Amazon Annual Shareholder Letters - By Jeff Bezos

Date read: 
April 15, 2019
See My Collection of 50+ Book Notes

My Thoughts

A must-read for any entrepreneur. Highlights the reasons for Amazon's success: relentless innovation, customer obsession, and turning variable costs into fixed ones. A masterclass in building one of the world's most dominant businesses. Should be on everyone's reading list.

Summary Notes

This is Day 1 for the Internet and, if we execute well, for

Day 2 is stasis. Followed by irrelevance. Followed by painful decline. Followed by death.

In my view, obsessive customer focus is by far the most protective of Day 1 vitality.

Amazon's & the stock market

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 out ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model.  

The metrics most indicative of market leadership: customer and revenue growth, repeat business, and the strength of our brand.  

"In the short-term, the stock market is a voting machine; in the long-term, it's a weighing machine." We're a company that wants to be weighed - over the long term all companies are weighed.

If you could know for certain just two things - a company's future cash flows and its future number of shares outstanding - you would have an excellent idea of the fair value of a share of that company's stock today.

Obsessive Customer Focus

We will continue to focus relentlessly on our customers.

  • Make investment decisions in light of long-term market considerations rather than short-term profitability.
  • Measure progress analytically, jettison those that do not provide acceptable returns, and step up investment in those that work best.
  • Make bold rather than timid decisions when there's a chance to gain market leadership advantages.
  • Maximize the present value of future cash flows.  
  • Continually reinforce a cost-conscious culture.
  • Balance our focus on growth with emphasis on long-term profitability and capital management. Scale is central to achieving the potential of our business model.
  • Focus on hiring and retaining employees. Weigh their compensation to stock options rather than cash. Success will be affected by a motivated employee base, each of whom must think and be an owner.

Set out to offer customers something they simply could not get any other way. Maintain a dogged focus on improving the shopping experience.

Though we are optimistic, we must remain vigilant and maintain a sense of urgency.

We intend to build the world's most customer-centric company. Customers are perceptive and smart. Brand image follows reality and not the other way around.

I constantly remind our employees to be afraid. We consider our customers to be loyal to us - right up until the second that someone else offers them a better service.  

We must be committed to constant improvement, experimentation, and innovation in every initiative.

Helping customers make better purchase decisions ultimately pays off for the company.

Market research and customer surveys can become proxies for customers.  

Customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don't know it, customers want something better.

Working at Amazon

It's not easy to work here. "You can work long, hard, or smart, but at Amazon you can't choose two out of three."

"Working to create a little bit of history isn't supposed to be easy"

Three questions before hiring:

  • "Will you admire this person?" Life is too short to do otherwise.
  • "Will this person raise the average level of effectiveness of the group they're entering?" The bar has to continuously go up.  
  • "Along what dimension might this person be a superstar?"

In the long-run, an employee staying somewhere they don't want to be isn't healthy for the employee or the company.

Long-term thinking & Innovation

The best way to drive one is to deliver the other.  

The long-term interests of shareholders are tightly linked to the interests of our customers. Seek instant gratification and chances are you'll find a crowd there ahead of you. Long-term orientation interacts well with customer obsession.

There is more innovation ahead of us than behind us.

We trade real estate for technology (which gets cheaper and more capable every year). Real estate doesn't obey Moore's Law.

We transform much of customer experience into largely a fixed expense.

Long-term thinking is both a requirement and an outcome of true ownership.

Use by 40 Million customers costs nowhere near 40 times what it would cost to do the same for 1 million customers. It's cheaper to be big.

Anything that has persisted in roughly the same form and resisted change for 500 years is unlikely to be improved easily.

Our vision for Kindle is every book every printed in any language, all available in less than 60 seconds.

We invent before we have to. Doing it proactively is more expensive for us, but it also surprises, delights, and earns trust.

The most radical and transformative of inventions are often those that empower others to unleash their creativity - to pursue their dreams.

Operational Excellence

Operational excellence implies two things:

  • Delivering continuous improvement in customer experience
  • Driving productivity, margin efficiency and asset velocity.

[Our] cultures demands that new businesses be high potential and that they be innovated and differentiated, but it does not demand that they be large on the day that they are born.

It's okay if a business can only begin to be meaningful to the overall company economics in something like three to seven years.  

One area I think we are especially distinctive is failure. I believe we are the best place in the world to fail. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.

Scale provides opportunities to create impact.

Speed matters in business - plus a high-velocity decision making environment is more fun too.

Lower friction & working backwards

Anytime you make something simpler and lower friction, you get more of it. People do more of what's convenient and friction-free.

It will happen, but if we don't execute well, it will be done by others.

Working backwards from customers needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward-feeling those first steps might be.

We believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.

For 2010, we have 452 detailed goals with owners, deliverables, and targeted completion dates:

  • 360 of 452 goals will have a direct impact on customer experience;
  • The word revenue is used eight times, and free cash flow is used only four times;
  • The terms net income, gross profit or margin, and operating profit are not used once.

Don't just listen to customers - also invent on their behalf.

Anecdotes that signal you're on the right track:

  • "...which makes my life easier"
  • "With that part taken care of for us, ..."
  • "Amazon has allowed me to really spread my wings."
  • "Amazon is literally enabling ..."
  • "Amazon has made it possible ..."

Even well-meaning gatekeeper slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there's no expert gatekeeper ready to say "That will never work!" Many of those improbable ideas do work.

Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas.

Given a ten percent chance of a 100 times payoff, you should take that bet every time. If you swing for the fences, you're going to trike out a lot, but you're also going to hit some home runs.  

Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, you're probably being too slow. 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.

We want Prime to be such a good value, you'd be irresponsible not to be a member.

Related Notes

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