Why Amazon still embraces failure - despite $US100 billion in sales
- 12 April, 2016 20:45
Jeff Bezos - CEO, Amazon
“What’s going on here?” wrote Amazon chief executive Jeff Bezos, in opening his annual letter to shareholders.
Fresh from reporting Amazon as the fastest company ever to reach $US100 billion in annual sales, with Amazon Web Services fast approaching at $US10 billion, the charismatic leader almost seemed bemused when tasked with comparing the tech giant’s contrasting business divisions.
“Both were planted as tiny seeds and both have grown organically without significant acquisitions into meaningful and large businesses, quickly,” Bezos wrote. “Superficially, the two could hardly be more different.
“One serves consumers and the other serves enterprises. One is famous for brown boxes and the other for APIs.
“Is it only a coincidence that two such dissimilar offerings grew so quickly under one roof?”
Acknowledging that “luck plays an outsized role in every endeavour”, and admitting Amazon has enjoyed “a bountiful supply”, Bezos’ analysis of Amazon’s two blossoming divisions brought about an unlikely comparison.
“Under the surface, the two are not so different after all,” he wrote. “They share a distinctive organisational culture that cares deeply about and acts with conviction on a small number of principles.
“I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence.
“Through that lens, AWS and Amazon retail are very similar indeed.”
A question of culture?
Despite previous press murmurings questioning company culture - think back to the New York Times' exposé entitled Inside Amazon - Bezos accepted that corporate cultures, for better or for worse, “are enduring, stable and hard to change.”
Citing culture as a source of “advantage or disadvantage”, the American entrepreneur - with an estimated personal wealth of $US59.2 billion - believes key to Amazon’s success has been its ability to embrace failure, in the face of innovation.
“I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins,” he wrote. “To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.”
For Bezos, most large organisations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.
In his eyes, outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right.
“Given a ten percent chance of a 100 times payoff, you should take that bet every time,” he wrote. “But you’re still going to be wrong nine times out of ten.
“We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs.”
As Bezos explained however, the difference between baseball and business is that baseball has a truncated outcome distribution.
“When you swing, no matter how well you connect with the ball, the most runs you can get is four,” he wrote.
“In business, every once in a while, when you step up to the plate, you can score 1,000 runs.
“This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
In looking back at 21 years of business, having founded the company in July 1994, Bezos believes AWS, Marketplace and Prime are all examples of “bold bets” at Amazon that worked.
“We’re fortunate to have those three big pillars,” he wrote.
As Bezos recalled, just over 10 years ago, AWS started in the U.S. with its first major service, a “simple storage service”.
Today, AWS is bigger than Amazon.com was at 10 years old, growing at a faster rate, and - most noteworthy in Bezos’ view - “the pace of innovation continues to accelerate” - with 722 significant new features and services in 2015, a 40 percent increase over 2014.
“Many characterised AWS as a bold - and unusual - bet when we started,” Bezos wrote. “‘What does this have to do with selling books?’ We could have stuck to the knitting. I’m glad we didn’t. Or did we?
“Maybe the knitting has as much to do with our approach as the arena. AWS is customer obsessed, inventive and experimental, long-term oriented, and cares deeply about operational excellence.”
Given 10 years and many iterations, Bezos said that approach has allowed AWS to rapidly expand into the world’s most widely adopted cloud service.
“Many companies describe themselves as customer-focused, but few walk the walk,” Bezos wrote. “Most big technology companies are competitor focused. They see what others are doing, and then work to fast follow.”
At present, Bezos said AWS is “already good enough today” to attract more than one million customers, and in looking ahead to the future, he remained confident that the service is “only going to get better from here”.