#388 Jeff Bezos's Shareholder Letters: All of Them!

(I fixed the audio and uploaded a new episode!) "To read Jeff Bezos’s 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." That is the best description of Bezos's letters I have ever read. I just finished rereading these letters for the 4th or 5th time. With clear thinking and ferocious intelligence, Bezos provides a masterclass in building a customer-obsessed, enduring franchise. With relentless repetition Bezos teaches us about the importance of invention, risk-taking, wandering, differentiation, technology, judgement, high-standards, customer obsession, long-term orientation, and why value trumps everything. Read the letters on Amazon's website here. Or in the book Invent and Wander: The Collected Writings of Jeff Bezos Register for the live event in New York at Ramp! Ramp gives you everything you need to control spend, watch your costs, and optimize your financial operations —all on a single platform. Make history's greatest entrepreneurs proud by going to Ramp and learning how they can help your business control your costs and save time and money. Join my free email newsletter to get my top 10 highlights from every book ( 15:00 ) Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon success. It's not easy to work here but we are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about. Such things aren't meant to be easy. ( 24:00 ) We believe we have reached a "tipping point," where this platform allows us to launch new ecommerce businesses faster, with a higher quality of customer experience, a lower incremental cost, a higher chance of success, and a faster path to scale and profitability than any other company. ( 27:00 ) We will continue to invest heavily in introductions to new customers. Though it's sometimes hard to imagine with all that has happened in the last five years, this remains Day 1 for ecommerce, and these are the early days of category formation where many customers are forming relationships for the first time. We must work hard to grow the number of customers who shop with us. ( 37:00 ) Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it's good for shareholders. Please expect us to repeat this loop. ( 47:00 ) Our quantitative understanding of elasticity is short-term. We can estimate what a price reduction will do this week and this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on our business over five years or ten years or more. 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 a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon. ( 55:00 ) Our fundamental approach remains the same. Stay heads down, focused on the long term and obsessed over customers. Long-term thinking levers our existing abilities and lets us do new things we couldn't otherwise contemplate. Seek instant gratification and chances are you'll find a crowd there ahead of you. ( 56:00 ) Long-term orientation interacts well with customer obsession. If we can identify a customer need and if we can further develop conviction that that need is meaningful and durable, our approach permits us to work patiently for multiple years to deliver a solution. ( 59:00 ) 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. ( 1:00:00 ) A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it's durable in time-with the potential to endure for decades. When you find one of these get married. ( 1:02:00 ) We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it's important to be bold. Big winners pay for so many experiments. ( 1:10:00) When a memo isn't great, it's not the writer's inability to recognize the high standard, but instead a wrong expectation on scope: they mistakenly believe a high standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more! They're trying to perfect a handstand in just two weeks, and we're not coaching them right. The great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can't be done in a day or two. The key point here is that you can improve results through the simple act of teaching scope-that a great memo probably should take a week or more. ( 1:12:00 ) Sometimes (often actually) in business, you do know where you're going, and when you do, you can be efficient. Put in place a plan and execute. In contrast, wandering in business is not efficient-but it's 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 that it's worth being a little messy and tangential to find our way there. Wandering is an essential counterbalance to efficiency. You need to employ both. The outsized discoveries-the "nonlinear" ones-are highly likely to require wandering. ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

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

• 0:00David Senra?

  I will be in New York City on May 27th. I'm doing a live show. I will be interviewed by my friend Patrick O'Shaughnessy at Ramp's headquarters. This event is free to attend. I'll leave the link down below if you want to register. The link will be down in the show notes. I'm going to be doing several live events at Ramp's headquarters over the next 12 to 24 months. So even if you can't make this one, make sure you register so you get notified for the next one. The event, this event, isn't reserved just for Ramp customers, but future events will be because space is limited. So if you aren't already running your business on Ramp, highly recommend that you do so. I run my business on Ramp. Most of the top founders and CEOs that I know do so as well. There's actually an idea from Jeff Bezos's shareholder letters that I think is related

• 0:44David Senra?

  to this and really just good advice for anyone in business. And it's Jeff's idea on the importance of heavily investing into new introductions for new customers. As you're about to hear, Jeff was very adamant, very clear from day one, that he was going to build an enduring, long-lasting business. He was not interested at all in building an undifferentiated commodity business. He wanted to build something that delivered more value to customers than anyone else in the world, and he believed that he could succeed at that goal better than anyone else. And you'll hear in this episode that if you believed what Jeff believed, then you would do what Jeff was doing. Because Jeff believed he was building a winning system. This is the way I think about it. And if you're doing that, it makes a lot of sense to say this.

• 1:29David Senra?

  This is what Jeff wrote in one of his shareholder letters. "We will continue to invest heavily in introductions to new customers. These are the early days of category formation, where many customers are forming relationships for the first time. We must work hard to grow the number of customers who shop with us." He saw, what Jeff saw, was that people who started to use Amazon tended to stick around because of the value that they received from Amazon. I was one of those people that he was trying to introduce Amazon to, and I've been a customer of his for 21 straight years. The lesson here is like, if you believe that you have the best product, then you should do everything you can to get more people into your winning system.

• 2:10David Senra?

  Ramp is doing the exact same thing today, and I have a mind-blowing stat that will demonstrate their right to believe that they've built a product that delivers more value to their customers than anyone else in the world is capable of, just like Jeff did with Amazon. Last year, 12,059 businesses signed up to use the Ramp corporate card. Okay, only eight of those 12,059 businesses decided Ramp wasn't for them. That is a success rate, a success rate of 99.9334%. If you have not yet started running your business on Ramp, go to ramp.com today to learn how they can help your business save time and money. I hope to see you in New York, and I hope you enjoy this episode.

• 2:55David Senra?

  So this is the fourth or fifth time that I've read Jeff Bezos's shareholder letters. Every single time I read them, they're, they're full of such great ideas, such clear thinking, such great strategy. I always think, hey, I should probably reread these every year and make another episode about them. And in case you haven't read them yet, this is the best thing, the best description I've ever heard of why they're so important. It says, "To read Bezos's 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." So what I want to do is I'm going to go in order by year. And I'm just going to pull out a bunch of what I think are the best ideas. And I think one of the main ideas that you learn from Bezos and his shareholder letters is that if you, if you want to be the best at what you're doing,

• 3:39David Senra?

  if the people that survive and thrive for decades, usually what you'll find, and you see this in the biographies as well, is they just identify a handful of principles. They repeat these principles year after year, and they, they organize their entire company and orient the company and the mission around these principles. And one of the things that jumps out about Jeff that he was very adamant about from day one is the title of his very first shareholder letter. That title is "It's All About the Long Term." This letter is the most important letter that Jeff writes, and he tells you that because he appends it, the 1997 shareholder letter, to every single shareholder letter he's going to write over the next 23 years. So it says, "It is day one for the internet." And if we execute well for amazon.com.

• 4:24David Senra?

  Today, online commerce saves customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the very process of discovery. Amazon.com uses the internet to create real value for its customers and by doing so, hopes to create an enduring franchise. Remember that word enduring. He uses it a lot. From day one, he was going to build a durable, long-lasting business. I just heard a great interview he did with Aaron Ross Sorkin where he says, "From day one, he wanted to build a company that could outlive him, that continues on past his own mortal lifetime." So we create an enduring franchise, even in established and large markets. Retailing is an ancient industry. This is what he's jumping into.

• 5:09David Senra?

  And he figures, "Okay, the internet is a technology, the phenomenon, that we're actually going to utilize so we can add a differentiated and create differentiated value for our customers through the internet." "We have a window of opportunity as larger players marshal the resources to pursue the online opportunity and as customers new to purchasing online are receptive to forming new relationships. 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. 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 leaders."

• 5:53David Senra?

  So then he continues the next section. So the overall letter is called "It's All About the Long Term." Then inside each letter, he'll have different categories, different sections. This section, the very first section in the letter, is called "It's All About the Long Term." And he's laying out his entire strategy here, which is really, really incredible that he wrote this in 1997. We believe that a fundamental measure of our success will be the shareholder value we create over the long term, and he italicized long term. The stronger our market leadership, the more powerful our economic model, the market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital. So in this very first shareholder letter, he's setting the tone, say, we're going to

• 6:37David Senra?

  focus on the long term and we're going to focus on cash flow. And this is why, somebody asked me one time, out of everybody, you know, out of every single person I've read about, who do you, who I think is the best strategist? And the two names that came to mind without hesitation was Rockefeller and Bezos. And I think the strategy, the clearest demonstration of Bezos' strategy is actually in his shareholder letter. So you just see how he understands how everything relates. Everything he's doing can relate to something else. It's very fascinating. "We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise." There's that word again. We are five paragraphs into this, maybe six paragraphs into this. He's already used enduring twice.

• 7:20David Senra?

  "Because of our emphasis on the long term, we will make decisions and weigh trade-offs differently than some other companies. We want to make sure to share with you our fundamental management and decision-making approach, our strategy in other words, so that you, our shareholders, may confirm that it's consistent with your investment philosophy. We will continue to focus relentlessly on our customers." So there's two things I want to stop there that's really interesting about Jeff is, one, he toyed around with the idea of naming Amazon relentless. He was going to, instead of amazon.com, it was going to be relentless.com. In fact, to this day, when you type in relentless.com, it forwards, he still owns that domain, it forwards to amazon.com.

• 8:05David Senra?

  And then this idea of, we're going to relentlessly focus on our customers, really the way he describes that over and over again, he says, "We are going to obsess. We're going to obsess over our customers." Amazon has, I think, 14 leadership principles that they publish online and they share inside the company. And a friend of mine one time made the observation that I think was pretty astute. They don't really have 14 principles. They have one. And everything ties back to, "We are going to obsess over customers." He says this in the shareholder letters. I shared this a few weeks ago when I did that podcast on Akio Morita, founder of Sony. Jeff Bezos studied Akio. If you haven't listened to that episode, you probably should. Steve Jobs studied Akio. Why are all these great entrepreneurs studying this guy? Why are they taking ideas from him? And Jeff said in an interview later on that

• 8:48David Senra?

  one of the things that he learned when he studied Akio and that he used to build Amazon is the importance of having a mission bigger than yourself and bigger than your company. And in Akio's case, he's starting a company in Japan in 1846. He's known for cheap, crappy, copycat products. And he's like, "We are going to make Japan known for quality." Not Sony. We're going to make Japan known for quality products. And Jeff's version of this is that we are going to build Earth's most customer-centric company. And he wanted to influence how other people built their business and the fact that he believed that your business should be oriented around obsessing over customers. And he'll talk about this over and over again, that especially at the time he was writing these letters, it's very, almost

• 9:33David Senra?

  people thought it was like a paradox. And Jeff made the point that the long-term interests of the customer are in perfect alignment with the long-term interest of the shareholder. And this is something he's going to talk about a lot. But again, "We will continue to focus relentlessly on our customers. We will make bold, 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 either case." And this is another thing I admire about Jeff. He's one of my favorite living entrepreneurs. He actually walks the walk. He takes his own advice. So he's like, "Listen, right from the rip, we're going to do a lot of experiments. We are going to swing for the fences. We're going to make bold bets. We're

• 10:16David Senra?

  not going to be timid. We're going to build something that no one else on the planet is capable of doing. We're going to deliver more valuable to anybody else." He makes this point later on, that you have, if you're willing to make a difference and you want to invent and be a pioneer, which is very important to Jeff. Jeff doesn't describe himself as an entrepreneur. He describes himself as an inventor. He says, "Therefore, as your company succeeds and grows..."

• 10:38David Senra?

  Your success will scale, but your failures have to scale too. And so he writes unabashedly later on, you know, "We have multi-billion dollar failures and we will continue to have $10 billion failures because we are going to keep doing these bold bets." That he lays out in 97 in the very first shareholder letter. It's remarkable when you read all these together. They're so great. It should be mandatory in any kind of business education. "When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we will take the cash flows. We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture."

• 11:20David Senra?

  So there's a lot of Sam Walton-esque ideas when you study Bezos. And this is not something that he hid by any means. In fact, he would go around giving copies of Sam Walton's autobiography with his own highlights and annotations to early leaders in Amazon. And that where it says, "We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture." Sounds exactly like Sam Walton would say exactly the same thing. "We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model."

• 12:02David Senra?

  I condense that down to a maxim that I've shared with other founders and other companies when I go speak there. Get big fast. This is the part of the strategy that Bezos just understood the advantage. He's like, "I have to move and I have to go right now because scale is central to achieving the potential of our business model." He knew it from day one. "We aren't so bold as to claim that these ideas are the right investment philosophy, but it's ours and we would be remiss if we weren't clear in the approach we have taken and will continue to take." Again, it's good he's attracting the right shareholders, attracting the right employees, attracting the right investors and partners. By just saying, "Hey, this is what's important to me. This is how I'm going to go about it. If you agree, then come along with this ride." Next section, this is what I mean. Next section is named "Upset."

• 12:47David Senra?

  Over customers. It is remarkable as we go through 23 years of this, how many of these ideas he just can, he repeats them and he talks about how he continuously applies them. And he applies them in many surprising ways, but he identified these principles very, very early. From the beginning, our focus has been on offering our customers compelling value. We realized that the web was and still is the worldwide weight. Therefore, we set out to offer customers something they simply couldn't get any other way and began serving them with books. We brought them much more selection than was possible in a physical store. So if Amazon at this time, when they're just selling books was able, if it was, if you could contain all their inventory in one store, it would be over six football fields large.

• 13:33David Senra?

  And we presented this inventory in a useful, easy to search and easy to browse format in a store that's open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience. We dramatically lowered prices, further increasing customer value. Word of mouth remains the most powerful customer acquisition tool that we have. Now I do want to point out something else because this is why I'm obsessed with people that survive and thrive and can succeed over multiple decades. I'm not interested in being successful for a year. I'm not interested in being successful for five years. I want to keep it forever and that is unbelievably difficult. The tiniest percentage of businesses are able to do that, tiny percentage of people to do that. This is why you and I get together every week and we study these, these anomalies.

• 14:17David Senra?

  These people are just so unusual. The reason I point this out, right? We went back, hey, to read Bezos's shareholder letters, to get a crash course in running a high-growth internet business from someone who mastered it before any of the playbooks were written. The idea that this guy started an internet business in 94 and it's still surviving and thriving more successful than it's ever been is remarkable. And I need to point out, because even in his first shareholder letters, like, hey, we're establishing long-term relationships. There's that word again. We're establishing long-term relationships with many important strategic partners. Guess what? I'm going to list off all these strategic partners. None of them exist anymore. This is so crazy. The strategic partners include America Online, Yahoo. I guess Yahoo kind of exists still.

• 15:01David Senra?

  Apollo still owns it, but you get the point. Excite, Netscape, GeoCities, AltaVista, At Home, and Prodigy, all gone. Amazon still survives. And he sets the tone right away. Says this in the first shareholder letter, says it through all these speeches I've heard. This isn't going to be easy. It's not supposed, if you're trying to do something great and enduring, it's not supposed to be easy. It's to go into it with that expectation. Setting the bar high in our approach to hiring has been and will continue to be the single most important element of Amazon's success. It is not easy to work here. We are working to build something important, something that matters to our customers, something that we can tell our grandchildren about. Such things aren't meant to be easy.

• 15:45David Senra?

  There is, this is the magic of studying these stories. You can hear just a single line. You could read an entire book, you can read, you know, 400 pages and sometimes just a line will hit you. I think about that all the time. This idea where it's like, hey, I want to build, I think that's such a great principle for your life. Try to build something that you can tell your grandkids about. That you can be proud and tell your grandkids, this is how I spent my life. This is what I built. This is what I created. I think that's, it'd be unbelievably satisfying if we can do that. We are still in the early stages of learning how to bring new value to our customers through the internet. We now know vastly more about online commerce than when Amazon was founded,

• 16:29David Senra?

  but we still have so much to learn. Though we're optimistic, we must remain vigilant and maintain a sense of urgency. He has another line, he says over and over again, step by step, ferociously. He is willing to be patient. He is willing to focus on the long term, but he wants you to take your day to day steps ferociously. I love this. Next year, the title of this one is obsessions. Again, repetition is persuasive. We will see over and over again, he starts all these letters with the same idea. We are working to build a place where tens of millions of customers can come to find and discover anything they might want to buy online. It is truly day one for the internet. And if we execute our business plan, well, it remains day one for Amazon.

• 17:10David Senra?

  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. Certainly, some will turn out to be mistakes. Said the exact same thing, used a slightly different language, said the exact same thing in the first shareholder letter. Heads-down focus on customers have helped us to make substantial progress. We intend to build the world's most customer-centric company. That is the mission, greater than himself, greater than Amazon. But there is no rest for the weary. I constantly remind our employees to be afraid,

• 17:52David Senra?

  to wake up every morning terrified, not of our competition, but of our customers. This is another idea that's very similar to what Sam Walton said. Our customers have made our business what it is. They're 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. When I read that, I think of what Sam Walton said in his autobiography, that there's only one boss, and that is the customer. And they can fire us anytime they want by spending their money elsewhere. We must be committed to constant improvement, experimentation, and innovation in every initiative. We love to be pioneers.

• 18:36David Senra?

  Jeff loves the word pioneers. He uses it over and over again. It's in the DNA of the company, and it's a good thing because we'll need that pioneering spirit to succeed. We're proud of the differentiation we've built through constant innovation and relentless focus on customer experience. It would be impossible to produce results in an environment as dynamic as the internet. Without extraordinary people, working to create a little bit of history is not supposed to be easy. Repetition is persuasive, over and over again. And we're finding that things are as they're supposed to be. Setting the bar high in our approach to hiring has been and will continue to be the single most important element of Amazon's success. I feel you and I talk about this every week. It's in almost every book. These people lived at different times. They didn't know each other.

• 19:20David Senra?

  They worked in different industries, lived in different parts of the world, yet they still arrived at similar conclusions through trial and error, through experience. And one of the things that they all arrive at is like, hey, talent is the most, you have to work with the smartest, most talented people you possibly could find. Overpay for talent because talent, it's really hard to overpay for talent, right? Yet, everybody knows that. Yeah, work with the very best people. Set the bar high, as high as possible. It's the most important thing you could do. Think about that. There was this interview that is in this company, in this book called In the Company of Giants, which I think I did back on like episode 208 or something. And in 1997, these two Stanford MBA students are doing interviews with like 16 technology company CEOs. Michael Dell's in there, Bill Gates, Steve Jobs.

• 20:02David Senra?

  And Steve Jobs made the point, because one of the MBA students said, hey, you know, you don't have like time to recruit, you're like busy building a company. And Steve's like, no, I spent a ton of time recruiting. It is the most important thing I do because the company will succeed or thrive or die on the talent level we have. And he made the point, he's like, well, especially when you're starting out, you pick a co-founder. That's half of your company. You should spend a lot of time and really think about that. And he goes, you get to person number 10, that's still 10% of your company. His whole point is like, you're not doing your job if you're not spending a ton of your time doing everything you possibly can. That's what Jim Simon said last week with Renaissance Technologies. He's like, once you identify the smartest people, you go do as much as you can to convince them to join you.

• 20:47David Senra?

  Now, everybody knows, the reason I'm saying this, and I'm kind of digressing here, is because everybody knows the advice. Almost nobody does that. Almost nobody does it because it's so hard. It's easy to understand, very impossible because the best people are very hard. There's not many of them and they're very hard to convince and to recruit. That's why you have to spend so much time doing it. But Jeff gives us some actual ideas like, okay, how can you actually figure out if your hiring bar is high? And if these people are actually going to elevate the current employees that you have? And so he just lays this out. He says, during our hiring meetings, we ask people to consider three questions before making a decision. Number one, will you admire this person?

• 21:30David Senra?

  I've always tried hard to work only with people I admire. Life is definitely too short to do otherwise. The second thing he says, will this person raise the average level of effectiveness of the group that they're entering? And he has a very clear way to think about this. We want to fight entropy. The bar has to continuously go up. And the third one is very fascinating. It says, along what dimensions might this person be a superstar? And the way I think about this is something you and I have been talking about the last few weeks, is this idea of hiring for spikes. Talent is likely to be found among non-conformists, dissenters and rebels. And this is something Steve Jobs talked about. Steve Jobs was an example of this himself, where people are packaged deals. You have to take the good with the bad.

• 22:14David Senra?

  The exceptionally talented people usually have these weird things about them. Let me give you an example. Nolan Bushnell, founder of Atari, Steve Jobs mentor, hires a 19-year-old Steve Jobs. He thought he was super talented, hired Wozniak as well, the founding team of Apple, for God's sake. And he was willing to deal with spikes. The fact that they were very creative, they were very good at their jobs. There's people in Nolan Bushnell's organization that complained. They're like, Steve smells because he wouldn't wear deodorant back then. He's walking around barefoot and he's insisting to sleep in the office. And Nolan wrote a book about this. It's called Finding the Next Steve Jobs. And he's like, I wanted, he's like, I understood the talent and I understood that the talent comes with things that you might not like.

• 22:54David Senra?

  And I dealt with the body odor, the dirty feet, and I let him sleep in the office. Along what dimensions might this person be a superstar? As we look forward, we believe that the overall e-commerce opportunity is enormous. Although Amazon has established a strong leadership position, it is certain that competition will even further escalate. We plan to invest aggressively to build the foundation for a multi-billion dollar revenue company, serving tens of millions of customers with operational excellence and high efficiency. So again, more repetition from Jeff there. 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 one.

• 23:39David Senra?

  I invite you to please read this section titled, "It's All About The Long Term." 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." Next letter, titled, "Building For The Long Term." Says, "We can be uniquely positioned to serve new customers best and benefit as a result. We will maintain a relentless focus on customers." So then he's going to describe to us how he sees his own company. "At a recent event at Stanford, a young woman came to the microphone and asked me a great question. I have 100 shares of Amazon. What do I own?" Jeff's answer was, "You own a piece of the leading e-commerce platform.

• 24:23David Senra?

  We believe that we have reached a tipping point where this platform allows us to launch new e-commerce businesses faster." Notice he says, "new businesses faster," not "new products faster." And what becomes more obvious in time, and I'm led to believe that he understood this earlier than anybody else did from the outside, is, really stop and think about this. Amazon is a company that builds other companies. It's very fascinating. In 1999, he's like, "Okay, we reached a tipping point. This platform allows us to launch new e-commerce businesses faster with a higher quality of customer experience, a lower incremental cost, a higher chance of success, and a faster path to scale and profitability than any other company. Our vision is to use this platform to build..." You already know what he's about to say here.

• 25:08David Senra?

  He's repeated this how many times? "Our vision is to use this platform to build Earth's most customer-centric company." "I beg you, if you learn anything from this podcast, from these books, it's quit jumping around and focus. Identify a handful of principles for your life and for your work. And as a leader of the company, don't deviate from them. Repeat them over and over again." It's not even my advice. Just read Jeff Bezos' shareholder letters. It's so glaringly obvious. And the reason I bring this up is because it's obvious in the shareholder letters. It's obvious in the biographies. I don't think it's at all obvious when you look around and you see the behavior of pure entrepreneurs. They're just jumping around from thing to thing. They haven't found their mission yet.

• 25:52David Senra?

  They haven't found their life's work. It is obvious, holding this book in my hand and reading these shareholder letters, Jeff found his life's work. He knew. And this is something we'll talk about later on where he gets great advice from a much older entrepreneur. I think Jim Sinigal, the founder of Costco, is like two decades older than Jeff. Meets with Jeff when he's 37 years old. And one of the things that bonded them together, they had all these acquisition offers, both of them. Like, they didn't even consider it for a second. They were building a long-lasting, durable company. "Our vision is to use this platform to build Earth's most customer-centric company." As it's probably clear, this platform affords an unusually large-scale opportunity, one that should prove very valuable for both customers and shareholders if we can make the most of it.

• 26:35David Senra?

  Despite the many risks and complexities, we are deeply, deeply committed to doing so. This is where you realize, okay, if you have a winning system, which Jeff has already told us in the first three years, "I'm going to build more, I'm going to create more value for customers than any other company on Earth." Okay, that is what we are going to do. Clearly, if you read between the lines, he believes he has the winning system. If you believe you have a better product, a superior product, superior service, what the hell is the most rational thing to do? "To get more people into that winning system," is exactly what he says here. "We will continue to invest heavily in introductions to new customers." Though it's sometimes hard to imagine with all that has happened in the last five years, this remains day one for e-commerce.

• 27:19David Senra?

  And these are the early days of category formation, where many customers are forming relationships for the first time. "We must work hard to grow the number of customers who shop with us." I am one of those people. That Jeff was targeting. This is his goal for 2000. I think a few years later, I think it's maybe 2004. I think is when I created my Amazon account. I've been Jeff's customer for 21 straight years. What was the value of the ad or the customer experience? Or however, I got introduced into his winning system. What was the value of that? This is what I mean about this great strategy. Just like, I know that I can deliver value more than anybody else. I know I'm doing this for the long term. And if I invest heavily in customers, I'm going to be doing this for two decades from now. So what is the value for every single?

• 28:02David Senra?

  If you are in your business for long term, what is the value for every single customer? You pick up every single good experience that you provide? It's this word of mouth. This is why, you know, I spent a lot of time. You know, I obviously get a lot of messages and like, I don't have like any assistance. So I like, like I answer them. I respond to emails and DMs. I can't obviously get to all of them, but like I write them myself. And I talked to other people like this and they're like, I was like, what do you do with like all your DMs and messages? Like nothing. And I'm like, to me, that's like crazy. And the reason I thought about this is because I learned this from Estee Lauder. I was thinking about what she would do, you know, in the early days of her company. She'd be on the bus or on the train and she'd go to every single store opening. And while she's riding the bus or she's riding the train, she would just like see like a young woman there.

• 28:47David Senra?

  She'd go over, introduce herself, say, hey, I'm Estee Lauder. I have a real big passion for beauty and I have all this like, would you mind if I give you like a free like quick makeover? And, you know, she spent 20 or 30 minutes with the person and she'd get letters 25 years later from that person, who is still a customer of hers. What was the value of that one customer? It's not, because it's not one customer. That over 25 years, how many other customers did that person bring? Talk about how great these products are. People, when they, this is just human nature. When they find something they like, we don't keep it ourselves. Whether it's a movie, a podcast, a product, like we tell other people. What I realized reading through the lines in her autobiography is like, oh, she's not doing one on one.

• 29:29David Senra?

  This is like one on a thousand, but it only works, to tie this all back to Jeff Bezos, it only works if you're in it for the long term. So when Bezos says in his 99 shareholder letter, hey, a big. Idea for us next year is we're going to invest heavily into introductions to new customers because we think we have a winning system here and that and these things are going to compound. And four years later, throws me in that I'm one of these people and 21 years after that, I'm still a customer of Amazon. It's just remarkable. Talks about operational excellence a lot in this book. He doesn't talk about it in shareholders, but I've heard interviews later. We talked about, you know, at the beginning, there's some skills and ideas that you bring into your company and some you have to learn along the way.

• 30:11David Senra?

  And one of those that he had to learn along the way, he didn't understand because no one had invented Amazon before Amazon, was what operational excellence really meant. He just knew that he wanted to be excellent operationally. He set that as a principle and then went about learning how to do so. And this is what I meant, going back to track you. He really does, when I read this to you, Jeff sees how everything connects and feeds into his overall plan for Amazon. And then what I also like about this section is he's just unapologetically extreme. Listen to the words he uses. He uses these words over and over again. We're going to set a very hard, high bar. We're going to make a world-class experience. We're going to be highly focused. We're going to be doggedly determined.

• 30:51David Senra?

  He's not hiding what's important to him. And if you just read the language that he uses, it's very, he's demonstrating it to us. "To us, operational excellence implies two things: delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all of our businesses. Often, the best way to drive one of these is to deliver the other." And he gives us an example. "For example, more efficient distribution yields faster delivery times, which in turn lowers contacts per order and customer service costs. These in turn improve customer experience and build brand, which in turn decreases customer acquisition and retention costs.

• 31:34David Senra?

  Our whole company is highly focused on driving operational excellence in each area of our business. Being world-class in both customer experience and operations will allow us to grow faster and deliver even higher service levels. Consider the most important point: The current online shopping experience is the worst it will ever be. It is good enough today to attract 17 million customers, but it will get so much better." We are doubly blessed. We have a market-sized, unconstrained opportunity in an area where the underlying foundational technology we employ improves every day.

• 32:17David Senra?

  That is not normal. He understands the opportunity that's in front of him and he's pursuing it with a zeal, probably unmatched by anybody else. And he's doing this right as the first internet bubble pops. And so he starts the next shareholder letter with one-word sentence. "Ouch. It's been a brutal year for many in the capital markets and certainly for Amazon 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 at any time in its past." And so there's this idea that comes up in the books a lot, that you have to concern yourself only with the controllables.

• 32:59David Senra?

  He does not control the overall market, anything that's happening in the macroeconomic environment. But what was fascinating, I heard this time in Jeff's life described this way, that while everyone else, and this is when he was getting destroyed in the press, they thought Amazon was going to die, everyone else was focused on the stock price and Jeff was focused on the internal metrics of the business. And he talks about this in interviews later on, too, where he's just like, "Yeah, the stock dropped 80%, but every single metric was working. It was improving. I just had to hold on." And so he's going to talk about some of the mistakes he made and some of the failures. He talks about, "Hey, I told you I was going to take some bold bets. I told you they weren't going to work out. Well, some of them did not work out."

• 33:43David Senra?

  "Many of you have heard me talk about the bold bets that we have, or company have made and will continue to make. Our decision to invest in smaller e-commerce companies like Living.com and Pets.com, both of which shut down operations in the year 2000, lost a significant amount of money for us. We made these investments because we knew we wouldn't ourselves be entering these particular categories anytime soon, and we believe passionately in the landrush metaphor of the internet." So again, he talks about the importance of relentless and continuously learning. For the first, you know, six, seven years that we were doing this, might have made sense. Yeah, there's kind of this gold rush, land rush metaphor. Now he realized that is not a useful analogy anymore. He talks about a much more useful analogy. There is this video you can find on YouTube.

• 34:27David Senra?

  You just type in Jeff Bezos electricity metaphor. It's a TED Talk from like 17 years ago. I think it's absolutely excellent. And he lays out how he thinks about these thin horizontal enabling layers. So he thinks the internet's one, electricity is another one. He talks about AI is another one. And so he's like, indeed, that metaphor was an extraordinary useful decision aid for several years. But now we believe its usefulness largely faded away over the last couple of years. In retrospect, we significantly underestimated how much time would be available to enter these categories. And he also, what he also learned, and this is why he keeps hammering on getting big fast. If you're just a single category at this point, single category e-commerce company, you're not going to achieve the scale that you need to succeed.

• 35:12David Senra?

  He says over and over again that the internet destroys the middle. On the internet, you can be either really, really big or really, really small. And these are just in this messy middle. Online selling is a scaled business characterized by high fixed costs and relatively low variable costs. This makes it difficult to be a medium sized e-commerce company. So then he talks about, but you should be unbelievably optimistic about Amazon because we're not that. Why should you be optimistic about the future of Amazon? Industry growth and new customer adoption will be driven over the coming years by relentless improvements in the customer experience of online shopping. Remember, he said that we are doubly blessed. We have a market size unconstrained opportunity in an area where the underlying foundational technology we employ improves every day.

• 35:56David Senra?

  He continues that theme in the next letter. He's saying, these improvements in customer experience will be driven by innovations made possible by dramatic increases in available bandwidth, disk space and processing power, all of which are getting cheap fast. Amazon will be able to use 60 times as much as bandwidth per customer five years from now while holding our cost for bandwidth constant. This processing power will allow us to do even more and better realtime personalization of our website. Other words, the technology, the cost savings on technology are excellent and great, and we will take them. But the more important thing is that what the technology allows us to invent on behalf of customers to deliver them more value.

• 36:39David Senra?

  Such a fucking great idea here. In the physical world, retailers will continue to use technology to reduce costs, but not to transform the customer experience. We too will use technology to reduce costs, but the bigger effect will be using technology to drive adoption and revenue. Other words, create and invent more products that make our customers' lives better. Amazon today is a unique asset. We have the brand, the customer relationships, the technology, the fulfillment infrastructure, the financial strength, the people and the determination to extend our leadership in this infant industry and to build an important and lasting company. And we will do so by keeping the customer first.

• 37:24David Senra?

  Starts the very next shareholder letter, saying, "Focus on cost improvement makes it possible for us to afford lower prices, which drives growth. Growth then spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it's good for shareholders. Please expect us to repeat this loop." Jeff says this is the single most important thing, and it is probably what he repeats the most throughout these letters. He says, "We stayed relentlessly focused on the customer." Then he has another section in the same letter. "Obsess over customers. Repetition is persuasive." Until July, Amazon had been primarily built on two pillars of customer experience,

• 38:08David Senra?

  selection and convenience. In July, we added a third customer experience pillar, relentlessly lowering prices. So I need, this is really one of the most fascinating things I've come across about, hey, we had two pillars, we're winning on selection and convenience. Now we're going to win on a third, and we're going to make our overall offering even more valuable. And we are going to relentlessly focus on lowering prices. This is the result of Jeff's meeting with Jim Sinigal. Keep in mind, Jeff is 37 years old when this took place, maybe 38, around late 30s. I need to read this entire section to you. So I have my own personal AI, which I've told you before, called Sage, and it's just trained very narrowly on just all my notes, all my highlights, and all my transcripts.

• 38:52David Senra?

  And I use it to make the podcast all the time and to never forget any of the lessons that I'm learning on the podcast. And I want to point this out because I asked Sage, I go, hey, can you just summarize for me what Jeff learned, Jeff Bezos learned from Jim Sinigal? And I think the answer was excellent. And I want to point out to what the hell is he talking about in the shareholder letter? One of the most important lessons came when Bezos visited Sinigal to understand the Costco model. During their meeting, Sinigal explained that Costco's entire business was built around customer loyalty. He taught Bezos that the membership fee was a one-time pain, but the value was reinforced every time customers walk in and see a 47-inch television that's $200 cheaper than any place else. This concept later inspired Amazon Prime.

• 39:34David Senra?

  Sinigal emphasized to Bezos that value must always come first, stating, quote, "My approach has always been that value trumps everything." He explained how Costco maintained extremely low markup, standardized around 14% markup across the board, okay, across all products. Never wavering from this principle, even when they could charge more, Amazon was not doing that. They were taking advantage of some of the products where they could actually charge more. But Sinigal was like, no, Costco doesn't do that because value trumps everything. And long-term customer loyalty is what is a bedrock of the foundation we're going to build a durable, enduring franchise on. I love how all this disconnects.

• 40:18David Senra?

  Never wavering from this principle even when they could charge more. The commitment to consistent value impressed Bezos deeply. The impact of this conversation was immediate and profound. The Monday after meeting with Senegal, Bezos opened an S-team meeting, declaring that Amazon's pricing strategy was incoherent. He announced that Amazon should adopt an everyday low-price approach, just like Walmart, just like Costco. That July, Amazon cut prices on books, music, and videos by more than 20 to 30%. With Bezos declaring, there are two kinds of retailers. There are folks who work hard to figure out how to charge more, and there are companies that work to figure out how to charge less. We are going to be the second full stop. What is particularly interesting is that Senegal doesn't regret educating

• 41:03David Senra?

  an entrepreneur who would later become a competitor. Both men shared similar values. Both have rejected acquisition offers over the years and focused on building for the long-term rather than short-term profits. This exchange demonstrates how business ideas can be transferred between great entrepreneurs. If you think about that, transferring great ideas, great ideas for business from one great entrepreneur to another is exactly the reason that founders exist. Exactly what you and I are doing right now. I absolutely love that. Back to Jeff Bezos's shareholder letters. 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,

• 41:48David Senra?

  eliminating mistakes at their root. Eliminating the root causes of errors saves us money and saves customers time. Our consumer franchise is our most valuable asset, and we will nourish it with innovation and hard work. Skipping ahead, title for another shareholder letter. What is good for customers is good for shareholders. I wonder if this is widely understood now. I think it's obvious. Maybe it's just because of my weird, how I spend my days is having one-sided conversations with all these great entrepreneurs. It certainly wasn't obvious at the time because he spends so much time talking about it. So he says, "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 prices.

• 42:32David Senra?

  But to some, this dual goal seems like a paradox." So when I'm reading, everything I read or everything I see, I just run it through like all, I don't see it as what it is, I see it how it relates to everything else that we've studied over the last eight years. And what I realized, like, oh, this is like Henry Ford. Like technically Jeff is writing this in 2002, but I really think this is like Henry Ford, circa 1919. At that point, Ford bought out all its shareholders, owns 100% of one of the most valuable companies in the world. And you could summarize what Henry Ford was doing. He's like, "I don't want to make a low-quality, cheap product. I want to make a high-quality, inexpensive product." Henry Ford had one idea, a single idea.

• 43:15David Senra?

  Figure out how to mass produce, which no one knew on the planet how to do, a car for the everyman. That's his word. And you could summarize his entire business philosophy, Henry Ford's entire business philosophy in five words. It was maximum service at minimum cost. Very similar to what Bezos is saying here. And what he's telling us in this letter is like, "If I deliver on this, if I do maximum service for minimum cost, that's better for the customer. And over the long term, it'll create a hell of a lot of shareholder value." So he says, "Our pricing objective is not to discount a small number of products for a limited period of time, but to offer low prices every day and apply them broadly across our entire product range. This fills my heart with joy.

• 44:01David Senra?

  Something I've noticed over and over again is like, learning is not memorizing information. Learning is changing your behavior." He took that meeting with Jim Sinek, he's not just having, let's just have a random coffee and like waste each other's time. He's like, "Oh shit, this wiser, really successful entrepreneur has something to teach me. I'm going to take that information and I'm going to change my behavior." And the very next year, he's writing about the fact that he took the advice and changed his behavior. We're not going to discount a small number of products for a limited period of time. We're going to offer low prices every day and apply them broadly across our entire product range. Is that not what? That's exactly what Costco did. That's exactly what the advice that he got from Cinnegal. To illustrate the point, we recently did a price comparison versus a major well-known chain of bookstores. So this well-known chain, it doesn't name it.

• 44:45David Senra?

  It sounds like Barnes and Nobles to me, though. They publish here, there's 100 of the bestselling books that we did this year. Jeff's like, "Great, great list. Let me take that list. I'm going to see, what do you, if I want to buy 100 of those books from you, or 100 books on Amazon, what's the difference?" And he mentions, "Hey, it took us six hours to go with the list, and we have to visit two different stores to buy all 100 books." Okay? So not even including the six hours of time that would take, you know, probably 30 minutes on Amazon. Those 100 books cost $1,561. We did this on Amazon, they were only $1,195. So we saved our customer 23%, not including all the time. So again, I just love this idea.

• 45:28David Senra?

  He's like, "We are going to focus on the value creation for the customer, and we're going to do this over the long term, and you as our shareholder is going to benefit if you stick with us over the long term." Talks about over and over again, "On the next year, design your customer experience with the long-term benefit of the customer in mind. As we design our customer experience, we do so with long-term owners in mind. We empower customers to review products." This is very fascinating. Jeff talks about this in other interviews. Like, "If you want to do anything special, you have to be willing to be misunderstood." He is very, very comfortable being misunderstood, and he sometimes was misunderstood by his employees and his shareholders. And he gives us an example of this. "Anybody can review the product on the same page where you have to buy the product.

• 46:12David Senra?

  People thought this was nuts. We see complaints from a few vendors, basically wondering if we understood our business. You make money when you sell things. Why would you allow negative reviews on your website? Speaking as a focus group of one, I know I've sometimes changed my mind before making purchases on Amazon as a result of a negative or lukewarm customer review. Though negative reviews cost us sales in the short term, helping customers make better purchase decisions ultimately pays off for the company in the long term."

• 46:41David Senra?

  And then a few letters later, this part is incredible. It is likely, I think it's my favorite part of everything he says. I think this is really, really good. It's on the need for good judgment and why data may lead you to make the wrong decision. He says, "Not all of our important decisions can be made in a math-based way. Sometimes we have little or no historical data to guide us and proactive experimentation is impossible. The prime ingredient in these decisions is judgment. As you already 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.

• 47:26David Senra?

  In fact, when we lower prices, we go against the math." I'm going to pause here. He adds a footnote onto this section. There's not many, he doesn't, this is not very common. There's not a lot of footnotes in his shareholder letters. This is very fascinating. He's reading a paper at the time, and it's called "The Structure of Unstructured Decision Processes." This is a quote from the footnote, Jeff writing, "Among other gems you will find in this paper is this." Now he quotes from the paper. "Excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently.

• 48:09David Senra?

  You're going in the wrong direction faster." So you have to be very careful with this. So back to this. This is an example of a very important decision that cannot be made in a math-based way. "In fact, when we lower prices, we go against the math, which says that the smart move is to raise prices. We have significant data related to price elasticity. With rare exceptions, the volume increase in the short term..." Is never enough to pay for the price decrease. However, our, this is the most important part of what I think is the most important section. I absolutely love this. However, our quantitative understanding of elasticity is short term. We can estimate what a price reduction will do this week and this quarter,

• 48:51David Senra?

  but we cannot numerically estimate the effect that consistently lower prices will have on our business over five or 10 years or more. Our judgment, and he italicizes the word judgment. 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 a much larger dollar amount of free cash flow and thereby to a much more valuable amazon.com. Math-based decisions command wide agreement. Judgment-based decisions are rightly debated and often controversial. We will start with the customer and work backward.

• 49:36David Senra?

  In our judgment, this is the best way to create shareholder value. So earlier we mentioned that Amazon is really just a business that builds businesses, a company that builds new companies. He's going to get into that in 2006 because he's asked the question, it's like, okay, you're succeeding in e-commerce, why don't you open physical stores? And his answer to that in 2006 demonstrates how he thinks about building new businesses. And I think that that lens is good for you and I. He's like, hey, I often get asked, when are you going to open physical stores? The potential size of a network of physical stores is exciting. Physical world retailing is cagey and ancient, but it's already well-served. And we don't have any ideas for how to build a physical world store experience

• 50:19David Senra?

  that's meaningfully differentiated for customers. Again, he has no interest in building an undifferentiated commodity business. When you do see us enter new businesses, it's because we believe the above tests have been passed, which is there's a certain return that we can get and we are building a meaningfully differentiated experience for the customers. And he's going to give us two examples of what he believes are relatively small businesses now that can grow really, really big. And that's FBA, Fulfillment by Amazon, and AWS, Amazon Web Services. Fulfillment by Amazon is a set of APIs that turn our 12 million square fulfillment center into a gigantic and sophisticated computer peripheral. It pays 45 cents per month per cubic foot.

• 51:03David Senra?

  Fulfillment center space and you can store your products in our network. You can make web service calls to alert us to expect inventory to arrive. You can tell us to pick and pack one or more items and tell us where to ship those items. You never have to talk to us. He mentions this quite a few times. His belief on the importance of self-service, building self-service platforms, so more ideas get tried, says, "It's differentiated, can be large, and passes our returns bar." So that's FBA. Another thing that also fits all that criteria is AWS. AWS, "We're building a new business focused on a new customer set, software developers. We're targeting broad needs universally faced by developers such as storage and compute capacity, areas

• 51:46David Senra?

  in which we have deep expertise from scaling Amazon over the last 12 years. It is highly differentiated, can be significant financially attractive business over time." Talks about over and over again. He believed that AWS was market size unconstrained, I think is the word that he uses. "In some large companies, it might be difficult to grow new businesses from tiny seeds because of the patience and nurturing required. Amazon's culture is unusually supportive of small businesses with big potential, and I believe that a source, that's a source of competitive advantage." This is also one of my favorite parts of all the letters. He's really telling us that patience can be a competitive advantage and that most companies lack this. "We have

• 52:27David Senra?

  many people at our company who have watched multiple $10 million seeds turn into billion-dollar businesses. That firsthand experience and the culture that has grown up around those successes is a big part of why we can start businesses from scratch. The culture demands that these new businesses be high potential and that they be innovative and differentiated, but it does not demand that they be large on the day that they are born." Another one of my favorite Bezos ideas is that missionaries make better products. He has an entire letter called "A Team of Missionaries." I put this in selfishly just because I believe that books are the anecdote to shorter attention spans, that the rest of the internet is trying to like basically destroy our attention spans. And I just feel better when I, when I, you

• 53:10David Senra?

  know, spend several hours just focused on a book. I think it's good for you. But he also talks about That him personally and Amazon as a company is they're missionaries for reading. And he talks about the development of the invention of the Kindle and why he's doing that. He says, "We, humans, co-evolve with our tools. We change our tools and then our tools change us. Writing, which was 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 change in the cost of books. Physical books ushered in a new way of collaborating and learning. Lately, network tools, such as desktop computers, laptops and cell phones, have changed us too." He's writing this in 2007.

• 53:53David Senra?

  "They shifted us towards more information snacking. And I would argue towards shorter attention spans. If our tools make information snacking easier, we'll shift more towards information snacking and away from long-form reading. Kindle is purpose-built for long-form reading. We hope Kindle may gradually and incrementally move us over the years into a world with longer attention spans, with longer spans of attention, providing a counterbalance to the recent proliferation of info-snacking tools. I realize my tone here tends towards the missionary, and I can assure you, it's heartfelt. I'm glad about that, because missionaries make better products."

• 54:33David Senra?

  And so, this shareholder letter, we're in 2008, is titled "Working Backwards." And I think the lesson he's teaching us here is related to the one that he did two years ago about, "Hey, this information snacking, this seems like a bad idea. Destroying our attention span, bad idea." And what he's gonna, it's related because he's about to say, like, "If you seek instant gratification, like, you're gonna, you're gonna find a crowd there. It's really hard to build a business that's enduring and valuable if you're just chasing after something, if you need that instant gratification." "In this turbulent global economy, our fundamental approach remains the same: stay heads-down, focused on the long term, and obsess over customers." Long, and then what he's gonna tell us is that if you can actually be long-term oriented,

• 55:18David Senra?

  you have a massive competitive advantage, because it goes against human nature. "Long-term thinking levers our existing capabilities and let us do new things we couldn't otherwise contemplate. It supports the failure and iteration required for invention and frees us to pioneer in unexplored spaces." Seek instant gratification and the chances are you'll find a crowd there ahead of you. Long-term orientation interacts well with customer obsession. 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 work patiently for multiple years to deliver a solution. Working backwards from the customer needs can be contrasted with a skills-forward approach,

• 56:00David Senra?

  where existing skills and competencies are used to drive business opportunities. This is another one of his genius ideas that I don't hear expressed or talked about other words, like in other areas. Most companies, most people, like I have a certain set of skills, where can I throw those skills? And he's like, if you do that, you'll never endure and go through the growth necessary to do something truly great. This is very fascinating. So I'm going to start that section again. Working backwards from customer needs can be contrasted with a skills-forward approach, where existing skills and competencies are used to drive business opportunities. The skills-forward approach says, hey, we're really good at X. What else can we do at X? If you use that exclusively, the company employing it will never be driven to develop fresh skills.

• 56:45David Senra?

  Eventually, the existing skills will become outmoded. Working backwards from the customer need often demands that we acquire new competencies and exercise new muscles. Never mind how uncomfortable and awkward feeling those first steps might be. So he actually gives us, essentially what he's saying is like, working backwards from the customer needs, you're gonna, it will make you a more skilled operator over time and make your company more valuable. And so he gives us the example of Kindle. Like, I never built hardware before. I was selling books and CDs and music and now I'm doing FBA and AWS. Kindle is a good example of our fundamental approach. More than four years ago, we began with a long-term vision. Every book ever printed in any language, all available in less than 60 seconds.

• 57:30David Senra?

  That customer experience we envisioned did not allow for any hard lines of demarcation between Kindle the device and Kindle the service. The two had to blend together seamlessly. Amazon had never designed or built a hardware device, but rather than change the vision to accommodate our then-existing skills, we hired a number of talented and missionary hardware engineers and got started learning a new institutional skill, one that we needed to better serve readers in the future. Another idea that Jeff has is going to be very similar to all of history's greatest entrepreneurs. They understand the benefits of eliminating waste and the fact that the benefits of eliminating waste compound. Jeff is saying the same thing here. The customer experience path we've chosen

• 58:13David Senra?

  requires us to have an efficient cost structure. The good news for shareholders is that we see much opportunity for improvement in that regard. Everywhere we look, we find what experienced Japanese manufacturers will call mudah, which translates to waste. I find this incredibly energizing. I see it as potential, years and years of variable and fixed productivity gains and more efficient, higher-velocity, more flexible capital expenditures. There's a great, it's in one of the books Brad Stone wrote on Jeff Bezos. He interviews this guy that works for Jeff in there, and he's like, "I don't understand. I would tell Jeff about a problem in our business, and he'd get excited, and it's because of this." He's like, "I find this incredibly energizing. All this waste, good.

• 58:56David Senra?

  If I fix this waste, I make a more valuable company over the long term." At a fulfillment center recently, one of our Kaizen experts 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? I felt like the karate kid." I do need to point out another thing that Bezos is constantly setting the tone. Amazon is going to invent. We are going to lead. We are not going to follow. We are going to continuously experiment, and we're going to be bold. This is what I mentioned earlier. Bezos considers himself an inventor. Many of the problems we have faced have no textbook solutions, so we happily invent new approaches. All of the effort that we put into technology might not matter that much if we kept technology off to the side in some sort of R&D department, but we do not take that approach.

• 59:40David Senra?

  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 that we do. Invention is in our DNA, and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide customers.

• 1:00:02David Senra?

  I mentioned earlier that Jeff favors these self-service platforms. This is him explicitly stating why. "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. 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? Many of those improbable ideas do work, and society is the beneficiary of that diversity. Here's a great example of the clear thinking that Bezos has. He's going to describe for us in very easy-to-understand terms. "Characteristics of a business that you should never sell. A dreamy business offering has at least four characteristics. Number one, customers love it. Number two, it can grow to a very large size.

• 1:00:46David Senra?

  Number three, it has strong returns on capital. And number four, it is durable in time with the potential to endure," there's that word again, "with the potential to endure for decades. When you find one of these, get married." Let's go back to this idea that you must be comfortable being misunderstood. He's going to explain. People are like, "I don't understand. Why would an Amazon e-commerce platform, why would they have AWS? Like, these businesses seem so different from each other. How are they owned by the same person?" And that's not how Bezos looked at it. Bezos looked at the similarities they have. So he actually expresses, really, in a succinct way, like, this is, I actually think they're more similar than they may appear from the outside.

• 1:01:31David Senra?

  "There is a connection between these two businesses. 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." Through that lens, AWS and Amazon Retail are very similar indeed. And then later on the same page, he talks about the kind of corporate culture that he built intentionally at Amazon. This is one of the most important ideas to remember. "Outsize returns often come from betting against conventional wisdom, and conventional

• 1:02:13David Senra?

  wisdom is usually right. Given a 10% chance of a 100x payoff, you should take that bet every time, but you're still going to be wrong nine 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 going to hit some home runs. The difference between baseball and business is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you could 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 he has an entire letter dedicated to fending off day two. He's obsessed with

• 1:02:58David Senra?

  this idea of day one, and he's terrified of day two coming. And I think this is one of the most important letters he wrote. "Jeff, what does day two look like? That's a question I 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. Day two is stasis, followed by irrelevance, followed by excruciating painful decline, followed by death. 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. I am interested in the question, how do you fend off day two? What are the techniques and tactics?

• 1:03:43David Senra?

  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 multiple traps, but I don't know the whole answer. I know many bits of it. Here's a starter pack of essentials for day one defense. So he lists a few of these tactics and principles. Number one, customer obsession. We've already covered that. I think you get that by now, right? Number two, a skeptical view of proxy Number three, the eager adoption of external trends. And number four, high velocity decision making. I'm going to skip right to number two. Resist proxies. As companies get larger and more complex, there's a tendency to manage to proxies.

• 1:04:24David Senra?

  This comes in many shapes and sizes, and it's dangerous, subtle, and very day two. A common example is process as proxy. 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. The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you're doing the process right. It is not rare to hear a junior leader defend a bad outcome with something like, well, we followed the process. A more experienced leader will use it as an opportunity to investigate and improve the process. The process is not the thing. This speaks right to my soul.

• 1:05:07David Senra?

  He's got two paragraphs that continue on this line of thinking that I absolutely love. 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. I am not against beta testing or surveys, but you, the product owner, must understand the customer, have a vision, and love the offering. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste. You will not find any of it in a survey. The third tactic, embrace external trends.

• 1:05:51David Senra?

  This one's pretty straightforward. The outside world can push you into day two if you won't or can't embrace powerful trends quickly. If you fight them, you're probably fighting the future. Embrace them and you'll have a tailwind. He embraced the internet at the very beginning. These big trends are not that hard to spot. They get talked and written about a lot, but they can be strangely hard for large organizations to embrace. He's writing this in 2016. He says, "We're in the middle of an obvious one right now. That is machine learning and artificial intelligence." He nailed that one. And then the last one is high velocity decision making. And he says, day two companies, they can make high-quality decisions. They just make high-quality decisions slowly. I, this is so great.

• 1:06:33David Senra?

  There's another, uh, he, he uses this as an example quite frequently in, in talks too, where he's like, you're gonna drive great people away from your organization if you make your decisions too slow and you have to get comfortable making decisions with less information than, uh, you would like. Because if you make decisions slow, great people wanna build things. And decision-making slows down their ability to build things. It's like, hey, I love their mission. I can't build anything, so I'm leaving. And there's a great line from this, uh, D. Hawk, the founder of, of Visa, actually said something where he says, making good judgments and acting wisely when one has complete data, facts and information is not leadership. It's not even management. It's bookkeeping. And so Jeff's gonna say something very similar here. Amazon is determined to keep our decision-making velocity high. Speed matters in business.

• 1:07:18David Senra?

  First, the first step for this is don't use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. I think Jeff was the one that popularized this idea that, you know, you're one-way door. Once you walk through there, you can't go easily come reverse that decision. You better take a hell of a lot of time and make sure you're making the right decision. But most decisions you're making in business are not like that. You walk through the door, oh shit, I made a bad move. Let me go back the other way. So that's what he says. Don't, it's not one-size-fits-all. Many decisions are reversible. So they're two-way doors. Second, most decisions are probably made with somewhere around 70% of the information you wish you had. If you wait for 90%, you're being too slow. Plus, either way, you've got to get good at quickly recognizing and correcting bad decisions.

• 1:08:00David Senra?

  If you're good at course correcting, being wrong may be less costly than you think. Whereas being slow is going to be expensive for sure. Uh, so he, he actually has a, a way to do this that he also popularized. And it's this idea, as leader of your company, you have to disagree and commit. I disagree and commit all the time. We recently greenlit a particular Amazon Studios, Studios Original. I told the team my view. It's debatable whether it'd be interesting enough. It's really complicated to produce. The business terms aren't even that good. We have a lot of other opportunities we could pursue. But the team 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 to actually

• 1:08:43David Senra?

  convince me rather than simply get my commitments. So if you disagree and commit, you can actually build, make decisions faster and build faster. He's got another great idea here. The idea that high standards are contagious and how you can fix the inability to adhere to high standards with just teaching scope. I don't know if I've heard anybody else describe this idea this way, so I think it's very fascinating. I believe high standards are teachable. People are pretty good at learning high standards simply through exposure. High standards are contagious. If you bring a new person onto a high standards team, they'll quickly adapt. The opposite is also true. I believe high standards are domain specific and that you have to learn high standards separately in every arena of interest. Understanding this point is important because it keeps you humble.

• 1:09:28David Senra?

  You can consider yourself a person of high standards in general and still have debilitating blind spots. There could be whole arenas of endeavor where you may not even know that your standards are low or nonexistent and certainly not world-class. It is critical to be open to that likelihood. And he's got a funny way to teach this story where he says, a close friend of his wanted to learn how to do a perfect handstand. You know, that's no assistance. You can't lean against the wall. You're just a handstand in the middle of a room. No assistance at all. You can do it for a long period of time. And it's really difficult to learn, so difficult that there's actually people whose jobs is to coach people how to make a perfect handstand. And Jeff thought that was actually very kind of funny, that there was a coach for such thing.

• 1:10:10David Senra?

  But then he said the coach of something was really smart that he, that he actually applied to Amazon.

• 1:10:16David Senra?

  And so the coach says, most people 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. This is now Jeff interpreting this. This is really, really smart. Unrealistic beliefs on scope. They're often hidden and undiscussed. Kill high standards. And so he gives this example. Everybody knows that Amazon, we don't do PowerPoints. You're going to write a six-page narrative. We're going to read the six-page memo before the meeting, and then we're going to talk about it. And what he realized is like this huge variance in the quality of all these memos inside of Amazon. He's like, well, why is this happening? And he realizes, oh, we have unreal. I have not taught.

• 1:11:01David Senra?

  I've not, I failed to do a good job teaching that memos take an unbelievably long time. You cannot do it in a day. You cannot do it in a few hours. I had on, these people had unrealistic beliefs on scope, and I have to teach them this. When a memo isn't great, it's not the writer's inability to recognize the high standard, but instead, a wrong expectation on scope. They mistakenly believe a high-standard, six-page memo can be written in one or two days, or even a few hours, when in reality, it might take a week or more. They're trying to perfect a handstand in just two weeks, and we're not coaching them right. The great memos are written and rewritten, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind.

• 1:11:44David Senra?

  They simply cannot be done in a day or two. The key point here is that you can improve results through the simple act of teaching scope, that a great memo should probably take a week or more. Another great idea from Bezos. In fact, one of his most important ideas. So you can read, I guess I should tell you, I'm working off a book called Invent and Wander, the collected writings of Jeff Bezos. Highly recommend buying the book. It's excellent. Contains all of his shareholder letters, except the last one, and then transcripts for some of his most important speeches. You can read the shareholder letters in here, or you can read them, obviously, you know, they're available online for free. But you know it's important because they named the book Invent and Wander. And he talks about the importance of wandering over and over again throughout his career. And he's going to tell why this is actually such a powerful thing.

• 1:12:28David Senra?

  It can lead you to these, these huge breakthroughs, these nonlinear returns. Sometimes, often actually in business, you do know where you're going. And when you do, you can be efficient. Put in place a plan and execute it. In contrast, wandering in business is not efficient, but it's also not random. It's guided by hunch, gut, intuition, curiosity, empowered by a deep conviction that the prize for customers is big enough that it's worth being a little messy and tangential to find our way there. Wandering is an essential counterbalance to efficiency. You need to employ both. The outsized discoveries, the nonlinear ones, are highly likely to require wandering. AWS is an example.

• 1:13:13David Senra?

  No one asked for AWS. No one. 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 then finally, we got to the part where I mentioned earlier the fact that he believes that your failures need to scale too. This is where you see that Jeff really practiced what he preached. As the company grows, everything needs to scale, including the size of our failed experiments. If the size of your failures isn't growing, you're not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size

• 1:13:57David Senra?

  if we occasionally have multi-billion dollar failures. This kind of large-scale risk-taking is part of the service we, as a large company, can provide to our customers and to society. The good news for shareholders is that a single big winning bet can more than cover the cost of many losers. 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 building Echo and Alexa. No customer was asking for Echo. This was definitely us wandering. Market research did not help. If you had 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

• 1:14:42David Senra?

  that you can talk to and ask questions, can turn on your lights and play music?" I guarantee you, they would have looked at us strangely and said, "No, thank you." And his point about that is, since then, Amazon, I think the last number I saw, Amazon sold something like 500 million devices, Echo and Alexa-powered devices so far.

• 1:15:03David Senra?

  And then he ends his last shareholder letter with, I think, some of the most important advice that he's given us and taught us really over the last 23 years. And it's that differentiation is survival and the universe wants you to be typical. Do not let it. So he says, "This is my last annual shareholder letter as CEO of Amazon, and I have one last thing of utmost importance I feel compelled to teach." And so he is going to actually draw an analogy with this excerpt from this book called The Blind Watchmaker. Since he included the entire excerpt here, it's about a paragraph. I want to read the whole excerpt to you because then I'll make sense of why he's talking about and how he relates this to the fact that you need to embrace your distinctiveness and that your environment will try to smooth out your edges and you cannot, absolutely cannot, let that happen.

• 1:15:48David Senra?

  So let me read this excerpt from The Blind Watchmaker. "Staving off death is a thing that you have to work at. Left to itself, the body tends to revert to a state of equilibrium with its environment. If you measure some quantities such as temperature, in a living body, you will typically find it as markedly different from the corresponding measure in its surroundings. Our bodies are usually hotter than our surroundings, and in cold climates, they have to work hard to maintain that differential. When we die, the work stops. Not all animals work so hard to avoid coming into equilibrium with their surrounding temperature, but all animals do some comparable work. For instance, in a dry country, animals and plants work to maintain the fluid content

• 1:16:31David Senra?

  of their cells, work against a natural tendency for water to flow from them into the dry outside world. If they fail, they die." And so then Jeff says, "While this passage is not intended as a metaphor, it's nevertheless a fantastic one and very relevant to Amazon. In what ways does the world pull at you and attempt to make you normal? How much work does it take for you to maintain your distinctiveness? To keep alive the things that make you special? We all know that distinctiveness, also known as originality, is valuable. We are taught to be yourself.

• 1:17:13David Senra?

  What I'm really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness. The world wants you to be typical in a thousand ways. It pulls at you. Don't let it happen." You have to pay a price for your distinctiveness, and it's worth it. The fairy tale version of be yourself is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading. Being yourself is worth it, but don't expect it to be easy or free. You'll have to put energy into it continuously. To all of you, and he just ends with excellent advice, to all of you, be kind, be original,

• 1:17:58David Senra?

  create more than you consume, and never, never, never let the universe smooth you into your surroundings. It remains day one. And that is where I'll leave it. I hope you now see why I think these shareholder letters are truly, truly special, why I should read them every year, hopefully read them every year, make a new episode on them every year, they serve as great reminders. You can read the shareholder letters for free online. I'll leave the link down below if you want to read them there. If you want to get this book that I worked out of, I think it's highly recommended. I will leave a link down below for the book, and if you buy the book using that link, you'll be supporting the podcast at the same time. I mentioned earlier that I have my own AI assistant that is trained on all my notes, my highlights, my transcripts. If you want to get access to the same exact tool that I use, that's available at foundersnotes.com.

• 1:18:43David Senra?

  It's a way, really, to never forget any of the lessons that we learned on the podcast. I think it's an incredible valuable tool. If you want to use it to enhance the decision making inside of your company and using basically all of the collective knowledge of history's greatest entrepreneurs to do so, you can do that at foundersnotes.com. I'd also highly recommend that you join my personal email newsletter. It is free, is at davidcenra.com. I email the top 10 highlights for every single book that I read, and you can also go to davidcenra.com. I think you can read through like 170. I think of the top 10 highlights for like 170 books that I've read so far. It's at davidcenra.com. That is 388 books down, 1,000 to go. Thank you very much for your support. Thank you very much for listening, and I'll talk to you again soon.