Founders - #17 Jeff Bezos and the Age of Amazon

Episode Date: January 1, 2018

What I learned from reading The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone.   ----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. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

Amazon's internal customs are deeply idiosyncratic. PowerPoint decks or slide presentations are never used in meetings. Instead, employees are required to write six-page narratives, laying out their points and pros, because Bezos believes doing so fosters critical thinking. For each new product, they craft their documents in the style of a press release. The goal is to frame a proposed initiative in the way a customer might hear about it for the first time. Each meeting begins with everyone silently

reading from that document, and discussion commences afterwards. For my initial meeting with Bezos to discuss this project, I decided to observe Amazon's customs and prepare my own Amazon-style narrative, a fictional press release on behalf of this book. Bezos met me in the executive conference room, and we sat down at a large table made of half a dozen door desks, the same kind of blonde wood that Bezos used 20 years ago when he was building Amazon from scratch in his garage. The door desks are often held up as a symbol of the company's enduring frugality. We sat down and I slipped the press release across

the table to him. When he realized what I was up to, he laughed so hard that spit came flying out of his mouth. Much has been made over the years of Bezos' famous laugh. It's a startling, pulse-pounding bray that he leans into while craning his neck back, closing his eyes, and letting loose with a guttural roar that sounds like a cross between a mating elephant seal and a power tool. Often, it comes when nothing is obviously funny to anyone else. I've spoken to Bezos probably a dozen times over the past decade, and our talks are always spirited, fun, and frequently interrupted by his machine gun bursts of laughter. He is engaged and full of twitchy, passionate energy.

If you catch him in the hallway, he will not hesitate to inform you that he never takes the office elevator, always the stairs. He is highly circumspect about deviating from a well-established, very abstract talking points. Some of these maxims are so well-worn that one might even call them Jeff-isms. A few have stuck around for a decade or more. If you want to get the truth about what makes us different, it's this, Bezos says. We are genuinely customer-centric. We are genuinely long-term oriented, and we are genuinely like to invent. Most companies are not those things.

They are focused on the competitor rather than the customer. They want to work on things that will pay dividends in two or three years. And if they don't work in two or three years, they will move on to something else. And they prefer to be close followers rather than inventors because it's safer. So if you want to capture the truth about Amazon, this is why we are different. Very few companies have all those three elements. The idea for Amazon was conceived in 1994 on the 40th floor of a midtown New York City skyscraper.

Nearly 20 years later, the resulting company employed more than 90,000 people, and now I think that number is over 300,000, and had become one of the best known corporations on the planet, frequently delighting its customers with its wide selection, low prices, and excellent customer service, while also remaking industries and unnerving the stewards of some of the most storied brands in the world. This is one attempt at describing how it all happened. It is based on more than 300 interviews with current and former Amazon executives and employees, including my conversations over the years with Bezos himself, who in the end was very supportive of this project, even though he judged that it was

way too early for a reflective look at Amazon. Nevertheless, he approved many interviews with his top executives, his family, and his friends, and for that I am grateful. The goal of this book is to tell the story behind one of the greatest entrepreneurial successes. Since Sam Walton flew his two-seat turboprop across the American South to scope out prospective Walmart store sites. I actually did a podcast on Sam Walton's autobiography that talks about Sam's use of his plane. If you haven't listened to it yet, I recommend going back and listen to it. It's really good, and it will inform a lot of Jeff Bezos' ideas, which he admits he just took from Sam Walton. It's a tale of how one gifted child grew into an extraordinarily driven and versatile CEO and how he, his family,

and his colleagues bet heavily on a revolutionary network called the internet and on the grandiose vision of a single store that sells everything. Okay, so that was from the introduction of the book that I want to talk to you about today. It's The Everything Store, Jeff Bezos and the Age of Amazon by Brad Stone. Okay, so I want to talk about, because this is really interesting. I see a lot where people think, oh, if you don't start really young, like, oh, if I didn't start my company when I was 20, now it's too late. Jeff didn't start his business until he was 30 years old. He was already working on Wall Street, which most people know who Jeff Bezos is. Almost none of the people know what he did before he did Amazon.

So I want to get into that a little bit, and then we're just going to go into some short little anecdotes and stuff here. So this is Jeff Bezos in his 20s, and this is the idea for Amazon. And this is a little longer story story so let's get to it. Before it was self it was the self-proclaimed largest bookstore on earth or the web's dominant superstore amazon.com was an idea floating through the New York City offices of one of the most unusual firms on Wall Street D.E. Shaw and Company. It was a quantitative hedge fund and it was started in 1988 by David E. Shaw, a former Columbia University computer science professor. Shaw pioneered the use of computers and sophisticated mathematical formulas to exploit the anomalous patterns in global financial markets.

The broader financial community knew very little about D shaw and its polymath founder wanted to keep it that way so again um some some themes uh as we read these biographies and we go through these podcasts you'll start to see over and over again one that i've picked up on is um almost all these founders are frugal they they embrace frugality and a lot of them are secretive. And so this D.E. Shaw, who was Jeff Bezos' boss at the time and quite brilliant in his own right, we're seeing that trait right here. He has a system where he's making a lot of money, and he doesn't want to tell people about it. The firm preferred operating far below the radar, deploying private capital from wealthy investors such as billionaire financier Donald Sussman and the Tisch family, and keeping its proprietary trading algorithms out of competitors' hands. By design, D.E. Shaw would be a different kind of Wall Street firm. Shaw recruited not

financiers, but scientists and mathematicians, big brains with unusual backgrounds, lofty academic So Jeff definitely fits into that. Bezos was in his mid-20s at the time, 5'8", already balding, and with a pasty, rumpled appearance of a committed workaholic. He had spent five years on Wall Street and impressed seemingly everyone he encountered with his keen intellect and boundless determination. Between 1989 and 1990, he spent several months working in his spare time on a startup with a young Merrill Lynch employee named Halsey Minor, who would later go on to start the online news network CNET. Their fledgling venture aimed at sending a customized newsletter to people over their fax machines collapsed when Merrill Lynch withdrew the promised funding. But Bezos nevertheless made an

impression. Miner remembers that Bezos had closely studied several wealthy businessmen, so basically he'd listen to founders if he was 25, and that he particularly admired a man named Frank Meeks, a Virginia entrepreneur who made a fortune owning Domino's pizza franchises. Bezos also revered pioneering computer scientist Alan Kay, and often quoted his observation that point of view is worth 80 IQ points, a reminder that looking at things in new ways can enhance one's understanding. He went to school on everybody, Miner says. I don't think there was anybody Jeff knew that he didn't walk away from

with whatever lessons he could. Bezos was ready to leave Wall Street altogether when a headhunter convinced him to meet executives at just one more financial firm, a company with an unusual pedigree. Bezos would later say he found a kind of workplace soulmate in David Shaw. This is Bezos talking later say he found a kind of workplace soulmate in David Shaw, one of the very few people I know who has a fully developed left brain and a fully developed right brain. At Desco, Bezos displayed many of the idiosyncratic qualities his employees would later observe at Amazon. He was disciplined and precise, constantly recording ideas in a notebook he carried with him, as if they might float out of his mind if he didn't jot them down.

He quickly abandoned old notions and embraced new ones when better options presented themselves. He already exhibited the same boyish excitement and conversation-stopping laugh that the world would later come to know. Jeff Holden, who worked for Bezos first at D.E. Shaw and Company and later at Amazon, says, Jeff is the most introspective guy I ever met. He was very methodical about everything in his life. So we're starting to see a pattern here with him. Bezos was a natural leader at Desco. By 1993, he was remotely running the firm's Chicago-based options trading group

and then its high-profile entry into the third market business, an alternative over-the-counter exchange that allowed retail investors to trade equities without the usual commissions collected by the New York Stock Exchange. So in 1994, when the opportunity of the internet began to reveal itself to the few people watching closely, Shaw felt that his company was uniquely positioned to exploit it. And that person he anointed to spearhead the effort was Jeff Bezos. Bezos had first encountered the internet in an astrophysics class at Princeton in 1985, but hadn't thought about its commercial potential until arriving at Desco.

So these events are occurring about eight to nine years after he first saw the internet. Shaw and Bezos would meet for a few hours each week to brainstorm ideas for this coming technological wave. And then Bezos would take those ideas and investigate their feasibility. In early 1994, several prescient business plans emerged from the discussions between Bezos and Shaw and others at D.E. Shaw. So remember, this is the precursor to Jeff's idea for Amazon. One was the concept of a free advertising-supported email service for consumers, the idea behind Gmail and Yahoo Mail. Desco would develop that idea into a company called Juno, which went public in 1999 and soon after merged with Net Zero. Another idea was to create a new kind of financial service

that allowed internet users to trade stocks and bonds online. In 1995, Shaw turned that into a subsidiary called Farsight Financial, a precursor to companies like E-Trade. He later sold it to Merrill Lynch. Shaw and Bezos discussed another idea as well. They called it the Everything Store. So just to jump in real quick, you clearly see that Shaw is brilliant. He has unique approaches to not only to trading financial instruments,

but he's starting to come up with ideas, spinning them out of his hedge fund, incorporating them, and then growing them, and then either selling them or they go public, all while they're still running their hedge fund. Intrigued by Shaw's conviction about the inevitable importance of the internet, Bezos started researching its growth. This is really interesting to me. A Texas-based author and publisher named John Quarterman had recently started the Matrix News, a monthly newsletter extolling the internet and discussing its commercial possibilities. One set of numbers in particular in the February 1994 edition of the newsletter was startling. For the first time, Quarterman broke down the growth of the year-old worldwide web

and pointed out that its simple, friendly interface appealed to a far broader audience than other internet technologies. In one chart, he showed that the number of bytes, a set of binary digits, transmitted over the web had increased by a factor of 2,057 between January 1993 and January 1994. Another graphic showed that the number of packets, a single unit of data, sent over the web had jumped by a factor of 2,560 in the same span. This is my favorite part. Bezos interpolated from that, that this web activity overall had gone up that year by a factor of roughly 2,300, a 230,000% increase. Things just don't grow that fast, Bezos later said. It's highly unusual. And that started me thinking, what kind of business plan might make sense in the context of that growth?

So there's the little seed of Amazon. If Bezos wanted to be a true owner and entrepreneur with significant equity, this is the last part but I think it's extremely important and again something that we could all apply to our own lives. If Bezos wanted to be a true owner and entrepreneur with significant equity in his creation and the potential to achieve the same kind of financial rewards that businessmen like pizza magnate Frank Meeks did, he had to leave his lucrative and comfortable home on Wall Street. What happened next became one of the founding legends of the Internet. That spring, Bezos spoke to David Shaw and told him he planned to leave the company to create an online bookstore. Shaw suggested that they take a walk. They wandered in Central Park for two hours discussing the venture and the entrepreneurial drive. Shaw said he understood

Bezos' impulse and sympathized with it. He had done the same thing when he had left Morgan Stanley. He also noted that D.E. Shaw was growing quickly and that Bezos already had a great job. He told Bezos that the firm might end up competing with his new venture. The two agreed that Bezos would spend a few days thinking about it. So this is really smart. Meet with your mentor, tell him what you have going on, and then listen to his advice. But then take in that advice and you still have to make your own decision. Because if Bezos decides to continue on this path, it's not like his mentor or anybody else

is gonna do the work for him. He's gotta do it, so he believes in that. I talk to a lot of friends, like, I have this idea, what do you think of this? I'm like, I don't think anything of it because it doesn't matter what I think. You're the one that has to get up every morning and do what it is that you wanna do.

So somebody telling you, like, if I saw a logical flaw you would make, and you point that out, but whether I'm interested in your business, it's irrelevant. This is, it's something that you have to believe in. And sometimes when you hear doubts from other people, that for entrepreneurs,

like actually pushes you farther or faster, or just, it gives you some kind of extra motivation. So, but I do think weighing in um and getting advice is is smart but you still at the end of the day after you're making a decision and we're going to see bezos do that right now and this is how he makes this decision it's this regret minimization framework which i think is just a really great idea that i took away from this book at the time bezos was newly married with a comfortable apartment on the upper west side and a well-paying job while mckenzie this is his wife said she would be supportive if he decided to strike out on his own the decision was not an easy one bezos would later

describe his thinking process as unusually geeky terms he said he came up with what he called a regret minimization framework to decide the next step to take at this juncture of his career now these are this is a direct quote from Bezos. When you are in the thick of things, you can get confused by small stuff, Bezos said a few years later. I knew when I was 80 that I would never, for example, think about why I walked away from my 1994 Wall Street bonus right in the middle of the year at the worst possible time. That kind of thinking just isn't something you worry about when you're 80 years old. At the same time, I knew that I might sincerely regret not having participated in this thing

called the internet that I thought was going to be a revolutionizing event. When I thought about it that way, it was incredibly easy to make that decision. Okay, so that's where he gets the idea for Amazon. He's 30 at the time. His wife is 24. They move from Manhattan to Seattle, and they start setting up Amazon in his garage. So I'm going to go through my notes chronologically as they appear in the book. It's not going to be a narrative narrative though. So there's just some random good ideas that I just want to pluck out of the book. Hopefully I'm convincing you to read the book

or listen to the book or become interested in it. That's the entire point of the podcast. Just like we talked about when we covered Shoe Dog by the founder of Nike, he thought he was so obsessed with running that he felt that if more people ran, the world would be a better place. I feel that same way about reading. I more people read spent less time on social media

reading garbage the world would be a better place okay so check this out so I've skipped ahead a little bit Amazon's already going they already have uh they're in Seattle there's only a few people working there and they're only selling books at the time and so this is a great way to work around drop shipping uh one early challenge was that book distributors required retailers to order 10 books at a time. Amazon didn't yet have that kind of sales volume, and Bezos later enjoyed telling the story of how he got around it. Because think about that. If you only have a few orders a day and you have to order 10 at a time, your customers are going to be waiting longer for their books, and therefore they may not come back. So this is Bezos telling the story of how he got around it we found a loophole he said

their systems were programmed in such a way that you didn't have to receive 10 books you only had to order 10 books so we found an obscure book about lichens that they had in their system but was out of stock we began ordering that the one book we wanted and nine copies of the lichen book they would ship out the book we needed with a note that said sorry we're out of the lichen book this part right here i want to read to you is on on his vision though they could not have known it investors were looking at the opportunity of a lifetime this highly driven articulate young man talked with conviction about the internet's potential to deliver a more convenient shopping

experience than crowded big box stores with staff routinely ignored customers again yeah i think to put in context is really important bezos is only selling books at the time but he this is the story he's telling he's already has in his mind where he's trying to go. He predicted the company's eventual ability to personalize a version of the website for each shopper based on his or her previous purchases. And he prophesied what must have seemed like a radical future, that everyone would one day use the internet at high speeds, not over screeching dial-up modems, and that infinite shelf space of the web would enable the fulfillment of the merchandiser's dream of the everything store,

a store with infinite selection. He goes, in the circuitry of Bezos' brain, something then flipped. Bezos was going to do more than establish an online bookstore. Now he was set on building one of the first lasting internet companies. Jeff was always an expansive thinker, but access to capital was an enabler, Doer says. Employees soon learned of the new model, get big fast. The bigger the company got, Bezos explained, the lower prices it could exact from the book wholesalers, and the more distribution capacity it could afford.

And the quicker the company grew, the more territory it would capture in what was becoming the race to establish new brands on the digital frontier. Bezos preached urgency. The company that got the lead now would likely keep it, and it could then use that lead to build a superior service for customers. Of course, that meant everyone at Amazon would have to work even harder. The assumption was that no one would even take a weekend day off. Okay, so this is another insight into his unique philosophy of business, which is, I guess, the way I need to continue to constantly refer to it, because that's what it is. He has these really interesting philosophies. So he's talking about this advertising executive that's just not going to go along with Jeff at

the time. His name is Breyer. Breyer's tenure at Amazon was short and rocky. Bezos wanted, just to give you an introduction, the note here I put is everything is open to change, which summarizes. Bezos wanted to reinvent everything about marketing, suggesting, for example, that they conduct annual reviews of advertising agencies to make them constantly compete for Amazon's business. Breyer explained that the advertising industry didn't work that way. He lasted about a year. Over the first decade at Amazon, marketing VPs were the equivalent of the doomed drummers in the satirical band Spinal Tap. Bezos plowed through them at a rapid clip, looking for someone with the same low regard for the usual way of doing things that Bezos himself

had. A low regard for the usual way of doing things is a great way to describe most founders. Or else, why would you start your own company? Why don't you just go get a job? Bezos' idea about exponential returns. I really like this. The company could also lay claim to a uniquely high return on invested capital. Check out this idea here. Unlike brick and mortar retailers whose inventories were spread out across hundreds or thousands of stores around the country, Amazon had one website and at that time a single warehouse and inventory. Amazon's ratio of fixed cost, okay, so think about their fixed cost, to revenue was considerably more favorable than that of its offline competitors.

So he's talking about comparing and contrasting Amazon's cost structure compared to, let's say, a Barnes & Noble's. Now remember from last podcast, I really took some time and hit on Rockefeller's idea that he kept costs unbelievably low so that he could make a profit at the same price that his competitors would lose, therefore making it really easy for him to just buy up all his competitors because they couldn't compete. So let's go back to this. Amazon's ratio of fixed cost to revenue was considerably more favorable than that of its offline competitors. In other words, Bezos argued a dollar that was plugged into Amazon's infrastructure could lead to exponentially greater returns than a dollar that went into the infrastructure of any

other retailer in the world. Another great philosopher, and I love the way he puts this, and this is about customers, not competitors. Later, Bezos recalled speaking in an all-hands meeting called to address the assault by Barnes & Noble. So Barnes & Noble at the time, they've had some meetings with Jeff. The Barnes & Noble CEO was extremely cocky, basically trying to buy out Jeff. Thought he wasn't, listen, you can't compete with me. I'm going to destroy you, Jeff disagreed. So Barnes & Noble starts their own website. So that's what they're talking about here with the assault by Barnes & Noble. And then this is how Jeff, this is a direct quote from Jeff and how he looks at it. So he's at an all-hands meeting, this is

what he says. Look, you should wake up worried, terrified every morning, he told his employees. But don't be worried about our competitors, because they're never going to send us any money anyway. Let's be worried about our customers and stay head down focused. So skipping ahead, in early 1997, Jeff Bezos flew to Boston to give a presentation at the Harvard Business School. He spoke to a class taking a course called Managing the Market Space, and afterward, the graduate students pretended he wasn't there while they dissected the online retailers' prospects. At the end of the hour, they reached a consensus. Amazon was unlikely to survive the wave of established retailers moving online. Quote, you seem like a really nice guy, so don't take this the wrong way, but you really need to sell to Barnes & Noble and get out now, one student bluntly informed Bezos. Brian, a student in the class, recalls that Bezos

was humble and circumspect. You may be right, Amazon's founder told the students, but I think you might be underestimating the degree to which established brick-and-mortar businesses or any company that might be used to doing things a certain way will find it hard to be nimble or to focus attention on a new channel. I guess we'll see. He's kind of describing, that's like a two-sentence description of the innovator's dilemma. Skipping ahead, they love the word bold at Amazon. Bezos used that word a lot, bold.

In the company's first letter to its public shareholders, the word bold was used repeatedly. 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. The letter also stated that the company would make decisions based on long-term prospects of boosting free cash flow and growing market share rather than on short-term profitability. And one section in particular served as a guidepost for the unorthodox way the company planned to approach Wall Street.

The shareholder letter became the equivalent of Holy Scripture. Bezos re-releases the letter each year with the company's annual report, and the company has stayed remarkably close to the promises and philosophies laid out in it. So this is part of that letter. We believe that a fundamental measure of our success will be the shareholder value we create over the long term. He's been right about that. This value will be a direct result of our ability to extend and solidify our current market leadership position. Seems to be correct about that. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and

corresponding stronger returns on invested capital. Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership, customer and revenue growth. The degree to which our customers continue to purchase from us on a repeat basis and the strength of our brand, 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. Okay, so skipping ahead in the book, this is a part directly on Walmart. Bezos had invited Walton's book thoroughly and wove the Walmart's founder's credo about frugality and a bias for action into the cultural fabric of Amazon. There's that word frugal and frugality again that you see constantly when you're running your own business. So he talks about Walmart's

founder's credo about frugality and bias for action into the cultural fabric of Amazon. He had underlined one particular passage in which Walton described borrowing the best ideas of his competitors. Bezos' point was that every company in retail stands on the shoulders of the giants that came before it. That sounds like a direct endorsement of this podcast. The book clearly resonated with Amazon's founder. On the last page, a section completed a few weeks before his death, Walton wrote, I love this part. So this is from, this is now Sam Walton right before he died writing in his biography. And I'm going to read this paragraph.

Could a Walmart type story still occur in this day and age my answer is of course it could happen again somewhere out there right now there's someone probably hundreds of thousands of someone's with good enough ideas to go all the way it will be done again over and over providing that someone wants it badly enough to do what it takes to get there. It's all a matter of attitude and the capacity to constantly study and question the management of the business, end quote. Jeff Bezos embodied the qualities Sam Walton wrote about. So he's talking about, yeah, there's somebody out there and that somebody was Jeff Bezos. This note's on Jeff on work-life balance.

Jeff didn't believe in work-life balance. He believed in work-life harmony. I guess the idea is you might be able to do everything all at once. Evidence of this friction usually emerged during the question and answer sessions at the company's regular all-hand meetings. Employees would stand up and pose direct questions to the executive team, and often they inquired about the enormous workload and frantic pace. This is post IPO Amazon. During one memorable meeting, a female employee pointedly asked Bezos when Amazon was going to establish a better work-life balance. He didn't take that well. The reason we're here is to get stuff done.

That is the top priority, he answered bluntly. That is the DNA of Amazon. If you can't excel and put everything into it, this might not be the place for you. There's an interesting story. My note says there will be no John Scully at Amazon. And at the time, Bezos was 35 years old. So the book, the great thing about this book because it details not only like what Amazon,

we know what Amazon became, but there's a lot of struggles to get there and a lot of just crazy things that had to go right for them because they had a bunch of times when they kind of went out of business. The time Amazon's successful, but Jeff's still relatively young.

So what was part for the course is maybe we need to bring in, quote unquote, professional CEO. So they were thinking about maybe we should replace this Jeff. Jeff might be good at founding a company. We might not be good at bringing it to the next level. Now Amazon's board had to deal with the leadership crisis. There were complaints about Galley.

This is a guy, an executive they brought in that they were thinking maybe could become CEO. Who was clearly agitating to be CEO. And Bezos, who many employees felt was not taking the time to cultivate other leaders, listened to their issues or invest in their personal growth. John Doerr quietly phoned many of the company's senior executives to get their take on the boiling tensions in the management team. To adjudicate the matter, he turned to Silicon Valley legend, a former Columbia University football coach named Bill Campbell. He's also been – Bill appears in a couple other podcasts that I've done that you can listen to. He's – they drop him into companies, and usually the investors or the board tries to get his opinion because they respected his opinion.

An amiable, formal Apple exec and chief executive into it in the mid-90s, Campbell had a reputation for being an astute listener who could parachute into difficult corporate situations and get executives to confront their own shortcomings. Steve Jobs considered him a confidant and got him to join the Apple board when Jobs returned to the helm of the company in 1997. At Amazon, Campbell's stated mission was to help Galley play nicely with others.

So that's the cover, but that's actually not true. He commuted between Silicon Valley and Seattle for a few weeks, sitting quietly in executive meetings and talking privately with Amazon's managers about the leadership problems. Several Amazon executives from the time believed that Campbell was also given another, more secret mandate by the board to see if Bezos should be persuaded to step aside and let Galley take over as chief executive.

This was consistent with the overall philosophy in Silicon Valley at the time, which is to bring in adult supervision to execute the plans of a visionary founder. Meg Whitman had taken over eBay, a Motorola executive named Tim Kugel had replaced founder Jerry Yang at Yahoo. The Amazon board saw Amazon's egregious spending and widening losses and heard from other executives that Bezos was impetuous and controlling.

Yeah, like most founders. They were naturally worried that the goose who laid the golden egg might be about to crack the egg in half. Board members deny that they ever seriously considered asking Bezos to step aside, and in any case, it would have been fruitless if Bezos resisted since he controlled a majority of the company. But Campbell himself revealingly described his role at Amazon this way in an interview with Forbes magazine in 2011. This is the reason I included it. Jeff Bezos at Amazon, there's a quote from Campbell, I visited him early on to see if they needed a CEO. And I was like, why would you ever replace him? He is out of his mind. So brilliant about what he does. Regardless, Campbell

concluded Galley was unnaturally focused on issues of compensation and on perks like private planes. And he saw that employees were loyal to Bezos. Again, this is, I think, the difference between a founder and a professional CEO. He's worried about how much money he's gonna make and whether he has access to a private plane. Meanwhile, Bezos is making desks out of fucking doors. He sagely recommended to the board members that they stick with their founder. Galley says the final decision to leave Amazon was his own. Before he joined the company, he had read the book Odyssey, Pepsi to Apple by John Sculley, who had joined Apple as CEO in the mid-1980s and then ousted Steve Jobs in a boardroom coup. Before I went out there, I promised myself and my family that I would never do to Jeff

what Sculley at Amazon. Oh, okay. So this actually, I didn't think this was going to work out this way. I just skipped to the next note and it kind of piggybacks on what I was just saying about the difference of like, if you're a founder, you started the company, like the company's money, like you look at it like it's your own, you know, so you don't spend frivolously on things. Jeff didn't sort of come to like, okay, when do I get a private jet? Or when do I make more, like, when do I get more salary? He realized that building a company, like he'll obviously the money will take care of itself. But this is focused on the customer and frugality. Bezos was obsessed with the customer experience. And this is going to expound on what we were just

talking about. Bezos was obsessed with the customer experience and anyone who didn't have the same single-minded focus or who he felt wasn't demonstrating a capacity for thinking big bore the brunt of his considerable temper. One person who became a frequent target during this time was the vice president in charge of customer service, Bill Price. He blundered early by suggesting in a meeting that Amazon executives who traveled frequently should be permitted to fly business class. Bezos often said he wanted his colleagues to speak their minds, but at times it seemed he did not appreciate being personally challenged. You would have thought I was trying to stop the earth from tilting on its axis, Price says,

recalling the moment with Hoare years later. Jeff slammed his hand on the table and said, that is not how an owner thinks. That's the dumbest idea I've ever heard. Of course, everyone else was thinking executives should be allowed to fly business class, but I was the exposed nail in the room, Price says. So again, according to Jeff, if you're focused on the customer and that's what jeff keeps saying if you're really focused on the customer are you going to be spending company company resources so your executives can sit in a slightly larger chair no the answer of course not and that's what he just said because that's not an owner thinks

it's the dumbest idea i've ever said well price isn't done with bezos and you as you can probably guess he's not going to last very long. So this is on the very next page. And I wrote funny vein story and not vein as in like superficial. Vein as in the veins in your body. Bezos began the meeting by asking Price, this is the same guy, what the customer wait times were. So they talk about they're having a meeting because with Christmas coming up, they were worried about the hold times on Amazon's phone line because you could actually call Amazon at the time.

Bezos began the meeting by asking Price what the customer wait times were. Price then violated a Cardinal rule at Amazon. He assured Bezos that they were well under a minute, but without offering much in the way of proof. Okay, so the same guy that wants to fly first class and waste Amazon's money in 99 is now, Jeff asked him a question, he's like, oh yeah, it's under a minute, don't worry about it. Really, Bezos said. Let's see.

On the speakerphone in the middle of the conference table, he called Amazon's 800 number. Incongruously cheerful hold music filled the room. Bezos took his watch off and made a deliberate show of tracking the time. A brutal minute passed. Then two. Other execs fidgeted uncomfortably while Price picked up his cell phone and quietly tried to summon his subordinates. This is the funny part. Bezos' face grew red. The vein in his forehead, a hurricane warning system, popped out and introduced itself to the room. That's just great writing. Around four and a half minutes passed, but according to multiple people at the meeting who related the story, the wait seemed interminable.

Eventually, a cheerful voice blurted out, Hello, Amazon.com. Bezos said, I'm just calling to check and slammed down the phone. Then he tore into price, accusing him of incompetence and lying. Price resigned about 10 months later. Oh, OK. So this is actually really good. I turned the page. I was like, why is this these entire two pages highlighted? So this is the time where Amazon's struggling financially and they're starting. They're already a public company, and they're getting a lot of analysts to write really – a lot of analysts are writing really bad pieces. They're bearish on Amazon.

So he's struggling, so he goes to meet the founder of Costco, and we're going to see how this meeting changes Amazon's course. On a Saturday morning that spring at the Starbucks inside the Bellevue Barnes & Nobles where he had conducted Amazon's very first meetings, Bezos met Jim Sinigal, the founder of Costco. And they have a lot in common. Sinigal was a casual, plain-speaking native of Pittsburgh, a Wilford Brimley lookalike with a bushy white mustache and an amiable countenance that concealed the steely determination of an entrepreneur. Well into retirement age, he showed no interest in slowing down.

The two had plenty in common. For years, Senegal, like Bezos, had battled Wall Street analysts who wanted him to raise Costco's prices on clothing, appliances, and packaged goods. Like Bezos, Senegal had rejected multiple acquisition offers over the years, including one from Sam Walton, and he liked to say he didn't have an extra strategy, that he was building a company for the long term. Bezos had set up the meeting to ask Senegal about using Costco as a wholesale supplier for products that manufacturers still wouldn't sell to Amazon. That idea never went anywhere, but over the next hour, Bezos listened carefully and once again drew key lessons from a more experienced retail veteran.

So now we're seeing this theme over and over again that Bezos is going to learn from anybody, but he'll especially learn from people that have already done in some degree to what he's trying to do. Let's continue this meeting here. Senegal explained the Costco model to Bezos. It was all about customer loyalty. Does that sound familiar? There are some 4,000 products in the average Costco warehouse,

including limited quantity seasonal or trendy products called treasure hunt items that are spread out around the building. Though the selection of products in individual categories is limited, there are copious quantities of everything there, and it is all dirt cheap. Costco buys in bulk and marks up everything at a standard across the board 14%, even when it could charge more. It doesn't advertise at all and earns most of its gross profit from the annual membership fees. The membership fee is a one-time pain, but it's reinforced every time customers walk in and see 47-inch televisions that are $200 less than any place else, Senegal said.

It reinforces the value of the concept. Customers know that they will find really cheap stuff at Costco. Costco's low prices generated heavy sales volume, and the company then used its significant size to demand the best possible deals from suppliers and raised its per-unit gross profit dollars. So this is also an interesting part I didn't know before I read this. Its vendors hadn't been happy about being squeezed, but eventually they came around. This part right here. You can fill Safeco field

with the people that don't want to sell to us, Senegal said. But over a period of time, we generate enough business and prove that we are a good customer and pay our bills and keep our promises. Then they say, why the hell am I not doing business with these guys? I got to be stupid. They're a great form of distribution. Senegal continues, My approach has always been that value trumps everything. The reason people are prepared to come to our strange places to shop is that we have value. We deliver on that value constantly. There are no annuities in this business. A decade later and finally preparing to retire, Senegal remembers this conversation well. I think Jeff looked at it and thought that was something that would apply to his business as well. He said, Senegal doesn't regret educating an entrepreneur who would evolve into a ferocious competitor. I've always

had the opinion that we have shamelessly stolen any good ideas. Again, I hope this happens over and over again. Every single one of these founders and these entrepreneurs talk about how they got ideas from other people that came before them. It's so important, and it just accelerates your learning. In 2008, Cynical bought a Kindle e-reader that turned out to be defective and wrote Bezos a laudatory email after Amazon's customer service replaced his device for free. Bezos wrote back, I want you to consider me your personal customer service agent on the Kindle. Perhaps Amazon's founder realized he owed Senegal a debt of gratitude because he took the lessons he learned during that coffee in 2001 and applied them with a vengeance. The Monday after the meeting with Senegal, Bezos opened an S-team

meeting, this is a group of executives, by saying he was determined to make a change. The company's pricing strategy, he said, according to several executives who were there, was incoherent. Amazon preached low prices, but in some cases its prices were higher than competitors. Like Walmart and Costco, Bezos said, Amazon should have everyday low prices. The company should look at other large retailers and match their lowest prices all the time. If Amazon could stay competitive on price, it could win the day on unlimited selection and on convenience afforded to customers who didn't have to get in the car to go to the store and wait in line. That July, as a result of the

Senegal meeting, Amazon announced it was cutting prices on books, music, and videos by 20 to 30%. There are two kinds, this is another Jeffism, and it's tied to what he learned directly from Senegal. There are two kinds of retailers. There are those folks who work to figure out how to charge more, and there are companies that work to figure out how to charge less. And we are going to be the second, full stop. Bezos had seemingly made up his mind that he was no longer going to indulge in financial maneuvering as a way to escape the rather large hole Amazon had dug for itself. And it wasn't just through borrowing Sinegal's business plan. At a two-day management and board off-site later that year,

Amazon invited business thinker Jim Collins. So this is directly going to go into another one of my favorite Amazon concepts, and this is his idea of Flywheel. And if you don't know what that is, amazon flywheel and uh you can see the drawing of what I'm about to describe at a two-day management board meeting uh board offset later that year amazon invited business thinker Jim Collins to present the findings from his soon-to-be-published book good to great Collins had studied the company and led a series of intense discussions at the off-site you've got to decide what you're great at, he told Amazon executives.

Drawing on Collins' concept of a flywheel, our self-reinforcing loop, so if you don't want either way, they're interchangeable, but the self-reinforcing loop, also known as the Amazon flywheel, Bezos and his lieutenants sketched out their own virtuous cycle, which they believed powered their business. It went something like this. Lower prices led to more customer visits more customers increased the volume of sales and attracted more commission-paying third-party sellers to the site that allowed amazon to get more out of fixed costs

like the fulfillment centers and the servers needed to run the website like he said earlier that he thought any dollar invested in his infrastructures will create exponentially greater returns he's expounding on that here. Four, this greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop. For now, he considered it his secret sauce. And now with Amazon Prime and everything in there, they're adding to the flywheel. So you can see this version that they're describing describing this book and then the updated one as well all right so skip skipping

ahead again um just to give you some some information about Jeff uh this is a great quote I I found in the book if you're not good Jeff will chew you up and spit you out and if you're good he will jump on your back and ride you into the ground. So Jeff's extremely, obviously extremely smart, even as a young boy. This is a story that he learned from his grandfather. His grandfather, before I tell you the story, this one sentence, he goes, He instilled in Bezos the value of self-reliance and resourcefulness, as well as a visceral distaste for inefficiency.

And this is a quick little, I call this a lesson from his grandfather. Bezos' grandparents taught him a lesson in compassion that he related decades later in a 2010 commencement speech at Princeton. Every few years, Pop and Maddie Geese, this is his grandparents, hooked an Airstream trailer to their car and caravan around the country with other Airstream owners. And they sometimes took Jeff with them. On one of these road trips, when Bezos was 10 and passing time in the backseat of a car, he took some mortality statistics he had heard on anti-smoking public service announcement and calculated that his grandmother's smoking habit would take nine years off her life. When he poked his head into the front seat to matter-of-factly inform her of this,

she burst into tears. Pop Geese, his grandfather, pulled over and stopped the car. Bezos described what happened next in his speech at Princeton. This is now Jeff talking. He got out of the car and came around and opened my door and waited for me to follow. Was I in trouble? My grandfather was a highly intelligent, quiet man. He had never said a harsh word to me, and maybe this was to be his first time. Or maybe he would ask me that I get back in the car and apologize to my grandmother. I had no experience in this realm with my grandparents, and no way to gauge what the consequences might be. We stopped beside the

trailer. My grandfather looked at me, and after a bit of silence, he gently and calmly said, Jeff, one day you'll understand that it's harder to be kind than clever. Skipping ahead, these are just some great, great quotes. Jeffisms that are repeated ad nauseum. Here's one. Slow, steady progress can erode any challenge over time. Step by step ferociously. That's the Latin motto of Blue Origin, Jeff Bezos' rocket company.

Step by step ferociously. The phrase accurately captures Amazon's guiding philosophy as well. Steady progress towards seemingly impossible goals will win the day. Setbacks are temporary. Naysayers are best ignored. Okay, so this is one of my favorite actual, like practical things that you could do for your company. And I wish other people did

because large companies work in really funny and inefficient ways. And this is a counterintuitive point on communication. And I just don't understand why other people haven't adopted this. Okay. At a management offsite in the late 1990s, let me just read that again. A counterintuitive point on communication.

Because his thing is communication is a sign of dysfunction, which most companies would not say. At a management offsite in the late 1990s, a team of well-intentioned junior executives stood up before the company's top brass and gave a presentation on a problem indigenous to all large organizations. So the junior executives recommended a variety of different techniques to foster cross-group dialogue and afterwards seemed proud of their own ingenuity. Then Jeff Bezos, his face red and the blood vessel in his forehead pulsing, spoke up. I understand what you're saying, but you are completely wrong, he said. Communication is a sign of dysfunction. It means people aren't working together in a close organic way. We should be trying to figure out a way for teams to communicate less with each other, not more.

That confrontation was widely remembered. Jeff has these aha moments, said David Risher. All the blood in his entire body goes to his face. He's incredibly passionate. If he was a table pounder, he would be pounding the table. At that meeting and in public speeches afterward, Bezos vowed to run Amazon with an emphasis on decentralization and independent decision making. A hierarchy, this is a direct quote from Jeff now, a hierarchy isn't responsive enough to change. I'm still trying to get people to do occasionally what I ask,

and if I was successful, maybe we wouldn't have the right kind of company. Bezos' counterintuitive point was that coordination among employees wasted time and that the people closest to problems were usually in the best position to solve them. That would come to represent something akin to the conventional wisdom in the high-tech industry over the next decades. The companies that embraced this philosophy,

like Google, Amazon, and later Facebook, were in part drawing lessons from theories about lean and agile software development. In the seminal high-tech book, The Mythical Man Month, were in part drawing lessons from theories about lean and agile software development. In the seminal high-tech book, The Mythical Man-Month, IBM veteran and computer science professor Frederick Brooks argued that adding manpower to complex software projects actually delayed progress. One reason was that the time and money spent on communication increased in proportion to the number of people on a project. Bezos and other startup founders were reacting to lessons from previous technology giants.

Microsoft took a top-down management approach with layers of middle managers and a system that ended up slowing decisions and stifling innovation and causing them to almost miss the internet and then completely miss mobile. Looking at the muffled and unhappy hierarchy of the software giant across Lake Washington, Amazon executives saw a neon sign warning them exactly what to avoid. The drive to cut costs also forced Bezos to eliminate any emerging layers of middle management from his company. After the stock market crash in 2000, Amazon went through two rounds of layoffs. But Bezos didn't want to stop recruiting altogether. He just wanted to be more efficient. So he framed the kind of employees he wanted in simple terms. All new hires had to directly improve the outcome of the company. He wanted doers, engineers, developers, but not managers. We didn't want to be a monolithic army of program managers,

a la Microsoft. We wanted independent teams to be entrepreneurial. Autonomous working units are good. Things to manage working units are bad. But as often was the case, no one could anticipate just how far Bezos would venture into these organizational theories in his quest to distill them down to their core ideas. In early 2002, as part of a new personal ritual, he took time after the holidays to think and read. In this respect, Microsoft Bill Gates, who also took such annual think weeks, served as a positive example. So he's taking time off to read and to think and to

basically work on the overall vision of Amazon. Returning to the companies after a few weeks, Bezos presented his next big idea. The entire company, he said, would restructure itself around what he called two pizza teams. Employees would be organized into autonomous groups of fewer than 10 people, small enough that when working late, the team members could be fed with two pizza pies. These teams would be independently set loose on Amazon's biggest problems. They would likely compete with one another for resources and sometimes duplicate their efforts, replicating the Darwinian realities of surviving in nature. Freed from the constraints of an intra-company communication, remember this all goes back to communications, Bezos hoped these loosely coupled teams could move faster and get features to customers quicker.

In other words, it's a large company that's organized as a bunch of tiny startups. And then this different approach to meetings, which I referenced in the introduction, but it's just really fantastic. Okay, so the other change was also peculiar and perhaps unique in corporate history. Up until that time, Amazon employees had been using Microsoft's PowerPoint and Excel spreadsheet software to present their ideas in meetings. Bezos believed that method concealed lazy thinking. PowerPoint is a very imprecise communication mechanism.

It is fantastically easy to hide between bullet points. You are never forced to express your thoughts completely, Bezos said. Bezos announced that companies would no longer use such corporate crutches and would have to write their presentations in prose in what he called narratives. He wanted people thinking deeply and taking the time to express their thoughts cogently. I don't want this place to become a country club, he was fond of saying as he pushed employees harder. What we do is hard. This is not where people go to retire. Meetings no longer started with someone standing up and commanding the floor as they had previously at Amazon and everywhere else throughout the corporate land. Instead, the narrators were passed out and everyone sat quietly reading the document for 15 minutes or longer. Bezos refined

the formula even further. Every time a new feature or product was proposed, this is another idea that piggybacks onto this I love. Every time a new feature or product was proposed, he decreed that the narrative should take the shape of a mock press release. The goal was to get employees to distill a pitch in its purest essence, to start from something that the customer might see, the public announcement, and then work backwards. Bezos didn't believe anyone could make a good decision about a feature or a product without knowing precisely how it would be communicated to the world and what the hallowed customer would make of it. This is a little short anecdote about a typical interaction with Jeff. The group spent nine months on the task, then presented their work to Bezos. We had beautiful documents and everyone was really prepared. Bezos read the paper, said, you're all wrong, stood up,

and started writing on the whiteboard. He had no background in control theory, no background in operating systems. He had only minimum experience in distribution centers and never spent weeks and months out on the line. But Bezos laid out his argument on the whiteboard and every stinking thing he put down was correct and true it would be easy this is the employee uh describing this interaction it would be easier to stomach if we could prove he was wrong but we couldn't that was a typical interaction with Jeff he had this unbelievable ability to do incredibly intelligent to be incredibly intelligent about things he had nothing to do with, and he was totally ruthless about communicating it. That's a quick anecdote about Jeff, let you know a little bit

more about his personality. And this is from a guy that we talked about earlier, Dalzell, who works for Amazon. Jeff does a couple of things better than anyone I've worked for, Dalzell says. He embraces the truth. A lot of people talk about truth, but they don't engage their decision-making around the best truth at that time. The second thing is that he is not tethered by conventional thinking. What is amazing to me is that he is bound only by the laws of physics. He can't change those. Everything else he views as open to discussion. More of Jeff's philosophy. Again, that's what I find most interesting about him. This is no room for gatekeepers in the digital age.

Amazon's founder repeatedly suggested he had little reverence for the old gatekeepers of the media, whose business model was forged during the analog age and whose function it was to review content and subjectively decide what the public had to assume. This was to be a new age of creative surplus, where it was easy for anyone to create something, find an audience, and allow the market to determine the proper economic reward. Quote, even well-meaning gatekeepers slow innovation, Bezos wrote. 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.

This is an email from, okay, so Joe Covey is her last name. She was Amazon's first CFO. She worked with Jeff at the very beginning. Unfortunately, she was riding her bike in 2013, and she got hit by a van and died. But right before—well, let me just read it and you'll understand. In January 2013, eight months before her accident or her death, I received a lengthy email from Joy Covey. This is the author, Brad Stone, talking in the epilogue of the book. She had been generous with her memories and insights as I crafted the first few chapters

of this book and was wondering how my writing was progressing. She was reading the Steve Jobs biography by Walter Isaacson and was thinking about how Bezos' leadership style compared to the late Apple co-founders' famously brusque and direct demeanor when I rediscovered Kobe's email after a death I was struck by its thoughtfulness and eloquence here it is lightly edited for clarity I'm going to read this entire email to you because I think it's fantastic and we'll end here and um so they're referencing um Joy is reading Isaacson's book uh Steve Jobs if you have not read the book yet, you need to go read it. It's amazing. If you want to hear some information in there,

I did a podcast called Steve Jobs a couple months ago. You can listen to that too. But that book is really, really good. All of Isaacson's, I enjoy all of Isaacson's books, actually. Benjamin Franklin book's fantastic. I just did one on his newly-adorned Da Vinci book. But he does a really great job. So let's read Joy's email to Brad Stone, which is the author of this book, about Jeff Bezos. Again, she has some unique insights since she was there from

the very beginning and up until the end. She'd retired, but she still kept in touch with Jeff. Hello, Brad. I've been wondering how your writing is coming along. Also, I thought of your project and Jeff while beginning the jobs biography recently. I found myself thinking about what it takes to accomplish things as big as they both did, when a lot of what you're doing is unconventional. It may very well be that the absolute intensity of drive and focus is essential and incompatible with all the nice management thought about consensus and gentle demeanor. I think about how effective and quick Jeff was and how important it was that he didn't

slow down too much or modify his ideas to make others feel comfortable. I think about the early days and the level of clarity, vision, potential, and values that Jeff bought. And then I look at Amazon today and reflect on some of those conversations, excuse me, and reflect on some conversations I had with him in the intervening years. It is easy to draw a straight line from the vision he had back then to the Amazon of today. There were a few little wobbles and detours in places, but really, I don't know any other company that has created such a juggernaut that is so consistent with the original ideas of the founder.

It is almost like he fired an arrow and then followed that arc. Can we really think of any other company approaching Amazon's size or age that continues to move forward with the boldness, there's that word again, risk-taking, innovation, and long-term perspective that Amazon shows. Jeff's clarity, intensity of focus, and ability to prioritize, which has no doubt become ingrained in his key team, is unusual and behind his ability to keep learning forward versus protecting existing ground. Seeing the future, he put in place the critical DNA that would help the whole company embody his vision. His focus was on very bright, high growth potential and fluid-minded people with the right values as builders. He looked for people that absolutely prioritized customer trust and delight, who at all times were long-term focused and driven to be bold and innovative. All of this was lived and modeled every day by Jeff and the senior team. Personal wealth was never discussed or really

thought about. I see companies these days where thoughts of exits are foremost in the minds of top management and board and it is so clear that this value will affect the decision-making down to the smallest choices by the most junior employee. Do we create something that is good or just seems good and might get us acquired or funded? At Amazon it was always abundantly clear what the goals and values were, and as I reflect on discussions and decisions throughout my time there, it is easy to imagine how different so many small choices might have been otherwise. Now he has tens of thousands of employees, and I would bet a large sum that the same messages and values are still well understood

and driving decisions broadly today. I also reflect how effective the values were as a screening tool for hiring. People who were highly focused on their titles, traditional status metrics, security, or their own wealth stood out vividly in the process. We talked a lot about whether Jeff was difficult to work with. Yet Jeff attracted people like me, who really needed to work on things they can internalize and adopt as a mission, who had to leave the path they thought they were on, and who poured their hearts and souls and best efforts into building Amazon. And he has kept a terrific and close team now for years.

We believed in what we were building and felt that our very best was needed to have a hope of accomplishing the enormous potential ahead of us jeff's style always read as completely pure never a self-interest or political dimension all purely focused on the best outcomes for amazon and our customers. As I read the Jobs book, I really had to wonder if that sometimes harsh intensity isn't an essential element when so much of what you want to do requires boldness, immediacy, ruthless prioritization, and risk. It seems counterintuitive to everyone who has pursued traditional corporate goals in

the past. I even had an insight and question about myself that maybe I haven't begun to really find my own limits since I have not, aside from those times of highest stakes and intensity Amazon, really run free following my own insights and directions without being too accommodating of others. I think Jeff is one of the most capable and effective founders ever. And I think the Amazon juggernaut is still in its early stages. Signed, Joy. That's where I'm going to leave it. If you want the full story, buy the book, read the book, listen to the book do whatever you have to do

but if you're a founder it's a no brainer thanks very much for your support I'll talk to you very soon