June 16th, 2011
I really enjoyed listening to Amazon’s shareholder’s meeting last week — mainly because Jeff Bezos, the founder of Amazon, fielded questions from the shareholders. He had an interesting perspective on the Kindle, but I also got a big surprise when one of the shareholders asked Bezos for an update on a new service called Amazon Fresh. “You didn’t mention that,” she said, adding “I see more trucks and more deliveries around town.”
“Amazon Fresh is a test,” Bezos replied. “It’s only in Seattle. And if the customer experience is good, the economics — we’re still tinkering… It’s an expensive service to provide.” My ears perked up as Bezos explained that it’s a similar service to what HomeGrocer and WebVan tried 10 years ago. (If I remember correctly, both those businesses offered home-delivery of fresh groceries!) HomeGrocer was eventually bought by WebVan, and then WebVan was eventually bought…by Amazon. “It’s an expensive service to provide,” Bezos told the shareholders. “So we are — you know, we’re basically working on it here in Seattle, seeing if we can get it to work.”
“We like the idea of it, but we have very — you know, we have a high bar of what we expect in terms of the business economics for something like Amazon Fresh in terms of profitability and return on invested capital. So we continue to think about that.”
I had no idea Amazon was quietly working on a grocery-delivery business – but it proved that behind the scenes, Amazon is always quietly planning more big things. My favorite question came from the shareholder who noted that early in Amazon’s history, “there were several notable missteps, either partnerships or initiatives that just didn’t work out. But lately it seems like Amazon has been executing really well. And so my question is really about risk. Is it still Amazon’s philosophy to make bold bets?
“I would expect that maybe some of them wouldn’t work out, but I just, I’m not seeing that. So my question is where are the losers of the bold bets?”
“In a way,” answered Jeff Bezos, “that’s like the nicest compliment I’ve ever gotten!” Bezos acknowledged that the Kindle (and Amazon Web Services) have both worked out very well, saying some of Amazon’s success was luck, but that Amazon also has a lot of experience and knowledge. “Go back in time. We started working on Kindle almost seven years ago. And that is a very difficult — you know, there you’re just — you have to place a bet. Now these are not — if you place enough of those bets, and if you place them early enough, none of them are ever betting the company. By the time you’re betting the company, it means you haven’t invented for too long.
“If you invent frequently and fail — and are willing to fail, then you never get to that point where you need to bet the whole company.”
He told the audience that “We are planting more seeds right now. And I can guarantee you that everything we do will not work.” But he pointed out that when you stop investing in an idea that isn’t working, the company’s operating margins actually go up. So “My mindset never lets me get in a place where I think we can’t afford to take these bets, because the bad case never seems that bad to me.”
He was really on a roll now, and I found it very inspiring.
I think to have that point of view requires a corporate culture that does a few things. I don’t think every company can take that point of view… A big piece of what the story is we tell ourselves about who we are is that we are willing to invent. We are willing to think long-term. We start with the customer and work backwards. And very importantly, we’re willing to be misunderstood for long periods of time.
And I believe if you don’t have that set of things in your corporate culture, then you can’t do large-scale invention. You can do incremental invention, which is critically important for any company. But I think it’s very difficult if you’re not willing to be misunderstood. People will misunderstand — any time you do something big that’s disruptive – Kindle, Amazon Web Services – there will be critics.
And there will be at least two kinds of critics. There will be well-meaning critics, who genuinely misunderstand what you’re doing, or genuinely have a different opinion. And there will be self-interested critics who have a vested interest in not liking what you’re doing, and they will have reason to misunderstand. And you have to be willing to ignore both types of critics. You listen to them, because you want to see — always testing. Is it possible they’re right? But if you pull back and you say, “No, we believe in this vision.” Then you just stay heads-down, focused, and you build out your vision.