The Private Equity for Families Blog

Bezos Rocked Me Like Muhammad Ali

I have a great high school friend who knows how to motivate me. When I was editor of the high school newspaper he would always provoke me to write controversial editorials by posing the unanswerable question knowing, full well, I would be crazy to find an answer.

Fast forward to our respective retirement transitions and he is doing it again, but this time he is suggesting answers to tough questions. I guess that is maturity-his not mine. The letter he sent me was from Amazon’s 2016 Annual Report entitled “Jeff, what does Day 2 look like?”

If you like business and want to understand winning organizations, this is an insightful and inspiring message from Amazon’s CEO, Jeff Bezos. He gets business just like Warren Buffet gets the stock market.
Jeff answers his own question like this:

“I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic. Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1”… at Amazon

We all should be interested in the question of how you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?
Mr. Bezos recommends a “starter pack” of essentials for Day 1 defense:

• Customer obsession;
• Skeptical view of proxies;
• Eager adoption of external trends; and
• High Velocity decision making

Customer Obsession

“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.”

Resist Proxies

This intrigued me, what does Mr. Bezos mean by proxies? He can’t be talking about those mind-numbing, single spaced documents I get from my broker? Not really. He suggests that taking comfort in process may be a proxy and can be“dangerous, subtle and very Day 2.” He suggests that market research and customer surveys can become proxies for customers:
I’m not against beta testing or surveys. But you, the product or service owner, must understand the customer, have a vision, and love the offering. Then, beta testing and research can help you find your blind spots. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste. You won’t find any of it in a survey.

Embrace External Trends

Mr. Bezos says that spotting big trends is easy but they are hard to adopt. He points to machine learning and artificial intelligence as one such trend that affects Amazon. That Amazon beat Apple, Google, Microsoft and Samsung with Echo and Alexa is just like four successive Ali jabs followed by his signature uppercut. This is especially true for Google which is reputed to have a huge lead in voice recognition and artificial intelligence.

“At Amazon, we’ve been engaged in the practical application of machine learning for many years now. Some of this work is highly visible: our autonomous Prime Air delivery drones; the Amazon Go convenience store that uses machine vision to eliminate checkout lines; and Alexa, 1 our cloud-based AI assistant. (We still struggle to keep Echo in stock, despite our best efforts. A high-quality problem, but a problem. We’re working on it.)”

High Velocity Decisions

Mr. Bezos respects Day 2 competitors for making high quality decisions, but suggests they make them way too slowly. He sees the Day 1 culture as having four horsemen of innovation:

• Differentiate between reversible and irreversible decisions – so what if your wrong;
• Being slow is worse than being wrong – don’t wait for all the information;
• Disagree and commit; and
• Escalate misaligned viewpoints.

Check Out His Stock Price

Mr. Bezos closes his letter with an invitation to read his 1997 Letter to Shareholders. He believed then, as he clearly believes now, that taking the long view to profitability is the right business model. While Amazon is still chasing its first profitable year, it is clearly not being penalized by an unusual business model.

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Rob McCreary

Rob McCreary has more than 40 years of transactional experience as an attorney, investment banker and private equity fund manager, and has spent his career in building entrepreneurial organizations with successful track records Founder and chairman of CapitalWorks, he is responsible for developing and maintaining senior relationships with investors and portfolio governance.

This blog represents the views of Rob McCreary and do not reflect those of CapitalWorks or its employees. This blog is not intended as investment advice. Any discussion of a specific security is for illustrative purposes only and should not be relied upon as indicative of such security’s current or future value. Readers should consult with their own financial advisors before making an investment decision.

Private Equity for Families Blog | CapitalWorks Private Equity Cleveland Ohio

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