Founders - #179 Jeff Bezos

Starting point is 00:00:00 In January 2013, eight months before her death, I received a lengthy email from Joy Covey. 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-founder's famously direct demeanor. When I rediscovered Kobe's email after her death, I was struck by its thoughtfulness and eloquence. Here it is, lightly edited for clarity. Hello, Brad. I have been wondering how your writing is coming along.

Starting point is 00:00:41 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 are 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 brought. And then I look at Amazon today and reflect on some of those conversations I had with him in the intervening years.

Starting point is 00:01:35 It's easy to draw a straight line from the vision he had back then to the Amazon of today. 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's 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, risk-taking, innovation, and the long-term perspective that Amazon shows. Jeff's clarity, intensity of focus, and ability to prioritize is unusual and behind his ability to keep leaping forward versus protecting existing ground. Seeing the future, he put in place the critical DNA that would help the whole company embody his vision.

Starting point is 00:02:32 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 choice by the most junior employee. Do we create something that is good or just something that seems good and might get us acquired or funded?

Starting point is 00:03:12 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's easy to imagine how different so many small choices might have been otherwise. 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. We believed in what we were building and felt that our very best was needed to have the hope of accomplishing the enormous potential ahead of us. Jeff's style always read

Starting point is 00:03:58 as completely pure, all focused on the best outcomes for Amazon and our customers. As I read the jobs book, I really had to wonder if that 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. of highest stakes and intensity at 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. Cheers. Joy. That is an excerpt from the book

Starting point is 00:05:08 that I just reread, which is The Everything Store, Jeff Bezos in the Age of Amazon, and it was written by Brad Stone. So I read this book about two and a half years ago. Originally, it's Founders No. 17. And the reason I'm rereading it,

Starting point is 00:05:20 there's two reasons. One, great books should be reread because the book stays the same, but you change. And I've read, what, 160 something biographies of entrepreneurs since then. And two, because Brad Stone, the author, is writing a sequel. He's releasing a sequel to this book. It's called Amazon Unbound. It is going to be released next week, I think. So I was like, okay, once I figured, once I learned that this book was coming out, I was like, I'm going to reread the week before I cover the new Bradstone book. I need to reread the everything store. It's really hard to, to categorize books. A lot of people email me and ask me like, you know, give me your top 10, your top 20, what's the most inspiring book? What's the most interesting book? And so on and so forth. And then some people ask me like, what is the most insightful book or insightful biography? Rather, if I had to choose one, if I was absolutely forced and obviously there's tons of useful information that we're learning in these books.

Starting point is 00:06:12 But if I had to answer, what is the single most insightful biography I've ever read? It would be this book. I think this book is absolutely necessary for anybody that wants to improve, whether you're a founder, investor, manager, college student, whatever the case is, you should read the book. It's full of useful insights that you can apply to your work. Before I jump into the rest of the book, I want to go back to that email from Joy, one of the early Amazon employees, to the author, where she's talking about what reading the biography of Steve Jobs, like what impact is that's having on her life? And I double underlined what she said where she's talking about the realizations, which I think it's normal. You're reading and learning about the life of somebody else. But really, you're reading and learning.

Starting point is 00:06:58 You're taking those lessons and thinking about how it applies to yourself. And she said, I even had an insight and question about myself. And that's a simple sentence that has a profound meaning. And that's why I constantly encourage you to read as many of these biographies as you can, because you will have questions and insights about yourself by reading and learning the life stories of others. All right, so let's go to the beginning of the book. And I want to spend some time talking about the the younger version of Jeff Bezos I really do feel gives us the essence of who this person is says in the early 1970s an industrious advertising executive named Julie Ray became fascinated with an

Starting point is 00:07:35 unconventional public school program for gifted children in Houston Texas her son was among the first students enrolled in what would later be called the Vanguard Program, which stoked creativity and independence in its students and nurtured expansive outside-the-box thinking. She grew so enamored with the curriculum that she wanted to, she set out to research similar schools around the state with an eye toward writing a book about Texas's gifted education movement. So at this point, her son's no longer in the program. So she goes back and she's touring the program to do research for the book. OK, so it says the school's principal chose a student to accompany her on her visit, an articulate, sandy haired sixth grader whose parents asked only that his real name not be used in print. So Ray called him Tim. Tim, Julie Ray wrote in her book, Turning on Bright

Starting point is 00:08:26 Minds, A Parent Looks at Gifted Education in Texas, was a student of general intellectual excellence, friendly but serious. He was not particularly gifted in leadership, according to his teachers, but he moved confidently among his peers and articulately extolled the virtues of the novel he was reading at the time, which is The Hobbit by Tolkien. Tim was already competitive. Remember, he's 12 years old at this time, okay? Was already competitive. He told Ray he was reading a variety of books to qualify for a special reader certificate. Tim also showed Ray a science project he was working on called an infinity cube, which is a battery-powered was working on called an Infinity Cube,

Starting point is 00:09:10 which is a battery-powered contraption that created an optical illusion of an endless tunnel. Teachers said that three of Tim's projects were being entered into a local science competition that drew most of its submissions from students in junior and senior high schools. Tim's average day was packed. He woke up early and caught a 7 o'clock bus a block from home. He arrived at school after a 20-mile ride and went through a blaze of classes devoted to math, reading, physical education, science, Spanish, and art. There was time reserved for individual projects and small group discussions. In one lesson, seven students, including Tim, sat in a tight circle in the principal's office for an exercise called productive thinking. They were given brief stories to read quietly to themselves and then discuss.

Starting point is 00:09:54 Now, this is going to be interesting. So not only am I going to read, I reread this book. I'm going to read the sequel to the book when it comes out. But in the interim, I just finished reading Working Backwards. It's a new book that was just released by two of senior Amazon leaders. One of the co-authors was actually Jeff Shadow, which means he went everywhere with Jeff for two years. And so that book is all about the way the actual tactics and strategies that Amazon uses to run its business. OK, but this idea where they there, Jeff is 12 years old and he's sitting in the principal's office and they give him a brief and everybody has to read first before the discussion is amusing because that's an actual strategy used in Amazon before

Starting point is 00:10:33 meeting. They say when new people are hired by Amazon, and I'll talk more about this in the bonus episode that'll come out on working backwards, but when new people are hired, they're like, what's up with this eerie silence at the very beginning of the meetings? Cause everybody's sitting there and re reading the same information before they begin the discussion. So I thought that was interesting. Tim told Julie Ray that he loved these exercises. You have to be able to think what you're doing for yourself, he said. Ray found it impossible to interest a publisher in her book. Editors at the big houses said the subject matter was too narrow. So and then we see she has a little bit of an entrepreneurial founder mentality here i love this so in 1977 she took the money she

Starting point is 00:11:09 earned from writing advertising copy printed a thousand paperbacks and distributed them herself more than 30 years later i found a copy in the houston public library i also tracked down julie ray who now lives in central texas she said she had watched tim's rise to fame and fortune over the past two decades with admiration and amazement, but without surprise. When I met him as a young boy, his ability was obvious, and it was being nurtured and encouraged by the new program. She recalls what one teacher said to her all those years ago when Ray asked her to estimate the grade level the boy was performing at. I really can't say, the teacher replied, except that there is probably no limit what he can do. In late 2011, I went to visit Tim, also known as Jeff Bezos,

Starting point is 00:11:53 in the Seattle headquarters of his company. I was there to solicit his cooperation with this book, an attempt to chronicle the extraordinary rise of an innovative, disruptive, and often polarizing technology powerhouse. The company was among the first to see the boundless promise of the internet, and that ended up forever changing the way we shop and read. Okay, so Stone went to a meeting with Bezos. I'm going to skip over that part. I want to get into other people's description of Bezos. And so this is Eric Schmidt. At the time, he was the chairman of Google. And I found this was very interesting. He says, to me, Amazon is the story of a brilliant founder who personally drove the vision. There are almost no better examples, perhaps Apple, but people forgot that most people believed

Starting point is 00:12:39 Amazon was doomed because it would not scale at a cost structure that would work. It kept piling up losses. It lost hundreds of millions of dollars. But Jeff was very, very smart. He's a classic technical founder of a business who understands every detail and cares about it more than anyone. So this book is a snapshot in time. It was first published in 2014. The reason I think it's so important to read this book and in general, books about early company history is because you see all the pain that the founder, the early people in the company had to go through to make the company successful.

Starting point is 00:13:16 It's very easy to look at Amazon today and be like, wow, they're huge. They must have always been, you know, they're very smart. They have access to resources. This must have been easy. And it is not. I own both the paperback version and the kindle version of this i think the word pain appears something like every it's like 20 times it's like every 20 pages on average it's caused about being the painful stuff they had to endure the pain the problems they had to overcome and i think reading about this reading about the pain reading about these these experiences these problems it serves as a great reminder for the rest of us so says bez says, Bezos has proved quite indifferent to the opinion of others. He's an avid problem solver, a man who has a chess master's view of

Starting point is 00:13:53 the competitive landscape, and he applies the focus of an obsessive compulsive to pleasing customers. He's also extremely difficult to work for. So there is going to be multiple times I was reading this book and I'm reading the thoughts and the ideas of Jeff and I'm just like, this guy is brilliant. He's really smart. But a big part of the book is, I don't know if, I wouldn't work for him. Let's just put it that way.

Starting point is 00:14:17 I want to learn from him, but I don't want to be on the side of transaction where he can be extremely rude and demanding and borderline violent. And so I don't want to the purpose of this podcast is not to idolize him. He's a human being, which means he's flawed, just like you and I. Yes, he's extremely intelligent, extremely driven, extremely successful. We're going to learn a lot of the great ideas that he that he discovered, you know, through multiple decades of working in his career. But he's also can be extremely cruel. And if you've read the book, or if you read the book, you'll see multiple, multiple examples of that. So it says Bezos is a micromanager with a limitless spring of new ideas. And he reacts harshly to efforts to efforts that don't meet

Starting point is 00:15:00 his rigorous, rigorous standards. So I interrupted that page a lot. Let me just review. So Jeff is indifferent to the opinions of others. He's obsessive compulsive to pleasing customers. He's difficult to work with. He's a micromanager. He has limitless new ideas and he demands that you meet his rigorous standards. Moving ahead, there's an idea that he learned from the founder of Sony, Akia Morita, that you should have your company, you need a mission that's larger than your company. It's yourself. It says he often says that Amazon's corporate mission is to raise the bar across industries and around the world for what it means to be customer focused. Bezos and his employees are indeed absorbed with catering to customers, but they can also be ruthlessly competitive with rivals and even partners. More on his personality and the way he communicates.

Starting point is 00:15:51 Bezos is an excruciatingly prudent communicator for his own company. He is sphinx-like with details of his plans, and he keeps his thoughts and intentions private. And then there's this one line here that I think is the main reason why you want to read this book. Amazon's internal customs are deeply idiosyncratic. More on his personality. He's 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 elevator. He always takes the stairs. He is highly circumspect about deviating from well-established, very abstract talking points. So they use the shorthand for Jeff's maxims or called Jeffisms.

Starting point is 00:16:28 But really, this is something I want to bring to your attention that repetition is persuasive. This comes up in almost every biography that I read. You have a set of ideas. You have to repeat them over and over again. It helps the people that you're teaching remember and then adapt that

Starting point is 00:16:42 to actually change their behavior. I always think of Sol Price as the most influential retailer to ever live. I'm talking about Jeff Bezos learned ideas from him. Sam Walton learned ideas from him. Jim Senegal, the founder of Costco learned ideas from him. Bernie Marcus, the founder of Home Depot. I did a podcast on him a long time ago. I don't know what number it is, but you'll find it sole price. I think it's revolutionary retailer, retail revolutionary. Anyways, there's a line in that book that I never forgot. And he's like, you train an animal, you teach a person.

Starting point is 00:17:09 And so when you're studying the history of entrepreneurship, you realize a lot of founders, yes, they're defined as maybe an entrepreneur or retailer or whatever field they're in, but a lot of them describe themselves as teachers. And then I just want to read this paragraph to you because it's just really, really great writing. 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. 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 let's go to what Jeff Bezos was like in his 20s and where the idea of Amazon came from. So this is another guy that he learned a lot from, another founder.

Starting point is 00:18:01 His name is David Shaw. I've looked for biographies on him. I can't find any. If you happen to find any, please send them my way. He sounds like a very interesting person and we're going to learn a little about him here. The broader financial community knew very little about D.E. Shaw. So that's his hedge fund and its polymath founder wanted to keep it that way. You're going to see that his obsession with secrecy. Jeff takes this trait and runs with it as well to this day. He day, he's still like this.

Starting point is 00:18:26 The firm preferred operating far below the radar and keeping its proprietary trading algorithms out of competitors' hands. Shaw felt strongly that if Desco was going to be the firm that pioneered new approaches to investing, the only way to maintain its lead was to keep its insights secret and avoid teaching competitors how to think about these new computer-guided frontiers. Shaw had earned a Ph.D. in computer science from Stanford in 1980, moves to New York, teaches in Columbia's computer science department. High-tech companies tried to lure him away into the private sector. Inventor Danny Hillis, who founded the supercomputer manufacturer called Thinking Machines Corporation, it's also one of Jeff Bezos' closest

Starting point is 00:19:05 friends, almost convinced Shaw to come work with him. Shaw accepted the job and then changed his mind, telling Hillis he wanted to do something more lucrative and could always return to the supercomputer field after he got wealthy. Hillis argued that even if Shaw did get rich, which seemed unlikely, he'd never return to computer science. Shaw did return to computer science after he became a billionaire and passed on the day-to-day management of D.E. Shaw to others. 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 credentials, and more than a touch of social cluelessness. David wanted to see the

Starting point is 00:19:45 power of technology and computers applied to finance in a scientific way, and that he looked up to Goldman Sachs and wanted to build an iconic Wall Street firm. So Bezos winds up being hired there. This is 1991. Bezos was in his mid-20s at the time. He had the pasty, rumbled 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. He had a few years previously, Bezos had graduated from Princeton. And this is a description of Bezos from one of his colleagues. And you'll see this is repeated over and over again throughout the book and at different points of Bezos's life. And it says he was not concerned what other people were

Starting point is 00:20:24 thinking. Another description of Bezos from one of his colleagues, Bezos had closely studied several wealthy businessmen, and he particularly admired a man named Frank Meeks. In other words, he described the founders, 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. This is really, really brilliant. And I need to remember this. Sometimes I forget about this. So Alan Kay says that a point of view is worth 80 IQ points. So what does that mean? It's a reminder that looking at things in new ways can enhance one's understanding. He went to school

Starting point is 00:21:00 on everybody. I don't think there was anybody Jeff knew that he didn't walk away from with whatever lessons he could. Bezos would later say he found a workplace soulmate in David Shaw. At Desco, Bezos displayed many of the idiosyncratic qualities his employees would later observe at Amazon. He was disciplined and precise. He constantly recorded his ideas in a notebook that he carried with him as if they might float out of his mind if he didn't jot them down. So that's another thing multiple people say throughout his life, that he just he has too many ideas. He just there's no way you have unlimited resources and you still cannot apply and actually work on all the ideas that come that come tumbling out of Jeff's mind. He quit. And there's another really good idea.

Starting point is 00:21:42 I always say this is something I learned from Charlie Munger's Poor Charlie's Almanac book, that you should look at ideas like tools. You are not your ideas. So when a better idea comes along, or maybe one that's more useful to the situation you're in, just, okay, you pull out another tool, just like you would if you were building something physically. He quickly abandoned old notions and embraced new ones.

Starting point is 00:22:00 When better options presented themselves, more on his personality. Bezos thought analytically about everything. He was the most introspective guy I had ever met. He was very methodical about everything in his life. Bezos seemed to love the idea of the nonstop workday. He kept a rolled up sleeping bag in his office in case he needed to bunk down for the night.

Starting point is 00:22:22 Now, this is also another very interesting idea from David Shaw that Bezos will apply later at Amazon. So it's the idea of thinking about what your company actually is as opposed to what people think it is. And let me read this to you and I'll see how Bezos applies and how we can apply it to whatever we're doing. While the rest of Wall Street saw D.E. Shaw as a highly secretive hedge fund, the firm viewed itself somewhat differently. In David Shaw's estimation, so in his description of his own company, remember this for later too, the company wasn't really a hedge fund, but a versatile technology laboratory full of innovators and talented engineers who could

Starting point is 00:23:03 apply computer science to a variety of different problems so everybody else on the outside says it's a hedge fund he's saying we're a technology technology laboratory full of innovators and talented engineers who apply computer science to different problems investing was only the first domain where it where it would apply its skills so later on everybody describes you know amazon's just a bookseller and bezos is like that's where we are now eventually we'll be the everything store and then once they start adding more products he talked he talks about and i'll go into more detail about this later he's like no no we're we're the unstore because technology

Starting point is 00:23:37 gives us an advantage over the the ancient like physical retailers and later on he talks about it's a technology company he's constantly refining and one is i guess two things are interesting here one the constant refinement of how he sees his own company which should change over time right and two how it's always different than other how other people see it and it's very similar to what de shaw sings like you're just describing me as a hedge fund we have so much more uh we have so much more talent than that we can do so much more and not only do, they wind up starting like incubating their own companies. A couple of these spin out and they do IPOs. But the reason this is important is because that's the mindset that leads Jeff to start doing research on what kind of company could you build

Starting point is 00:24:17 on top of this fast growing phenomenon called the Internet. So let's go back to this. 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 the person he anointed to spearhead the effort was Jeff Bezos. There's a lot more detail in the book on how the different companies that they're going to start around this time and how Shaw thought about it. It's very interesting. Obviously, read that part. Shaw, who used the internet and its predecessor, remember, he was a professor. And at the very beginning, the internet was called the ARPANET. So it says that he had used that. He was passionate about the commercial and social

Starting point is 00:24:51 implications of a single global computer network. At the time, though, it was illegal to use the internet for commercial applications. They actually had to get that law changed. And I think that law was changed somewhere in the 90s, maybe 94, 92, 96, somewhere in there. 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. Shaw and Bezos discussed one of these ideas.

Starting point is 00:25:17 They called it the Everything Store. Remember, Bezos is in his 20s at this time. And he starts Amazon when he's 30. Intrigued by Shaw's conviction about the inevitable importance of the Internet. So this is, we cannot overstate the importance of influence and ideas and how one influence or one idea can change the course of your life forever. Jeff dedicated his entire life to building a company on the Internet. Shaw is the one that put that conviction in his brain.

Starting point is 00:25:48 One set of numbers in a newsletter was startling. So this is some of the research that Jeff's doing at the time. So it says the web activity. This is what Bezos is realizing is like, what the hell? Things are not supposed to grow this fast. So it says web activity had gone up that year by a factor of 230,000 percent. Things just don't grow that fast, Bezos said. It's highly unusual.

Starting point is 00:26:10 And that startled that started me thinking, what kind of business plan might make sense in the context of that growth? Bezos concluded that a true everything store would be impractical, at least at the beginning. He made a list of 20 possible product categories, software, office supplies, apparel, music, going on and on. The category that eventually jumped out to him as the best option was books. They were pure commodities. A copy of a book in one store was identical to the same book carried in another. So buyers always knew what they were getting. And there were two primary book distributors at the time, so a new retailer wouldn't have to approach each of the thousands of book publishers individually. And most most important there were three million books in print worldwide uh

Starting point is 00:26:51 and uh far more than any barnes and nobles uh could stock so really the note i left myself on that sentence he identified his edge he's like okay well there's three million books out there the i forgot that exact number let's say 15 maybe 20,000 titles could be at a typical bookstore, something like that. So, okay, well, if I can overnight, when I start this, I can be the world's largest bookstore. And that's actually how they described Amazon at the very beginning. Why they're being sued by Barnes & Noble because of that terminology, but that's also in the book as well. If he couldn't build a true everything store right away, he could capture its essence, unlimited selection,

Starting point is 00:27:29 in at least one important product category. With that huge diversity of products, you could build a store online that simply could not exist in any other way, Bezos said. So that's another way to think about his edge. So I'm skipping over a couple of parts here. This is where he's like, oh man, this seems interesting, but here's the problem. He's married at the time. He's a nice apartment in Manhattan. He's making a lot of money. He's working for a flat out genius. He's got a great opportunity. And you know, if you're discussing this, it's like, okay, I'm going to, I'm going

Starting point is 00:28:01 to quit this, move across the country and sell books online. People are like, what the hell is wrong with you? And so this brings me to the single most important idea I have ever learned from Jeff Bezos. It's how to make decisions. And he calls it the regret minimization framework. I'm just going to read this whole section to you because it is so, so important. Bezos would later describe his thinking process. He came up with what he would call a regret minimization framework to decide the next step to take at the juncture of his career. When you're in the thick of things, you can get confused by small stuff, Bezos said.

Starting point is 00:28:32 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 thing 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 the decision. And as you can imagine everybody around him including his mom it's like what are you doing and she's like why don't you just work on this at night and weekends and his response to her was fantastic it's just one sentence he says no

Starting point is 00:29:14 things are changing fast i need to move quickly so he packs up his stuff starts doing research and decides to to move to washington him and his wife at the time drive cross-country. And I just want to read this paragraph because it's just absolutely fantastic writing. A day later, they stopped at the Grand Canyon and watched the sunrise. He was 30. She was 24. And together they were writing an entrepreneurial origin story that would be imprinted on the collective imagination of millions of internet users and hopeful startup founders so one thing you learn when you study the life and career of bezos is he's the know of myself has always been learning he never thinks that he knows everything and so

Starting point is 00:29:59 even at this point he winds up he pays for and drives and takes a four-day course on book selling. Not only would you describe Bezos as relentless in his pursuit and domination of Amazon and in the world at large, I guess, but also relentless in his approach to learning. Like one of his colleagues said, he went to school on everybody. Okay, so this was very interesting. At the very beginning, just a few sentences for you here here there was already people selling books on the internet books.com and they just realized we just need to do better than they do and the bar was really really low people hadn't figured out how to to not only you have to build everything in the early days of the internet like the payment infrastructure the logistics all that other stuff but you'd order

Starting point is 00:30:42 a book from books.com and come and look like like somebody chewed on it. It was just they hadn't figured out how to do it. So it says, as crazy as it might sound, it did appear that the first challenge was to do something better than these other guys. There was competition already. It wasn't as if Jeff was coming up with something completely new. And that's a lesson we've learned over and over again that, you know, sometimes you don't want to create the market, right? You could just do a better job than other people out there, and you could build a business around that. And then we see choosing of the name. It's an insight into Jeff's goal.

Starting point is 00:31:15 The Amazon is not only the largest river in the world, it's many times larger than the next biggest river. It blows all other rivers away, Bezos said. More about the tenuous early days of Amazon. Amazon had a line of credit, but it would regularly max out its account. And McKinsey would then have to walk down the street to the bank and write a check to reopen it. Everyone was working long days, scrambling to keep up and not getting enough sleep. And I think Jeff said that raised the first million dollars or two million dollars of Amazon. I forget it was. He had to go like something like

Starting point is 00:31:49 30 or 50 different meetings. I don't have it in front of me, but it's a number like that. And he said the most common question when he was trying to raise funds was what is the Internet? And I want to do and I want to quote one of the early investors, because this is something that it's just another law of human nature, that passion is infectious. So this investor says, Jeff swept me off my feet. He was so convinced that what he was doing was basically the work of God and that somehow the money would materialize.

Starting point is 00:32:19 The real wild card was, could he really run a business? That wasn't a gimme. Of course, about two years later, I was going, holy shit, did he really run a business? That wasn't a gimme. Of course, about two years later, I was going, holy shit, did we back the right horse? And so now we get more insights into his personality and the word that's used over and over again, bold, bold, bold, bold. It was used, I think, three times, three or four times in an email at the very beginning by written by Joy. So it's something that anybody at Amazon talks about all the time. And Jeff talks about bold, using the word bold a lot as well. Little by little, he was revealing his true self to his employees. He was unusually confident, more stubborn than they had originally thought.

Starting point is 00:32:53 And he strangely and presumptuously assumed that they would all work tirelessly and perform constant heroics. He assumes that because that's his standard default mode, right? When his goals did slip out, they were improbably grandiose. So he's talking to an early employee who likes to kayak, and they barely know how to sell books at this time, and this is a conversation they're having. It's hilarious. Bezos began telling him that he envisioned a day when the site would not only sell books about kayaks, but kayaks themselves, subscriptions to kayak magazines, and reservations for kayaking trips, everything related to the sport. I thought he was a bit crazy. At the time, we had about 40 books in the warehouse. So there's two things happening in this next paragraph. One, we see that Jeff has this ethos that everything can be improved, everything is open to change. And two, that if you don't have that same mindset, he does. He's going to run right through you. So there's a guy named Breyers there. Breyers'

Starting point is 00:33:55 tenure at Amazon was short and rocky. 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 so Howard Schultz is the founder of Starbucks there's a funny meeting about that Bezos had with with Schultz Schultz's Starbucks is a lot more successful at the time

Starting point is 00:34:39 than Amazon is and so they're thinking about doing some kind of deal to give Amazon like a physical presence using Schultz's stores. And I just thought this part was hilarious. Schultz told the pair that Amazon had a big problem and Starbucks could solve it. You have no physical presence. That's going to hold you back. Bezos disagreed. He looked right at Schultz and told him, we're going to take this thing to the moon.

Starting point is 00:35:02 So Amazon starts getting some traction. They're getting a lot of press. People are buying books online. And I thought this was really interesting what Jeff said. And this is after a meeting with Barnes and Nobles. Barnes and Noble met with the CEO, met with Jeff saying, hey, you know, we're we're going to crush you. We're going to launch a website. And Jeff really picks up on the edge that smaller companies have. And that's that's the ability for smaller company to focus just at a level that a big company can't match. So he says, Jeff was always a big believer that disruptive small companies could triumph. It wasn't the end of the world. We knew we had a challenge. And this is something that he also tells a group of Harvard Business School students.

Starting point is 00:35:38 He goes and gives a presentation on Amazon. And afterwards, the class is like this exercise where they're saying, hey, what would you do if you were Jeff? And they tell him, like, you need to sell like you're crazy. This is not going to work out. And so I'm going to skip over that. But I want to tell you Jeff's response to them. You know, the response to hearing a bunch of group of of Harvard Business School students saying, hey, get out now, sell to Barnes and Noble. And he says, you may be right, but I think you might be underestimating the degree to which established brick and mortar businesses

Starting point is 00:36:09 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. Jeff is a student of history. He knows his business history. And that's he derived the exact correct insight there. I guess we'll see is how he finished it. Let me read that part to you. I think you may be underestimating the degree to which established companies that might be used to doing things in a certain way will find it hard to be nimble or to focus attention on a new channel. That is why there will always be new companies. That is the opportunity right there.

Starting point is 00:36:42 So we're in 1998. They're still selling only books. And this is a reminder that problems are just opportunities and work clothes. The famous quote from Henry Kaiser, I think it's founder number 66, somewhere back there. And then the influence of Richard Branson on Jeff Bezos. This guy brought some information to Bezos. He says he brought Bezos findings from a survey that showed a significant majority of customers did not use amazon.com and were unlikely to start simply because they didn't buy very many books. I brought him very bad news about our business. And for some reason, he got excited.

Starting point is 00:37:15 Bezos now felt expansion into new categories was urgent. In customers mind, the Amazon brand meant books only. He wanted to be far more malleable, like Richard Branson's Virgin, which stood for everything from music to airlines to liquor. And we see even from the very early days of Amazon, Jeff's just fundamental belief in what he was doing. He says this sentence somewhere between the year 1998 and the year 2000. I think our company is undervalued. The world just doesn't understand what Amazon is going to be. So one thing, one advantage that founder-led companies have is their ability just to move extremely fast.

Starting point is 00:37:49 And we saw this, the podcast I just did, if you haven't listened to it, on Johnny Ive, talks about the early days of when jobs came back to Apple. They're building the iPod at the time. This guy Rubenstein is having a meeting where they realize, hey, there's these new slim hard drives. We can fit thousands thousands of songs on here we have this idea for an mp3 player um like this this could this could be a great idea so he comes back from the meeting goes to the hotel because they're in tokyo at the time i think they're japan i'm pretty sure they're in

Starting point is 00:38:17 japan but um and he's like hey uh i need 10 million dollars and we can we can start building this mp3 player that we want to. And Steve says, yes, immediately. And then he's like, I'm giving you $10 million right now, but this better be ready by Christmas. And so we see Jeff doing the exact same thing, moving extremely, extremely fast. Around that time, Wright showed Bezos the blueprints for a new warehouse. The founder's eyes lit up.

Starting point is 00:38:42 This is beautiful, Bezos said. Wright asked who he needed to show the plans to and what kind of return on investment he would have to demonstrate. Don't worry about that, Bezos said. Just get it built. Don't I have to get approval to do this, Wright said? You just did, Bezos replied. This next section is all about what Jeff learned from the autobiography of Sam Walton. This is why, again, founders exist, because you see this example of somebody being inspired by reading the autobiography, the biography of somebody who came before them, taking those ideas and applying them with vigor to their own work.

Starting point is 00:39:14 If you really think about it, you can pick up the paperback version of Sam Walton's autobiography. Bezos probably spent $10 on this book. And those ideas, it's not hyperbolic to say, those ideas made him billions. The application, the successful application of those ideas in a $10 book made him billions. Bezos stopped by with a copy of Sam Walton's autobiography, Sam Walton Made in America. Bezos had imbibed Walton's book thoroughly and wove the Walmart's founder's credo about frugality and bias for action into the cultural fabric of Amazon. He talks about those two ideas over and over and over again. Bezos does that is. And he learned that from Sam. He had underlined one particular passage in which Walton described

Starting point is 00:39:55 borrowing the best ideas of his competitors. So what Bezos did to Walton, Walton did to other people like JCPenney, Sol Price, every other retailer you come across. Walton did the exact same thing. Bezos' point was that every company in retail stands, or every company period, stands on the shoulders of the giants that came before it. The book clearly resonated

Starting point is 00:40:16 with Amazon's founder. On the last page, a section completed a few weeks before his death, Walton wrote, could a Walmart type story still occur in this day and age? My answer is, of course it could happen again.

Starting point is 00:40:29 Somewhere out there right now, there's someone, probably hundreds of thousands of someones, with good enough ideas to go all the way. It will be done again, over and over, providing that someone wants it badly enough to do what it takes to get there it's all a matter of attitude and the capacity to constantly study and question the management of the business that is the end of the quote from sam picking up this book again jeff bezos embodied the quality sam walton wrote about so there's a number of examples in the book about how

Starting point is 00:41:07 Bezos took the Sam Walton's idea of using a bias for action and tried to incentivize his employees to follow that idea as well. This is one example of that. Looking for a way to reinforce Walton's notion of a bias for action, Bezos instituted the Just Do It Award, an acknowledgement of an employee who did something notable on his own initiative, typically outside his primary job responsibilities. Even if the action turned out to be an egregious mistake, an employee could still earn the prize as long as he or she had taken risks and shown resourcefulness in the process. All right, so moving ahead, Amazon's growing really, really rapidly. This is the first internet bubble. And it's just a reminder that when the actual bubble bursts and everyone doubted Amazon, Jeff was still only in his mid-30s.

Starting point is 00:41:57 So it says the deluge of spending and the widening losses had fueled fear among Amazon's management team. A fear that Bezos, still a young and volatile 35-year-old CEO, needed additional help. And after hearing persistent grumbling from the ranks that Bezos didn't listen to his subordinates, the Amazon board initiated one of the biggest misadventures of the company's first decade. The board members asked Bezos to search for a chief operating officer.

Starting point is 00:42:26 And so they wind up hiring these other executives. They also bring in this guy named Bill Campbell. So there's a book that a misfit recommended to me. It's called Trillion Dollar Coach. There will be an episode on it soon. Because Bill Campbell, not only did he run technology companies, but he was like Steve Jobs' mentor. He winds up coming in. The board drops him in on a

Starting point is 00:42:45 secret mission to Amazon. This is what this section is about. To duplicate the matter, they turn to a Silicon Valley legend, a former Columbia University football coach named Bill Campbell. 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. The Amazon board saw Amazon's egregious spending and widening losses and heard from other executives that Bezos was impetuous and controlling. They were naturally worried that the goose who laid the golden egg might be about to

Starting point is 00:43:25 crack the egg in half. And so they bring him in. They at the time, they deny this. This is why Bill's there. But Bill, many years later, he's given this interview where he says himself, that's why he was there. And I'm going to read excerpts from this interview because I think it gives us insight into Jeff. OK, Jeff Bezos said Amazon I visited them early to see if they needed a CEO. And I was like, why would you ever replace him? He's out of his mind. He's so brilliant about what he does. Campbell sagely recommended to the board members

Starting point is 00:43:56 that they stick with their founder. And so now we've reached the point in the story where Jeff has to save his company. Investors, the general public, and many of the employees fell in love with Bezos. Most observers not only dismissed the company's prospects, but also began to doubt its chances of survival. Amazon stock, which since the IPO had moved primarily in one direction, and that's up, topped out at $107 and would head steadily down over the next 21 months.

Starting point is 00:44:27 It was a stunning fall from grace. And this is going to give you a good idea of where we are in the history of Amazon. Senior executives were called meeting privately to write a list of all Bezos' successes and failures on a whiteboard. The latter, the failures, included auctions, Zshops, the investment in other dot- coms, and most of Amazon's acquisitions. It was far longer than the first column, which at the time appeared to be limited to books, music, and DVDs. But through it all, Bezos never showed anxiety or appeared to worry about the wild swings in public sentiment. We were all running around the halls with our

Starting point is 00:45:02 hair on fire thinking, what are we going to do? But not Jeff. I have never seen anyone so calm in the eye of a storm. Ice water runs to his veins. In the span of the next two turbulent years, Bezos redefined Amazon for the rapidly changing times. During this period, he met with two retailing legends who would focus his attention on the power of everyday low prices.

Starting point is 00:45:28 He would start to think differently about conventional advertising and look for a way to mitigate the costs and inconveniences of shipping products through the mail. This is the most important two years in Amazon history, by the way. He would also show what was becoming a characteristic volatility lashing out at executives who failed to meet his improbably high standards that's what i was referencing earlier we're not idolizing jeff we're learning from him that also means that you know we want to take his good ideas and avoid the bad um you know a lot of people said they had post-traumatic stress disorder from working with him he is without without a doubt an extreme, extreme character. I don't want to try to, I hope I'm not papering over that by any means. What he's doing is

Starting point is 00:46:11 extremely, extremely difficult and he wants it that way too. The Amazon we know today with all of its attributes and idiosyncrasies is in many ways a product of the obstacles Jeff and Amazon navigated during the dot-com crash. So that's another way to say the problems that Bezos and Amazon solved during the dot-com crash, a response to the widespread lack of faith in the company and its leadership. And this is a quote from the year 2000 from Jeff. He reaffirmed his commitment to building a lasting company, learning from his mistakes and developing a brand associated not with books or with media but with the abstract concept this is a direct quote from him by the way the abstract concept of starting with the customer and working backward

Starting point is 00:46:55 and again that bonus episode will be out in a few days for the book that's entitled exactly that now it's also interesting when times are tough, he has to bend to his philosophies. So he's doing a lot of things because they could potentially run out of money and go out of business. He's doing a lot of things that are going to conflict with his long term goals. Right. And sometimes you have to do this. There is no formula for success. You can't just copy in everybody's footsteps. Right. You got to figure it out and be adaptable as problems as like you encounter problems. So let me read my note here and then I'll read what spawned these thoughts.

Starting point is 00:47:29 Selling bonds at high interest rates, making deals with other companies that were good short term but conflicted with long term goals. He was doing anything to survive. So Amazon agreed to run AOL shopping channel in return for a much needed $100 million investment. Amazon also signed a deal to carry the inventory of Circuit City, a competing retailer. All of these deals improved Amazon's balance sheet in the short term, but in the long run, they were awkward for all parties. Jeff Bezos does not work well with other companies. There's no working with him. There's working for him.

Starting point is 00:48:02 By relying on Amazon, the retailers delayed a necessary education on an important new frontier and ceded the loyalty of their customers to an aggressive upstart. There would also be many problems. It's talking about lawsuits. I'm skipping over that. Bezos never got completely comfortable with these deals or with the idea of outsourcing his prize goal of limitless selection. Talks about one of the partnerships that he made at this time with Toys R Us.

Starting point is 00:48:24 It's not going to last because they're in conflict with his long-term goals. It says it ultimately factored heavily into the outcome of the partnership several years later, which resulted in dueling lawsuits in federal court. And again, I think the lesson there is, you know, you have long-term goals. Sometimes if you're in a pickle and you're in a bind, you're going to have to do something. You have to optimize for the short term, unfortunately, in some cases. More on Jeff's customer obsession here. This is a quote from him. That either-or mentality, that if you're doing demonstrating capacity for thinking big bore the brunt of his considerable

Starting point is 00:49:11 temper so let's skip ahead to this point where they talk about during this two-year period he has two extremely important meetings with uh older more experienced retailers that fundamentally change uh the the trajectory of Amazon forever. One is Lee Scott, the CEO of Walmart at the time. And two is Jim Sinegal, the founder of Costco, and somebody who's had a huge influence on my own personal thinking as well. So this is first they're talking about like what was the question I have on this page is how much was Sam Walton's autobiography worth to Jeff Bezos?

Starting point is 00:49:46 I already referenced that earlier, but talks about he's sitting down with lee scott founder of is that his name yeah lee scott the founder or excuse me the ceo of walmart they talked about the company's shared culture and the principles bezos had taken from sam walton's autobiography scott also talked about how walmart view remember jeff is 35 years old this time scott also talked about how Walmart viewed, remember Jeff is 35 years old this time. Scott also talked about how Walmart viewed advertising and pricing as two ends on the same spectrum. Quote from Scott here, we spend only 40 basis points on marketing. Go look at our shareholder statement. He said, most of that goes to newspapers to inform people about what's in our stores. The rest of the marketing dollars we pour into reducing

Starting point is 00:50:25 prices. Our marketing strategy is our pricing strategy, which is everyday low pricing. Bezos was sponging up everything the older man said. Okay, so what they're talking about there, it's called the scale economy shared business model. So it's used by Sam Walton, Sol Price, Jim Sinegal, the founder of IKEA, Ingvar Kamprad. Jeff Bezos is going to wind up doing this. And it's a way that you can create dominant and enduring businesses. And one of the first people, the first pioneers of this mindset is Henry Ford, which is he came up with this idea 100 years before this meeting is happening between Lee Scott and Jeff Bezos. I want to read this quote from Henry Ford about this,

Starting point is 00:51:10 because it's very fascinating. Towards the end of Ford's career, he stopped advertising altogether. He's like, the only marketing we do is lowering the price of a car. So the Model T is $550. Now it's down to $450 or $500 and just keeps lowering it down. So I'm going to read this long quote from Henry Ford. It's a very fascinating way to think about this. And again, if you're a loyal Costco member like I am, it can be summarized by value trumps everything. Now, that's a very simple idea, right? But it's really hard to get your company there, especially when you're selling physical goods.

Starting point is 00:51:43 Our policy, now Henry Ford speaking, our policy is to reduce the price, extend the operation, and improve the article. You will notice that the reduction of price comes first. We have never considered any cost as fixed. Therefore, we first reduce the price to the point where we believe more sales will result. This is what Jeff is learning. He's going to learn it from Lee Scott, Sam Walton. He's going to learn it from the meeting that he's going to have, which I'll tell you about in a minute, of Jim Senegal. Okay. We reduce. Okay. So then we go ahead and try to make the prices. We do not bother about the cost. The new price forces the cost down. The more usual ways to take the cost and then determine

Starting point is 00:52:27 the price. And although that method may be scientific in the narrow sense, it is not scientific in the broad sense. Because what Earthly uses it to know the cost if it tells you that you cannot manufacture at a price at which the product can be sold. But more to the point is the fact that although one may calculate what a cost is, and of course all of our costs are carefully calculated, no one knows what a cost ought to be. One of the ways of discovering is to name a price so low as to force everybody in the place, in the company, to the highest point point of efficiency the low price makes everyone dig for profits we make more discoveries concerning manufacturing and selling under this forced method than by any other method of investigation and so now i'm going to skip ahead to where he meets with jiminegal, the founder of Costco. This is where he takes these two meetings and he goes back and he redoes everything.

Starting point is 00:53:34 He's like, we're going to be committed to low cost because if we can match the cost of our competitors, we're going to win on selection. That's how we're going to enforce our edge in the marketplace. It's really, really smart, but you got to love someone. I just love this guy. I love Jim. It was funny. Recently, not recently, but maybe a few years ago, it came out and there was like a headline. I think it was a Wall Street Journal or something like that where the CEO that took over Costco after Jim retired gave like – there was like a soundbite from an interview or something.

Starting point is 00:54:01 And he said, Jim told me if I raise the price of a hot dog, he'll kill me. That's what they're talking about. It's like you can go to Costco and get I think a hot dog and a coke or something like that for a dollar 50 and the price has been the same for i don't know 30 years some an extended period of time and some new ceo comes in he's like we need to increase this price and jim's like i'll kill you so it says uh bezos met jim senegal the founder of costco senegal was a casual plain speaking wilford brimley look-alike. And he had an amiable countenance that concealed, so he seems nice on the outside, right? But it says that concealed the steely determination of an entrepreneur. Well into retirement age, he showed no interest

Starting point is 00:54:38 in slowing down. This is in the early 2000s. 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. Senegal liked to say he didn't have an exit strategy. He was building a company for the long term. Over the next hour, Bezos listened carefully and once again drew key lessons from a more experienced retail veteran. So most of us are not going to have the ability to meet with Jim Senegal or Jeff Bezos, but we can read the books that influence them. So you're really doing the same thing.

Starting point is 00:55:20 You're listening carefully and once again drawing key lessons from a more experienced veteran. Senegal explained the Costco model to Bezos. It was all about customer loyalty. Though the selection of products in individual categories is limited, there are copious quantities of everything there, and it's all dirt cheap. Costco buys in bulk and marks up everything at a standard across the board 14%, and this is an important part. Even when it could charge more, it doesn't. It doesn't advertise at all and earns most of its gross profits 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 TVs that are $200 less than any place else. So again, most retail, they make money because they buy something, they mark it up, and that's their profit. Costco is like, no, we're going to use our giant company

Starting point is 00:56:10 to buy in bulk to give you the best prices. Even when we could charge you more, we're not. And we're going to make all our money in membership fees. And it's a one-time, you can only pay annually. It's a one-time fee, one-time paying. But what happens? The value that we deliver is reinforced every time you walk into our stores. And what happens is the result is how how can they have a company they don't when they just say he doesn't advertise because Costco grows, grows word of mouth. The members love the value they're getting and they tell other people about it. So it says it reinforces the value of the concept, Senegal says. Costco's low prices generated heavy sales volume. And the company then uses that to demand the best possible deal from suppliers.

Starting point is 00:56:50 You could fill an arena 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 we are good customers and pay our bills and keep our promises. And then they say, what the hell am I not doing business? Why the hell am I not doing business with these guys? I got to be stupid. They're a great form of distribution. My approach on this conversation that he had with Jeff. And he says, I think Jeff looked at it and thought that was something that he could apply to his business as well. Senegal does not regret educating an entrepreneur who would evolve into a ferocious competitor.

Starting point is 00:57:38 I've always had the opinion that we have shamelessly stolen any good ideas, Senegal said. Bezos took the lessons he learned during that meeting in 2001 and applied them with a vengeance. That Monday after the meeting, Bezos opened a meeting with his executives by saying he was determined to make a change. Amazon preached low prices, but in some cases, its prices were higher than competitors. Like Walmart and Costco, Bezos said, look, he's referencing the two meetings he had.

Starting point is 00:58:08 He just said, Amazon should have everyday low prices. The company should look at every other large retailer and match their low 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. Bezos had 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. Lower prices, this talks about the Amazon flywheel. You can Google Amazon flywheel to see a visualization of this paragraph. It's also evolved over time, but this is why low prices is so important.

Starting point is 00:58:46 It says, lower prices led to more customer visits. More customers increased the volume of sales and then attracted more third-party sellers to the site. That allowed Amazon to get more out of its fixed costs, like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. That's why they call it a flywheel. Feed any part of this flywheel, they reasoned, and it would accelerate the loop. And accelerating the loop accelerates the growth of the company.

Starting point is 00:59:12 So we're still in the rough part of the company. This is 2002, I think, 2002, 2003. Very tough time in Amazon's history, yet Jeff maintained the faith. Almost all figured that Amazon's best days were behind it. The company reached incredible levels of attrition in 2002 and 2003. So everybody's quitting on him. The number of employees at that time, other than Jeff, who thought he could turn it around or turn Amazon into an $80 billion company, that was a short list. He just never stopped believing. He never blinked once. Bezos never despaired over the mass exodus. Okay, so moving ahead, there's also some

Starting point is 00:59:48 information about Blue Origin in the book. Not as much as we know now. They've released a lot more information since this book has been released. If you want to learn more, I covered the book, The Space Barons. It's Founders number 38. It's all about the different strategies Jeff Bezos and Elon Musk are using to accomplish similar goals, which is the building of their rocket companies, which is really fascinating. But I just want to grab one sentence he talks about. Not only applies this idea to Blue Origin, but also Amazon. Slow, steady progress can erode any challenge over time. He gave Blue Origin a coat of arms and a Latin motto, which translates to step by step ferociously. The phrase accurately captures Amazon's guiding philosophy as well.

Starting point is 01:00:30 Steady progress towards seemingly impossible goals will win the day. Setbacks are temporary. Naysayers are best ignored. And that was really interesting because he's already really wealthy at this point. And they're asking him, like, why are you doing all this if you're already filthy rich? Like, just go sit down somewhere. He was asked why he was motivated to accomplish so much considering that he'd already amassed an exceedingly large fortune.

Starting point is 01:00:53 I have realized about myself that I'm very motivated by people counting on me. I like to be counted on. And I can't skip over this part, although I'll talk about it more on the bonus episode of walking backwards, working backwards. This is just one of Jeff's most important ideas. And it's an example at the beginning of the book. It says, listen, Amazon's internal customs are deeply idiosyncratic, which means they think differently than most companies do. And so that's

Starting point is 01:01:20 why it's where a lot of the value comes from, right? So he talks about, you know, they're having this meeting, like, let's communicate and we'll we'll use an app or different software systems. And that way we can collaborate. And he's like, no. And so he gets up, says then Jeff Bezos, his face red and the blood vessel in his forehead pulsing spoke up. So he's clearly agitated. Right. Believes in what he's about to say here. I understand what you're saying, but you're completely wrong. 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 one another, not more. At that meeting and in public speeches afterward, Bezos vowed to run Amazon with an emphasis on decentralization and independent decision-making. A hierarchy isn't responsive enough to change, he said.

Starting point is 01:02:11 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. The companies that embraced this philosophy were in part drawing lessons from theories about the lean and agile software development. And a lot of Bezos' ideas come from books. So there's this book called The Mythical Man Month. And the guy that wrote it, Frederick Brooks, argued that adding manpower to complex 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

Starting point is 01:02:51 were reacting to lessons from previous technology giants. Microsoft took a top-down management approach with layers of middle managers, a system that ended up slowing decisions and stifling innovation. And so as a result, Amazon's taking a look at Microsoft, the way they do things, and it says, Amazon saw a neon sign warning them exactly what to avoid. And you can summarize this with, autonomous working units are good. Things to manage working units are bad.

Starting point is 01:03:22 And so that's also another good idea. Jeff does, he actually took an idea from Bill Gates that was really smart. Bill has these, well, when he was running Microsoft, he probably still doesn't, but how it applies to building a company, when he takes a week or two off, I think it might be a week, goes to like a remote location and just reads and thinks. That's all he does for the whole week, then comes back with new ideas. Jeff does the exact same thing. I think it's a great idea if you could just if you can, maybe they usually do like right after the holidays, take a week off, grab a bunch of books, grab a bunch of biographies, read and think, and then start the new year and actually apply those ideas. I think you'll get a return on

Starting point is 01:03:56 investment for the time for your return on the time investment and time invested. Quick paragraph here. Summary of this max. This is a really unique idea. Maximize the efficiency of your biggest bottleneck. So where in your career, in your business, in your life, where you constrain the most, like where. What section of your life is impeding your progress? Think of that. So it says this guy subscribed to the principles laid out in another book about constraints. It's constraints and manufacturing is written by. Well, I don't know how to pronounce it. Gold Rat is his last name. It's called The Goal.

Starting point is 01:04:30 It was published in 1984. The book, cloaked in the guise of an entertaining novel, instructs manufacturers to focus on maximizing the efficiency of their biggest bottleneck. This is a description of Jeff Bezos. He's a warlord with decapitated heads. This is a really interesting kind of humorous story. Jeff Bezos constantly looked for defects. Flaws in the company's systems are in their culture. One day he walked into an Amazon conference room

Starting point is 01:04:59 and was taken aback. Mounted on the wall were newly installed televisions meant for video presentations to employees. Bezos was not pleased. How can anything good be communicated this way, he complained. Bezos had all the new televisions in Amazon's conference rooms immediately removed, but he deliberately kept up the metal mounts hanging in the conference rooms for many years. Like a warlord leaving the decapitated heads of his enemies on stakes outside his village walls. He was using the mounts as a symbol and as an admonition to employees about how not to behave.

Starting point is 01:05:38 So this is what I was referencing earlier about how Jeff sees his own company. So he makes this document. He says they had only one paragraph about 10 sentences long. It began with the words, we are the un-store. The document defined how Bezos saw his own company. Being an un-store meant that Amazon was not bound by the traditional rules of retail. It had limitless shelf space and personalized itself for every customer. It allowed negative reviews in addition to positive ones, and it placed used products directly next to new ones so that customers could make informed choices. In Bezos' eyes, Amazon offered both everyday low prices and great customer selection. It was Walmart and Nordstrom's. Being an un-store also meant that Amazon had to concern itself only with what was

Starting point is 01:06:26 best with the customer. He's talking to a group of employees trying to teach them what un-store means. I know you're retailers and I hired you because you're retailers, but I want you to understand that from this day forward, you are not bound by old rules. So as the company grows, he wants to try more and more bold bets, what he calls, he needs to do more, he wants to change it, change Amazon to a full blown technology company to do so they have to take giant risks. And so he comes up with this idea that a lot of companies run into, which he defines as the institutional no, which is how they prevent themselves from changing and from actually growing to their full potential. And to do that, you have to stress yourself. You have to take risks. Right.

Starting point is 01:07:07 So he says Bezos battled a reaction that he dubbed the institutional no, by which he meant any and all signs of internal resistance to these unorthodox moves. Even strong companies, he said, tended to reflexively push back against moves in unusual directions. So that's true for companies, also true for people. At quarterly board meetings, he asked each director to share an example of the institutional no from his or her own past. Bezos was preparing his overseers to approve what would be a series of improbable, expensive, and risky bets. He simply refused to accept Amazon's fate as an unexciting and marginally profitable online retailer. The only way out of this predicament, he said repeatedly, is to invent our way out. So now we're deep into where they're morphing into a technology company. This is about his impossibly high standards and the beginning of AWS, which has become a giant, maybe the most profitable part of Amazon.

Starting point is 01:08:07 I'm pretty sure it's the most profitable part of Amazon. So it says, I always handled Jeff's outbursts pretty well. But to be honest about it, he had a right to be angry. We were stifling the flow of creativity. Even though we were probably faster than 99% of companies in the world, we were still moving too slow. So think about how impossible high standard, like they're moving faster than 99% of all companies in the world and Jeff's still not happy.

Starting point is 01:08:31 At the same time, Bezos had become enamored with another book called Creation. It was written by Steve Grand. Grand was the developer of a 1990 videos game called Creatures that allowed players to guide and nurture seemingly intelligent organisms. Grant wrote that his approach to creating intelligent life was to focus on designing

Starting point is 01:08:51 simple computational building blocks called primitives and then sit back and watch surprising behaviors emerge. The book was widely discussed in the book clubs of Amazon's executives at the time, and it helped to crystallize the debate over the problems with the company's own infrastructure. So I want to pause there real quick because I think that's also really smart in your company. If you're running a small group, whatever it is, I think having a shared base of knowledge, making sure that you're reading the same books, listening to the same podcasts, whatever the case is. Jeff is famous for this.

Starting point is 01:09:23 He makes all his executives read like Sam Walton's biography. They have to read Taleb's Black Swan book. There's a bunch of other books you can find. I think there's like 14 of them. Last time I checked, I forgot what it was, but this is just really smart. Have a shared base of knowledge. It doesn't matter how you're adjusting. It could be videos, documentaries, podcasts, books, whatever. Have a shared base of knowledge. It's extremely important. And we see this book helped them build AWS. If Amazon wanted to stimulate creativity among its developers, it shouldn't try to guess what kind of services they might want. So that's what they're talking about the very early days of figuring out what product they're going to build.

Starting point is 01:09:53 Amazon, that is. Instead, it should be creating primitives, the building blocks of computing. See how they took an idea from a book and then put it into a product form? Really smart. And then they should get out of the way. It needed to break its infrastructure down

Starting point is 01:10:04 into the smallest simplest components and allow developers to freely access them with as much flexibility as possible as bezos proclaimed at the time developers are alchemists and our job is to do everything we can to get them to do their alchemy. More than possibly high standards, we're still around building AWS. This guy named Atlas, they're having a meeting with Bezos. Atlas said that while working on the S3 project, he frequently had difficulty grasping just how big Bezos was thinking. He had this vision of literally tens of thousands of cheap $200 machines, and it had to be able to expand forever. This is a crazy, this quote, some people find so crazy, they put it on, somebody printed it out on a t-shirt and sells

Starting point is 01:10:52 them. Bezos told him, this has to scale to infinity with no planned downtime. Infinity. During one meeting, Atlas blundered by suggesting they could figure out how to keep up with the unexpected growth after the service launched. This triggered triggered bezos he leaned forward to me and said why are you wasting my life and he went on a tirade about keystone cops that was real anger i wasn't keeping up with him there were a number of times like that he was so far ahead of us okay so this is how bezos reads and then the ipod i'm only going to read a few sentences of this because i go into more depth about this meeting that steve jobs and bezos have in 2003 and how that meeting helped launch the kindle like what bezos learned

Starting point is 01:11:36 from steve jobs he essentially said hey what steve's doing to digital music uh we should do to ebooks and so says bezos didn't just love books he fully imbibed them methodically processing each detail steward brand the author recall recalls being startled when bezos showed him his personal copy of his 1995 book which is how buildings learn and each page was filled with bezos carefully scribbled notes just know that that's how i that's what i do for this podcast um the sales of books music and movies accounted for over 70 of amazon's annual revenues this year if those formats were inevitably transitioning to the digital as apple's accomplishments seem

Starting point is 01:12:13 to demonstrate then amazon had to move quickly to protect itself so he's like oh shit look what jobs just did he goes from not selling music to being the number one uh seller of music in the world with a combination of ipod and iTunes, right? So what happened, like, and 70% of our revenue at this time is physical goods. Like, I need to make this transition. I need to go fast. And this is where they switch to AWS. They do fulfillment by Amazon.

Starting point is 01:12:38 They do the Kindle. They do, and they just start rolling down. And now this is where they're really transforming into the company that we know today. OK, we fear that there would be another kind of device from Apple or someone else that would go after our core business. They said, I think the thing that blindsided Jeff and help with the Kindle was the iPod, which overturned the music business much faster than he thought. And so they said, hey, it's far better to cannibalize yourself than to have someone else to do it. Famous quote from Bezos is that anything worth doing is not supposed to be easy. He says, we're building something we can tell our grandkids

Starting point is 01:13:11 about, something we're going to be proud of. These things are not meant to be easy. And that's why I talked about, you know, I looked up after I finished reading the paperback again, the word pain appearing over and over again. And as a result of that, Scott Devitt was an analyst for an investment bank. He spotted the shifts in Amazon earlier than most, and they upgraded the stock from a hold to a buy in January 2007. So this has been years of hell that Bezos has had to endure. Saved the company, transitioned. Now he's in multiple different product fields. It's just crazy. Oh, I really hope you read this book. It's fantastic. He changed his rating on the same day as a Merrill Litch advisor offered a far more conventional analysis that Amazon's margins

Starting point is 01:13:50 were hopeless and they could not make any money. I was laughed out of portfolio managers offices, Devitt said. People were ripping apart every component of my investment thesis. At that point, they thought Amazon was some nonprofit scam. Inside Amazon, the pain endured. There's that word again. The pain endured over the previous seven years were paying off. Interesting enough, I'm pretty sure from that time, if you go back and look, the stock's up something like, I forgot, it's an insane number. It's not an exact number. It's like 7,000% when Merrill Lynch is laughing at this guy. More about his personality, I think just something that we should adopt as well.

Starting point is 01:14:30 Everything is open to discussion. Jeff is not tethered by conventional thinking. What is amazing to me is that he's bound only by the laws of physics. He can't change those. Everything else he views as open to discussion. Another advantage that small companies have to embrace is that you have to outthink your competition. You cannot resource them. At this point, Amazon's a giant company.

Starting point is 01:14:52 They want to compete with Zappos. This is before they buy Zappos for almost a billion dollars. Or I guess a little over a billion dollars because they use stock. But so they start their own shoe company. And they're just getting their ass kicked by a smaller company. And it says that year Bezos learned that Zappos was advertising on the bottoms of the plastic bins at airport security checkpoints. They are out thinking us. He snapped at a meeting.

Starting point is 01:15:16 That is a genius move by Zappos, right? Because everybody has to take off their shoes when you're going to security, at least you do in the United States. And you're putting your shoes in now a plastic bin. And as you put in your shoes, there's an ad for Zappos. That's really, really smart. So again, small companies can be smarter. So one thing that pops up over and over again in these biographies, if you study the history of entrepreneurship, you're going to have entrepreneurs tell you from the past, tell you over and over again, that you need to maintain control. That if it's important to your business, you have to control it. They tell you that you

Starting point is 01:15:50 should sell your own product. And so there's a lot of examples in this book where somebody starts selling on Amazon's platform, they'll study them, and then they eventually start competing with them. They do this for diapers.com, for Zappos, for just guys selling, not guys, like a couple of year old, like 150 year old company, something like that, selling really high end expensive knives made by hand by artisans. So they're just completely ruthless. But again, if you're studying the history of entrepreneurship, you're going to avoid this fate. One sentence on this page, and then I'll go into more detail, says companies that make things and companies that sell them have waged version of this battle for centuries. So, again, what does David Ogilvie say? The people that refuse to study experience, they're ignorant amateurs. Refusing to study the history of your industry, the history of entrepreneurship, can cost you literally your career, maybe even your life in this sense.

Starting point is 01:16:43 Why are you surprised? Why are you building a business on somebody else's platform? That's fine if you're going to do that, but you have to go going in overnight. They can steal your business for you. So why your blood, your sweat, your tears, your money, you're pouring into something that somebody else can take away from you. These are easily avoidable mistakes if you just study history. Companies that make things and companies that sell them have waged versions of this battle for centuries. No excuse to make this mistake. And Amazon even admits their machinations here. Avoid, and I know I left myself, is avoid this. Sell direct. Maintain control. Amazon's employees, own employees, have compared third-party selling

Starting point is 01:17:21 on the site to a heroin addiction. Sellers get euphoric rush and a lingering high as sales explode, then progress to addiction and self-destruction when Amazon starts gutting their margins and undercutting them on price. So look, it's just like a drug addict. Give you a little bit of hit, you get excited. You're like, wow, look at all these sales. Amazon can see the sales too. Okay, that's nice of you to have all the sales. We're going to come up with our own product. It's going to be cheaper than yours and we're going to take all that sales from you. Going back to this, then progress to addiction and self-destruction when Amazon starts gutting the seller's margins and undercutting them on price.

Starting point is 01:17:55 Sellers, this is a direct quote from people inside Amazon. And it's not just Amazon. It applies to anybody. You see, the last few years, people built media businesses on top of Facebook. Like, wait a minute. What the hell happened? You turned off my traffic overnight, and now you're saying I have to pay to reach the people that were following me. Yeah, because you were building a castle. What is it? A castle on sand?

Starting point is 01:18:18 I think is the term or the metaphor there. You can't do this. You cannot build on top of somebody else's platform. So it says, sellers know they should not be taking the heroin but they cannot stop taking the heroin okay so moving on there's many examples like i said before i'm reading this book i'm like smart smart smart smart you just they just do things that are really really smart and so one of these things is that um people can email jeff i guess he's no longer running the company anymore but when he he was, it was jeff at amazon.com. And he'd find problems with his own company.

Starting point is 01:18:49 He'd use like his customer base to identify weaknesses in their own company. So he forwarded the email. Employees in Amazon would freak out when they get a forwarded email from Jeff. All it would have is a customer complaint and a question mark from Jeff at the top. And at some point,

Starting point is 01:19:02 they started complaining about this in meetings. It's like, what the hell? We're a data-driven company. Why are we stopping everything to fix just like anecdotal evidence? And this is what one of the managers was saying, Jeff Wilk answered. Every anecdote from a customer matters. We research each of them because they tell us something about our metrics and processes. It's an audit that is done for us by our customers. We treat them as precious sources of information. And now we're at the towards the end of the book. I'll close on this. They're just talking about all the wild ambitions that Jeff was talking about in 2013 and 2014. And it says, these are not fever dreams. They are near

Starting point is 01:19:46 inevitabilities. It's an easy prediction to make that Jeff Bezos will do what he has, what he's always done. He will attempt to move faster, work his employees harder, make bolder bets and pursue both big inventions and small ones all to achieve his grand vision for Amazon. That it not just be an everything store, but ultimately an everything company. Amazon may be the most beguiling company that has ever existed, and it is just getting started. It is both missionary and mercenary. And throughout the history of business and other human affairs, that has always been a potent combination. We don't have a single big advantage, he once said, so we have to weave a rope of many small advantages.

Starting point is 01:20:34 Amazon is still weaving that rope. That is its future, to keep weaving and growing, manifesting the constitutional relentlessness of its founder and his vision. And it will continue to expand until either Jeff Bezos exits the scene or no one is left to stand in his way. And that is where I'll leave it for the full story. Buy the book. If you buy the book using the link that's in the show notes

Starting point is 01:21:02 available on your podcast player or at founderspodcast.com, you'll be supporting the podcast at the same time. That is 179 books down, 1,000 to go, and I'll talk to you again soon.

Founders - #179 Jeff Bezos

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