Failure and invention are inseparable twins 🎎
In this (2015) letter to shareholders, Bezos provides insights on how Amazon incubates and grows business to a multi-billion dollar scale. He talks about the role of culture, experimentation, and decision making at Amazon.
Amazon became the fastest company to reach $100 billion in annual sales. AWS reached $10 billion in annual sales (faster than Amazon.com).
Bezos states that the reason Amazon is able to incubate and grow diverse businesses like e-commerce and AWS, that serve completely different market segments - is because they share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles.
He reiterates these principles:
Customer obsession vs competitor obsession
Eagerness to invent and pioneer
Willingness to fail
Patience to think long-term
Professional pride in operational excellence
Bezos expounds on the role of culture at a company. Corporate cultures are enduring, stable, and hard to change. Culture is created slowly over time by people & events by stories of past successes and failures. The reason cultures are so stable in time is because employees self-select. It attracts employees who find a company’s approach energizing and meaningful.Â
A distinctive aspect of Amazon's culture is an understanding and willingness to pay the price of failures on the road to inventing on behalf of the customer. Failure and invention are inseparable twins. To invent you need to experiment, and be willing to suffer a string of failed experiments. Outsized returns come from betting against conventional wisdom, and conventional wisdom is usually right. If the experiment succeeds the returns are huge (unlike in baseball where no matter how well you connect the most runs you can score is four - has a truncated outcome distribution). Hence, it is important to be bold. Big winners pay for so many experiments.
Bezos shares Amazon ambition to be a large company that is also an invention machine i.e. combine the extraordinary customer-serving capabilities enabled by size with speed of movement, nimbleness, and risk-taking mentality of a start-up.
He shares some of the reasons why Amazon will achieve this goal
Where they are as a company today (good start)
The culture that they have built
One common pitfall that will prevent a large high-performing organization like Amazon from reaching this goal is "one-size-fits-all" decision making. This type of decision making hurts the speed and inventiveness of an organization.
Bezos provides a quick overview of the two types of decisions, how they should be made and by whom.
Type 1 decisions: Decisions that are consequential and irreversible (or near irreversible). These decisions must be made methodically, carefully, slowly, and with great deliberation and consultation. Once the decision is made you can’t get back to where you were before.
Type 2 decisions: Decisions that are changeable and reversible. These decisions should be made quickly by high judgement individuals or small groups. Once the decision is made and if you are unhappy with the results, you can decide to go back to the previous condition/state.
Bezos uses the metaphor of doors to drive home the point. Type 1 decisions are like one-way doors (can't get back in once you exit), type 2 decisions are like two-way doors (you can come back in if you exit).Â
As organizations get larger, the tendency is to shift to heavy-weight type-1 decision making on most decisions, including many type-2 decisions. The end result is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.
You can read Bezos' letter here.
PS: Summary of all the Amazon Shareholder letters from 1997-2018 are available as a Kindle book.