get big fast. Shortly afterwards, the dot com bust happened. Suddenly, everything changed. It became impossible to raise capital and Bezos was faced with making some tough decisions. This was his first real test as a leader to help navigate the crisis.

Over the next decade, he battled a range of issues/crisis to emerge as one of the greatest leaders of our time.

So, what sets Amazon apart from the rest of the organisations in the world. In one word, the ability to delay gratification, forever. You see – most organisation in the world are driven by profits – the question is ‘to what degree’. Amazon is not driven by profits at all, they are driven by offering the best – in terms of choices, everyday lower prices, convenience and a great customer experience that there is to the customer. Amazon would go to any extend imaginable to make it happen (being a hard nosed negotiator with its suppliers and partners). In other words, they are willing to operate at a loss forever to achieve its objective of customer obsession. Some might even say, Amazon is leading the race to zero!

Amazon it seems has become the best at the art of surviving with lowest and sometimes negative profit margins. This in turn, has turned Amazon into the greatest master at operational excellence. Most organisations accumulate bureaucracy and waste during good times and are forced to banish waste during an economic downturn. Amazon on the other hand, invents its own crisis and stays lean.

This is why competitors fear Amazon. To compete with Amazon on price war alone is like a death blow. Jeff Bezos is willing to let Amazon bleed to near death to provide lowest cost to its customer with better service. No wonder a lot of book stores and other retailers are getting busted. Jeff Bezos is a fast learner too, once he understood the iTunes model of cornering music industry, without wasting any time he replicated it with Kindle and ebooks.

In capitalism, it is often said that the cure for high price is high price. When a sector or an industry has very high margins, it attracts flood of investment from business and entrepreneurs who all want a piece of that pie. This in-turn, forces margins of every player and erodes the profit margins in the industry (regression to the mean). This distinct advantage to keep profits margins high and keep competitors at bay is what Warren Buffet refers to as economic moat.

Jeff Bezos observed the phenomena with iPhone (which he called – iPhone mistake), where multiple companies (Google etc.) tried to enter the new smartphone market to get their share of the high profit margin pie. It is in a way a testament to Apple for being able to keep competitors at bay.

Jeff Bezos and Amazon have an interesting and unconventional method of dealing with the fundamental nature of capitalism. Unsurprisingly, it is keep the prices so low that many would never imagine entering and competing in the industry. This is precisely what he did with AWS. It took competitors like Google and Microsoft 2-3 years before they woke up to the potential within cloud computing in the infrastructure as a service.

Also, it is not scared to cannibalise its own business, it seems to realise that if you don’t cannibalism yourself then somebody else will. Bezos is not afraid of failed experiments, and some of the bets like those of droned deliveries is a testament to it.

Another principle at the heart of Amazon Is the Darwinian concept of survival of the fittest that has adopted within its workforce. Every year Amazon lets go of the lowest performing employees. This is in line with Jack Welch advise that fire the bottom 2% of the employees every year of you want to have the best team.

Another one of the principle that Jeff Bezos embodied from Sam Watlon is that of frugality. Amazon offers none of the perks that Google and other technical companies in Silicon Valley do to their employees. The line of thinking is clear – if an investment does not help customer deliver value (customer experience, lower cost etc), then its not worth making.

On a personal note, one thing that I will be taking home from this book is the idea that need to communicate more and often is a sign of dysfunction within the team. The team should be designed in a manner that reduces the overhead of communication.

In my opinion, there are two ways to invest in Amazon either by short selling the companies/industry sector where Amazon is operating or waiting for an economic downturn.

Amazon is built on the concept of survival of the fittest. It seems as if Amazon is designed to take benefit of economic downturns. To me, the best time to initiate a position in Amazon will be during an economic downturn. When other players in the market will be struggling, Amazon will come out stronger than ever.

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