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Battery Book Club: Taking Risks, Doing Math and Staying Focused–What Every Entrepreneur Can Learn From “The Everything Store”

Amazon CEO Jeff Bezos took some flak after the publication last year of author Brad Stone’s  richly reported book “The Everything Store: Jeff Bezos and the Age of Amazon.” Some critics said the book showed Bezos to be tyrannical–a brilliant dictator, but not someone you’d necessarily want to work for. Bezos’s wife MacKenzie even trashed the book in a one-star review she posted on (of course) Amazon.com, calling it a “lopsided and misleading portrait” of her husband and the company.

I can’t comment as to the accuracy of those claims.  However, I do think the book tells a fascinating story of a great leader executing a long-term plan to take advantage of a tectonic shift in technology with bold, often-unorthodox, data-driven tactics that frequently perplexed competitors and shareholders. Today, looking at Amazon’s breathtaking size and market power, it’s impossible to not be impressed with what Bezos has accomplished.

The narrative of Amazon’s rise from one man’s vision to the world’s largest superstore is of course particularly relevant to those of us also operating in the e-commerce space. However, I think the book’s lessons transcend industries and offer important advice to any business leader in today’s technology-driven world.

The number-one lesson of Amazon’s story, to me, is that technological change waits for no one, and the Internet tends to be a ‘winner take all’ or a ‘winner take most’ environment.  Just think of how most consumers view ecommerce – why would you buy your commodity items from an online retailer other than Amazon in today’s marketplace? For a huge range of items, from books to diapers to toys, Amazon nearly always has the lowest price and the greatest selection. (And, frequently, free shipping, another Amazon innovation that is now an e-commerce standard.)

The rise of the Internet and new, high-tech business models also means it is harder than ever for a company to hold its place at the top, in any industry. The only way to truly scale is to build a business based on technology – powered in all aspects by mathematics, quantitative analysis and engineering. Put simply, every company today needs to be a technology company. Bezos deeply understood this. Before starting Amazon, he worked at a quantitatively-focused hedge fund in New York called D. E. Shaw.  At Amazon, he hired scientists, mathematicians and engineers over retail industry veterans.

Most importantly, Bezos stuck to his vision of offering the largest selection and best prices, making the customer his navigational beacon for all major business decisions along the way. He always instructed his leaders, when making important decisions, to start with the customer and work backwards. And, he built a company culture that rewarded risk and rejected bureaucracy. While seemingly easy, this does seem to be quite rare.

These tactics have obviously served Amazon well, as many of its fundamental business principles are now quite common in the e-commerce space. From employing a negative working-capital model to building its own technology solutions, rather than depending on external vendors, Amazon built the modern playbook for online retail. The company pioneered what Stone calls ‘the virtuous cycle’, in which customers spend more money as more friction is removed from the online-shopping experience. Yet this concept and many others explored in the book can be applied to virtually any business, in any industry, to improve efficiencies and drive revenue.

Here are my top 10 takeaways from Amazon’s story for entrepreneurs and business leaders:

1)  Know where you are going! It’s okay if you don’t know how to get there – you’ll figure that out along the way.  Stay clear on your long-term objectives, and balance long-term and short-term goals so that you do not compromise the long-term objectives. Amazon Prime, the now-famous, two-day free shipping service offered by the company, was a huge risk and didn’t seem to make financial sense when it was introduced. But it clearly worked out for customers and the company in the long run, making Bezos look prescient.

2)  Zero tolerance for mediocrity. Hire the smartest people you can find. Bezos hired Wal-Mart executives to boost his retail cred, but also Stanford professors and Apple executives. He also took a hard line internally on issues like customer service; one telling anecdote in the book recounts how Bezos himself called Amazon’s customer-service phone line during a meeting, as other executives nervously looked on, to prove his point that phone wait times were too long.

3)  Speed matters.  Companies need to move fast to stay ahead of the competition and take advantage of technological change.  If you are not breaking things, you are not moving fast enough.

4)  Don’t be bound by old rules. Apply technology to new markets to shake things up. Ignore the rules and simply do what makes sense for your customers and your long term objectives. A good example of this is Amazon’s decision to completely overhaul its logistics operations fairly early on, tossing out all its third-party vendors and replacing all its systems with new, more-efficient, mathematically focused ones. Over the long haul this improved efficiencies, reduced costs and made customers happier. At another point, Bezos made the bold, customer-focused move of displaying both good and bad customer product reviews on the Amazon site—unorthodox since bad reviews could obviously dampen sales—and listing cheaper, used products alongside brand-new ones. At the end of the day, the winners in the Internet are known for having very loyal, happy customers. Amazon is no exception.

5)  Take calculated risks. A great example is when Bezos decided to sell the new Harry Potter book at a 40 percent discount and express-deliver it to customers at the cost of regular delivery so it would arrive on the day of the book’s release. The company lost a few dollars on each of the 225,000 units it sold, but customers loved it. Amazon also was mentioned in more than 700 media stories about the new book. Not every risk pays off, but on balance this approach wins.

6)  Insist that your employees think like owners. When Bezos rejected a senior leader’s suggestion that company executives fly business class, he was sending an important message to his employees about how to make decisions for the business. Amazon is also well known for paying the bulk of employee compensation through equity awards, which is another clear way to drive an ownership culture throughout the company.

7)  Start with the customer and work backwards.  Bezos, at one point, insisted that company leaders ditch Power Point and Excel and write their new ideas in the form of press releases with the compelling customer benefit as the headline. Many meetings at Amazon start with participants quietly reading written documents of specific length (either 2 or 6 pages), before discussion starts. While employees weren’t particularly happy about this approach, it made people stop and think about the big picture.

8)  Leverage the power of scale. It’s the reality of Darwinian survival in the world of big business. Bezos undoubtedly created a lot of enemies for his use of scale (think the entire publishing business, thanks to the Kindle and cheap e-books) but it has been an essential tool in building Amazon into the world’s e-commerce leader.

9)  Determine which aspects of your business are commodities and which are core competencies.  Develop your own technology and turn it into a competitive advantage. See lesson #4, above. Today, Amazon operates all of its own technology from supply chain to site. This advantage makes it very difficult for anyone to sell the same commodity goods and beat Amazon at that on a cost or delivery basis.

10) Don’t lose sight of discipline and efficiency even when your business is on top of the world. Amazon has been on plenty of magazine covers. But during the dot-com bust, Amazon and Bezos experienced a major fall from grace. The stock was headed downward, employees were unmotivated and investors were skeptical.  The company’s  founding principles helped  Amazon stay frugal when the company was on top, but also helped when the market took a dip. Your long-term focus will remain just as important in the good days as in the bad.

After reading “The Everything Store,” I was excited to see that many of Wayfair’s core business principles are very similar to those that Amazon holds dear. These include tenets around customer orientation, taking the long view, the use of technology everywhere, the quantitative bent, and a focus on excellence across the team. I think these traits are fairly universal and are key drivers of success in any business today. If you endeavor to win in your segment, I believe these core traits will matter and separate the long-term winners from the losers.

Niraj Shah is the co-founder and CEO of Wayfair, a  Boston-based e-commerce company offering the world’s largest selection of home furnishings and decor across all styles and price points. 

 

Niraj Shah

Niraj is the CEO of Wayfair, a Boston-based retailer that sells home furnishings and related items across several brands, including Birch Lane, Joss & Main, AllModern and DwellStudio.

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