Lessons Learned from Building Amazon

Lessons learned from building Amazon
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I recently finished reading Brad Stone’s book, The Everything Store: Jeff Bezos and the Age of Amazon. Here are my top lessons learned from Bezos building Amazon.

What It’s About: Brad Stone is a journalist who covered Amazon from the early days of the company when it was a confusing company struggling for profits. This book tells the story of and the lessons learned from the meteoric rise of Amazon, and it’s idiosyncratic, genius founder, Jeff Bezos.

Why You Should Read It: If you’re interested in building your own company, or managing the growth of the company you work for, then this book is a trove of wisdom. Bezos allowed generous levels of access to Stone and, as a result, this book is packed with interviews with Bezos and his lieutenants, offering nuggets of wisdom for company building and management.

The Narrative Fallacy


How to come up with ideas through experimentation and observation

The narrative fallacy, Bezos explained, was a term coined by Nassim Nicholas Taleb in his 2007 book The Black Swan to describe how humans are biologically inclined to turn complex realities into soothing but oversimplified stories. Taleb argued that the limitations of the human brain resulted in our species’ tendency to squeeze unrelated facts and events into cause-and-effect equations and then convert them into easily understandable narratives. These stories, Taleb wrote, shield humanity from the true randomness of the world, the chaos of human experience, and, to some extent, the unnerving element of luck that plays into all successes and failures.
“When a company comes up with an idea, it’s a messy process. There’s no aha moment.” – Jeff Bezos
The way to avoid the narrative fallacy was to favor experimentation and clinical knowledge over storytelling and memory.
Bezos also revered pioneering computer scientist Alan Kay and often quoted his observation that “point of view is worth 80 IQ points”—a reminder that looking at things in new ways can enhance one’s understanding.
“It’s easier to invent the future than to predict it.” —Alan Kay

Hiring Talent


How to make your company stronger through talent

“Every time we hire someone, he or she should raise the bar for the next hire, so that the overall talent pool is always improving,” – Jeff Bezos.
“Many companies as they grow begin to compromise their standards in order to fill their resource needs,” says Rick Dalzell, chief information officer and senior vice president of Amazon.com from 1997 until November 2007. “We wanted to make sure that did not happen at Amazon.”

 

Bezos’ focus was on very bright, high-growth-potential and fluid-minded people, with the right values as “builders.” He looked for people that absolutely prioritized customer trust and delight, who at all times were long-term focused and driven to be bold and innovative.

 

Moving Fast and Slow


How to adapt your strategy as your company grows

On one walk, Amazon’s first employee, Shel Kaphan, asked Bezos why, now that they had accomplished some of their earliest goals, he was so bent on rapid expansion. “When you are small, someone else that is bigger can always come along and take away what you have,” Bezos told him. “We have to level the playing field in terms of purchasing power with the established booksellers.”

 

This approach changed as Amazon grew. Soon they saw how chaotic managing the company was becoming as their scale grew to unmanageable proportions. Instead of Get Big Fast, the company adopted a new operating mantra: Get Our House in Order. The watchwords were discipline, efficiency, and eliminating waste.

 

Gradatim Ferociter, the motto of his aerospace company Blue Origin, which translates to “Step by Step, Ferociously,” accurately captures Amazon’s guiding philosophy today. Steady progress toward seemingly impossible goals will win the day. Setbacks are temporary. Naysayers are best ignored.

 

Core Values


How to guide thousands of employees toward a common goal

“We are genuinely customer-centric, we are genuinely long-term oriented and we genuinely like to invent.” – Jeff Bezos.
Bezos goes on to say, “most companies are not those things. They are focused on the competitor, rather than the customer. They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else. And they prefer to be close-followers rather than inventors because it’s safer.”

 

One of the most impressive parts of this story was how focused Bezos was on culture in creating a common purpose for everyone at the company. Seeing the future, he put in place the critical DNA that would help the whole company embody his vision. It’s safe to wonder that if he was not so clear in his vision, would Amazon have grown to the size it is now? Evidence of this clarity of vision and it’s communication came in the form of five core values that Bezos and his team of senior executives wrote down on a whiteboard in a conference room:

 

  1. Customer obsession,
  2. Frugality,
  3. Bias for action,
  4. Ownership, and
  5. High bar for talent.
Later Amazon would add a sixth value, Innovation.

 

Looking for ways to make culture a daily habit at Amazon, Bezos instituted the Just Do It award—an acknowledgment of an employee who did something notable on his own initiative, typically outside his primary job responsibilities. This reinforced bias for action as a value.

 

The Flywheel


How to set up your business model for continuous success

Drawing on Jim Collins’s famous concept of a flywheel, or self-reinforcing loop, Bezos and his lieutenants sketched their own virtuous cycle, which they believed powered their business. It went something like this:

 

  1. Lower prices led to more customer visits.
  2. More customers increased the volume of sales.
  3. More sales attracted more commission-paying third-party sellers to the site.
  4. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website.
  5. This greater efficiency then enabled it to lower prices further.
Feed any part of this flywheel, they reasoned, and it should accelerate the loop.

 

Organizational Structure


How to structure your company for operational success

“Communication is a sign of dysfunction. It means people aren’t working together in a close, organic way. We should be trying to figure out a way for teams to communicate less with each other, not more.” – Jeff Bezos
“A hierarchy isn’t responsive enough to change,” he goes on to say. “I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we wouldn’t have the right kind of company.” Bezos’s counterintuitive point was that coordination among employees wasted time and that the people closest to problems were usually in the best position to solve them. The senior leadership at Amazon argued that adding manpower to complex software projects actually delayed progress. One reason was that the time and money spent on communication increased in proportion to the number of people on a project.

 

All new hires had to directly improve the outcome of the company. He wanted doers—engineers, developers, perhaps merchandise buyers, but not managers. In fact, he favored decentralization over hierarchy.
“Autonomous working units are good. Things to manage working units are bad.” – Jeff Bezos.
Bezos believed that an autonomous working unit should be empowered to make decisions to move their projects forward. These units should be no bigger than the number of people that could be fed by two pizzas.

 

Each group was required to propose its own “fitness function”— a linear equation that it could use to measure its own impact without ambiguity. For example, a two-pizza team in charge of sending advertising e-mails to customers might choose for its fitness function the rate at which these messages were opened multiplied by the average order size those e-mails generated. A group writing code for the fulfillment centers might home in on decreasing the cost of shipping each type of product and reducing the time that elapsed between a customer’s making a purchase and the item leaving the center in a truck. Bezos wanted to personally approve each equation and track the results over time. It would be his way of guiding a team’s evolution.

 

Not every idea of Jeff’s worked though. The idea of fitness functions, in particular, appeared to clash with some fundamental aspects of human nature—it’s uncomfortable to have to set the framework for your own evaluation when you might be judged harshly by the end result. Asking groups to define their own fitness functions was a little like asking a condemned man to decide how he’d like to be executed. Teams ended up spending too much time worrying over their formulas and making them ever more complex and abstract.

Time Management


How to maximize the efficiency of your biggest bottlenecks

Part of his ongoing quest for a better allocation of his own time, Bezos decreed that he would no longer have one-on-one meetings with his subordinates. These meetings tended to be filled with trivial updates and political distractions, rather than problem-solving and brainstorming. Even today, Bezos rarely meets alone with an individual colleague.

 

Speaking of time, Bezos constantly stressed the importance of thinking long term. 
If [humans] think long term, we can accomplish things that we wouldn’t otherwise accomplish,” Bezos said. “Time horizons matter, they matter a lot.

Making Money


How to use low margins to your advantage

Bezos believed that high margins justified rivals’ investments in research and development and attracted more competition, while low margins attracted customers and were more defensible.

 

He also thought about the driver of his profits differently from others. In speeches, Bezos later recalled getting an angry letter from an executive at a book publisher implying that Bezos didn’t understand that his business was to sell books, not trash them. “We saw it very differently,” Bezos said. “When I read that letter, I thought, we don’t make money when we sell things. We make money when we help customers make purchase decisions.

 

What Sets Jeff Apart


How to be a great leader

The depth and range of interviews Stone conducted for this book pulled back the curtain ever-so-slightly into what Jeff Bezos is like as a leader. It’s not all good, but I’ve chosen to end this summary with the traits that we can all emulate to become better leaders.

 

When Bezos was deciding whether or not to make the leap from Wall Street to selling books on the internet, he says he came up with what he called a (typically geek) “regret-minimization framework” to decide the next step to take in his career. “When you are in the thick of things, you can get confused by small stuff,” Bezos said a few years later. “I knew when I was eighty that I would never, for example, think about why I walked away from my 1994 Wall Street bonus right in the middle of the year at the worst possible time. That kind of thing just isn’t something you worry about when you’re eighty years old. At the same time, I knew that I might sincerely regret not having participated in this thing called the Internet that I thought was going to be a revolutionizing event. When I thought about it that way… it was incredibly easy to make the decision.”

 

“Jeff does a couple of things better than anyone I’ve ever worked for,” Dalzell says. “He embraces the truth. A lot of people talk about the truth, but they don’t engage their decision-making around the best truth at the time. “The second thing is that he is not tethered by conventional thinking. What is amazing to me is that he is bound only by the laws of physics. He can’t change those. Everything else he views as open to discussion.”

 

Jeff’s clarity, intensity of focus, and ability to prioritize, which has no doubt become ingrained in his key team, is unusual and behind his ability to keep leaping forward versus protecting existing ground.

 

It’s not all roses though, and we learn one particularly valuable insight that Jeff learned the hard way, from his grandfather. On a car trip as a 10-year-old, Jeff thought it would be helpful to calculate for his grandmother, very precisely, how many years of her life she’d eliminated by smoking. “At two minutes per puff, you’ve taken nine years off your life!” To Jeff’s astonishment, he wasn’t congratulated for his amazing maths. Instead, his grandmother burst into tears. His grandfather slowly pulled the car over and went around to open Jeff’s door, motioning him to follow him. His grandfather, a quiet, intelligent man, stopped his grandson and said to him “Jeff, one day you’ll understand that it’s harder to be kind than clever.”

 

The author ends this book with a quote from Sam Walton, the founder of Walmart and a role model to Bezos. In answering the question, could a Wal-Mart-type story still occur in this day and age, Walton writes in his autobiography, “my answer is, of course, it could happen again. Somewhere out there right now there’s someone—probably hundreds of thousands of someones—with good enough ideas to go all the way. It will be done again, over and over, providing that someone wants it badly enough to do what it takes to get there. It’s all a matter of attitude and the capacity to constantly study and question the management of the business.”
Lessons learned from building Amazon
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