Young and Profiting with Hala Taha - The Secret To Amazon's Rapid Growth | Entrepreneurship | YAPClassic

Episode Date: November 25, 2022

Amazon is one of the ten richest companies in the world, and its founder, Jeff Bezos is one of the five richest people in the world, with a net worth of over $120 billion. Founded in 1994, Amazon was the fastest company in history to reach $100 billion in sales. How did he achieve such massive success in less than 30 years of operation?  Today, we’re getting an inside look at how Jeff Bezos approaches business from Steven Anderson, author of The Bezos Letters. Steven has over 35 years of experience in the insurance industry and he is a trusted authority on risk, technology, and innovation.  In this episode of YAP Classic, Hala and Steven dive into the contents of The Bezos Letters, a collection and analysis of Jeff Bezos’ annual shareholder letters. They discuss some of the key strategies and lessons outlined in The Bezos Letters, like measuring your return on risk, adopting a ‘day one’ mentality, and using free cash flow as a primary metric for measuring your company’s success. They also talk about some of Amazon’s biggest failures and how Amazon encourages its employees to experiment and take risks.  Topics Include:  - Why did Steven write The Bezos Letters?  - Innovation vs. experimentation  - The value of failure  - Amazon’s greatest failures  - Being terrified of your customers  - Strategic risks for growth  - Why Bezos banned PowerPoint at Amazon  - ROR (Return On Risk)  - The risk of not taking risks  - ‘It’s always day one’ - The problem with judging companies by their profitability  - Free cash flow as a primary metric  - Steven’s secret to profiting in life  - And other topics… Steven Anderson is a professional writer, speaker, and futurist. He is the co-founder and CEO of Catalyit, which simplifies technology for insurance agents. Steven’s insurance agency, The Anderson Network, is considered an industry leader in the field of insuring productivity, technology, and profits. He was named one of the original 150 LinkedIn influencers and he is a top 10 Global InsurTech influencer. His book, The Bezos Letters, has been featured on numerous podcasts and was included in Forbes’ list of the ‘Top 20 Books You Need to Read to Crush 2020.’ Resources Mentioned: YAP Episode #75, Grow Your Business Like Amazon: https://podcasts.apple.com/us/podcast/young-and-profiting-with-hala-taha/id1368888880?i=1000487032512  The Bezos Letters & its accompanying resources: https://thebezosletters.com/  Steven’s Website: https://steveanderson.com/  Steven’s LinkedIn: https://www.linkedin.com/in/stevetn/  Steven’s Instagram: https://www.instagram.com/steveanderson/  Steven’s Twitter: https://twitter.com/SteveTN  Steven’s Facebook: https://www.facebook.com/SteveTN  Sponsored By:  ClickUp - Sign up today at ClickUp.com and use code yap to get 15% off Sabio - Visit sabio.la/YAP for a $1,000 scholarship towards the cost of their bootcamp at Sabio! JustWorks - Check out JustWorks' transparent pricing by visiting justworks.com/pricing The Jordan Harbinger Show - Check out jordanharbinger.com/start for some episode recommendations Shopify - Sign up for a free trial at shopify.com/profiting More About Young and Profiting Download Transcripts - youngandprofiting.com   Get Sponsorship Deals - youngandprofiting.com/sponsorships Leave a Review - ratethispodcast.com/yap Watch Videos - youtube.com/c/YoungandProfiting Follow Hala Taha LinkedIn - linkedin.com/in/htaha/ Instagram - instagram.com/yapwithhala/ TikTok - tiktok.com/@yapwithhala Twitter - twitter.com/yapwithhala Learn more about YAP Media Agency Services - yapmedia.io/ Join Hala's LinkedIn Masterclass - yapmedia.io/course

Hey, hey, young improfitors. Today on Yap, we're throwing it back to my interview with Steve Anderson from 2020. It was recorded a couple years ago, but still as relevant as ever, this episode is packed with gems. Steve Anderson is an expert in strategic risk and business growth, and he wrote the book, The Bezos Letters, 14 principles to grow your business like Amazon, which has become a Wall Street Journal, USA Today, an international bestseller. The Bezos Letters is a collection and analysis of annual shareholder letters written by Jeff Bezos, the CEO and founder of Amazon. In this classic episode, we yap about some of the insider secrets featured in the Bezos letters, like measuring your return on risk, adapting a day one mentality, and using free

cash flow as the primary metric for measuring your company's success. We also talk about why it's vital that your company routinely takes risks and the value of encouraging your employees to experiment with new ideas. And lastly, Steve reveals the bizarre reason why Jeff Bezos banned PowerPoint at Amazon. I'm so excited to resurface this episode, get ready to learn entrepreneurship secrets from one of the best to ever do it and grow your business like Amazon. Hey, Steve, welcome to Young and Profiting Podcast. It's so great to have you on today. Oh, Hala, thank you for having me. This is a real pleasure to talk with you. You are the author of the Bezos letters, which are 14 principles to grow your business just like Amazon. And the book is extremely well written. It's well researched. You got so many great reviews out there on this book. And in it, you distill 14 principles or business insights that we can use to grow our business. To give some context to my listeners as to why these letters are so important and what these letters are, each year, Jeff Bezos writes an open letter to Amazon shareholders.

And these letters started back in 1997. And over the last two decades, these letters have been really a source of insight to the world to how Jeff Bezos, who is, you know, the richest man in the world, how he thinks about efficiency, how he thinks about the customer experience, retention, managing through crises, and much more. How did you end up writing this book? Because from my understanding, you're really from the insurance field. So how does that relate to what you wrote in the book?

And why did you decide and get the idea to write this book? Sure, as you said, I've been in the insurance industry my entire career. The last 20 years, I've been a consultant about technology to the industry. And kind of in that role, obviously follow technology and all the changes going on. And came to a realization a few years ago that the biggest risk I think businesses in general face is actually not taking enough risk, which coming from, you know, the risk management industry is just a, a weird way of thinking. And so I was looking at companies that had done things well and some that had not, you know, certainly the BlackBerry and the blockbusters and Kodaks and Sears and, you know, a lot of them and was trying to understand the difference. And that's when I came across Amazon.

And kind of through that research, really discovered the shareholder letters. And I had kind of heard about them. Usually when they come out, you know, there's some articles about whatever Bezos is writing about in that particular letter. But I ended up actually reading them through in order, and at the time there were 20, and was astounded at how much really information, I would say tips that Bezos talked about in the letters about how he thinks about growing Amazon and realized that those are tips that any business, I think, can use. Yeah, that's really cool because I know that there's lots of books that analyze Warren Buffett's letters to Berkshire, Hathaway shareholders. But I think are you the only book that distills Bezos letters?

Yes, so far. I suspect there might be some other ones coming out. But, you know, I was surprised, too, actually, when, you know, I kind of, again, continued my research. And again, there have been articles about individual letters, but not a deep analysis of kind of the flow of how he talked and how he talked. and how he changed actually kind of through the years too in terms of his thought process. So I just became really fascinated.

And frankly, my first kind of iteration was I did an executive summary, one-page summary of each of the letters, and was going to give it away as a lead gen, right? Here are some tips from Amazon if you're curious about how they do things. And fortunately, my wife actually is in the book publishing business. and I showed it to her and she said, oh, no, this is a book. This is not a lead gen. And so that kind of started that process of putting it together into what was published last fall in the book. Very cool. Well, aren't you lucky that you have a wife who's in the book publishing industry? I am. And so I kind of had a little bit of an inside track on getting the book published.

But even more importantly, she is a co-author. She's an excellent editor and writer. And so your comment early about the book being readable, and that's due to her. And so I give her the credit for that. That's sweet. It's been about a year since you put out the book. Has anybody from Amazon reached out to you, or have you gotten a chance to talk to Bezos himself about it? I get that question, and I have not talked to Bezos. I've had a handful of people either mentioned the book in, you know, Facebook posts or some things like that, but nothing directly that I've been able to talk to. And frankly, people ask, you know, well, why didn't you try and interview Bezos? And I actually felt like being an outsider gave me a different perspective in terms of looking

at the letters as opposed to kind of interviewing. There's already some really good books out there that, you know, the history of Amazon or a deeper dive into, you know, some of the inner workings. but I felt this coming just from the shareholder letters was a good position for me to be in. Yeah, and I mean, people who read the book, like nobody complained that you had no interviews from Bezos. Everybody said it was really well researched, that you had a lot of valid points, and people found value from it. So as long as people are, you know, liking and enjoying the content and find value, and it doesn't really matter, like, you know, how you got to that outcome. So really cool stuff.

So Amazon, as most of my listeners know, it's one of the fastest companies to have reached. $100 billion in sales. And after studying Amazon and Jeff Bezos, you came up with 14 principles, which you outline in the book. So can you share with us some of these key principles at a high level and why you think Amazon was able to achieve so much massive growth so quickly? So the 14 principles are categorized into four what I call cycles. So test, build, accelerate, and scale. And as a business grows, right, from start, At a startup, they're going to be testing a lot of different things. And then they want to build on that, accelerate that growth, and then actually then scale.

And so that's the structure that I came up with the 14 principles. So in the test cycle, the first, actually principle number one seems to resonate with a lot of people, which is encourage successful failure. And that actually came that phrase. And I think why it resonates with people is those words are not typically put together. together. Success and failure right in the same phrase. It actually came from the Ron Howard movie Apollo 13. So Apollo 11, D. Al Armstrong landed on the moon. 12 went back. 13 was just going back again as our third place on the moon. And if you remember that movie, oxygen tank exploded, blew out the side of

the service module. You know, at that point, the mission became a failure. Well, at the very end of that movie. Tom Hanks, playing Jim Lovell, the commander of that mission, is stepping off the helicopter onto the deck of the Iwo Jima after coming back, getting all three astronauts back alive. And he said, our mission, Apollo 13, became known as NASA's most successful failure. And that just always caught my attention in terms of, okay, what does that actually mean? Well, again, one of the themes throughout the shareholder letters is this. this idea that Bezos has, that failure is necessary for success. And he talks about it in several different ways.

At one point, he says, I think Amazon is the best place in the world for an employee to fail, right? Because we understand that's part of the process. And so experimentation absolutely has to lead to failure because if you know the experiment's going to work, it's not an experiment, right? The whole nature is testing out an idea, finding out if it works or not. And so that idea is just woven throughout what he talks about. And I think is a real key to, again, how they've grown. And also, they are unique in terms of the number of different businesses they've been able to create.

Right. So you have the e-commerce business. You have AWS. You have Amazon Marketplace, all the third-party sellers. You know, each one of those, they've been able to start small and grow. And here's where I think the current terminology gets it backwards. You have to start with an experiment in order to invent, and only then can you innovate. But everybody's talking about needing to innovate, but they're not talking about the work necessary to experiment and invent.

And most companies, in essence, punish employees for failure. Yeah. Right? So you've got to, yeah, we want you to innovate and do all these things, but you better be right. And I'm convinced employees aren't actually afraid of failure. We all understand that that's part of learning, but they're afraid of the consequences of that failure, especially in a business environment. And I think that's where Amazon stands out as something unique. Yeah, very cool. Let's stick on failure for a second. So from my understanding, Amazon really builds on their failure to enable success. So for example, they had the phone, and based on that failure, they use those insights to then create the Amazon Echo. Can you shut some color and maybe provide some other examples in which Amazon kind of failed and then use their insight from that failure to build something different that did succeed? Well, let me talk about the phone because you could argue that's their biggest failure. So that was Bezos Pet Project and announced in 2014 a phone specifically designed really to shop

on Amazon. Now, if you think about it, who needed another phone, right? We already had Android phones. We already had iOS. That was announced in 2007. And frankly, nobody needed it. In fact, at one point, Amazon tried to sell it for 99 cents and they couldn't give it away. And so they wrote off $178 million in inventory loss and in development loss at the end of 2014.

But as you mentioned, four months after the announcement of the phone, phone, that hardware team, it actually comes out of Lab 126, that hardware team gave Bezos his first demonstration of what we would come to know as the Echo and Alexa, right? So Echo was the hardware, all the voice processing. By the way, that's astounding technology. I mean, if you can stand across the room and say Alexa, and it recognizes your voice, that's a huge technological problem that they were able to solve. And then marrying that with the machine learning platform, Alexa, to be able to understand the question, look up the answer and give it voice going back.

It's an amazing product. And I think we can say that's pretty successful today. Yeah. I mean, it's in like almost every household. I have another example. I recently had Jim McKelvey on the show. He's the co-founder of Square. And in 2012, Square put out a car reader.

was doing really well. It was like a fast-growing startup. Then in 2014, Amazon put out a similar card reader, and they undercut the price. And so Square kind of thought it was their demise. They're over. But, you know, they had this really strong innovation stack, which is what Jim McKelvey calls, like, you know, layering innovation upon innovation, whether it's processes or hardware or software. They had all these different innovations that enabled them to actually beat and compete with Amazon. And a funny end to the story is that Amazon ended up, you know, shutting down their card reader service and then shipping all of their customers square card readers as like a classy way of saying goodbye. So I thought that was such a great story.

It is a great story. In fact, I just finished his book. It's the innovation stack and was fascinated with his description exactly like you said. Again, I think for Amazon, you know, they saw that as a possibility and why? Why would they think of that? Well, that goes to another of the principles, which is obsess over customers. So, everything at Amazon starts with a focus on the customer. In fact, one of the favorite phrases Bezos uses is we invent on behalf of the customer. And I think that's a really interesting example because they were trying to make it better for the customer. They didn't understand the complexities of the payment. And again, I think, you know, he describes very well. They really didn't disrupt the payment industry. They actually just discovered a market.

that no one else was serving. So again, focusing on the customer. You know, at Amazon, no one asked for Prime, right? But again, if we're inventing on behalf of the customer, what is one of the friction points of shopping online? Well, back early on, it was having to pay for shipping. I can remember shopping and then going to the checkout cart, right, and then finding how much shipping would be,

and then is it worth it? No, I'll just go to the store, and I can get it. But Prime took that friction point away, and it was a crazy idea. You know, nobody at Amazon, except Bezos, thought it was a good idea. But he said, if it's better for the customer, it will be better for Amazon and better for our shareholders. Yeah, I really love how Amazon has such like a customer-first mentality. I wanted to share a quote in his 1998 letter. He says, I constantly remind our employees to be afraid to wake up.

Every morning terrified, not of our competition, but of our customers. Our customers have made our business what it is. They're the ones with whom we have a relationship. And they're the ones with whom we owe a great obligation. And we consider them to be loyal to us right up to the second that someone else offers them a better service. So, yeah, it's so powerful. It's not about your competition. It's about your customer.

Right. And that concept of, you know, be afraid of your customers is their folks. In fact, he goes on in a couple other places to talk about their focus being on the customers, not on the competition. So they don't wake up in the morning thinking about how do we beat our competitors. They think about how do we delight our customers. And in an interview, Bezos said disruption. So, right, Amazon's, everybody says they're going to disrupt this industry or that industry. For Bezos, his mindset is invention comes.

first disruption is a consequence of other companies not inventing. You know, so again, it's a bit of a twist and a different way of thinking, but absolutely customer first is very much their mindset. Let's hold that thought and take a quick break with our sponsors. At Yap, we have a super unique company culture. We're all about obsessive excellence. We even call ourselves scrappy hustlers. And I'm really picky when it comes to my employees.

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Can you give any other illustrative examples of how Amazon has put their customers first? Well, immediately comes to mind as Amazon Marketplace. So again, early two, thousands. And this again, we'll get the failure in here, too. Amazon went through two iterations before they actually landed on Marketplace. So the first iteration is they actually opened an auction site to compete against eBay, right? The problem is they didn't come, people don't come to Amazon to get auctions. They go to eBay. eBay kind of just had it. So that was a failure. And then they tried what was called Z-Shops. And it was a separate website with a separate login where third-party sellers could access Amazon's customers. Well, nobody wanted to log in another place. And the third

iteration was Marketplace. And again, crazy idea. Why in the world would we let other third parties be on our same pages where we're selling product and they may have the same. same product. But the customer focus is Bezos saying, if a third party has a better price or has inventory and we don't, that benefits the customer. And if it benefits the customer, it will ultimately benefit Amazon. And of course, by the way, those third party sellers pay Amazon a fee, right, to be on the site, to have access to the marketplace, have access to the fulfillment network that Amazon spent billions of dollars creating over the years. But that's a different way of thinking. And when your customer focused, not competitor focused, that allows you to think differently

about how you do things. Yeah, again, it's customers before competition. Another great example of that. Let's dive into the topic of risk. You have said that Bezos is a master of risk and he uses risk to strategically grow. What are some prime examples of this? Well, every time, they start a new product. It's top of mind right now because I just wrote an article on my LinkedIn newsletter about this, but Amazon Scout. So Scout is a six-wheel, kind of a small, cooler size that is autonomous that goes down sidewalks to deliver packages to people's homes, residential. Started experimenting with Scout in 2017. They actually announced their first test. It was in a suburb of, in Washington state in 2019. And they just announced this last week

that they are coming to where I live in Franklin, Tennessee, outside Nashville. And so I wrote this article and, you know, it just is such a great illustration of experimenting, iterating. You know, so they have a whole team now that, you know, works on the autonomous software, that works on the device itself, right, how big it can be, how fast it can go, and then now slowly working into other areas to, again, test the concept. But what's the risk? Well, failure, right? It doesn't work out.

Well, one of the tools Amazon uses to reduce their risk is when they're coming up with these crazy ideas, they use a process called a six-page narrative or a six-page memo. And I can talk a lot about that, but what happens is Bezos in 2004 banned PowerPoint. It's never used anywhere at Amazon. And he requires a written narrative, a story, a maximum of six pages that start every meeting. that's exploring this idea. You know, so I absolutely know there was a memo written about Amazon Scout, probably in 2016-ish.

And that memo is handed out at the meeting, not beforehand, and the first 10, 15, or 20 minutes has spent everybody reading the memo. Now, really interesting process, but to me, that is one of the ways they use to mitigate or reduce the risk. because Bezos is convinced that writing out those thoughts on paper helps you think deeper and see problems quicker that they can then work on mitigating. So that's just one of the tools they use. And, you know, again, he just thinks very, very differently. And I guess the thing is he's not afraid of taking risk knowing it may not work.

And again, he says in a number of different places, we've got to try things. And here's this great, another quote. I think it's out of the 2018 letter, if I remember correctly. But it's basically the size of our risks need to grow as the size of our organization grows. If we're not taking billion dollar risks and making billion dollar failures, we're not going to move the needle enough to have an impact on our business. Well, who thinks that way? Yeah, such a different way.

It's such a different way. So I do want to dig deeper on the memo piece. I think that this is really interesting. Why is Bezos so against PowerPoint? And why does he prefer that memo structure? And what is the structure of that memo? What is the expectation in terms of the format that he gives to his employees? So first, let me talk about PowerPoint.

He believes using bullet points or a PowerPoint presentation is lazy. because you can hide behind those bullet points without having to really dig deep before you do that presentation. He also believes, in fact, at Amazon, if you go to their job site, there's a section there that explains you may be asked as part of your interview to write out something because the written word at Amazon is really important. And I do believe that to be the case. When you have to write out. It makes you think deeper and differently. You know, a lot of times for me, writing actually helps me think about what I think, right? Because having to put it into sentences and thoughts and words and paragraphs make you think differently. So what's the structure?

It varies. I'll say that. So there's not just one way to do it. But basically this structure is, The first thing is a future press release. So the Amazon Scout, they actually write back in 2016-17 when they were first thinking about this idea, they wrote a press release that could be released in 2019. So future. So looking forward, right, what is it that the customer is going to get out of this? What are the benefits? What are the, right? all of those kinds of things. And actually, if you go to investor relations at Amazon and look at

press releases, you can get an idea of how they structure those press releases. And I can almost guarantee that most of those were written years before the actual product announcement. So that's the first thing. Then they create an FAQ, frequently asked questions. And they, you know, who are the people? So customer questions. What are the questions? What are the questions customers are going to ask about this product, service, or platform? What about the other vendors that might be involved with it? So in terms of Scout, again, I'm speculating. I haven't read it, but the customer's asking, well, could this injure my pet? Who's going to watch it as it goes? What kind of packages can be delivered? And so they come up with these questions and then they

answer the questions, literally, there are two answers to the questions. One is just a short, here's the answer, and the other is a discussion answer. So delving deeper into kind of the reasoning behind the answer to the question, et cetera. So I will tell you, I actually use this process, a six-page memo process for a project I'm working on that I was explaining kind of a new service I'm putting together to a group of potential investors. And it was absolutely a fascinating process to actually not just kind of research and talk about, but actually to use. The meeting, and I did. I made, I didn't hand it out beforehand. I handed out at the meeting, physical written, right document, took the first 15 minutes quietly. And wow, how uncomfortable for me was that, you know, expecting people to read it. But then the magic started because the discussion wasn't.

about, explain this, I'd already done all of that. The discussion was about questions, what didn't I cover well enough, what more questions did they have that I didn't anticipate. The discussion was much fuller because literally everybody was on the same page. Yeah, I love that. See, I think that's so cool because at work, they call me the PowerPoint princess because I'm so good at creating these, like, elaborate PowerPoints and, like, their designs so pretty. And you can get it. away with not having that much information and putting on a great presentation. Like if you have a well-spoken speaker, it's kind of like a song and dance that you do at a business meeting.

And, you know, people are kind of like, wow, and they don't have many questions. And everybody just, like, moves along. But when it's just a paper that you have to read, it's like the information is what's important. And everybody's just really focused on the idea itself instead of like the pretty colors or the speaker or, you know, the song and dance around. Or even interrupting the presenter, right, with a question, but that question is going to be answered three slides down. So everybody reading it, you know, kind of gets the whole picture, and then the discussion can be richer in terms of what's other questions do we have, et cetera. Yeah, and I love the idea of having the press release in the beginning. Again, it's like that customer first, what value are you

presenting to the world, to the marketplace? That's what the press release portion is probably about. And then the FAQ is like poking holes in it. You know, what are the different issues and how are you mitigating it or what's the answer to it? Right. Really cool stuff. And I will say Bezos talks about this in the letters. And he says, one, you can tell a difference between a good memo and a not as good memo. And he basically says a good memo takes probably at least a week to write.

Right? Because you write it. You edit it. You share it with others on the team, get their input. You set it aside for a couple of days and then come back to it. So it's a longer process. And some people have said, well, doesn't that slow things down? And actually, no, I think it's the idea of slowing down to speed up.

Because then you can speed up. Now that we kind of know all of this, what are the problems we have to solve? What are the new things we have to invent? now we can go after that and speed up the process. Yeah, that's really interesting. And also because they can quickly assess what's a good idea, what's not a good idea, and kind of like not waste time on bad ideas just because, you know, somebody had a great presentation and convinced, you know, one or two people to move forward.

To move forward. Yep, exactly. Very cool. So going back to risk for a few minutes, everybody knows what ROI is, return on investment. That's a very common phrase. but Amazon uses another term ROR, return on risk. Can you help define that for our listeners and help us understand how we can measure and track ROR? Yeah.

So this idea, again, as you said, return on investment, right? We track a lot. If, you know, marketing-wise, if I'm going to spend X amount of dollars on ads somewhere, how many more sales am I going to get? And we're really good at looking at those kinds of relationships. But when it comes to risk-taking, it is more nebulous. It's not quite as hard and fast. And so adding in that equation of what's your return on risk.

And again, going back to Amazon, you know, they took a great risk on Amazon Prime, but what's their return been? They took a great risk on Amazon marketplace, but what's the return been? You know, both of those, Bezos identifies as one of their big bets. So it is harder to measure. but to me it's a mindset of how do we invest in experimenting? How do we gauge, you know, again, success and failure in that process? How do we know to move forward with invention?

And so it really is more of a mindset. And frankly, I'm still working on a formula to try and put some more weight around that idea. But the concept in the book and Amazon is very much a mindset of we know we have to risk things if we're going to be able to move forward. Yeah. So I know that there's a risk of doing something and then there's also a risk of not doing something. Could you provide more color, break that down for us? Yeah. And that was kind of a core thought process as the book was starting to come together because when it comes to technology, right?

And I think we can all agree technology continues to develop rapidly. And kind of one of my core thoughts was businesses don't have the time today that they used to 10 years or 15 years ago to kind of take a year or two and figure out this new platform or what's the Internet going to do or right? You have a much shorter time period today. And so making a decision to not move forward or not embrace a technology or not experiment is perhaps a bigger risk. right but most business owners managers whoever consider the risk being if i do this if i experiment on this new platform this new process this new service that could be the bigger risk when in fact it could be the opposite so absolutely there's a risk of not doing something and and i would say back to some of those kind of i would say well-known examples but that was blackberry right nobody's

going to ever want to type on a glass keyboard. They're always going to want a physical keyboard. Well, no. People's attitudes change. You can't do that. You know, Blockbuster, people are always going to want to go and rent from a video store. Well, no, Netflix showed that was not the process. And again, people's viewing habits changed. They still wanted to watch movies, but how they watched them change. Right. So not, and by the way, Blockbuster had an opportunity to buy Netflix. And they said, no. Right? So again, not seeing the future. And again, that's one of the things that Bezos talks about is the way he describes it is having a mindset of eagerly adopting new trends. Right. So not being afraid of those new trends. And again, that's part of that risk-taking mindset.

Yeah. All this is so fascinating to me. I think Jeff Bezos and Amazon is like, it's just such a well-run company, and they're kind of the biggest company in the world right now. I feel like they're crushing it, especially during COVID-19. It's like, we're like, our lives depend on Amazon right now. So it's just so interesting. Yeah, so they're right up there in terms of just market capitalization. They're right up there with Microsoft and Google and Amazon. And so, again, I think there are reasons they're there, and that's what the principles try. That's why I broke it down that way and try and highlight some of the – because it's not just one, right?

They're 14 for a reason. They all are stand on each alone, right? But they all interact with each other, too. So that's part of what's difficult about kind of trying to look at Amazon and bring those things into your own businesses. You've got to think not just, oh, I got to do customer obsession. but there are several things that you can work together to enhance your own business. Yeah, very cool.

So I want to spend the rest of the interview really focusing on the letters themselves. One of the principles in your book is this phrase that Jeff Basos used in his first letter in 1997. It's always day one. Or he refers back to it in all his letters that it's always day one. Tell us about what that means and how can our, listeners incorporate this idea in their daily lives? Yeah, so for Bezos, day one, as you say, he uses it from the very first letter. And it's in the context at that point of the internet is so new that nobody knows. We don't really know what it's going to happen. And so he says,

you know, it's day one for the internet and day one for Amazon. And it really has developed over the years to a mindset of Amazon, even as big as it is, thanks like a startup. And that's really hard to do, right? Because the problem is most companies that get successful like Amazon, success actually is their biggest risk because we get successful and we start protecting what got us there instead of actually killing, right, what got us there and looking at what's new, different, or what else we can do. And so he reinforces this idea of day one. And he ends virtually every letter with something, as you said, along the lines of, you know, it's still day one. And by the way,

that first 1997 letter, he has attached every single year to every new letter. So it's he actually ends the phrase with, as is my habit, I attach our 1997 letter. It's still day one. And in fact, in the 2019 letter, he ends with that, but changes just a little bit. He says, even in these times, right, talking about COVID and all the things going on, even in these times, it's still day one. So to the point for Bezos is that the office building in Seattle, where he has his office has a plaque in the lobby. It's called the day one building and the plaque identifies his mindset around this. But I think one of the best ways to describe the mindset is actually a question he got at an all-hands meeting. And the question was, Jeff, what does day two look like?

And actually, there's a great YouTube video where he answers the question. It's probably worth looking up. But here's how we answers it. And I'm quoting from the 2016 letter. Day two is stasis, followed by irrelevance, followed by excruciating painful decline, followed by death. And that is why it's always day one. So that decline, and he says, you know, that could take years and has for many businesses, right, that are not doing as well today or have gone out of, I mean, Sears is the one that pops into my mind. But I think what's really, interesting in the letter, he goes on to say, I'm interested in how you fend off day two, right? How do you stay day one? And he says there are four things that he's identified, at least

right now, that are day one defense. One is customer obsession. Talked about that. Two is a skeptical view of proxies. So in Bezos' use of that word, a proxy is any process or procedure. that isn't thoughtfully used, meaning, how many times have you heard a customer service person say, oh, that's not our procedure? Well, if the procedure's not serving the customer, then let's not make the procedure the end all and be all. Let's make sure the procedure is still correct today. So that's what he means about a skeptical view of proxies. And I mentioned this one before, an eager adoption of external trends, keeping that future focused out there. And then fourth, finally, high-velocity decision-making. So he identifies those four as day one defense activities to keep a business,

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Yeah, that's really powerful stuff. I would encourage everyone to look up day one mindset and kind of like embrace that because I think it's really interesting. And I think it can really help people be innovative, always like stay scrappy, resourceful, have a customer first mentality. I think that is really powerful stuff. Back when Bezos wrote this 1997 letter, Amazon actually, it was already big, it was already successful, but it was unprofitable at the time. I think profitability was something he was trying to argue against in terms of how people should value Amazon. Why do you think that people shouldn't judge a company like Amazon, at least at the time, based on their profitability? Well, part of what he says in that 97 letter is with the Internet and the early days of the Internet,

we believe that it's a land rush right now, right? So the idea is we need to invest and get out in front and become the platform. So our focus will be on the long term, not on short-term quarterly profits. And he got hammered. Amazon and Bezos got hammered by Wall Street. And you have to remember, he actually came out of Wall Street. He worked for an investment firm in New York before he started Amazon. And so he understood that mindset that needing to hit quarterly profits all the time. But also he said, we're not going to do that. And he talks about it at the end of that letter that, you know, if your investment strategy

is, you know, to get short-term profits to come in and out, we're probably not. a good stock for you to hold, buy and hold. But if you think of the long term, we are a good place for you to be. And he says, I want to be clear. And again, I think we're seeing a theme here. He thinks differently. Most people would be, yeah, buy my stock, buy my stock. He's going, no, here's our philosophy. We're going to build for the long term. You will see results, but not in the short term. And they weren't profitable. I can't remember. I'd have to look up the exact year, but it was 10 years at least before they showed their first profit because they reinvested everything, right, into fulfillment centers

and infrastructure and all of those things that now are paying off huge dividends. Exactly. I mean, anybody who invested in Amazon back then has like 30x their investment at least. Well, actually, I just read somewhere that in that early years, 97, 98, $100 in $100 in Amazon, Amazon stock would be worth over $11,000 today, just $100. Wow. Wow. Yeah. I only bought stock like three years ago. So it was still profiting, but not that much. So speaking of him, like, thinking radically different, in his 2001 letter, he talked about measuring Amazon by free cash flow. Can you explain why Bezos believed that free cash flow was the best

metric for understanding the financial success of his business? I can attempt to. This was actually, and I said this in the book, free cash flow was so important to Bezos as the correct measure. But I am not an accountant. You know, I'm not the financial analyst there. But as I understand it, and others out there can explain it better than I can. But having the cash available to invest is a better indicator of success for a company. And in fact, they do the legal, right, gap accounting in their 10K, but they also add these whole sections around free cash flow and where they are and what the numbers look like because Bezos feels very strongly, that's a better measure of potential and the success of the company. So you're absolutely right.

Again, going against the grain, right, of what most business. do. Yeah, and then now a lot of companies, I think, report that way and report on free cash flow. He, like, set the trend there. Yeah, and I think he set the trend. I think there are more companies today that do that than back then because of, I won't say necessarily just because of him, but that thought process has made its way into a whole lot of other companies. Yeah. So let's fast forward to 2019. Was his 2019 letter that talked about COVID-19 incorporated in your book, or did that come later after the book? It came later. Actually, that letter was released. So the letters are released the April after the year. So for 2019,

it was released in April of 2020. So that was not incorporated, it was not available when we published the book. And it's an interesting letter. It's a weird letter. I just say it that way. I still haven't gotten my head completely around it. And for the first time, I'm not sure he was the primary author of that letter. Now, all the other letters, you know, there's a flow and a cadence and how words are used. And I'm convinced he had help, I'm sure, writing him, but I'm convinced he had that final edit before the letter was published. The 2019 is just different in a couple ways. One is, obviously, the COVID-19 stuff and talking a lot about their response and what they're doing and how they're protecting employees.

I actually wrote an article. I'm trying to think of the timeline right now. And usually for the first time that I know, if he released a public letter to employees talking about their response to COVID-19 and what they were going to do and how they were going to protect employees and those kinds of things.

And actually, I wrote an article around, you know, how Bezos is leading in crisis and communicating and some of those things. And then some of that's reiterated here in the 2019 shareholder letter. And then the second half, it kind of just shifts. Second half goes into sustainability. And, you know, and frankly, Amazon is doing great things in sustainability and those kinds of

things. And what I find interesting is people seem to think this is a new thing for Bezos. And it's not. Bezos was sustainability and climate change and helping the earth. And he was valedictorian of his high school class in Miami, Florida. His valedictorian speech talked about how manufacturing needed to be moved to outer space to orbit, Earth orbit, and that the Earth should become designated as a national park and people come there on vacations. You know, so this is not an idea that is brand new for him.

and the whole reasoning behind Blue Origin, the space company that he started, is to create the infrastructure to actually make that vision possible, meaning getting into space cheap enough that literally, and these are his words, a college kid in a dorm room could create a space company. And so I think he's misunderstood a bit in that arena because I've seen some stuff written of, oh, now he's, you know, coming, thinking about it. Well, no, he's been thinking about it since high school or earlier. That's so interesting. Yeah, I never knew that he was really a big sustainability proponent.

I definitely want to dig deep into that at some point and try to understand. I don't know much about a space company or anything like that, but really interesting guy. Great job on the book. Great job on the research. The last question that we ask every guest on the show is, what is your secret to profiting in life? Two things come immediately to mind. One is generosity. I'm pretty convinced that the more generous you are, the more that comes back to you as a individual and as a business there. And I would say the second things that comes to mind is I practice a pretty, I guess, structured to be the right way of saying it, but goal setting process. And so I have annual goals. I take those annual goals into quarter. goals into monthly goals, into weekly goals, and literally I have, what are the three things I need to do today that will move me forward on one of those goals. Oh, very cool. And how often do you

do that goal setting? So I review, I have a weekly review. So I actually review the week and what did I do well? What didn't I do well? And I update things monthly and then quarterly. And then a full annual, like a day-long process of what goals do I want to accomplish. And they're not all just business. You know, some of them are personal hobbies, you know, things like that. Because, again, I believe there's more to business than just business. Oh, totally. Yeah, I interviewed David Allen.

He is the inventor of the GTT getting things done system. And I think that that reminded me of his process a lot. Absolutely. Yeah. No, his book had a big impact on me early on. Very cool. So where can our listeners go to learn more about you and everything that you do? So the best place for the book is thebezosletters.com. And if you'd like, there's some additional material workbooks to help you as you read through and work through the book and apply it to your own business. I've also created an assessment there that helps you understand, one, your risk

tolerance and where in the four cycles and 14 principles might you and your business have most effective use of right now. So no cost to that, but you can access both of those on the bezos letters.com. Great. Thank you so much, Steve. It was such a pleasure to have you on. Paula, thank you. Enjoyed the conversation.