In 1994 only a handful of people understood the possibilities the internet would hold in the future. Back then, Bezos was working for the hedge fund D.E. Shaw & Co., where he and several colleagues dreamt of an online company that would one day become the central interface between producer and consumer, and sell just about every product under the sun.
Impressed by the rapid spread of the internet, he quit his well-paid job to devote himself entirely to realizing his vision of an online company that would sell everything. He picked up and moved to Seattle, and launched Amazon in his garage.
However, he quickly realized that he wouldn’t be able to pull his Everything Store out of a hat. He would have to limit himself to just a few product categories in order to establish his product range – at least in the beginning. After a thorough analysis, he decided on books.
What followed was an unequaled success story – one that brilliantly reflects Jeff Bezos’ idiosyncratic way of thinking. And that’s what you’ll read about in The Everything Store by Brad Stone. In addition to the secrets to Amazon’s success and the sorts of ideas that influenced its founder Jeff Bezos, you’ll also learn about some of the negative aspects of the company’s story.
From the very beginning, Amazon has championed taking customer orientation to a higher level in every industry worldwide.
The online store has, step by step, added new features and functions that people initially considered unfounded, but were always conceived to benefit the customer.
For example, despite resistance from publishers, Amazon introduced the customer review feature that provided users with independent and often critical information in addition to publishers’ blurbs. Similarly, the decision to give sellers and individuals the option to sell used products also met with internal opposition at first, but ended up being just what the customers wanted.
What’s more, Amazon is constantly working on optimizing its logistics and delivery systems in order to meet customers’ desire to receive the products they’ve ordered as quickly as possible. The complexity of Amazon’s fulfillment centers is hidden from the customers’ view.
Jeff Bezos quickly recognized one huge advantage e-commerce had over traditional business: that it was extremely easy to analyze customer behavior, which Amazon now does almost obsessively. Every time customers access the site, product recommendations pop up based on their previous site behavior. This feature has consistently yielded increased sales as customers discovered relevant products that they wouldn’t have stumbled upon otherwise.
Clearly, Jeff Bezos and Amazon are driven by an almost compulsive customer orientation. And Amazon – rather immodestly – formulates this in its business model as follows: “Our goal is to be Earth’s most customer-centric company.”
In fact, at the company’s office nothing could be more frightening than when Jeff Bezos forwards an e-mail with a customer complaint to which he’s only reacted with a “?”.
Perhaps this slogan doesn’t seem appropriate for the billion-dollar company that Amazon is today, but it fits a company that started in a garage and has had to struggle on the commercial battlefield with minimal profit margins. To this day, Amazon is characterized by a frugality that some might perceive as excessive. However, Jeff Bezos is convinced that limitations provoke innovation and frugality helps the company concentrate on the most important things, e.g., customer satisfaction.
Amazon’s employees have to pay for their parking permits themselves; there are no free snacks at work; on business trips, they have to sleep in double rooms and managers even have to pay for their own flights. In general, the corporate culture at Amazon is harsh and has a fiercely competitive structure. The motto is: “You can work long, you can work hard, you can work smart, but at Amazon you can’t choose two out of three.”
Amazon’s fulfillment centers display this quite clearly: poorly paid employees have to walk distances of up to 30 kilometers per day to retrieve goods. Despite all the movement within these colossal halls, they are extremely silent – employees can be fired for talking with each another.
Finally, since its inception, Amazon has repeatedly hired tens of thousands of temporary workers – especially during high seasons, such as Christmas time – only to let the majority of them go afterwards. Amazon’s approach is simple: it establishes fulfillment centers in economically weak areas, which initially meet with approval, since many believe that they will improve the local economic situation. But Amazon is merely exploiting the opportunity to hire cheap labor and fires the workers later when the high season is over – knowing well that the region will have more temporary workers on standby the next time the company needs them.
Amazon’s corporate culture is unique: for example, nobody gives presentations at internal meetings. Instead, employees have to write a six-page paper explaining their ideas, which all the meeting participants, including Bezos himself, have to read in complete silence – a task that can last up to 30 minutes. Bezos believes that his employees are thus forced to contemplate their ideas critically, which helps them present the ideas more persuasively.
Another Amazon quirk is the two-pizza rule. No team in the company should have so many members that it can’t be fed with two pizzas. Bezos considers meetings of big groups unproductive, which is why the whole company is organized in autonomous units with fewer than ten employees per unit. And these groups compete with one another for resources. They all have the task of solving the biggest problems that stop consumers from being a tad happier.
Bezos was apparently once heard saying, “Communication is terrible!” He wants a decentralized organization in which small groups can develop innovative ideas rather than wasting time in brainstorming sessions with too many participants. He believes that agility is the main advantage of small groups. They can implement ideas more quickly so they end up where they belong more quickly – benefitting the client.
The bulk of Amazon’s meetings are extremely data driven: all employees need to substantiate their arguments and theses with hard data. In other words, these meetings don’t revolve around customer anecdotes, but big Excel sheets that contain key performance indicators relevant to the whole company. Everything is evaluated using numbers – from customer behavior to the effectiveness of marketing measures – nothing if not true to the maxim that “numbers don’t lie.”
In Bezos’ words, Amazon’s greatest strength is its willingness to not be understood by others.
To a certain extent, this also applies to its business model. Many outsiders talk about the fact that Amazon makes frequent short-term losses. What they don’t take into account is that the company is thinking in the long term and is happy to accept short-term losses if they end up helping the company achieve its future goals.
For years, Amazon put a lot of money into developing its infrastructure, and many investors lost sleep over the company being in the red. But today it’s clear that these enormous investments made it possible for Amazon to solidify its position as a universal online retailer – which is practically a license to print money later.
Bezos preaches that just about anything you have to do to proactively make customers happy is fair game. Even if it costs money in the short term, it creates a loyal clientele that will ultimately bring money into the company.
The e-book makes for an interesting example. When the e-book started getting popular, Bezos decided to sell them for $9.99 per book. Since Amazon bought copies of the e-books for the same price as their printed equivalents, the company lost around $5 per book sold. Bezos accepted this because he was convinced that publishers would have to lower their prices sooner or later and he wanted to establish Amazon as the go-to marketplace for e-books. This was ultimately how the business hit the billion-dollar mark and made room for the sensational success of the Kindle.
Check out my related post: Two pizzas at a meeting anyone?