AMAZON’S JEFF BEZOS – SMART AND CREATIVE ENTREPRENEUR
Part 2
In early 1990s, while working as a computer analyst with a New York investment house, Jeff Bezos saw that the Internet was growing at a rate of 2300 percent per year and thought that people would one day buy things over the Internet.
He thought, “The best options seemed to be books and CDS. An online retailer could offer a wider range of products than a bricks-andmortar store could stock, and they are easy to ship.”
He realised that book publishers were less formidable competitors than the music industry, where six major labels dominated the US industry.
He left his job and with his wife’s support, began to follow his dream. He put all his ideas into a computer programme, which he named ‘Amazon’ – the world’s largest river – and launched the site in July 1995. At that time, he was just 35 years old.
He set up his workplace in his parents’ garage and poured his savings into making his venture a reality. The new company’s 10 percent to 30 percent discount on books generated orders from day one. He and his handful of workers ordered the titles from distributors and shipped them out.
On day three, Yahoo featured Amazon on its ‘What’s Cool’ page. With that publicity, by the end of the week, the company had over US $ 12,000 in orders. The small team struggled to keep up.
By October, the company had its first 100order day. Within a year, it had its first 100-order per hour. Bezos introduced one-click ordering (which he patented) and shocked the book-trade by allowing customers to post their own reviews – even negative reviews.
As Amazon grew on its way up to becoming the world’s largest online retailer, Bezos introduced other products – CDS, DVDS, music downloads, computer software, video games and, later, electronics. Today they have a full range of retail offerings, which, according to a Forbes, has passed 25 million items.
Amazon today under Bezos is driven by metrics. The company uses around 500 measurable goals to monitor its performance, 80 percent of which are customer-oriented. Bezos focuses on customer service, poring over customer complaints and comments and making changes to accommodate them.
Bezos has the classic retail low-cost, lowmargin mentality. Luxuries and perks at Amazon are few and salaries are standard and not very high. Senior executives are rewarded with restricted shares for good performances.
Bezos is wedded to competition, allowing the site to compete, in effect, with itself. The introduction of Amazon Marketplace allowed other retailers and individuals to sell new and used items alongside Amazon’s offers, undercutting Amazon’s price.
In 2002, Bezos launched Amazon Web Services, offering other companies the use of what many would consider to be the company’s core competitive advantage – its computer software expertise, infrastructure and server capacity. In 2007, Amazon launched its first consumer product, the Kindle e-reader. In 2011, Kindle Fire, a tablet computer was released. Both became popular in the US, European and Fareast markets.
In 2007, Amazon started delivering on its promise to long-term investors. That year, they had net sales of US $ 14,835 million with a net profit of US $ 476 million. However, 10 years later in 2017, net-sales reached US $ 178 billion with a US $ 3.0 billion net profit.
For a sense of scale, it took Amazon more than 14 years – 58 quarters after its May 1997 initial public offering – to make, cumulatively, as much profit as it produced in the fourth quarter of 2017.
Lessons learnt
Amazon experience gives you seven smart habits that you can use to nurture the success of your own enterprise.
1. Customer focus
Bezos had understood that the advantage of an online business was in measuring customer behaviour. Over the years, Amazon constantly added features that would make their customers happy. Amazon always encourages customers to post their thoughts, even critical or negative ones. Customers loved sharing their insights and now, reviews are one of the best-trusted aspects of the modern e-commerce platform.
2. Practice frugality
Amazon got its start in a simple, functional space and operated on a market with minimal margins. Frugality is in Amazon’s very DNA and it helped the company to focus on the most important things like its customers and continuing innovation.
Amazon’s frugality means, for example, snacks and coffee at the office aren’t free and when travelling, they share rooms. In general, Amazon isn’t a place not for relaxation but to work long, hard and smart, with no compromises on any of the three.
3. Make your own rules
At Amazon, whoever wants to propose a new idea must distil his or her thoughts first into a six-page document. Before any decision is made, those involved, including Bezos himself, must take the time to read and dissect it.
Another rule is ‘the Two-pizza’ Team: no team should be so big that you couldn’t feed it with two pizzas. According to Bezos, larger groups are less productive, so the company is organised into autonomous units of 10 or fewer that compete for resources (but not pizzas) in their mission to make their customers happier.
4. Think for long term
Bezos started Amazon with the long game in mind–a play that meant accepting short-term losses. Consider the e-book. When e-books first entered the market, most publishers sold them at prices equal to their print editions. Bezos, however, projected that their long-term price would be around 10 dollars and started selling them for 9.90. At first, this decision generated losses of about US $ 5 per e-book but sales increased and when the price eventually dropped, Amazon had become the go-to for e-books. With this strategy, he also laid the foundation for one of the company’s greatest successes, the Kindle.
5. Risk it
Bezos quit his secure job and took a risk. And it worked. Today, Amazon operates on the premise that the risk is worth the reward. This approach has led to flops such as Amazon Auctions, a division that simply couldn’t compete with ebay’s hold on the market. But Amazon wildly succeeded its 1-Click Purchase.
To support a culture of initiative and enterprise, Bezos created a ‘Just Do It’ award, conferred to both employees who tried and succeeded and also to those who tried and failed. The core message is that taking a risk is preferable to being too fearful to move.
6. Let the data decide
Amazon firmly believes in data and hard facts. For example, even before the company was formed, the initial book selection was the result of a long evaluation of figures and facts. Bezos personally got involved in it. Every aspect of commerce and customer behaviour at Amazon is eminently quantifiable. Meetings are not about customer anecdotes but rather Excel sheets filled with relevant metrics.
7. Stay hungry
Never ceasing to learn, evolve and innovate might be the ultimate ingredient for success. Amazon began with books but no sooner had they gained a foothold in that market than they conquered music, movies, electronics and toys. Later came the Kindle and with it, they won their niche. Even now, there are Amazon services completely under the radar to most consumers. Did you know that Amazon Web Services provides cloud computing services to big businesses, the US government and even NASA?
Bezos says, “The road to success is paved with dissatisfaction. Never accept the status quo or say, ‘I’ve done enough’. Instead, keep searching for potential and inciting growth.”
Jeff Bezos’ unique way of thinking long term and taking smart risks has made Amazon into the company it is today, one that writes its own rules and evolves every minute.