Invent and Wander

Books · Business

(I finished reading this in December 2020, but only added it to Notion in Feb 2021)

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Invent and Wander

Summary

It’s not enough to invent. You must be able to build a vision that a large number of people share, and that gets them to work in a concerted way
Have the discipline of writing a detailed plan and understand the key factors that influence an issue. Even though the plan won’t survive the real world, this exercise will help you understand a situation better
It's all about the long-term. Focus relentlessly on what is in the best long-term interests of customers and shareholders, not short-term profitability. Relatedly, optimise for long-term cashflows, not GAAP accounting measures
In a fixed cost business, market leadership is everything. The stronger one's market leadership, the more powerful the economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.
Make bold rather than timid investment decisions where you see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and you will have learned another valuable lesson in either case.
Operational and customer excellence is driven by self reinforcing flywheels: "We want to deliver both the world’s best customer experience and the world’s lowest prices. To some, this may seem quixotic. But it’s not. Traditional stores have a trade off between delivering a high touch customer experience and lowest possible prices. Amazon translates excellent digital customer experience into a fixed cost, and can deliver the best experience at no additional cost to the customer at sufficient volume."
Big winners pay for many experiments
Some decisions are consequential and nearly irreversible (one-way doors). These must be made with much deliberation. But most decisions are two way doors where you don’t have to live with the consequences. Don’t use the process for one way doors on two way door decisions
Decision quality and velocity are both really important. Don’t optimise for one at the expense of the other
Intuition, curiosity, and the power of wandering: "Sometimes you know where you’re going, and when you do, you can be efficient. In contrast, wandering is not efficient … but it’s also not random. It’s guided – by hunch, gut, intuition, curiosity. Wandering is an essential counter-balance to efficiency. You need to employ both. The outsized discoveries – the “non-linear” ones – are highly likely to require wandering."

Highlights

Introduction by Walter Isaacson

Be intensely curious and retain wonder about the world

Work at intersection of humanities, technology, and business

It’s not enough to invent. You must be able to build a vision that a large number of people share. Get a large team of people to work in a concerted way

Regret minimization framework

Have the discipline of writing a detailed plan and understand the key factors that influence an issue. Even though the plan won’t survive the real world

Every time a seismic shift happens in our economy, there are people who feel the vibrations long before the rest of us do. Be one of these people

In fixed costs businesses, once you hit a certain volume, you’ll become unstoppable

Key principles:

focus on the long term interests of customers and shareholders and be patient
focus relentlessly on the customer. Not on competitors
avoid powerpoints. Write narratively structured 6 page memos. They force clarity of thinking
focus on the big decisions as a leader. You just have to make a small number of big decisions. Have multiple paths to yes, not multiple paths to no
hire the right people
believe in engineering the right flywheels and really thinking things through

Part 1 - Shareholder Letters

It’s all about the long term. In a fixed cost business, market leadership is everything

We will make bold rather than timid investment decisions when chasing market leadership. Some of these will pay off and others will not. That’s okay

When forced to choose between gaap accounting measures and cash flows, will choose cash flows

Key to success is right people that are invested in success. Will reward them through stock options instead of cash

Message to employees. You’re the best of the best. We’re building something our grandchildren will be proud of. You can work, long, hard, and smart. You can’t choose 2 of the 3

We intend to build the world’s most customer centric company, and hold as axiomatic that customers are smart. We believe that brand image follows reality, and not the other way around

We have to fight entropy. The bar must continuously go up.

1997 letter

Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers, yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive competitive entry.

But this is Day 1 for the Internet and, if we execute well, for Amazon.com. Today, online commerce saves customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the very process of discovery. Amazon.com uses the Internet to create real value for its customers and, by doing so, hopes to create an enduring franchise, even in established and large markets.

We have a window of opportunity as larger players marshal the resources to pursue the online opportunity and as customers, new to purchasing online, are receptive to forming new relationships. The competitive landscape has continued to evolve at a fast pace. Many large players have moved online with credible offerings and have devoted substantial energy and resources to building awareness, traffic, and sales. Our goal is to move quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities in other areas. We see substantial opportunity in the large markets we are targeting. This strategy is not without risk: it requires serious investment and crisp execution against established franchise leaders.

It’s All About the Long Term

We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.

Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.

Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:

We will continue to focus relentlessly on our customers.
We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.
We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures.
We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.
When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.
We will share our strategic thought processes with you when we make bold choices (to the extent competitive pressures allow), so that you may evaluate for yourselves whether we are making rational long-term leadership investments.
We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.
We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.
We will continue to focus on hiring and retaining versatile and talented employees, and continue to weight their compensation to stock options rather than cash. We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.
We aren’t so bold as to claim that the above is the “right” investment philosophy, but it’s ours, and we would be remiss if we weren’t clear in the approach we have taken and will continue to take.

Post 1997

To shareholders — it’s all about the long term to us. Make sure that this gels with your investment philosophy

Though it’s hard to imagine with everything that’s happened, this remains day 1 for e-commerce (in 1999)

Operational and customer excellence is driven by self reinforcing flywheels

The current online shopping experience is the worst that it’ll ever be. It’s good enough to attract 17 million customers. But it’ll get so much better. Increased bandwidth will result in faster pageviews and richer content. Non pc and wireless access will improve. And the underlying stack will continue improving

“The customer franchise (word of mouth marketing) is our most valuable asset” (2001). Investment framework — we’ll focus on cash flows and not gaarp measures

(2002)

We want to deliver both the world’s best customer experience and the world’s lowest prices. To some, this may seem quixotic. But it’s not. Traditional stores have a trade off between delivering a high touch customer experience on one hand and the lowest possible prices on another. Amazon translates excellent digital customer experience into a fixed cost, and so can deliver the best experience at no additional cost to the customer.

(2007)

We may make less per item. But by consistently earning trust, we’ll sell many more items

(2009-10)

Have really hard okrs. Need to invent to meet these okrs. Use micro services to invent components, and often need to invent things not yet available in academia

Technology is not an r&d department. It infuses every department. In 2010, Bezos talked a ton about “data science” in his letter

(2011)

Talked about aws, third party selling, and kindle direct publishing. Amazon as a platform that enables others to make a living. Fixed costs for Amazon = variable costs for everyone else

(2012)

Internally driven by customers instead of externally driven by competitors. Surprise your customers by being overly generous, responsive, and honest

(2013)

Get customers to say WOW with empowered teams. Prime, Kindle Paperwhite, Prime Video, early start of Alexa with FireTV remote, Amazon Game studios, Amazon App Store, Audible, aws features, govcloud. Employee empowerment. Operational excellence.

(2014)

A dream business offering has at least 4 characteristics:

Customers love it
it can grow to a very large size
it has strong returns on capital
it is durable in time (with the potential to last for decades)

For Amazon, there are three such offerings — marketplace, prime, and aws

(2015)

Big winners pay for many experiments

Some decisions are consequential and nearly irreversible. These must be made with much deliberation (one way doors)

Most decisions are two way doors where you don’t have to live with the consequences

Don’t use the process for one way doors on two way door decisions

(2016)

What does day 2 look like? It’s irrelevance, followed by stasis, followed by excruciating and painful decline

Customer obsession: many ways to focus a business. Competitor focus, product focus, technology focus, business model focus. Customer focus is the best

a skeptical view of proxies: don’t manage through proxies (like process as proxy, instead of customer as proxy). The process is not the thing. You should own it, it should not own you

Eager adoption of external trends: embrace powerful trends quickly. Don’t try to fight them. ML/AI is one example of a fast emerging external trend

High velocity decision making: use the phrase “disagree and commit”

Decision quality and velocity are both really important. Don’t optimise for one at the expense of the other

(2017)

High standards are teachable and contagious. As are low standards.

High standards are domain specific. Just because you have high standards in hiring doesn’t mean you have high standards in operational processes

To reach high standards:

You must recognise what good look like
You must have realistic expectations of how hard it will be to reach those high standards (and explicitly coach this realistic scope)

(2018)

We helped independent sellers compete against our first-party business by investing in and offering them the very best selling tools we could imagine and build.
of great importance are Fulfillment by Amazon and the Prime membership program. In combination, these two programs meaningfully improved the customer experience of buying from independent sellers

Intuition, curiosity, and the power of wandering

Sometimes (often actually) in business, you do know where you’re going, and when you do, you can be efficient. Put in place a plan and execute. In contrast, wandering in business is not efficient … but it’s also not random. It’s guided – by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it’s worth being a little messy and tangential to find our way there. Wandering is an essential counter-balance to efficiency. You need to employ both. The outsized discoveries – the “non-linear” ones – are highly likely to require wandering.

AWS itself – as a whole – is an example. No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS but didn’t know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building – reworking, experimenting, and iterating countless times as we proceeded.

No customer was asking for Echo. This was definitely us wandering. 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.”

(2019 - Covid)

The demand we are seeing for essential products has been and remains high. But unlike a predictable holiday surge, this spike occurred with little warning, creating major challenges for our suppliers and delivery network