The trajectory of Jeff Bezos seems almost inevitable. Bezos has been quite relentless in his pursuit of building the most dominant, customer-focused enterprise in modern history.
As Amazon’s execution began to match Bezos’s vision, an extraordinary company emerged–one that changed people’s lives around the world. Bezos has been one of the most important business leaders of his generation. During his journey as CEO of Amazon, he gave us some of the most important lessons on entrepreneurship, innovation, and customer experience. Here are some key principles every entrepreneur can learn from Jeff Bezos.
1. Use the regret minimization framework
When Bezos first considered the idea of moving to the other side of the country to start an online bookstore, he used a mental exercise he calls a “regret minimization framework.” His idea was to think about himself turning 80 and looking back on his life and making sure to have minimized the number of regrets he had.
2. Find the right opportunity
Bezos’ main consideration was to build an internet business first, not a book business. At the time, he had been working in New York City for D.E. Shaw, the investment firm, when he heard that internet use was growing at an annual rate of 2,300 percent. But, in fact, that information was grossly incorrect. The internet was actually growing by a factor of 2,300, meaning it was actually growing at a rate of 230,00%.
Bezos was not really a book lover, but he believed that books seemed like the best bet to take advantage of the internet’s explosive growth. In 1994, the catalogue of available books in print was effectively infinite. There were more than three million titles available. Shipping books was also fairly easy and not terribly expensive. The idea just made sense and was a good place to start.
3. Be customer-obsessed
Bezos lived the gospel of customer focus. The key factor that has made Amazon so successful, is an obsessive, compulsive focus on the customer.
This wasn’t just about feel-good service. He wanted to create a company people couldn’t live without. From the very beginning, Amazon has been on offering its’ customers compelling value.
4. Make your value exceed all the costs
In the early days of e-tail, the experience for both sellers and buyers was quite terrible. Not many households had computers yet, and the ones they had were slow. Internet access at home was not so common and the websites that existed were just bad.
If you wanted to persuade a potential customer to get on a computer (via a dial up internet connection) and buy your product, you had better offer something they couldn’t get anywhere else. The overall experience needed to create enough value. This was accomplished by offering low prices, limitless selection, and flawless fulfilment.
Even as the web became more common in households and easier to access, the question remained: Does your site make your customers’ lives easier or better in some tangible way? If the answer was ‘yes’ then you knew that they would probably buy just about anything from you. In the case of Amazon, that’s almost exactly what happened.
5. Fear customers, not competitors
Competitors don’t need to be feared according to Bezos, because they will never send you any money. The ones a company needs to be afraid of the customers, because those are the folks who have the money. In other words, focus your energy and your worry where it really matters.
6. Focus on the long term
In 1997, Amazon was still a relatively small company compared to what it is today. At the time, it served about 1.5 million customers. At that time, Bezos’s shareholder letter sent a signal to Wall Street that he didn’t care about quarterly earnings. This was a trait the company would willingly demonstrate for years.
Bezos believed that a fundamental measure of Amazon’s success would be the shareholder that is created over the long term.
Prime is a great example. This service was launched 2005, and it cost $79 a year and offered free, two-day shipping. Bezos wanted Prime to be such a good value that customers would almost feel irresponsible not to be a member.
Acquiring all of those members at that relatively modest price was an expensive manouver for Amazon . Most of the people willing to pay that price for Prime were likely to be repeat customers who bought a lot of merchandise. This meant shipping costs could quickly exceed the price of the membership. But that was the point. The increase in sales (even if it meant losing money in the short term) would feed the bigger plan. And this is exactly what happened. Amazon reinvested almost everything back into the business over a quite a long period of time. They focused on growth over profits. Wall Street complained. Bezos didn’t care.
7. Feed the flywheel
Books were always going to be just the start of something bigger. Bezos always had planned on having a large selection of products, at low prices and with great customer service to attract more customers. With the Increase of the number of customers would come the increase of third-party sellers to the platform. This would increase the selection of products, which would attract even more customers, and so on. As Amazon continued to sell more product, the more efficient its processes and systems became. Sales volumes went up with the better prices it could get from suppliers. Amazon didn’t invent the flywheel method and Walmart has also used it as an operating principle.
8. Hire for intensity
Hiring great people and keep them from leaving was a part of the Amazon success. Employees are given a great mission–something that has real purpose, that has meaning which helps them remain loyal to the company.
9. Protect your culture
Most of us have heard about Amazon’s cutthroat corporate culture. There have been stories of endless hours, brutal working conditions, and an environment that pushes people beyond their limits. At the same time, Amazon is successful at attracting talented people who have built products and services that have had an enormous impact on the world.
10. Know what kind of decision you’re making
Amazon breaks down the decisions it needs to make into two ways. Some decisions are irreversible and highly consequential (Type 1) and others that are less consequential (Type 2).
In Type 1 decisions, Bezos always looks for more information, since the decision is very important and once it’s made, there’s no going back. Most decisions, however, are Type 2 decisions. These are less consequential and if you make the wrong choice you can go back. It’s very important not to confuse the two, and taking too long to make Type 1 decisions.