#71 Jeff Bezos' Shareholder Letters

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Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  Bezos broke all the rules when he built Amazon. In doing so, he carved out a unique way of looking at the world, at companies, and at tech in general. And nowhere is Bezos' philosophy of business, technology, and leadership better articulated than in his annual shareholder letters, which he has written every year since the company's IPO in 1997. To read Bezos' shareholder letters is to get a crash course in running a high-growth internet business from someone who mastered it before any of the playbooks were written. Okay, so that is an excerpt from the CB Insights newsletter. And this week, so if you're a regular listener to this podcast, you know that every week I'd normally read a biography

• 0:45David Senra?

  or an autobiography of an entrepreneur, and then I pull out ideas that you can use in your life and work from there. This week's gonna be different. At the same time I was reading the book, The Dow of Capital, which I covered on last week's podcast, I was also reading this CB Insights newsletter. So I spent last week reading every single shareholder letter. I'm just gonna jump right into the shareholder letters. I did, I read them just like I read, just like I read the books, and I'm just gonna share the highlights of each one. I'll tell you which year I'm in. I'm gonna go through all of them. I think there's like 21 of them. And I'll tell you all the notes and the highlights that I left. Okay, so let's start with 1997.

• 1:28David Senra?

  This isn't a really important Amazon shareholder letter because every single year from 1998 on, Jeff attaches this shareholder letter to the bottom of the other one. And he wants to remind the people that are thinking about investing in Amazon what they can actually expect. That he knows that, hey, I may have a different way of looking at things, but I'm gonna be honest with you how I'm looking at them, and this is why I'm doing this. So don't jump in here unless you're agreeing with my philosophy. And he repeats over and over again. He's like, "Listen, there's plenty of other ways to run a successful business. This just happens to be the one we choose, the strategy we choose." All right, so sorry.

• 2:09David Senra?

  Right at the beginning, "Amazon passed many milestones in 1997. By year end, we had served more than 1.5 million customers, yielding an 800% revenue growth to $147 million." The reason I started off there is because now they have hundreds of millions of customers. I know there's over 100 million people in the Prime program subscribing to the Prime program, and their revenue was, I think, $282 billion last year. Actually, $241 billion. Okay, so, first shareholder letter, when they public, they have $147 million, and now they're doing $241 billion.

• 2:54David Senra?

  Okay, and then, let's go back to Jeff. He says, "This is day one for the Internet, and if we execute well..." Oh, excuse me. "This is day one for the Internet, and if we execute well for Amazon. Today, online commerce saves customers money and precious time. Tomorrow, though, personalization, online commerce will accelerate the very process of discovery. Amazon uses the Internet to create real value for its customers, and by doing so, hopes to create an enduring franchise, even in established and large markets." And Jeff continues. He says, "Our goal is to move quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities in other areas.

• 3:38David Senra?

  We see substantial opportunity in the large markets we are targeting. This strategy is not without risk. It requires serious investment and crisp execution against established franchise leaders." Then he has the first upheading, which he's gonna, he probably says this term "long-term." I don't know, maybe 100 times throughout the letters. And he says, "It's all about the long-term." He says, "We believe that a fundamental measure of our success will be the shareholder value we create over the long-term. Because of our emphasis on the long-term, we may make decisions and weigh trade-offs differently than some companies.

• 4:20David Senra?

  Accordingly, we want to share with you our fundamental management and decision-making approach."

• 4:27David Senra?

  Okay, so now we're going to jump into some of the highlights there. And the first one, he says, "We will continue to focus relentlessly on our customers." Okay, so no doubt myself, that word relentless is important. I don't know how many of you know this, but I think I included it in the podcast I did on the Everything Store. But Jeff wanted to name Amazon, he wanted to name his company relentless. So much so, if you go to relentless.com today, it forwards to Amazon. And that's a good one, if you can only describe Jeff Bezos one way, that word relentless might be the best term you could use. So he says, "We will continue to focus relentlessly on our customers. We will continue to make investment decisions in light of long-term market leadership considerations,

• 5:12David Senra?

  rather than short-term profitability considerations or short-term Wall Street reactions. We will make bold," he uses the word bold constantly too, "rather than timid investment decisions, where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in each case."

• 5:38David Senra?

  He talks a lot about the, like, it has to be fundamental to your company DNA to take, to take risks, to constantly be experimenting. And then doing so when there's basically limitless upside, because that's how you pay for a bunch of ideas you have that are never really going to be failures. Let's see, okay, so it says, "We will work hard to spend wisely and maintain our lead culture," or excuse me, lean culture. "We understand the importance of continually reinforcing a cost-conscious culture, particularly in a business incurring net losses." In other words, you have to maintain your frugality. "At this stage, we choose to prioritize growth, because we believe that scale is central to achieving the potential of our business model."

• 6:21David Senra?

  "We know our successes will largely, uh, will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like and therefore must actually be an owner." Another common theme of his, "You need to think like an owner." He's gonna, uh, I'll reference that theme through, uh, some of the, some of the future letters he writes as well, because he says it in different ways. It's really interesting. Another, another heading, "Obsess over customers. From the very beginning, our focus has been offering our customers compelling value. We maintained a dogged focus on improving the shopping experience." Remember, at this time, I think they're only selling books. They might have moved into DVDs and music, but there's not that many categories they're in.

• 7:03David Senra?

  And he says, "We dramatically lowered prices, further increasing customer value." So this, what's best for the customer is kind of the North Star of how they're making their decisions. But, he's gonna be honest. He's just referencing, "Hey, this is gonna be a pain in the ass to do, right? And the only way we're gonna be able to do this is if we have, um, like a motivated employee base that are thinking like owners." But he's also, he, he lays it out, um, honestly and transparently. He's like, "Listen, it is not easy to work here. We are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about. Such things are not meant to be easy."

• 7:44David Senra?

  And then he continues, "Uh, looking forward, we are still in the early stages of learning how to bring new value to our customers through internet, through internet commerce and merchandising." How crazy is it that he's writing these words in 1998? Okay. And then this is the, my final, um, highlight from the 1997, uh, shareholder letter. And, um, one of my, to me, this summarizes a good, one sentence summary of what I'm about to read is one of the most famous, uh, maybe it's not the most famous, one of my favorite quotes that Jeff Bezos says all the time. He says, "Step by step ferociously." So he's willing to be patient, he's willing to put in the work for the long term, but you still, that doesn't mean you go slow. You're still doing it ferociously is the way he wants you to think about it.

• 8:29David Senra?

  He says, "We now know vastly more about online commerce than when Amazon was founded." Well, we still have so much to learn. She's learned a lot in those two years. Though we are optimistic, we must remain..." Vigilant and maintain a sense of urgency. The challenges and hurdles we will face to make our long-term vision for Amazon a reality are several. Aggressive, capable, well-funded competition. Considerable growth challenges and an execution risk. The risks of product and geographic expansion. And the need for large continuing investments to meet an expanding market opportunity. So before I move on to the 1998 shareholder letter.

• 9:11David Senra?

  While I was working on taking notes and organizing all the information I'm going to share with you today. I saw this tweet that was really interesting. And it says, "It's kind of interesting that while Apple, Google and Facebook have totally changed their core concerns in the last decade. Amazon is basically still running a strategy from before some of today's founders were even born. People tend to imagine there's a secret to Amazon's success." And now he's going to quote some of the, like, what people guess of their secret. "It's all a con. They'll raise prices. AWS is paying for it all." Nope, it's worse than that. They found an extremely efficient way to build a certain kind of retailer and just kept cranking the handle."

• 9:54David Senra?

  And the reason I brought that up now is because all, a lot of what he's talking about in 1997, and I don't even understand how he's, he was, Jeff Bezos was able to, um, to think about, like, the principles of what would make a successful business. And then he basically adheres to these principles for the next 20, he'll add stuff to it, but he doesn't go back on anything he says. So that tweet about, hey, he's running the same playbook for 20-something years. Well, like, that gives him a massive, massive advantage. Because it makes the decisions that Amazon, because they have such a clear set of principles on how to run their business. It makes their, the decisions they have to make way easier than somebody that has to switch up and, and change their product or change their, their entire strategy.

• 10:39David Senra?

  Like they said, Facebook, Google and others. Alright, so let's move on to 1998. Summary of this next note is it will be hard and we will only, we will survive only by taking bold risks. So he says, "It may be difficult to conceive, but we think the opportunities and risks ahead of us are even greater than those behind us." We will have to make many conscious and deliberate choices, some of which will be bold and unconventional. Hopefully, some will turn out to be winners. Clearly, some will turn out to be mistakes. So he's right on both accounts. If you analyze what Amazon has done since this point. And he goes back to his focus, which is really, probably the best focus you could have for any customer, or for any company.

• 11:23David Senra?

  "We intend to build the world's most customer-centric company." And then I'm going to skip a couple paragraphs. And he says, "There is no rest for the weary." So this is so important. And the note I left myself is Jeff understands human nature. "I constantly remind our employees to be afraid, to wake up every morning terrified, not of our competition, but of our customers. Our customers have made our business what it is. They are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us, right up until the second that someone else offers them a better service." So that's what I mean about him understanding humans.

• 12:06David Senra?

  Like, yeah, people are going to love you right now, but their love for you is fleeting. It's not unconditional. And if you don't maintain this focus on being the world's most customer-centric company, and somebody else does, they'll just take your customers. He says, "We're proud of the differentiation we've built through constant innovation and relentless," there's that word again, "focus on customer experience." "During our hiring meetings, we ask people to consider three questions before making a decision." This is interesting. I'm just going to read you. He explains every one. I'm just going to read the three questions he asks. "Will you admire this person? Will this person raise the average level of effectiveness of the group they're entering? And number three,

• 12:49David Senra?

  along what dimension might this person be a superstar?"

• 12:54David Senra?

  Now skipping ahead several paragraphs later. The most important thing I could say in this letter was said in last year's letter, which detailed our long-term investment approach. Because we have so many new shareholders, we've appended last year's letter immediately after this letter. So they went from having about 13,000 investors to 200,000 at this time. I invite you to please read the section entitled, "It's All About The Long Term." And then this is what he says, and I love this. "You might want to read it twice to make sure we're the kind of company you want to be invested in. As it says there, we don't claim it's the right philosophy. We just claim it's ours."

• 13:37David Senra?

  Okay, so now we're going to move on to 1999. He starts out a lot of letters, like basic updates. A lot of it's like numbers, percentage of growth, stuff like that. So I'm going to skip over most of that because it's, you know, it's, one's not that important 20-something years later, but it's also very confusing, just spitting a bunch of numbers and percentages at you. It's easier for me, at least, to read numbers than it is to hear numbers. But I do want to make, there is one highlight I did on this letter that I think is extremely interesting. And he says, "Consider this most important point. The current online shopping experience is the worst it will ever be." So he's saying, "The worst it's ever going to be," but look how it's still good enough, right? It's good enough today to attract 17 million customers, but it will get so much better.

• 14:22David Senra?

  He's taking the roundabout approach. "Increased bandwidth will result in faster page views and richer content. Further improvements will lead to always-on access, which I expect will be a strong boost to online shopping at home as opposed to the office." Isn't that crazy? Didn't even know that the smartphone was coming 10 years later. "And we'll see significant growth," oh, I guess, I mean, he kind of did see it, actually. Look at the next sentence, I just tripped over. "And we'll see significant growth in non-PC devices and wireless access. Moreover, it's great to be participating in what is a multi-trillion-dollar global market in which we are so very, very, very tiny." We are doubly blessed.

• 15:04David Senra?

  We have a market-sized unconstrained opportunity in an area where the underlying foundational technology we employ improves every day. That is not normal. And I think that's not that word not, I think he underlined it. That may be the only time he underlines anything in all 20 something letters that I read. So again, we have a market-sized unconstrained opportunity in an area where the underlying foundational technology we employ improves every day. That is not normal. And I just love that idea. It's like, listen, a lot of people say, we have 17 million customers. That's a successful business. But what we can be compared to where we are now, we can be so much better in the future if we have the patience and we're able to survive then. Let's just hold on.

• 15:49David Senra?

  And he always talks about this idea of being heads-down focused. And if we'll get there, we'll have much greater opportunities. He also talks about, listen, there's just some opportunities that larger, only larger companies can employ. But a lot of them don't, a lot of large companies don't even like take advantage of those opportunities because they're scared, like they get risk averse, which he'll talk about in later, later letters. It's very fascinating. Okay. So now we're getting to the 2000 shareholder letter, which is written, you know, the year after. So this is after the, the dot com bubble. And it says, this is how he starts the letter. Ouch. It's been a brilliant year for many in the capital markets and certainly for, for Amazon

• 16:34David Senra?

  shareholders. As of this writing, our shares are down more than 80% from when I wrote you last year. Nevertheless, by almost any measure, Amazon, the company, is in a stronger position now than any time in the past. I wrote to myself, is this an example of manic optimism? If you listen to my podcast I did on Charles Goodyear, they talked about like, this guy struggled for 30 years to, to, to solve all, like, he basically birthed the modern rubber industry, right? But there was a rubber industry that existed before he patented his invention, but it was rubber, it would rot away, it would start to smell. Basically, it was like a temporary material as opposed to now, you can, you know, you

• 17:16David Senra?

  can have a pair of rubber shoes for 20 years, whatever the case is. And to get through 30 years of trials and tribulations, they talk about, this dude's like, he's crazy. People called it manic optimism. Jeff has a little bit in his writing. Because I think he really believed, he wasn't like, you know, he didn't think it was like a slam dunk. He didn't think it was going to happen by accident, but he really believed if they did everything as best they could, he could have one of the most valuable companies. He could have a shot at a basically unlimited market, which he wound up being true, wound up being correct about, rather. Alright, so he says, "So if the company is better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago?

• 18:02David Senra?

  As the famed investor Benjamin Graham said, "In the short term, the stock market is a voting machine. In the long term, it's a weighing machine." Clearly, there was a lot of voting going on in the boom year of 99, and much less weighing. "We're a company that wants to be weighed, and over time, we will be. Over the long term, all companies are. In the meantime, we will have our heads down working to build a heavier and heavier company. Many of you have heard me talk about the bold bets that we as a company have made and will continue to make." Again, he's writing this in 2000, 2001. He still talks about this in 2017, 2018. This is something that is fundamental to the way he runs his companies. So he says, "We have made and will continue to make."

• 18:46David Senra?

  Including, so he talks about, listen, we made a lot of, we made some investments, we lost some money here, guys. He said, "Including Living.com and Pets.com, both of which shut down in operations in 2000. We were significant shareholders in both and lost a significant amount of money."

• 19:03David Senra?

  Alright, moving on. So he says, "Let's move on to the future. Why should you be optimistic about the future of e-commerce and the future of Amazon.com?" He says, "Price performance of processing power is doubling every 18 months." He's referencing Moore's Law here. "Price performance improvements in disk space and processing power will allow us to, for example, do ever more and better real-time personalization of our website." He talks about this is an advantage he's going to have over physical retailers that will only compound over time, because he can do things that they cannot. "In the physical world, retailers will continue to use technology to reduce costs, but not to transform the customer experience.

• 19:47David Senra?

  We too will use technology to reduce costs, but the bigger effect will be using technology to drive adoption and revenue, so doing things other people can't." And we will do so by keeping the customer first. And the note I left myself is he knows that reputation is persuasive.

• 20:08David Senra?

  This is just helpful in human relations in general.

• 20:12David Senra?

  Our memories are flawed as human beings. I think last week I talked about it. It's more, the metaphor is more similar to like, think of your memories taking a photograph as opposed to recording a video. With a photograph, like you have a picture of what happened, but you lose a lot of context, especially with time, as opposed to if you had the whole video and you know what's going on. So he's saying, he's going to tell you exactly, over and over and over again. And he also says, hey, I don't know if the same people are reading these letters all the time. So he's got to kind of lay out his philosophies over and over again in case you might be a new shareholder, maybe this is the first year that you're actually reading these letters. And here's another example of repetition. Like 2000, this year will be a year of focus and execution. As I usually do, I've appended our 1997 letter.

• 20:57David Senra?

  It gets more interesting every year that goes by, in part because so little has changed. I especially draw your attention to the section entitled, "It is all about the long term."

• 21:08David Senra?

  Okay, moving ahead by another year.

• 21:12David Senra?

  Uh, let's see, what's the note? This might be, so one of the most famous things Amazon is known for is the Amazon flywheel. In case you don't know what that's about, you can go back and listen to my podcast I did on the Everything Store, or you can just Google "Amazon flywheel," you'll see a picture of it. This may be the first mention of it. It takes a few years for him to use the term "flywheel" though. He says, "Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth." Okay, so lower prices drives growth. "Growth then in turn spreads fixed costs across more sales, which reduces our cost per unit, which then makes possible for more price reductions." That's why they call it a flywheel.

• 21:54David Senra?

  "Customers like this, and it's good for shareholders. Please expect us to repeat this loop." So he's calling it a loop. Eventually, he's going to use the term "flywheel."

• 22:05David Senra?

  Another highlight, a few paragraphs down, "We stayed relentlessly focused on the customer." And then another subheading, "Obsess over customers. Our commitment continues."

• 22:18David Senra?

  And then he says, we've, uh, this is interesting. He's got a bunch of these, uh... I've never even heard of a company doing this before. But I would consider this like a customer-first feature. Because again, you can't obsess over customers if you're not putting them first. It says, "We improved convenience with features like instant order update, which warns you if you're about to buy the same item twice." And so people are like, "Well, why would..." First of all, you're taking revenue away from your company. But he doesn't care because he feels it's best and best for the long-term relationship. He wants his customers. And the only way to protect a long-term relationship with your customers is by doing what's best for them. But he also says, "Hey, people are busy. They forget what they already have bought." Okay, so skipping ahead.

• 23:01David Senra?

  "I'll just point out that one of the most important things we've done to improve convenience and experience for customers also happens to be a huge driver of variable cost productivity: eliminating mistakes and errors at their roots. Every year that's gone by since Amazon's founding, we've done a better and better job of eliminating errors. Eliminating the root causes of errors saves us money and saves customer time, which it only gets more important as you grow." All right, it says, "In the 1997 letter, we wrote, 'When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we'll take the cash flows.'" Now he's going to tell why. "Why do we focus on cash flows?

• 23:46David Senra?

  Because a share of stock is a share of a company's future cash flows. And as a result, cash flows, more than any other single variable, seem to do the best job of explaining a company's stock price over the long term." And this is important because he's saying, "Since we expect to keep our fixed costs largely fixed, even at significantly higher unit volumes, we believe Amazon is poised over the coming years to generate meaningful, sustained, free cash flow." And then the last thing he has in the sentence in here. I'm just going to bring your attention again. "Relentless commitment to long-term shareholder value."

• 24:28David Senra?

  Alright, so now we're jumping to, this is the 2002 letter. And I love, because every single letter is different, like you just, it's, it's, it really is. If you, if you print these out, or I guess if you, I'm working up the PDFs and putting them together. It is kinda like a short book on running a high-growth internet business. Says, "In many ways, amazon.com is not a normal store. We have a deep selection that is unconstrained by shelf space. We turn our inventory 19 times a year. We personalize the store for each and every customer. We trade real estate for technology, and which, in the technologies case, which gets cheaper and more capable every year. We display customer reviews critical of our products.

• 25:12David Senra?

  You can make a purchase with a few seconds and one click. We put used products next to new ones, so you can choose. We share our prime real estate, which is our product detail pages, with third parties. And if they offer better value, we let them." So, I don't think he explicitly states it there, but if you're reading that, every single thing that he's highlighting is, benefits the customer. This is, "One of our most exciting peculiarities is poorly understood. People see that we're determined to offer both world-leading customer experience and the lowest possible price. But to some, this dual goal seems paradoxical, if not downright quixotic.

• 25:57David Senra?

  Traditional stores face a time-tested trade-off between offering high-touch customer experiences on one hand, and the lowest possible prices on the other. How can Amazon be trying to do both?" And this is such an important point. You can't do both unless you change the customer experience. The answer is that we transform much of the customer experience. With customer experience costs largely fixed, which is, which he makes the point, is more like a publishing model than a retailing model, our costs as a percentage of sales can shrink rapidly as we grow our business. We believe our ability to lower prices, this is the summary. We believe our ability to lower prices and simultaneously drive customer experience is a big deal.

• 26:38David Senra?

  And I just want to read one more thing from this letter because this surprised me. And usually if something's surprising, I try to include it on the podcast. Um, so think about what's happening here. It's 2002 shareholder letter. They're still competing heavily in books. And um, he wants to make sure he just, he started the letter saying, hey, like not only do we want to have the best customer experience, but we also want to have the lowest possible prices. This is crazy. What they did to make sure they, as a test to make sure have the lowest possible prices. They went to bookstores in New York City and Seattle. Which is we priced, then he took, first he is, he starts working on the 100 bestseller list of 2002. He says, "We priced all 100 titles by visiting their superstores in both Seattle and New York City.

• 27:24David Senra?

  It took us six hours in four of their different superstores to find all 100 books on their list. When we added up everything we spent, we had discovered, we discovered that at their stores, these 100 bestselling books cost $1,561. At Amazon, the same books cost $1,195 for a total savings of $366 or 23%. For 72 of the 100 books, our price was cheaper. Of the 20, of, on the 25 of the books, our price was the same. On three of the 100, their prices were better. We subsequently reduced our prices on these books."

• 28:09David Senra?

  So this kind of, um, first of all, I just think it's amazing because there's this real famous essay that I recommend everybody reading, uh, would read it. Uh, it's by Paul Graham. It's called "Do Things That Don't Scale." Well, going and buying, physically buying 100 bestseller lists, something that don't scale. But it's a wonderful way to tell how you're actually doing. It reminds me, if you listen to the podcast I did on the Invisible Billionaire.

• 28:33David Senra?

  At the time, Daniel Ludwig is, he's got like a net worth of something like three or six billion dollars in like the seventies. He's probably 50 or 60 years old at this time. He's thinking about investing. He made a lot of money in shipping, oil, real estate, other things like that. But he's thinking about, uh, investing. I think it was like Panama or somewhere in either central or south, northern, south, uh, in South America, but like the northern part. And he had, he had invested a lot of money in the Bahamas one time and he relied on like scientists and people saying, hey, like the, the, you can build this huge ship because like you're able to dredge and to make, like to make the channels you need so the ship can get through. It winds up, they were wrong. So what this guy does, he hops on a flight from New York City down, I think it was Panama.

• 29:18David Senra?

  I'm going to say Panama, just going to go with it. To Panama. He's dressed in like, you know, just jeans and like dirty clothes. He takes a, goes down, goes to hardware shop, gets like a string that he measures out to like six feet, nine feet, different lengths. And like a weight, like a, like a, I'm not a fisherman, so I don't know what they're called, but like the weight they put on the end of fishing lines. Then rents a boat and then goes out and physically by himself, by hand, checks to make sure that the debt, the, the information he was given about like the depth and how like, like this specific geolocation is this deep and etcetera, like what he needs to make sure he can get his ships in there is accurate.

• 30:01David Senra?

  Then that same day he flies back to New York. Like that is an insane level of dedication. And he only did that because it's practical. It's like, hey, how else am I going to find out that these, in the past, I've relied on other people's judgment and it didn't work out. So this time, not going to, I'm not going to make the same mistake twice. This is like, almost like a, I know it's not Jeff going out. Imagine in 2002, you run into, I guess we wouldn't know who Jeff, not many people would know who he was at the time, but like, you know, this is still very interesting that Amazon said, you know, this, we're going to take the time. We're going to spend six hours, we're going to like, and we're going to actually check. Like we're promising, we're saying, hey, not only we have unlimited shelf space, but the pricing is better. And they went out and checked. I don't know. I think that, that, that idea can be applied to so many different things.

• 30:43David Senra?

  And I think it's important for entrepreneurs and other people, sometimes like, oh, I have other people that might do it or like, just even if you have other people do it, like check on what they're doing. And do things that don't scale, but you know, are valuable. Okay. I love that idea a lot.

• 30:58David Senra?

  Alright, so now we're going to 2003. Okay. It says, "Long-term thinking," there's that word again, "is both a requirement and an outcome of true ownership." "Owners are different from tenants." "I know a couple who rented out their house, and the family who moved in nailed their Christmas tree to the hardware floors instead of using a tree stand. Expedient, I suppose, but no owner would do something so shortsighted." "Similarly, many investors are effectively short-term tenants, turning their portfolios so quickly they're really just renting the stocks that they temporarily own." It's an interesting concept.

• 31:41David Senra?

  "We emphasize our long-term views in the 1997 letter to shareholders. Our first is a public company. Because that approach really does drive making many concrete, non-abstract decisions. I would like to discuss a few of these non-abstract decisions in the context of customer experience." And here's an example. It says, "For instance, shortly after launching Amazon in 1995, we empowered customers to review products. While now a routine Amazon practice, at the time, we received complaints from a few vendors, basically wondering if we understood our business." And here's some of the examples of those things he heard. "You make money when you sell things. Why would you allow negative reviews on your website?

• 32:23David Senra?

  Speaking as a focus group of one, I know I've sometimes changed my mind before making purchases on Amazon as a result of negative or lukewarm customer reviews. Though negative reviews cost us some sales in the short term, helping customers make better purchase decisions ultimately pays off for the company." And in this next section, this is where he's going to actually spell out a real-world example of long-term thinking, and more importantly, why, which is huge when you're communicating with other humans. You can't just... You can't just broadcast to them. You have to explain why you think the way you do, or why you arrived at the decision, or why you're... It's important. It's going to enable you to work with other people better if your guys are on the same page.

• 33:07David Senra?

  If they understand why you're doing what you're doing. I says, "Among the most expensive customer experience improvements we're focused on are our everyday free shipping offers and our ongoing product price reductions. Eliminating defects, improving productivity, and passing the resulting cost savings back to the customers in the form of lower prices is a long-term decision. Increased volumes take time to materialize, and price reductions almost always hurt current results." So he's got two things that are in conflict, but he doesn't really think they're in conflict, right? He's saying, "In the long term, however, relentlessly driving the price-cost structure loop, which I guess is what we're going to call the flywheel

• 33:52David Senra?

  until he calls it the flywheel, will leave us with a stronger, more valuable business. Since many of our costs, such as software engineering, are relatively fixed, and many of our variable costs can also be better managed at a larger scale, driving more volume through our cost structure reduces those costs as a percentage of sales." And I would argue this further gives him an advantage over his competitors. That advantage is going to compound with time and with size. "Our pricing strategy does not attempt to maximize margin percentages, but instead seeks to drive maximum value for customers and thereby create a much larger bottom line in the long term."

• 34:35David Senra?

  And I love the way he ends the last sentence of his letter. "Here's to not being a tenant."

• 34:44David Senra?

  I'm going to skip over 2004 just because there's like a lot of numbers. He talks about, he lays out, like, if you're interested in what I'm talking about, I'd go back and read 2004. He goes back into like, "Why are they choosing to optimize for free cash flow?" But it's like graphs and earning statements, which is just no way for me to read this to you without it being really confusing. Alright, so let's go to 2005. And this is how he said, I love the way he starts his letters, or this one.

• 35:14David Senra?

  "Many of the important decisions we make at Amazon can be made with data. There is a right answer or a wrong answer, a better answer or a worse answer, and math tells us which is which. These are our favorite kinds of decisions. Quantitative analysis improves customer experience and cost structure." So everybody's going to agree with what he's saying. But then he's going to talk about that data cannot always lead the way, and you must rely on your judgment. You have to. And so he's going to get to that now. "As you would expect, however, not all of our important decisions can be made in this enviable, math-based way. Sometimes we have little or no historical data to guide us, and proactive experimentation is impossible,

• 35:56David Senra?

  impractical, or tantamount to a decision to proceed. Though data, analysis, and math play a role, the prime ingredient in these decisions is judgment. As our shareholders know, we have made a decision to continuously and significantly lower prices for customers year after year as our efficiency and scale make it possible. This is an example of a very important decision that cannot be made in a math-based way. In fact, and he gets a lot of, he was getting a lot of criticism around this time for doing so. "In fact, when we lower prices, we go against the math that we can do, which always says that the smart move is to raise prices.

• 36:39David Senra?

  But our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to much larger dollar amount of free cash flow." Remember that's, he always wants to optimize for that. "And thereby is much more valuable to Amazon." Do you see how all of his principles are kind of interlocking, and they work within one another? That's what I mean is like why he can execute a plan for 20 something, the same, essentially the same plan, different domains, for 20 something years. And that's a huge advantage. Now, he's got this great footnote here.

• 37:18David Senra?

  And this is a problem we all face. And that is, how do you make decisions in a complex adaptive system? And the world is a complex adaptive system, and starting a company is a complex adaptive system. So he talks about this, um, he read this paper, it was written in 1976, it's called "The Structure of Unstructured Decision Processes." And this is his main takeaway from the paper, and it's interesting that he leaves this in the footnote. He says, talking about the paper now, "They look at how institutions make strategic, unstructured decisions, as opposed to more quantifiable operating decisions. Among other gems you will find in the paper is this," and this is a quote from there,

• 37:58David Senra?

  "excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently." Think about that, what he just said. You have these so-called "management scientists," which there's really no such thing, that's silly, that's a silly term. But they're talking about, if you have, uh, if you dedicate excessive attention to them, right, or they're dedicating excessive attention to operating systems, can cause organizations to pursue inappropriate courses of action, other words, doing the wrong thing, but doing it more, doing the wrong thing more efficiently. Nobody wants to do that. That's hilarious.

• 38:41David Senra?

  They are not debating, so this is now, this is Jeff talking. "They are not debating the importance of rigorous and quantitative analysis, but only noting that it gets a lopsided amount of study and attention," and this is such a, I love this guy's mind, "probably because of the very fact that it is more quantifiable." I'm gonna read that whole thing again, because I think it's really important what he's saying here. "They look at how institutions make strategic, unstructured decisions, as opposed to more quantifiable operating decisions. Among other gems you will find in the paper is this: excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently.

• 39:25David Senra?

  They are not debating the importance of rigorous and quantitative analysis, but only noting that it gets a lopsided amount of study and attention, probably because of the very fact that it's more quantifiable." So think of like, all the people, a lot of entrepreneurs to look up to in modern era. And think of somebody, like, why when Elon Musk, I always talk about like, one of the genesis of me starting this podcast was this other podcast I saw with Elon Musk where he's like, well, when you're starting a company, like, who did you look to, like, for advice? Like, how did you, like, how did you try to learn about it? And his, Elon's response, he's like, first of all, I looked in, I looked, I looked for things in a historical context, and he meant books, basically.

• 40:10David Senra?

  And it's interesting what he follows after this. He says, "I didn't read business books. I read biographies and autobiographies because I thought they were helpful." Because Elon understands this whole idea that the world, and then the microcosm of the world, of starting a new company where the outcome changes, it's a complex adaptive system. It doesn't change. It doesn't behave as you would expect it to. And therefore, studying one idea that may have worked for somebody is not the best idea. If you look at the totality, and he used, referenced like, the life of Benjamin Franklin. But if you look at the totality, as much as you can from biography, of other people's lives, you understand, okay, why they make that decision.

• 40:48David Senra?

  And, and then you can gather information from their experience, not to say this is, there's 10 rules of making a successful business. If you ever see an article like that, you know it's bullshit. It doesn't exist. Elon was going through and reading voraciously and collecting examples of how other people in history reacted to certain things. Not thinking that, "Oh, this book is going to teach me how to build a rocket company in, you know, in 2002 in America. That book is unwritten. It's impossible." "This book is going to teach me how to make an electric car company." Like, it didn't exist. He had to look for broader, larger themes. And I just love this idea where people get caught up and it's like, "Oh, just, please just tell me how to do it."

• 41:30David Senra?

  Like, there is no such thing. There's no such thing. And another way of looking at this is, Somebody, well, I don't remember who said the quote, but they're like, what's the, what, one benefit of being well-read is that you just are able to spot bullshit easier. Because you have a lot more, like a larger frame of reference. You've seen other experiences, you've, you've heard about other things, you've learned other things. And so therefore you might not be able to, to, um, to gauge whether something is, uh, like accurate in the positive. But you can, you can definitely see if things are, are, uh, inaccurate in the negative. Okay. So let me, uh, move ahead. I just love that, that footnote so much. All right. So, um, moving ahead on the letter.

• 42:12David Senra?

  As another example, in 2000, we, we invited third parties to compete directly against us on our own prime retail real estate, which he's repeated before. Our product detail pages, launching a single detail page for both Amazon retail and third-party items seem risky. Well-meaning people internally and externally worried it would cannibalize Amazon's retail business. And as is often the case with consumer-focused innovations, there was no way to prove in advance that it would work. That is so important. That's, I guess, what I was just trying to say there. It's like, you don't know. It's a complex adaptive system. You cannot predict. It's impossible. Stop trying. So he's saying, listen, you, and then so in, in, in Jeff's case, he's like, listen, just be bold. Limit your downside and leave the upside unlimited, and which we'll talk about more in a little bit.

• 42:57David Senra?

  Um, so he says, as is often the case with consumer-focused innovations, there was no way to prove in advance that it would work. Let me, um, there's a, a line that I tweeted out the other day. Um, that it actually comes from one of these, uh, shareholder letters. But it kind of, I'm going to jump ahead because I think it applies here. So he says, um,

• 43:19David Senra?

  um, this is Jeff Bezos, Jeff Bezos from, um, one of his later shareholder letters. And it's just like, why they didn't use market research before making the Echo. And keep in mind, they've sold a hundred million plus of Echo-enabled devices, or Alexa-enabled devices. And again, he just, he just told us in 2005, as is often the case with consumer-focused innovations, there's no way to, to prove in advance that it would work. And now this is him in, I think 2017, writing these words. He says, "Market research doesn't help. If you had gone back to a customer in 2013 and said, 'Would you like a black, always-on cylinder in your kitchen about the size of a Pringles can that you could talk to and ask questions that also turns on your lights and plays music? I guarantee you, they would have looked at you strangely and said, 'No, thank you.'"

• 44:03David Senra?

  He is extremely, what I'm learning about Jeff Bezos, and maybe what I've learned about Jeff Bezos is, he's extremely comfortable in complex environments that have unpredictable outcomes. He actually, most people are scared of that, right? Where human nature, I think, is reflexive, or reflective? I don't know, reflexive? Maybe that's not the right word. We naturally want to be scared of the unknown, right? Why are little kids scared of the dark? Or are other people, things like that. But what Jeff did is, he actually makes that part of his business model, which is genius. He's like, "No, no, like, instead of being afraid of the downside to the unknown, I'm going to use that as a way to, to basically farm these giant businesses."

• 44:48David Senra?

  And then towards the end, he talks about like the, you know, three, the three different ways they do this. And I think the three, I don't want to trip over something I'm going to tell you in the future, but I think when I read it, it was like, you have Amazon Retail, right? Marketplace, whatever you call it. AWS, and then Prime. All of which were huge, massive risks. But wind up being massive, multi-billion dollar businesses by themselves. Okay. I really must like 2005 shareholder, because I've spent a lot of time in here. All right, we're almost done with this letter. Uh, let's see, this is, where's my note here? Okay, so this is, uh, he says, "Math-based decisions command wide agreement." Okay?

• 45:30David Senra?

  "Whereas judgment-based decisions are rightly debated and often controversial." So the idea, what he just said, using the Echo example, um, you know, the math might not have agreed with it. I'm sure people are like, "Why are we investing so much money in these things?" Especially, this was taking place around the time that they did the Fire Phone, which he references. Uh, they're basically two sides of the same coin. You can't predict. They both said, "Okay, we're gonna, we're gonna try these two, we're gonna spend," and he spends billions and billions and billions of dollars on some of these businesses and fail. Um, but the note I left myself on that one sentence is, "This is another reason it's difficult. Like, judgment-based decisions are rightly debated, and they're controversial." Alright, so it says, "You can count on us to..." This is how he ends the letter. "You can count on us to combine a strong quantitative and analytical culture with a willingness to make bold decisions."

• 46:15David Senra?

  There's that word "bold" again. "As we do so, we'll start with the customer and work backwards. In our judgment, that is the best way to create shareholder value." Okay, so now we're gonna move on to 2006.

• 46:30David Senra?

  Oh, man, a lot of highlights on this one, too. Oh.

• 46:34David Senra?

  Oh, buddy. Alright, here we go. "Planting seeds that will grow into meaningful new businesses takes some discipline, a bit of patience, and a nurturing culture." He's gonna continue that tree metaphor here, and this is another way to think about this paragraph, is this is what Jeff looks at, looks for, before starting a new business, which I think is valuable for all of us, okay? Says, "Our established businesses are well-rooted young trees. They are growing, enjoy high returns on capital, and operate in very large market segments. These characteristics set a high bar for any new business we would start. Before we invest our shareholders' money in a new business, we must convince ourselves that the new opportunity can generate the returns on capital our investors expected when they invested in Amazon.

• 47:17David Senra?

  And we must convince ourselves that the new business can grow to a scale where it can be significant in the context of our overall company. We must believe that the opportunity is currently underserved," one characteristic, "and we have the capabilities needed to bring strong customer-facing differentiation to the marketplace," the second one. "I often get asked, 'When are you going to open physical stores?'" That, and then he's gonna talk about like, so he's, he just gave us a, like, his, his, his mini rubric for businesses, right? And now he's gonna give us an example of one business opportunity that, that, that he was, that they could pursue, that fails this mini rubric, and the second one that that hits all of them.

• 48:02David Senra?

  Therefore, he knows he can move forward. He says, "I often get asked, 'When are you gonna open physical stores? That's an expansion opportunity we've resisted. It fails all but one of the tests that outlined, uh, one of the tests outlined above." The potential size of a network of physical stores is exciting. However, we don't know how to do it with low capital and high returns. Physical world retailing is a cagey and ancient business that's already been well-served. What an interesting use of words there. Cagey and ancient, already well-served. And we don't have any ideas for how to build a physical store experience that's meaningful that's meaningfully differentiated for customers.

• 48:43David Senra?

  Interesting, 2006 they didn't, but I don't know if you've heard of Amazon Go. I think they're in Seattle, I think they're in New York City. I don't remember where the other one, if there is more than that. But it turns out, they didn't know how to do it in 2006. Appears they know how to do it now. Okay, so this is an example of the business that passes all the tests and probably the most, it'd be interesting if this winds up being more valuable than than any other Amazon business, including the retail part. I'm sorry, this is, nope, I thought I was going to talk about AWS. AWS is the next one, so there's two of them. AWS is what I was talking about, but this is fulfillment by Amazon. Fulfillment by Amazon is a set of web services APIs that turns our 12 million square foot fulfillment center network into a gigantic and sophisticated computer peripheral.

• 49:28David Senra?

  If you pay us 45 cents a month per cubic foot of fulfillment space, you can stow your products in our network. You make web service calls to alert us to expect inventory to arrive, to tell us to pick up and pack one or more items, and to tell us where to ship those items. You never have to talk to us. It's differentiated, can be large, and passes our returns bar. Amazon Web Services is another example. With AWS, we're building a new business focused on a new customer set. Software developers. And then this is all of the, all of his attributes of a successful business, which he feels AWS has, and he winds up being proved right in time again.

• 50:09David Senra?

  We're targeting broad needs universally faced by developers, such as storage and compute capacity, areas in which developers have asked for help and in which we have deep expertise from scaling amazon.com over the last 12 years. We're well-positioned to do it, it's highly differentiated, and can be a significant, financially attractive business over time.

• 50:31David Senra?

  And then he feels that doing this hard work is actually a competitive advantage. He says, "In some large companies, it may be difficult to grow new businesses from tiny seeds because of the patience and nurturing required. In my view, Amazon's culture is unusually supportive of small businesses with big potential, and I believe that's a source of competitive advantage. Like any company, we have a corporate culture formed not only by our intentions, but also a result of our history. For Amazon, it includes several examples of tiny seeds growing into big trees.

• 51:13David Senra?

  We have many people at our company who have watched multiple $10 million seeds turn into billion-dollar businesses. The firsthand experience and the culture that has grown up around those successes, in my opinion, is a big part of why we can start businesses from scratch. The culture demands that these new businesses be high potential, that they be innovative and differentiated, but it does not demand that they be large on the day they are born." Okay, so moving forward to 2007, this is interesting. This is how he thought about, how Amazon thought about designing the Kindle.

• 51:55David Senra?

  "We started by setting ourselves the admittedly audacious goal of improving upon the physical book. We did not choose that goal lightly. Anything that has persisted in roughly the same form and resisted change for 500 years is unlikely to be improved easily." It's kind of a variation of one of my favorite ideas I've learned over the past few years, which is the Lindy Effect. "We knew Kindle would have to get out of the way, just like a physical book, so readers could become engrossed in the words and forget they're reading on a device." It's also smart. "We also knew that we shouldn't try to copy every last feature of a book. We could never outbook the book. We have to add new capabilities, ones that could never be possible with a traditional book.

• 52:40David Senra?

  The list of useful things that can be done only in the new medium is a long one."

• 52:47David Senra?

  And then he goes on to like a larger, like, almost philosophical idea here. And he makes an interesting point on how our tools, seeing as we're the species that are the tool builders, can actually change us. It's really interesting. "We, humans, co-evolve with our tools. We change our tools, and then the tools change us. Writing, invented thousands of years ago, is a grand whopper of a tool, and I have no doubt that it changed us dramatically. 500 years ago, Gutenberg's invention led to a significant step in the cost of books. Physical books ushered in a new way of collaborating and learning. Lately, network tools such as desktop computers, cell phones, etc., have changed us too."

• 53:30David Senra?

  And this is so interesting. So this is how he sees it's changed us. "They've shifted us more toward information snacking, and I would argue, toward shorter attention spans."

• 53:45David Senra?

  He's writing this in 2007. What do you think if you asked him about this today? It's undoubtedly done that. I was watching this documentary, it's like a mini-documentary on YouTube the other day, about this guy goes around, like, to like, bookstores all over the world. And he also interviews people that happen to like, wind up making the time to read more than average people. And one of the people he interviewed said something that I thought was very, very interesting, so much so since I've learned it, I've been repeating it constantly. And she said that reading is forced meditation, that in a world where we're constantly scrolling and tapping and looking at like, bite-sized what Jeff Bezos here has called information smacking, the opposite of that is reading a book where

• 54:28David Senra?

  you're forced to focus on a subject. I always think of it like I'm having a one-sided conversation about something. Like, think about the Dow of Capital, the one I did last week. That guy has been working on that idea for 30 years. And what I got in, you know, 10 to 15 hours of reading the book, is a one-sided conversation about him synthesizing an idea that he's thought about for 30 years. And I think that's extremely valuable. And the idea of thinking about reading books as forced meditation. I also think podcasts and audiobooks fit into this as well. Because, I mean, think about, like, I listen to some podcasts anywhere from 30 minutes, if you think of like hardcore history, to five hours, whatever the case is, like,

• 55:08David Senra?

  you are meditating on a subject for much longer than, you know, looking at a picture on Instagram for a second, or looking at a tweet, or whatever the case is. And I think that, it's interesting, if you, I've seen surveys and stuff, where they talk about like, apps that make you anxious, and apps that like, give you a pleasurable feeling when you're done using them. And what I love is like, the podcast player's app, it's always scores really high on, like, it was beneficial, it wasn't wasted time, as opposed to a lot of the social apps are, a lot of people, they may be addicted, but they largely are a waste of time. And then he, okay, let me move on. Oh, he says something really interesting here, because I always talk about, it's like, I'm an evangelist for reading and for podcasts,

• 55:52David Senra?

  right? Which you kind of pick up on if you've listened to this podcast for any length of time. But, maybe I'm using the wrong word. Maybe the better word is missionary, and we're gonna learn about that right here with Jeff. He says, "We hope Kindle and its successors may gradually and incrementally move us over the years into a world with longer spans of attention." It's interesting to make a product that he's trying to combat what he feels is a negative effect on humanity, right? So he says, "We want to move us into a world with longer spans of attention." Does that really surprise him, considering how Jeff thinks long-term? "Providing a counterbalance to the recent proliferation of info-snacking tools." Remember, he's writing this in 2007. "I realize my tone here tends towards the

• 56:33David Senra?

  missionary, and I can assure you it's heartfelt. It is also not unique to me, but it is shared by a large group of folks here. I'm glad about that, because missionaries build better products." I love that. Okay, so let's go, now we're in 2008, so we've already seen his response to the initial dot-com crash. Now, this is his response to...

• 57:00David Senra?

  To the financial crisis of 2007, 2008. And I note off myself before I read this is, this is brilliant. And this is not, not just the thinking that's brilliant, even though the idea is good, but acting on that thinking, I think is brilliant. Says, "In this turbulent global economy, our fundamental approach remains the same. Stay heads down focused on the long term and obsess over customers. Long-term thinking levers our existing abilities and lets us do new things we couldn't otherwise contemplate. It supports the failure and iteration required for invention, and it frees us to pioneer in unexplored places, spaces, sorry.

• 57:42David Senra?

  Seek instant gratification or the elusive promise of it, and chances are you'll find a crowd there ahead of you." Okay, so do you see why I'm combining this week's podcast with last week's? Listen to what he just said. "If you seek instant gratification or the elusive promise of it, chances are you'll find a crowd ahead of you." What is the paragraph that I read you earlier? "The entrepreneur who perceives a profit opportunity in the distant future and who patiently reinvests earnings into his business year after year in anticipation has a much greater opportunity than entrepreneurs who are engaged in short-term projects." That's what Jeff is saying here, just saying it different words. So he says, let me go back to where I lost my place, hold on. Okay, so you'll find a crowd there ahead of you. Why?

• 58:27David Senra?

  Because it's easier. And anything that's easier, that's what humans are going to gravitate towards. "Long-term orientation interacts well with customer obsession. If we can identify a customer need and if we can further develop conviction that the need is meaningful and durable, our approach permits us to patiently, for multiple years, permits us to work patiently for multiple years to deliver solutions." It's important that that need is durable, meaning it's going to basically never change. And he always talks about like, you should invest in your business, invest in things long-term. So for him, it's like, customers are not going to wake up tomorrow like, "Oh, I wish I was paying more for what I was getting. Oh, I wish the delivery took, took, took longer." Which is not going to happen. So if you invest in lower prices and faster delivery, you're going to, you can reap benefits in 2008 and you can reap benefits in 2028. Okay.

• 59:14David Senra?

  So he talks about the meaningful doable. Okay, working backwards, something he talks about a lot, from customer needs can be contrasted with a skills-forward approach. This is such an interesting idea, man. With skills-forward approach where existing skills and competencies are used to drive business opportunities. The skills-forward approach says, "We are really good at X. What else can we do with X?" That's a useful and rewarding business approach. However, if used exclusively, the company employing it will never be driven to develop fresh skills. Eventually, the existing skills will become outmoded.

• 59:54David Senra?

  Working backwards from customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward feeling those first steps might be.

• 1:00:12David Senra?

  So now he's gonna talk about... He has a subheading called "Customer Experience Pillars." He says, "In our retail business, we have strong conviction that customers value low prices, fast selection, and fast convenient delivery." And that these needs will remain stable over time, so I was just kinda talking about that. "It is difficult for us to imagine that 10 years from now, customers will want higher prices, less selection, or slower delivery. Our belief in the durability of these pillars is what gives us confidence, gives us the confidence required to invest in strengthening them. We know that the energy we put in now will continue to pay dividends for the future."

• 1:00:48David Senra?

  And so he's gonna talk about some of the stuff that's necessary to do this. And one of them is prudent spending. And the note I left myself is, "Be frugal, motherfucker." The customer... This is what he's telling us. "The customer experience path we've chosen requires us to have an efficient cost structure." The good... What does that mean? That's a fancy way of saying, "We watch what we spent our money on." "The good news for shareholders is that we..." Sorry, he actually calls them "share owners," that's interesting. "The good news for share owners is that we see much opportunity for improvement in that regard. Everywhere we look..."

• 1:01:27David Senra?

  And we all look, we find what experienced Japanese manufacturers would call mudah. Or I guess this translates to waste. And this is his response to finding mudah. It's hilarious. "I find this incredibly energizing. I see it as a potential." Years and... This is so interesting. "I see this as potential." So he's seeing waste now as potential in the future, right? "Years and years of variable and fixed productivity gains and more efficient higher velocity. More flexible capital expenditures." What an interesting perspective. And I left a note to myself, it says, "Read the footnote, future David." Alright, so let's go to the bottom here.

• 1:02:11David Senra?

  Glad I passed, David left that, so I didn't forget.

• 1:02:15David Senra?

  Oh, this is great. So this will be the end of 2008 letter. He says, "At a fulfillment center recently, one of our..." I have no idea how to pronounce this word, capital K, kaizen.

• 1:02:27David Senra?

  And, hold on, I don't know how to pronounce it, but I grabbed the definition for us. It says, "Kaizen is a Japanese business philosophy of continuous improvement of working practices and personal efficiency." Alright, cool. So at a fulfillment center recently, one of our kaizen experts asked me, quote, "If I'm in favor of a clean fulfillment center..." Oh, I'm sorry. So he asked me, "I'm in favor of a clean fulfillment center, but why are you cleaning? Why don't you eliminate the source of the dirt?" And the very last sentence that Jeff... I love, this is the very last sentence in this shareholder letter. He says, "I felt like Karate Kid." What a great thought. Most of us say, "Oh, it's dirty, let me just go clean up again."

• 1:03:12David Senra?

  This guy took it one step further, he's like, "Why don't you eliminate the source of the dirt? You save all the future time of cleaning it." Alright, so that can be obviously applied to so many different things.

• 1:03:23David Senra?

  And this is just a reminder, because you know, like, there's some people that... Like, if you listen to podcasts over enough, you realize that most humans, like, we don't all... We have a very limited amount of ideas. And, like, you're gonna hear that again, and vocabulary, you're gonna hear us repeat over and over again. And some people poke fun at this, I think it's such a weird thing. Like, I put this in here because... Now in 2009, Jeff Bezos, we're what, 12 letters into this, whatever it is, and he repeats himself. Jeff Bezos repeats himself. Don't be afraid to repeat yourself. Like, it's okay. Alright, so the financial results for 2009 reflect the cumulative effect of 15 years of customer experience improvements. And what are those improvements? He says them over and over again.

• 1:04:07David Senra?

  Increasing selection, speedy delivery, reducing cost structure. He just referenced them as pillars, right, that don't change. The work has been done by a large number of smart, relentless, customer devoted people all across the areas of the company. Again, not afraid to repeat himself. We all know that we could still be much better and we're dedicated to improving further. Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs. And now he's gonna say, "Why?" Because what do they believe? We believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.

• 1:04:49David Senra?

  And the summary here, Jeff has just some straightforward advice for us. Start with the customer and work backwards. Listen to customers, but don't just listen to customers. Also invent on their behalf. And that's another thing he repeats a lot. It's our job to invent on their behalf. It's not the customer's job to tell you what you should build. It's your job. Figure it out.

• 1:05:14David Senra?

  Alright, 2010. Many of the problems we face have no textbook solutions. We just had this discussion about the benefit of reading biographies and looking at the whole when you're dealing with a complex adaptive system. Many of the problems we face have no textbook solutions, and so we happily invent new approaches. Our technologies are almost exclusively implemented as services. And he describes services as bits of logic that encapsulate the data they operate on and provide hardened interfaces as the only way to access their functionality. This approach reduces side effects and allows services to evolve at their own pace without impacting the other components of the overall system.

• 1:05:56David Senra?

  And now he's talking, this is really interesting, what he's getting to now. He's saying, "Listen, this idea that you should have, like, that companies have a research and development, an R&D department, is ridiculous." Because he's like, in a company, R&D is a responsibility of every department. So he says, "All of the effort we put into technology might not matter that much if we kept technology off on the side in some sort of R&D department, but we don't take that approach. Technology infuses all of our teams, all of our processes, all of our decision-making, and our approach to innovation in each of our businesses. It is deeply integrated into everything we do." He's going to give an example of this, which now is very common, but it's time is kind

• 1:06:40David Senra?

  of hard to do, right? He says, "One example is WhisperSync, our Kindle service designed to ensure that everywhere you go, no matter what device you have with you, you can access your reading library and all of your highlights, notes, and bookmarks, all in sync across your Kindle devices and mobile apps." The technical challenge in making this a reality for millions of Kindle owners with hundreds of millions of books and hundreds of device types, living in over 100 countries around the world, all at 24 hours a day, 7 days a week reliability. As a Kindle customer, of course, we hide all this technology from you. So when you open your Kindle, it's in sync and on the right page.

• 1:07:19David Senra?

  To paraphrase Arthur C. Clarke, "Like any sufficiently advanced technology, it is indistinguishable from magic." And the result of that is because they're willing to invent. They're not just willing to say, "Okay, this is a textbook way you're supposed to do this." They're willing to just figure it out, go onto the frontier. "Invention is in our DNA, and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide our customers." Okay, moving on to 2011. This entire letter is about the power of invention, so they talk about, they give examples from customers using things they've invented, like Amazon Web Services, fulfillment by Amazon, and Kindle Direct Publishing.

• 1:08:04David Senra?

  So I'm going to skip over that part, but there are some interesting sentences in here. He says, "Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empower others to unleash their creativity, to pursue their dreams." And he continues that. He says, "We are creating powerful self-service platforms that allow thousands of people to boldly experiment and accomplish things that would otherwise be impossible or impractical. These innovative, large-scale platforms are not zero-sum. They create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers." So he's telling you, "Build things that are not zero-sum."

• 1:08:49David Senra?

  And then, one of my favorite parts of reading the Everything Store is, he's obsessed with eliminating gatekeepers. And it's not just eliminating gatekeepers for the sake of eliminating gatekeepers. He's telling us why here. He says, "I am emphasizing the self-service nature of these platforms because it's important for a reason I think is somewhat non-obvious: even well-meaning gatekeepers slow innovation." It's an important sentence there. "When a platform is self-service, even the improbable ideas can get tried because there's no expert gatekeeper ready to say, 'That will never work.'" And guess what?

• 1:09:28David Senra?

  Many of those improbable ideas do, and society is the beneficiary of that diversity." All right, 2012. So this is interesting. Before I read this, this is the note. I was like, "In other words, we should still, we would..." "In other words, we would still take this approach even if it didn't maximize success, but we are pretty sure it does." And this is what, why I wrote this, because Jeff writes here. "Our energy at Amazon comes from the desire to impress customers rather than the zeal to best competitors. We don't take a view of which, we don't take a view on which of these approaches is more likely to maximize business success.

• 1:10:13David Senra?

  There are pros and cons to both, and many examples of highly successful competitor-focused companies. We do work to pay attention to competitors and to be inspired by them, but it is a fact that the customer-centric way is, at this point, a defining element of our culture."

• 1:10:34David Senra?

  One advantage, perhaps a subtle one, of a customer-driven focus is that it aids a certain type of proactivity. When we are at our best, we don't wait for external pressures. We are internally driven to improve our services, adding benefits and features before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reacting to competition. That's really interesting. So if you keep in mind what is best for the customer as opposed to what the hell your competitor is doing, you'll probably arrive at true innovations while they're just over

• 1:11:18David Senra?

  copying the other people they're competing with. That's fascinating. And as always, he reiterates what is best for the customer is best for the shareholder. Our heavy investments in Prime, AWS, Kindle, digital media, and customer experience in general strike some as too generous, shareholder indifferent, or even at odds with being a for-profit company. Amazon, as far as I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers, writes one outside observer. But I don't think so. To me, trying to dole out improvements in a just-in-time fashion would be too clever by half.

• 1:12:03David Senra?

  It would be risky in a world as fast-moving as one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.

• 1:12:33David Senra?

  Alright, 2013.

• 1:12:37David Senra?

  Wow, this one's... Okay, here we go.

• 1:12:43David Senra?

  So, the takeaway I took from this section is when you succeed at something others doubted would work, you gain confidence to try new things in the future. It says, "Customers love Prime. More than 1 million customers joined Prime in the third week of December alone, and there are now tens of million..." That's insane. And now there are tens of millions of Prime members worldwide.

• 1:13:05David Senra?

  "It's easy for us to forget that Prime was a new, unproven, some even said foolhardy, concept when we launched it nine years ago."

• 1:13:17David Senra?

  Let me scroll down a little bit to the next highlight. And this is when he repeats this a lot, and I think it's super important because it goes against our human nature, which we talked a lot about last week. It says, "Experiments and more experiments. We have our own internal experimentation platform called WebLab that we use to evaluate improvements to our websites and products." Now, keep in mind, at this time, he's got like, you know, three to about three giant businesses, depending on how, where you classify Kindle on, right? So, they do a lot of experiments to get there, though. It says, "In 2013, we ran 1,976 experiments, up from 1,092 in 2012 and 546 in 2011.

• 1:14:00David Senra?

  So, the opposite of what normally happens at large companies, they slow down their innovation. As he grows, as Amazon grows, they speed it up." And it says, he's still talking about experimenting, you have to, it's just gotta be something you have to do, do not be afraid of it. It says, "Failure comes part and parcel with invention. It is not optional. We understand that and we believe in failing early and iterating until we get it right. When this process works, it means our failures are relatively small in size because most experiments can start small." He's really just talking about the fact that experimenting is a core organizational tenet here. And then he says, "And then we, and when we hit on something that is really working for customers,

• 1:14:45David Senra?

  we double down on it with hopes to turn it into an even bigger success. However, it's not always as clean as that. Inventing is messy, and over time, it is certain that we'll fail at some big bets too."

• 1:15:02David Senra?

  I'm going to start reading more shareholder letters. I'm just very curious to see other founders in public companies talk this way. Okay, so 2014. This is Jeff telling us what a great business looks like to him. "A dreamy business offering has at least four characteristics. Customers love it, it can grow to a very large size, it has strong returns on capital, and it is durable in time with the potential to endure for decades. When you find one of these, don't swipe right, get married." Well, I'm pleased to report that Amazon hasn't been monogamous in this regard. "After two decades of risk-taking and teamwork, and with generous helpings of good fortune

• 1:15:44David Senra?

  along the way, we are now happily wed to what I believe are three such life partners: Marketplace, Prime, and AWS. Each of these offerings was a bold bet at first, and sensible people worried that they would not work. But at this point, it's becoming pretty clear how special they are and how lucky we are to have them. It's also clear that there are no cynics in business. We know it's our job to always nourish and fortify them."

• 1:16:17David Senra?

  He says, "We'll approach this job with our usual tools: customer obsession rather than competitive focus, heartfelt passion for invention, commitment to operational excellence, and a willingness to think long-term."

• 1:16:33David Senra?

  And then this is maybe the first time in these letters where Jeff actually uses the word flywheel. We're all the way up in 2014. And it's a great example of what it means here, in case you're not sure. He says, "The success of this hybrid model accelerated the Amazon flywheel. Customers were initially drawn by our fast-growing selection of Amazon-sold products at great prices with great customer experience." By then allowing third parties to offer products side by side, we became more attractive to customers, which drew even more sellers. This also added to our economies of scale, which we passed along by lowering prices and eliminating shipping fees for qualifying orders. Having introduced these programs in the US, we rolled them out as quickly as we could to other geographies.

• 1:17:18David Senra?

  The result was a marketplace that became seamlessly seamlessly integrated with all of our global websites. So another way to think about, um, he continues a few paragraphs later, which I, which I love. This is probably the simplest way to think about, um, to understand the flywheel. And that's feeding energy from one thing into another, right? So it says, maintaining a firm grasp of the obvious is more difficult than one would think it should be. But it's useful to try. If you ask what do sellers want? The correct and obvious answer is they want more sales. So what happens when sellers join fulfillment by Amazon and their items become prime eligible? They get more sales.

• 1:18:02David Senra?

  Notice also what happens from a prime members point of view. So the other side, right? Every time a seller joins fulfillment by Amazon, prime members get more prime eligible selection. Meaning the value of the membership goes up. This is very powerful for our flywheel. Fulfillment by Amazon completes the circle. Marketplace pumps energy into prime and prime pumps energy into marketplace. So that was the best description I've, I've heard so far. Okay. So it says, large enterprise, so now he's going to talk about AWS. Large enterprises have been coming on board as well, and they're choosing to use AWS for the same primary reason that startups did. Speed and agility.

• 1:18:47David Senra?

  This is so, so, so important what he, because he really understands. He understands what his customers want and he's telling you to understand what your customer wants. Okay. So he says, um, now you have these large companies coming on AWS. Startups started first, but now the large ones are, and they're doing it for the same reasons, which is odd, speed and agility. So he says, having lower IT costs is attractive. And sometimes the absolute cost savings can be enormous. But cost savings alone could never overcome deficiencies in performance and functionality. Enterprises are dependent on IT. It is mission critical. So the proposition, the sales pitch, in other words, I can save you a significant amount on your annual IT bill and my service is almost as good as what you have now, will

• 1:19:32David Senra?

  not get too many customers. What customers really want in this arena is better and faster. And if better and faster can come along with a side dish of cost savings, then terrific. But the cost savings is the gravy, not the steak. IT is so high leverage, you don't want to imagine a competitor whose IT department is more nimble than yours. Every company has a list of technology projects that the business would like to see implemented as soon as possible. The painful reality is that tough triage decisions are always made and many projects never get done. Even those that get resourced are often delivered late or with incomplete functionality.

• 1:20:15David Senra?

  If an IT department can figure out how to deliver a large number of business-enabling technology projects faster, they'll be creating significant and real value for their organization. These are the main reasons AWS was growing so quickly. IT departments are recognizing that when they adopt AWS, they get more done. So it's interesting, that's the real value add, not that it's going to be cheaper. And then this is Jeff later on telling explicitly how he thinks of his businesses, which I think is one of the most valuable takeaways from these letters, is hearing like from him how

• 1:20:59David Senra?

  he's thinking about what he's doing. "I believe AWS is one of those dreamy business offerings that can be serving customers and earning financial returns for many years into the future. Why am I optimistic? For one thing, the size of the opportunity is big, ultimately encompassing global spend on servers, networking, data centers, infrastructure software, databases, data warehouses, and more. Similar to the way I think about Amazon Retail, for all practical purposes, I believe AWS is market-sized unconstrained."

• 1:21:35David Senra?

  I've also heard other people say it's basically a tax on the internet. So think about the size of the opportunity, right? Alright, so we're going to 2015.

• 1:21:46David Senra?

  This is where Jeff is actually analyzing the similarities between his AWS business and his retail business. This year, or the beginning of the retail business. Says this year, Amazon became the fastest company ever to reach 100 billion in annual sales. Also this year, AWS is reaching 10 billion in annual sales. And AWS is doing so at a pace even faster than Amazon achieved that milestone. What is going on here? Both were planted as tiny seeds. See? He sticks to his script. Both were planted as tiny seeds and both have grown organically without significant acquisitions into meaningful large businesses. Quickly. Superficially, the two could hardly be more different.

• 1:22:30David Senra?

  One serves consumers and the other serves enterprises. One is famous for brown boxes and the others for APIs. Is it only a coincidence that two such dissimilar offerings grew so quickly under one roof? Under the surface, the two are not so different at all. They share a distinctive organizational 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.

• 1:23:13David Senra?

  A word about corporate cultures, rather, not just theirs. For better or worse, they are enduring, stable, and hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you're discovering it, uncovering it, not creating it. It is created slowly over time by the people and by the events, by the stories of past success and failure that become a deep part of company lore. If it's a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people will self-select.

• 1:23:55David Senra?

  Someone energized by a competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinct corporate cultures. We never claim our approach is the right one, we just claim that it's ours. And this is actually, one of my, I'm gonna get to one of my favorite Jeff Bezos quotes ever. It's actually saved, I always talk to you, I have these screenshots that I save my phone under a folder. Just, things that I wanna remember, ideas I wanna remember. Every so often I open up the folder and just scroll through and it's like flashcards for ideas. It's really interesting, actually. Alright, "To invent you have to experiment," I'll tell you which, when I get to the quote.

• 1:24:39David Senra?

  "To invent you have to experiment, and if you know in advance that it's going to work, it's not an experiment." "Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom. And conventional wisdom is usually right. Given a 10% chance of 100 times payoff, you should take that bet every time. But you're still gonna be wrong 9 times out of 10. We all know that if you swing for the fences, you're going to strike out a lot, but you're also gonna hit some home runs." Now, this is the start of the quote I love. "The difference between baseball and business, however,

• 1:25:25David Senra?

  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 4. 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." And then scrolling down a little bit, this is actually a longer, one of his longer letters that he wrote. And this is the difference between Amazon and most technology companies. "Many companies describe themselves as customer-focused, but few walk the walk.

• 1:26:08David Senra?

  Most big technology companies are competitor-focused. They see what others are doing and then work to fast-follow."

• 1:26:18David Senra?

  And then Jeff talks to us about this idea about an invention machine. And he's gonna, um, this is also him telling, telling us how he makes decisions. Wow, I've been talking for a while, my voice is going. Alright, "We want to be a large company that's also an invention machine. We want to combine the extraordinary customer service capabilities that are enabled by size with the speed of movement, nimbleness, and risk acceptance mentality normally associated with entrepreneurial startups. Can we do it? I'm optimistic. We have a good start on it, and I think our culture puts us in a position to achieve the goal, but I don't think it'll be easy. There are some subtle traps that even high-performing large organizations can fall into as a matter of course, and we'll have to learn as an institution how to guard against them.

• 1:27:03David Senra?

  One common pitfall for large organizations, one that hurts speed and inventiveness, is a one-size-fits-all decision-making." This is a really important point. "Some decisions are consequential and irreversible, or nearly irreversible, one-way doors. And these decisions must be made methodically, carefully, slowly, and with great deliberation and consultation. If you walk through and don't like what you see on the other side, you can't go back to where you were before. We can call these type, we call these type-one decisions. But most decisions aren't like that. They're changeable and reversible. They're two-way doors. If you've made a suboptimal type-two decision, you don't have to live with the consequences

• 1:27:48David Senra?

  for that long. You can reopen the door and go back through. Type-two decisions can and should be made quickly by high-judgment individuals or small groups." But this is the difference between Amazon and other companies, right? "As organizations get larger, there seems to be a tendency to use heavy-weight, type-one decision-making process," and he put that into italics, the word "process," "on most decisions, including type-two decisions. The end result of this slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We'll have to figure out how to fight that tendency."

• 1:28:36David Senra?

  Okay, so now we're going to 2016.

• 1:28:40David Senra?

  And I love how he starts this letter. He says, "Jeff, what does day two look like? That's a question I just got at our most recent All Hands meeting. I've been reminding people that it's day one for a couple of decades. I work in an Amazon building named Day One, and when I move buildings, I took the name with me. I spend time thinking about this topic." And so this is his answer. "Day two is stasis, followed by irrelevance, followed by excruciating painful decline, followed by death, and that is why it's always day one. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest day two for decades, but the final result will still come.

• 1:29:26David Senra?

  I'm interested in the question, how do you fend off day two? What are the techniques and tactics? How do you keep the vitality of day one even inside a large organization? Such a question can't have a simple answer. There will be many elements, multiple paths, and many traps. I don't know the whole answer, but I know bits of it. Here's a starter pack of essential day one defense. Customer obsession, a skeptical view of proxies," which we'll elaborate more on in a minute, "the eager adoption of external trends." Wow. I mean, how many businesses, you know, do that? Eager adoption of external trends. And high-velocity decision-making.

• 1:30:14David Senra?

  Okay.

• 1:30:16David Senra?

  There are many ways to center a business. You can be competitor-focused, you can be product-focused, you can be technology-focused, you can be business model-focused, and there are more.

• 1:30:29David Senra?

  But in my view, obsessive customer focus is far more protective of day one vitality. Staying in day one requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight."

• 1:30:47David Senra?

  A customer-obsessed culture creates the conditions where all of that can happen. So now he's going to elaborate on what he meant by resist proxies. She says, "As companies get larger and more complex, there's a tendency to manage proxies." So I didn't understand what he meant until he explains in the next paragraph. "This comes in many shapes and sizes, and it's dangerous, subtle, and very day two." So he says, "A common example is process as a proxy." This is something Steve Jobs talked about too. He says, "Good process serves you so you can serve customers. But if you're not watchful, the process can become the thing. This can happen very easily in large organizations.

• 1:31:30David Senra?

  The process becomes the proxy for the result you want. You stop looking at outcomes and you just make sure you're doing the process right." Gulp. It's not that rare to hear a junior leader defend a bad outcome with something like, "Well, we followed the process." A more experienced leader would use it as an opportunity to investigate and improve the process. The process is not the thing. Another example. "Market research and customer surveys can become proxies for customers." Something that's especially dangerous when you're inventing and designing products. He's going to give an example here. "55% of beta testers report being satisfied with this feature. That is up 47% in the first survey. That's hard to interpret and could unintentionally mislead.

• 1:32:14David Senra?

  Good inventors and designers deeply understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the averages you'll find on surveys. They live with the design. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste." You won't find any of that in a survey.

• 1:32:43David Senra?

  So now he's going to talk about the high, what he calls high velocity decision making. Day two companies make high quality decisions, but they make high quality decisions slowly. To keep the energy and dynamism of day one, you have to somehow make high quality, high velocity decisions, easy for startups and very challenging for large organizations. Speed matters in business. And I love this idea and now I'm going to skip ahead a little bit to this other idea he has that's called disagree and commit. This is how you, how you make sure that you're optimizing for speed in business. He just said it's important. If you're the boss, you should do this too. I disagree and commit all the time.

• 1:33:28David Senra?

  We recently greenlit a particular Amazon studio's original. I told my team my view. And this is his view. Debatable whether it'd be interesting enough, complicated to produce, the business terms aren't that good, and we have lots of other opportunities. They had a completely different opinion and wanted to go ahead. I wrote back right away with, I disagree and commit and hope it becomes the most watched thing we've ever made. Consider how much slower this decision cycle would have been if the team had actually had to convince me rather than simply get my commitment. Recognize true misalignment. This is an interesting point too about the difference between like how deadly misalignment is in organizations.

• 1:34:09David Senra?

  So he says, recognize true misalignment issues early and escalate them immediately. Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion, no number of meetings will resolve this deep misalignment. Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision. I've seen many examples of sincere misalignment at Amazon over the years. When we decided to invite third-party sellers to compete directly against us on our own product detail pages, that was a big one. Many smart, well-intentioned Amazonians were simply not at all aligned with the, with the direction.

• 1:34:53David Senra?

  The big, the big, the big decision set up hundreds of smaller decisions, many of which needed to be escalated to the senior team. You've worn me down is an awful decision-making progress. It is slow and de-energizing. Go for quick escalation instead. It is better.

• 1:35:14David Senra?

  Alright, so let's go to 2007.

• 1:35:22David Senra?

  Oh, this is very interesting. One thing I love about customers is that they are divinely discontent. Their expectations are never static. They go up. It's human nature. We didn't ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way. And yesterday's wow quickly becomes today's ordinary. I see that cycle of improvement, that cycle of improvement happening at a faster rate than ever before. You cannot rest on your laurels in this world. Customers won't have it. So how do you stay ahead of ever-rising customer expectation? There's no single way to do it. It's a combination of many things. But high standards are certainly a big part of it.

• 1:36:03David Senra?

  I'd like to share with you the essentials of what we learned so far about high standards inside an organization. First, he's asking the question, is this intrinsic or teachable? He says, first, there's a foundational question. Are high standards intrinsic or teachable? Do we first and foremost need to select for high standards people? If so, this letter would, this letter would need to be mostly about hiring practices. But I don't think so. I believe high standards are teachable. In fact, people are pretty good at learning high standards simply through exposure. High standards are contagious. Bring a new person onto a high standards team and they'll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread.

• 1:36:49David Senra?

  Um, this is really interesting. I use podcasts and books for what he's about to explain. Another important question is whether high standards are universal or domain-specific. In other words, if you have high standards in one area, do you automatically have high standards elsewhere? I believe high standards are domain specific. And you have to learn high standards separately in every area of interest. But when I started Amazon, I had high standards on venting, on customer care, and on hiring. But I didn't have high standards on operational process. How to keep fixed problems fixed, how to eliminate defects at the root, and how to inspect processes and much more. I had to learn and develop high standards on all of that.

• 1:37:31David Senra?

  Understanding this point is important because it keeps you humble. You can consider yourself a person of high standards in general and still have debilitating blind spots. There can be whole arenas of endeavor where you may not even know that your standards are lower nonexistent, and certainly not world-class. It is critical to be open to that likelihood. So what I mean by, at the beginning of this, as I use podcasts and books for this. I've said this repeatedly, that we're really, really lucky to be born in the age of the internet. And specifically with the growth in podcasts that we've been seeing. And the reason being is because think, analyze your daily interaction. Think about every single person you've interacted with today. Think about the person you talked to yesterday, you talked to last week. And over and over and over again, you're going to realize that

• 1:38:15David Senra?

  for the vast majority of people, for the vast majority of people that they interact with, there's very few of us that get to interact with truly brilliant, high-standard people in our day-to-day lives. Because these people are rare. But the beautiful thing about books and podcasts is you get to access them. You can sit in on a discussion of two people that have thought about a subject and studied a subject for 30-something years, or whatever the case is. You can let their standards become yours. You can expand the scope of your ambition. Like, I'm sitting here reading all these books all day about people, you know, something like, think of Kirk Herkorian, who we covered a few weeks ago. Like 8th grade education didn't stop him. He just took, he just went from one opportunity to another, to another, to another.

• 1:38:59David Senra?

  Like you realize, oh wow, so much of life and everything around us is nonlinear. And by exposing yourself to this is, is, is doing exactly what Jeff Bezos is saying. He's like, listen, you could have debilitating blind spots. You could think that you're, uh, maybe you're in good, you're in good health or good shape. And then you, you either read a book or listen to a podcast about somebody that dedicates their life to that. Uh, saying you could think you're a really good entrepreneur and then you go, oh, I didn't even think about this, this idea, this, this way, uh, this approach. Like there's just a limitless, um, number of things that we can improve on constantly. And none of us are ever going to get to this, that like, there's no such thing as perfection. Like, but that doesn't mean we shouldn't try throughout our entire life, our entire, our entire lives to keep growing and to keep adding new skills and to keep doing things as best as we can.

• 1:39:44David Senra?

  Um, so I think reading, you know, especially biographies, uh, listening to podcasts where you have people that are sharing ideas that are useful to your life. Like that's one way to just slowly, even if you're increasing your standards by 1% every year, 2% a year, 5% a year. Over many decades, um, that's a vast improvement over the person next to you that's not doing those things. That's not reading those books, that's not listening to those podcasts, that's not having those experiences, that's not experimenting, that's not inventing. Um, it's extremely important. Okay. So, um, I mean, just think about like, if you, if you read his shareholder letters and read his book, like that's one person. And you can learn so much because Jeff is willing to share it. Go on YouTube and I'm doing this a lot. I'll, I'll eventually put the notes on my personal website and I'll let you know when I do.

• 1:40:25David Senra?

  But, uh, I've been going through and, um, not only on podcasts where I take notes, but on, uh, like these talks and they're all over YouTube. I'm like, man, there's just so much information I want to learn here. Like I want to remember. And so I have like the Kindle highlight version of it. I would, uh, it's the way I think about it, like, you know, things I want to go back and like have flashcards almost to remember. And I was like, you know what? If it's valued to me, it's probably valued by other people. So when I'm done with that, I'll let you know. All right. Um, and this is very weird. He's going to bring up the idea of doing a perfect handstand. So the closest, a close friend of mine recently decided to learn to do a perfect freestanding handstand, not leaning against the wall. Not just for a few seconds. Instagram good. She decided to start her journey by taking a handstand workshop at her yoga studio. She then practiced for a while. I promise you, this story is really worth hearing.

• 1:41:10David Senra?

  Just bear with me. She then practiced for a while, but wasn't getting the results she wanted. So she hired a handstand coach. Yes, I know what you're thinking, but evidently, this is an actual thing that exists. In the very first lesson, the coach gave her some wonderful advice. "Most people," he said, "think that if they work hard, they should be able to master a handstand in about two weeks." The reality is that it takes about six months of daily practice. If you think you should be able to do it in two weeks, you're just going to end up quitting. Unrealistic beliefs on scope, often hidden and undiscussed, kill high standards. To achieve high standards yourself or as part of a team, you need to be, you need

• 1:41:51David Senra?

  to form and proactively communicate realistic beliefs about how hard something is going to be. Something this coach understood well. He says, "Building a culture of high standards is well worth the effort, and there are many benefits. Naturally and most obviously, you're going to build better products and services for customers. This would be reason enough. Perhaps a little less obvious, people are drawn to high standards. They help with recruiting and retention. More subtle, a culture of high standards is proactive of all the invisible but crucial work that goes on in every company. I'm talking about the work that no one sees. The work that gets done when no one is watching.

• 1:42:35David Senra?

  In a high standard culture, doing that work well is its own reward, and it's, and it's part of what it means to be a professional." This is Jeff beating his drum. He's telling us why companies must experiment and invent. "From very on, uh, from very early on in Amazon's life, we knew we wanted to create a culture of builders. People who are curious, explorers, they like to invent. They see the way we do things as just the way we do things now. A builder's mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration, invent, launch, reinvent, relaunch,

• 1:43:19David Senra?

  start over, rinse, repeat again and again. They know the path to success in anything, uh, they know the path to success is anything but straight." Wandering, this is such an interesting use of the word wandering. I love how he says this. "Wandering in business is not efficient, but it is also not random. It's guided by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough and it's worth being a little messy and tangential..." Tangential. Tangential, I don't know if I'm pronouncing that word, you know what the word is. "...to find our way there. Wandering is an essential counterbalance to efficiency. You need both.

• 1:44:04David Senra?

  The outsized discoveries, the nonlinear ones, are likely, are highly likely to require wandering." And it's kind of, if you think about that, it makes sense. Like if it was, if you didn't have to wander, if there was these huge nonlinear opportunities, somebody would have done them. You have to go off paths that other people aren't doing. Like you have to wander. Right. "The biggest needle movers will be things that customers don't know to ask for. We must invent on their behalf. We have to tap into our own inner imagination about what's possible. AWS itself, as a whole, is an example. No one asked for AWS. No one.

• 1:44:45David Senra?

  Turns out the world was in fact, ready and hungry for an offering like AWS, but didn't know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building, reworking, experimenting, and iterating countless times as we proceeded. And customers are responding to our customer-centric wandering and listening. AWS is now a 30 billion annual run rate business and is growing fast." And here he talks about something I don't think I've heard any other, anybody else say. Talks about failure needs to scale too. And this is the last of the highlights. And you also hear a quote in here that I read to you earlier. He says, "As a company grows, everything needs to scale, including the size of your failed experiments.

• 1:45:30David Senra?

  If the size of your failures isn't growing, you're not going to be inventing at a scale that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multi-billion dollar failures." Development of the Fire Phone and Echo was started around the same time. While the Fire Phone was a failure, we were able to take our learnings and accelerate our efforts into building Echo and Alexa. No customer was asking for it. This was definitely us wandering. And market research doesn't help. If you'd gone to a customer in 2013 and said, "Would you like a black, always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions?

• 1:46:14David Senra?

  That also turns on your lights and plays music?" I guarantee you, they would have looked at you strangely and said, "No, thank you." Customers have purchased more than 100 million Alexa-enabled devices. All right, we made it. 20-plus years of synthesized knowledge of Jeff Bezos building one of the largest and most successful technology companies of our time. If you enjoyed this podcast, do me a favor. Can you spread this? I think it's an interesting idea. I think a lot of people would be interested in it. Send it to friends, share it on social media. Do whatever you can. And in general, just encourage your friends to, if you're enjoying and learning from my podcast, please encourage your friends to sign up.

• 1:46:57David Senra?

  And if you want to support it, please sign up. It takes 15 to 20 seconds. There's a link. You can become a misfit. Half my podcasts are free. Half podcasts I do are just for misfits. So if you're not already a misfit, you're missing out. There's a ton of knowledge and experience and good ideas that I'm uncovering and reading all these books. And it'd be a shame if you missed out on half of them. It's unbelievably affordable. And not only that, but it supports my work. And it's the only thing that'll keep this project going over a long period of time. So literally 10 to 15 seconds, you're listening to a bunch of podcasts that you haven't heard yet. So, all right, I've spoken enough. My voice is gone.

• 1:47:39David Senra?

  Thank you very much for listening, and I will talk to you next week about another entrepreneur.