#388 Jeff Bezos's Shareholder Letters!
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I will be in New York City on May 27th doing a live show. I will be interviewed by my friend Patrick O'Shaughnessy at Ramp's headquarters. The event is free to attend. I will leave a link down below so you can register. I'll be doing several live events at Ramp's headquarters over the next 12 to 24 months. So even if you can't make this one, make sure you register so you'll be notified on the next one. This event isn't reserved for Ramp's customers, but future events will be because space is limited. So if you aren't already running your business on Ramp,

You really should be. I run my business on a ramp. Most of the top CEOs and founders that I know do so as well. And I actually think there's an idea from Jeff Bezos' shareholder letters that I think is related to this and really just good advice for anyone in business. And it's Jeff's idea on the importance of heavily investing in introductions to new customers. As you're about to hear, Jeff was very clear from the start that he was going to build an enduring, long-lasting business. He was not interested at all

in building an undifferentiated commodity business. He wanted to build something to deliver value to customers more than anyone else in the world, and he believed he could succeed at that goal better than anyone else. And as you'll hear on this episode,

That if you believed what Jeff believed, then you too would do what Jeff was doing. He believed he was building a winning system. And if you're doing that, then it makes a lot of sense to say this. This is what Jeff wrote in one of his very first shareholder letters. We will continue to invest heavily in introductions to new customers. These are the early days of category formation where many customers are forming relationships for the first time.

We must work hard to grow the number of customers who shop with us. So he saw that people who started using Amazon tended to stick around because of the value that they received from Amazon. I was one of those people that Jeff was trying to introduce Amazon to. I have been a customer of his for 21 straight years. If you believe you have the best product,

then you should do everything you can to get more people into your winning system. Ramp is doing the same thing today. And I have a mind-blowing stat that demonstrates they are right to believe they have built a product that delivers more value to their customers than anyone else in the world. Last year, 12,059 businesses signed up to use the Ramp corporate card.

and only eight of the 12,059 businesses decided Ramp wasn't for them. That is a success rate of 99.9334%. If you have not yet started running your business on Ramp, go to ramp.com today to learn how they can help your business save time and money. I hope to see you in New York, and I hope you enjoy this episode.

This is the fourth or the fifth time that I've read through all of Jeff Bezos's shareholder letters. I think it's something I should do every year and then make a new episode every year because I think it's so important. In fact, the best description of these letters I've ever read was this description. It says, to read Jeff Bezos's shareholder letters,

is to get a crash course in running a high growth internet business from someone who mastered it before any of the playbooks were written. So he titles, Jeff titles every single Sherlock letter, we wanna start right at the beginning in 1997, he titles this,

It's all about the long term. This is the most important shareholder letter. And you can see this because Jeff attaches it to every single subsequent shareholder letter all the way up until the end. His last one that he wrote 23 years later in 2020 from day one when he studied Bezos and he just laid it out here on shareholders. It's very obvious that his goal, he wanted to create a durable, long lasting business, something that creates something valuable, differentiated and enduring, something he repeats over and over again.

So he says, this is day one for the internet. And if we execute well for amazon.com today, online commerce saves customers money and precious time. Tomorrow through personalization, online commerce will accelerate the very process of discovery.

Amazon.com uses the internet to create real value for its customers and by doing so hopes to create an enduring franchise. You'll hear that. He'll repeat that word enduring over and over again. So he hopes to create an enduring franchise even in established and large markets starting obviously in retail, which is a massive and ancient business.

We have a window of opportunity as larger players marshal the resources to pursue the online opportunity. And as customers new to purchasing online are receptive to forming new relationships. And so that was one of the most interesting ideas that he'll talk about is the fact that the way I summarize this is in a maximum get big fast. Somebody asked me one time,

who I think, and all the people that have studied on the podcast so far, who I think is the best strategist. And without hesitation, I answered Rockefeller and Bezos. And a lot of the strategy that Bezos utilized, he just lays it out in very plain, easy to understand language in his shareholder letters. And one of that is that on the internet, you need to be really, really tiny or really, really large. And obviously he wanted to build a giant enduring business. So we're going to get big,

very fast. And we're going to invest heavily in introductions to new customers. So this idea, hey, this is a very, this is a technological shift. It's a phenomenon. People were, you know, 10 years ago, they were terrified at the time of buying things online. They're starting to become more and more receptive to this. Now we want to form relationships, enduring, long-lasting relationships. And I think I went back

and looked. I think I've been a customer of Amazon now for 21 years. That was one of the people that he's writing about. Our goal is to move quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities in other areas. We see substantial opportunity in the large market community we're targeting. This strategy is not without risk. It

It requires serious investment and crisp execution against established franchise leaders. And then he gets into the main theme of the shareholder letter. He has another section called, it's all about the long term.

We believe that a fundamental measure of our success will be the shareholder value that we create over the long term. And you italicize long term. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.

We have invested and will continue to invest aggressively to expand and leverage our customer base, our brand, and infrastructure as we move to establish an enduring franchise. We are on the second page, maybe five paragraphs into this, and he's already used the word enduring twice. Because of our emphasis on the long-term, he's probably said long-term, I don't know, five, ten times already, we may make decisions and weigh trade-offs differently than

than some other companies. We want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it's consistent with your investment philosophy. And so if you read the first two pages of this, it's obvious the first shareholder letter is setting the tone and he's talking about we're going to focus on the long term, we're going to focus on cash flow, we're going to invent and we're going to be bold. These are things that he repeats for the next 23 years.

This is, we will continue to focus relentlessly on our customers. There's a funny story. I think most people know it by now, but I love the idea that...

briefly Jeff Florida with the idea of naming Amazon relentless. In fact, when you go to relentless.com to this day, he still owns the domain and it, and it forwards to Amazon. I just love that. So he's like, we will continue to focus relentlessly on our customers. We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership and

advantages some of these investments will pay off others will not and we will have learned another valuable lesson in either case i'll share with you later but he also has a domestic idea

And not many people express explicitly that your failures have to, if you want to make an impact, your failures have to scale as well. And you talked about, you know, we're making a lot of experiments. We might invest $10 million at the very beginning when we don't have a lot of assets. We might invest $10 million in an idea that's not going to work. Well, later on, we might invest $10 billion in an idea that will not work. We'll get to there.

So he says,

So this is where he talks about the importance of getting big fast and the importance of being frugal while you do so. So if you read the Everything Store, the biography of Jeff Bezos that Brad Stone wrote. In fact, somebody asked me recently, they're like, out of everybody that's still alive who hasn't written an autobiography, who's the number one person that you want to read an autobiography on? And my answer was Jeff. Because that's...

his life, his biography has only been documented by other people and I'm very curious to how he tells us on the story and what's interesting to him. But in that Brad Stone book, it was very fascinating where he would like run around with copies, Jeff would, copies of Sam Walton's autobiography Made in America and he'd highlight specific parts and underline specific parts and then go and give those books with his own annotations to early readers in Amazon and there's a lot that's when you've read both and you know I've read

I think I read Tim Walton's autobiography at least three times. I've read another biography on him twice. But you just see a lot of the echoes of a lot of the ideas at the very beginning of Amazon. So it says, hey, we're going to respond wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture. That sounds like Walton to me.

We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model. So summarize that one paragraph, get it.

big fast. We aren't so bold as to claim that the above is the right investment philosophy, but it's ours. And we would be remiss if we weren't clear in the approach we have taken and will continue to take. And so that's why my philosophy may be different than what you're normally investing in. I'm going to tell you up front so I get the shareholders that are perfectly aligned with our long-term mission.

The next section, he calls it obsessed over customers. My friend told me this one time and he observed something that I thought was interesting. Amazon has this list and you can find it on the line of 14 company principles. And my friend read through the list. He's like, well, if you really think about it, it's like they have one single organizing principle of their entire organization is obsessed over customers. So Jeff gets into that. From the beginning, our focus has been on offering our customers compelling value.

We realize that the web was and still is the worldwide... Wait, actually I'm going to pause here and I'll get to this later, but...

When Jeff is around 37 years old, he has a life-changing meeting with Jim Sinegal, the founder of Costco, who's probably two decades older than Jeff. I went back and read Jeff's interpretation of the meeting and how it changed the trajectory of Amazon, but I had forgotten there's a quote from Jim Sinegal in there that was excellent where he says his belief was that value trumps everything. And we see they haven't even met yet, but we see that. He said, hey, we're going to build a business that offers compelling value

And when he analyzes businesses that he wants to enter later on, what is the, you have to love the offering. As the person making the product or service, you have to love what you're doing for the customers so you know it has a compelling value. So he says, right now, it's not really the worldwide wed, it's the worldwide wait. Therefore, we set out to offer customers something they simply could not get any other way and began serving them with books. We brought them much more selection than was possible in a physical store. And so even at this point, he points out in,

is in this letter, he said, hey, if you stored all our inventory in a bookstore, the bookstore would be over six football field stores

Probably not a bookstore on the planet. I go to bookstores in every single city I ever go to. I love hanging out in bookstores. I don't think I've ever come across one that is as large as Thick's Football Field, although Texas has some big bookstores. We brought them much more selection than was possible in a physical store and presented it in a useful, easy-to-search, and easy-to-browse format in a store that's open 365 days a year, 24 hours a day. We maintained a dogged focus.

focus on improving the shopping experience. We dramatically lowered prices, further increasing customer value. Word, and why are they doing this? Because he said, word of mouth remains the most powerful customer acquisition tool that we have. And so...

It's very fascinating when you read his show of letters, when you study him. He is one of these people I felt were completely unstoppable and undeniable. People were like, I can't believe Amazon survived when all these other companies died. I said, yeah, but they didn't have Jeffrey Bezos. This guy's not normal. In fact, one of my favorite things, one of the, one of my favorite things I ever heard

is I got to ask Charlie Munger what he thought of Jeff Bezos. And Charlie had the greatest description I've ever heard of him. He says he is ferociously intelligent. The reason I think about this is because he's saying, hey,

In the Sherwood letter, we're establishing all these long-term partnerships with very important strategic partners on the internet. In 97, who's he talking about? American Online, Yahoo, Excite, Netscape, GeoCities, AltaVista, At Home, and Prodigy. Every single one of these is gone. I think Yahoo kind of exists. I know Apollo still owns it. But really, they're just gone. They didn't have a Jeffrey Bezos.

Another thing I love that he says, setting the bar high in our approach to hiring has been and will continue to be the single most important element of Amazon.com success. It is not easy to work here. This is one of the, my favorite things he's ever said. I never forgot it. We are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about.

Such things aren't meant to be easy. And then he ends the first letter with really good advice in the beginning and good advice forever. We're still in early stages of learning how to bring new value to our customers through internet commerce. We know vastly more about online commerce than when Amazon was founded, but we still have so much to learn. Though we are optimistic, we must remain vigilant and maintain a sense of

So then very next year, he decides to title the second journal letter as Obsessions. And this is, I think, is really important. So then you and I talked about it over and over again, that I feel is obvious when you read a lot of biographies and it's not present or doesn't reoccur really in present day. Repetition is persuasive. When you study somebody who had a career that could succeed and thrive and survive,

for two decades, three decades, four decades, you will see they identify a handful of principles and they just repeat them over and over and over again. And many people are unable to do that. They jump around to the next new idea over and over again. So it says, we're working to build a place where tens of millions of customers can come and find and discover anything they might want to buy online. It is truly day one for the internet. And if we execute our own business plan well, it remains day one for Amazon.

We think the opportunities and risks ahead of us are even greater than those behind us. We will have to make many conscious and deliberate choices, some of which will be bold and unconventional. Hopefully, some will turn out to be winners. Certainly, some will turn out to be mistakes. Head-down focus on customers helped us make substantial progress last year.

So then he says 1998 is all about obsessions. We intend to build the world's most customer-centric company, but there's no rest for the weary. 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 to whom we owe a great obligation. And we consider them to be loyal to us right up until the second obligation.

that someone else offers them a better service. So when I read that paragraph, I immediately think of this line that Sam Walton has in his autobiography,

where he says there's only one boss and it's the customer and he can fire us anytime he wants by spending his money elsewhere. It's the exact same idea behind what Jeff is writing in the show letter. We must be committed to constant improvement, experimentation and innovation in every initiative. We love to be pioneers. It's in the DNA of the company. It's a good thing too, because we'll need that pioneering spirit to succeed.

We're proud of the differentiation we built through constant innovation and relentless focus on customer experience. It would be impossible to produce results in an environment as dynamic as the internet without extraordinary people. Working to create a little bit of history is not supposed to be easy. Repetition. And well, we're finding that things are as they are supposed to be.

Setting the bar high in our approach to hiring has been and will continue to be the single most important element of Amazon success. Here's a line in the last trailer. It may be the same message. It might be the exact same words.

Setting the higher approach to hiring has been and will continue to be the single most important element in our success. During our hiring meeting, so he's giving advice on like, okay, everybody says, you know, work with the very best people. I think every single episode I've ever done, the founder is like, it really pays to work with the best people. It's so, it's like simple advice that's almost impossible to actually implement. And you see that because almost no one actually implements it. And so he's giving, Jeff is giving some advice. It's like, okay.

Well, here's some questions that we ask ourselves before we make a decision to hire this person. Number one, will you admire this person? I always tried hard to work only with people I admire. Life is definitely too short to do otherwise. Another question, will this person raise the average level of effectiveness of the group that they're entering? We want to fight entropy. The bar has to continually go up.

And then third, he looks for unusual talent. The way this is described to me is like you're hiring for spikes. Along what dimension might this person be a superstar? They might be one of the best, if not the best in the world at this specific level.

Usually those kind of people come with a lot of variance. They're very difficult to work with. One of my favorite examples is Nolan Bushnell, founder of Atari, hires a 19-year-old to see jobs. People that work with Steve and Pat complain that he's barefoot, that he smells, and that he wants to sleep in the office. Well, he also comes with remarkable talent. So that's another example of that.

As you look forward, we believe that the overall e-commerce opportunity is enormous. Although Amazon has established a strong leadership position, it is certain that competition will further accelerate. We plan to invest aggressively to build the formation for a multi-billion dollar revenue company serving tens of millions of customers with operational excellence and high efficiency. So that's another thing that he'll repeat over and over again. He's really shooting for operational excellence.

excellence he talks about later on in life so you can read these um share her letters to fran line i'm working out of a book called invent and wander the collected writings of jeff bezos the second half of this book is actually transcripts of some great speeches that jeff has given over the years and he talks about this in interviews where he didn't understand what operational excellence was he had to learn he had to teach himself what that was he certainly didn't know what it was or what uh

or how to do it when he started Amazon. But it was very, very important to him. More about the repetition, making sure the right people, both on an employer level and an investor level, self-select into Amazon.

The most important thing I could say in this letter was said in last year's letter, which detailed our long-term investment approach. Because we have so many new shareholders, we've appended last year's letter immediately after this year's. I invite you to please read the section titled, It is all about the long-term. You might want to read it twice to make sure that we're the kind of company you want to be invested in. As it says there, we do not claim it's the right philosophy. We just claim that it's ours.

The next letter is titled building for the long term. We can be uniquely positioned to serve new customers best and benefit as a result. And how do we do this? We relentlessly focus on customers.

Stay relentlessly volvius on the customer. I wonder if Jeff has that tattooed somewhere. We just don't see it. He's going to repeat this again, that building a valuable company is going to be difficult and you have to invest heavily. If you think that you have something that's much better than anybody else can make, and that's what he was certainly trying to do, then you certainly should be investing heavily.

heavily in getting more customers into your business because they say they're on it. I don't remember how I found out about Amazon. Maybe it was from an ad, maybe it was from a friend. All I know is like, what is the value of that one customer, you know, that had been with him for 21 years? This is just very smart.

So it starts out, he's giving this talk at Stanford. I thought this part was interesting. At a recent event in Stanford, a young woman came to the microphone and asked me a great question. I have 100 shares of Amazon. What do I own? You're a piece of the leading e-commerce platform.

We believe we have reached a tipping point where this platform allows us to launch new e-commerce businesses, not products. It is a new products. It's a new businesses faster with a higher quality of customer experience, a lower incremental cost, a higher chance of success and a faster path to scale and profitability than any other company.

He truly believed what he was offering, what he was building, one is better than anybody else, better than any other offering current, and he's going to be able to build something that other people cannot. So this is the reason I bring this up. This is everything that Jeff describes. It all ties to each other. So if you believe that, then what is the next logical step? Invest heavily, heavily in getting more customers into your winning system. Our vision is to use this platform to build Earth's most customer-centric company.

And as is probably clear, this platform affords an unusually large share opportunity, one that should prove very valuable for both customers and shareholders if we can make the most of it. Despite the many risks and complexities, we are deeply committed to doing so. We will continue to invest heavily, heavily in introductions to new customers, though it's sometimes hard to imagine with all that has happened in the last five years, this remains day one for e-commerce. And these are the early days of category formation where many customers, he, he,

I can nail this. Listen to this. This remains day one for e-commerce. And these are the early days of category formation where many customers are forming relationships for the first time. We must work hard to grow the numbers of customers who shop with us. Because if I wait to somewhere else, I probably just ensure inertia.

I think a lot of people overestimate severely like how once cut for funds a product they like. I'm not really even now I'm not even looking around like is there somebody serving me better than I am. Oh this is good. I'm comfortable here. I'm just going to stay here. We have busy lives. We're building businesses. We have our family. We have friends. We have health. We have hobbies. I'm not looking around for other products. It's so important. He just nailed this.

Excellent. And I love this idea because it's not in this shareholder, obviously, or not in any of his shareholders. But at this time, if you go back, and this is the 1999 shareholder, right? If you go back in the time, the way the media would describe him, they said, oh, like, he's just a bookseller. Why are you buying shares? He's just a bookseller. You didn't get it. You didn't even know what you were looking at.

And then he's going to go into operational excellence. He's already been this multiple times. So I'm going to read you my note before I read you these three paragraphs that Jeff writes. He sees how everything connects and feeds into his overall plan for Amazon. He's unapologetically extreme. He sets a very high bar. He'll use words like world-class experience, excellence, dogged determination, highly focused, bold. He wanted to be the very best. And this is obvious. He'll talk about it. He

He had to read between the lines. To us, operational excellence implies two things, delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all of our businesses.

Often, this is key, often the best way to drive one of these is to deliver the other. So he is defining, he's learning on the job. So he's figuring out what is operational excellence. Operational excellence implies two things, delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all of our businesses. Often the best way to drive one of these is to deliver the other. For instance,

More efficient distribution yields faster delivery times, which in turn lowers contacts per order and customer service costs. These in turn improve customer experience and build brand, which in turn decreases customer acquisition and retention costs.

Our whole company is highly focused on driving operational excellence in each area of our business. Being world-class in both customer experience and operations will allow us to grow faster and deliver even higher service levels. And this relentlessness with which he pursues this opportunity makes perfect sense if you understand how he used that opportunity. Consider the most important point, the

He starts this letter with a one-word sentence: "Ouch."

It's been a brutal year for many in the capital markets and certainly for Amazon's shareholders. As of writing this writing, our shares are down more than 80% from when I wrote the last letter. Nevertheless, by almost any measure, Amazon, the company, is in a stronger position now than at any other time in the past. And so there's, this is also in Jeff's biographies. And it's also, he's talked about it later in life in interviews that,

Everyone else was focused on the share price and Jeff was focused on the internal metrics of his business. And he hints at that. He's like, well, but by any measure, the company is in much stronger and better position than any time in the past. Therefore, I'm going to be able to just endure this.

So he continues pushing forward, and he talks about the fact that he told you in the very first letter that he's going to be bold, he's going to be relentless, and we're going to keep inventing, we're going to keep experimenting, we're going to keep taking risks. Many of you heard me talk about the bold bets that we as a company have made and continue to make. Our decision to invest in smaller e-commerce companies like Living.com and Pets.com, both of which shut down operations last year, lost a significant amount of money for us.

We made these investments because we knew we wouldn't ourselves be entering these particular categories anytime soon, and we believe passionately in the land rush metaphor for the internet. Indeed, that metaphor was an extraordinarily useful decision for several years, starting in 1994.

But we now believe that usefulness largely faded over the last couple of years. In retrospect, we significantly underestimated how much time would be available to enter these categories and underestimated how difficult it would be for a single category e-commerce company to achieve the scale necessary to succeed. So what he's talking about there is get big fast.

Online selling relative to traditional retailing is a scale business characterized by high fixed costs and relatively low variable costs. This makes it difficult to be a medium-sized e-commerce company like a pets.com.

And this is something he's mentioned in other places that on the Internet, you can be either really, really small or really, really big. But the Internet tends to destroy the mill. Why should you be optimistic about the future of Amazon.com? Industry growth and new customer adoption will be driven over the coming years by relentless improvements in the customer experience of online shopping.

These improvements in customer experience will be driven by innovations made possible by dramatic increases in available bandwidth, disk space, and processing power, all of which are getting cheek fast. So it gives an example.

Amazon will be able to use 60 times as much bandwidth per customer five years from now while holding our bandwidth costs per customer constant. Similarly, processing power will allow us to do ever more and better real-time personalization of our website. I think that's an important point that Jeff's making. I talked to my friend, Kareem, who's the founder and CTO of Ramp, where just like what Jeff's saying about we're going to have 60 times as much power in personalization

and pay the same. And so our costs go down and we're more profitable. But Jeff's now making the second point, which is also what my friend Karim says about it. It's like, yeah, it can reduce your costs. But the more important part is that it's actually allowed you to invent new products and serve your customers better, which is exactly what Bezos is about to say here. In the physical world, retailers will continue to use technology to reduce costs, but not to transform the customer experience.

We too will use technology to reduce costs. He just started talking about that. We're going to be able to have 60 times the same, 60 times as

as much bandwidth for customer. But the second part is more important. We too will use technology to reduce costs, but the bigger effect is what Bezos is telling us, but the bigger effect will be using technology to drive adoption and revenue. Amazon is a unique asset. We have the brand, the customer relationships, the technology, the fulfillment infrastructure, the financial strength, the people and the determination to extend our leadership in this infant industry and to build an important and lasting partnership

He said it last thing that time, not enduring, but you know that's where he meant. And we'll do so by keeping the customer first. Did you just see how he tied all the strategy and all of his thoughts back into what he says over and over again? Well, my friend said, they don't have 14 principles. They have one, obsessed over customers. And you do so by keeping customers.

The customer first. He talks about over and over again. We will invent on behalf of our customer. Goes back to very Sam Walton-esque strategy here. Focus on cost improvement makes it possible for us to afford lower prices, which drives growth. Growth spreads fixed costs across more sales, reducing costs per unit, which makes possible more price reductions. Customers like this and it's good practice.

for shareholders. Please expect us to repeat this leak. Now on the very next page, another headline, obsess over customers. Until July, Amazon had been primarily built on two pillars of customer experience, selection and convenience. We added a third customer experience pillar, relentlessly lowering prices. So when I got to this section,

This is, I'm pretty sure this is the result of Jeff's meeting with Jim Senegal. Jeff was 37 at the time. I already mentioned this earlier. I asked Sage, which is my own personal AI that's trained on all my notes, highlights, and transcripts about this to remind me what I'm going to read to him here. I just asked Sage...

What did Jeff Bezos learn from Jeff Sinegal? One of the most important lessons came when Bezos visited Sinegal to understand the Costco model. During their meeting, Sinegal explained that Costco's entire business was built around customer loyalty. He taught Bezos that the membership fee was in one-time paying, but it reinforced value every time the customer walks in and sees 47-inch televisions that are $200 less than any place else. This concept later inspired Amazon Prime. Sinegal emphasized to Bezos that value must always come first.

stating, quote, my approach has always been that value trumps everything. He explained how Costco maintained extremely low markups, standard across the board around 14%, across all products, never wavering from this principle, even when it could charge more. This commitment to consistent value impressed

Bezos deeply impacted this conversation was immediate and profound that Monday after meeting with cynical Bezos open an S team meeting, declaring that Amazon's pricing strategy was incoherent. He announced that Amazon should adopt an everyday low prices approach like Walmart and Costco. That July Amazon cut prices on books, music and videos by 20 to 30%, with Bezos declaring there are two kinds of retailers.

There are those folks who try to figure out how to charge more, and there are those companies who work to figure out how to charge less, and we are going to be the second full stock.

What's particularly interesting is that Senegal, when he was asked later on, did not regret educating an entrepreneur who would later become a competitor. Both men shared similar values. Both have rejected acquisition offers over the years and focused on building for the long term rather than short term profits. This exchange demonstrates how business ideas can change.

can transfer between great entrepreneurs, which is the entire, now we tie all this together, which is the entire point of this podcast. Transferring ideas from one great entrepreneur to another. Going back to this, I'll just point out

That one of the most important things we've done to improve convenience and experience for customers also happens to be a huge driver of variable cost productivity. Eliminating mistakes and errors at their root. Eliminating the root cause of errors saves us money and saves customers time. This is

something that Jeff is going to repeat in subsequent shareholder letters. Our consumer franchise is the most valuable asset and we will nourish it with innovation and hard work.

I want to jump ahead to the next year's shareholder letter, which he titles, What's Good for Customers is Good for Shareholders. I think it's related to what he's saying. Hey, there's two types of retailers. Figure out how to charge more and other ones and figure out how to charge less. We're going to be the second one full stop. One of our most exciting peculiarities is poorly understood. People see that we are determined to offer both world-leading customer experience and the lowest possible prices.

But to some, this dual goal seems paradoxical. So if you went back and studied Henry Ford, I've done a bunch of episodes. I think episode 266 might be the best place to start. I should, every few years, I reread...

Ford's autobiography, which I think is excellent, and do another episode on it. But what Bezos is saying here, and it's kind of related with Ford, Ford definitely is like, I don't want to make a low quality, cheap product. I want to make a high quality, inexpensive product. And the way that you could summarize Henry Ford's operating philosophy down to five words, which is maximum service and minimum cost.

And it's very similar to what he said. He said, well, we're actually committed to offering both world-leading customer experience and the lowest prices possible. Our pricing objective is not to discount a small number of products for a limited period of time, but to offer low prices every day and apply them broadly across our entire product range. The next shareholder letter is called long-term thinking. I'm not making this up. You could see this.

Anytime you want. He just uses that word over and over again. Long-term thinking. This is very fascinating. His idea is like, if I'm going to be, I want to build an enduring franchise, I want to be around forever. So therefore the logic of it working back to tonight is like, you should design your customer experience with the long-term benefit of the customer in mind, not the money that you make in the short term, because you're going to make way more money in the longterm. Just looked at what the value of Amazon was in 2003 compared to present day. Look at how many, how,

how much revenue or how much their cash flow was compared to President's. It's a completely different company. As we design our customer experience, we do so with long-term owners in mind. The point you made in the last shareholder letter, right, which is the fact that people find it paradoxical. It's like, no, we're going to do what's best for the customers. And if we do what's best for the customers over the long term, that is what's best for shareholders because the customers will reward you with long-term loyalty. They're like, why are you putting up reviews? Like, don't you know what business you're in?

Your goal is to sell products because you make money as you sell products, but then you have reviews that discourage people to not buy a crappy product. And Jeff's like, yeah, that makes perfect sense to me. Any expenses they can get. We receive complaints from a few vendors basically wondering if we understood our business. You make money when you sell things. Why would you allow negative reviews on your website?

Speaking as a focus group of one, I know I've sometimes changed my mind before making purchases on Amazon as a result of negative or lukewarm customer reviews. Though negative reviews cost us some sales in the short term,

Helping customers make better purchase decisions ultimately pays off for the company, meaning the long-term interest of the customer is going to pay off for the long-term owners of the company. Again, Bezos is not hiding what he believes in, what's important to him. He's repeating his beliefs that it's all about the long-term and the interests of the owners and the customers are aligned over the long-term. And then we see how he ends his shareholder letter. Ridiculously high standards. This guy has ridiculous... He says...

Your standards should be so high it makes people around you uncomfortable. He is already the best, what he's about to reference here, and he still wants to be better. The widely followed American Customer Satisfaction Index gave Amazon a score of 88, the highest customer satisfaction score ever recorded in any service industry. A representative of the ACSI was quoted as saying, if they go any higher, they will get a nosebleed. We are working on that.

It's hard to say for sure, but I think this part is my favorite idea that he expresses throughout any of his shareholders. This part is actually incredible. It's on the need for good judgment and why data may lead you to make the wrong decision. Not all of our important decisions can be made in a math-based way. Sometimes we have little or no historical data to guide us, and proactive experimentation is impossible. The prime ingredient in these decisions is judgment.

We have made a decision to continuously and significantly lower prices for customers year after year as our efficiency and scale make it possible. This is an example of a very important decision that cannot be made in a math-based way. In fact, when we lower prices, we go against the math.

He adds a footnote on this page, which is not common in the shareholders. And he's talking about this paper that he read called The Structure of Unstructured Decision Processes. This is what Jeff says before we get back to the shareholder.

Among other gems you will find in this paper is this, he quotes from the paper now, excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently. In other words, you're going in the wrong direction faster.

This is what you're talking about. You're the need for good judgment and why data may actually lead you to make the wrong decision. So let's go back to the shareholder. This is an example of a very important decision that cannot be made in a math based way. In fact, when we lower prices, we go against the math, which says that the smart move is to raise prices.

Prices. We have significant data related to price elasticity. With rare exceptions, the volume increases in the short term is never enough to pay for the price decrease. However, our quantitative understanding of elasticity is short term.

This is so, so good. We can estimate what a price reduction will do this week and this quarter, but we cannot numerically estimate the effect that consistently lowering prices will have on our business over five years or 10 years or more.

Or judgment, and he italicized judgment. Or judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices create a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.

Math-based decisions command wide agreement. Judgment-based decisions are rightly debated and often controversial. We will start with the customer and work backward. In our judgment, this is the best way to create shareholder value. That is excellent. That is in the 2005 shareholder letter in case you want to pull it up and read that entire letter. Hey, I recommend doing it. All right, 2006 is all about growing new businesses.

So Bezos is going to answer when he's going to open physical stores. Remember, this is in 2006. And really the way I would summarize Bezos' approach, he has no interest in building an undifferentiated commodity business.

I often get asked, when are you going to open physical stores? The potential size of a network of physical stores is exciting. Physical world retailing is caging and ancient, but it's a business that's already well served. And we don't have any ideas for how to build physical world store experiences that are meaningfully differentiated for our customers.

When you do see us enter new businesses, it's because we do believe that the above tests have been passed, which is can we get a good return and are we building a meaningfully differentiated experience for our customers? And so we can give some examples. Remember, this is almost 20 years ago, 20 years ago, I guess. Yeah.

These new, like, rather small-ish businesses, they started that. They micro into big businesses, and they fulfill these requirements that at this point in time going into physical world retailing did not. And this is FBA, Fulfillment by Amazon, and AWS, Amazon Web Services.

Fulfillment by Amazon is a set of APIs that turn our 12 million square foot fulfillment center network into a gigantic and sophisticated computer peripheral. Pay us 45 cents per month per cubic foot, and you can store your products in our network. You can make web service calls to alert us to expect inventory to arrive, tell us to pick and pack one or more items, and tell us where to ship those items. You never have to talk to us. He loves to talk about the importance of self-service platforms over and over again.

You never have to talk to us. It's differentiated, can be large and passes our returns bar. Amazon Web Service is another example. With AWS, we're building a new business focused on a new customer set, software developers. We're targeting broad needs universally faced by developers. We have deep expertise in this from scaling amazon.com or

over the last 12 years. It's highly differentiated and it could be significantly financially attractive business over time. In some large companies, in

It might be difficult to grow new businesses from tiny seeds because of the patience and nurturing required. But if you really think about it, Amazon is just a business that builds businesses. It is a company that builds companies. Amazon's culture is unusually supportive of small businesses with big potential. And I believe that's a source of competitive advantage. We have many people at our company who have watched multiple $10 million seeds grow.

turning to billion-dollar franchises. That firsthand experience and the culture that had grown up around these successes is a big part of why we can start businesses from scratch. He summarizes this beautifully in the last sentence here. The culture demands that these new businesses be high potential and that they be innovative and differentiated, but it does not demand that they be large on the day that they are created.

born. The next sharehold letter is titled Team of Missionaries. It's the shortest sharehold letter. It is about the invention of Kindle. I put this in here selfishly because I'm upset with reading. He says we are missionaries for reading. I feel the same as a wake. And he talked about why it's so important. Remember we were saying this in 2007. This is real creepy. What we live in present day.

about the importance of like making sure that we're nurturing our and keeping our attention pants along. It feels a losing battle, unfortunately. We humans co-evolve with our tools. We change our tools and then our tools change us.

Writing, invented thousands of years ago, is a grand whopper of a tool. I have no doubt that it changed us dramatically. 500 years ago, Gutenberg and his invention led to a significant step change in the cost of books. Physical books ushered in a new way of collaborating and learning. Lately, network tools such as desktop computers, laptops, and cell phones have changed us too.

They shifted us towards more information snacking. And I would argue towards shorter attention spans. That's 100% sure. If our tools make information snacking easier, we will shift more towards information snacking and away from long-form reading. Kindle is purpose-built for long-form reading.

We hope Kindle may gradually and incrementally move us over the years into a world with longer spans of attention, providing a counterbalance to the recent proliferation of info-snacking tools. I realize my tone here tends towards the missionary, and I can assure you it's heartfelt. I'm glad about that because missionaries build better products. Missionaries build better.

better products I had somebody ask me one time they're like have you ever thought because uh you might not know this but founders is like a complete one-man one-person operation I do all the reading and do all the researching I pick the topics I do the editing uh just everything and you know people have said like why don't you hire a researcher like have you ever thought of having somebody else read the books for us like you don't understand why I'm not doing it for that

I'm not doing it for that. I'm doing it because I have a pure, unadulterated love of reading. And as you could see from most of the videos that I make about these podcasts now, usually I'm reading physical books. This is not efficient. It's much more efficient to read digitally. But I fell in love as a child with physical books.

This is a missionary. This is a love. This is not, you know, trying to be efficient. I was watching this video one time. I think this guy goes around and he visits, I think, like the best bookstores in the world. It might have been the best libraries. I'm pretty sure it's the best bookstores in the world. But there was like this like 80-year-old lady in the video. And she said something that was fascinating about, you know, why she had this love of reading. And she said that reading is forced meditation.

The idea, if you read the book in my hand from front to back, it's 270 pages. It's multiple, multiple hours. I'm going to be forced to meditate and only think about the words in this book for 10, 15, 20 hours at a time. It's forced meditation. I love this idea. My tone here tends towards the missionary, and I can assure you it's heartfelt. I'm glad about that because missionaries build better products. It's really funny. Back then, I bought the first Kindle. This is a giant Kindle.

What? Huge. I have like these three buttons on the side. It looks completely different than it does now, but I was an early adopter to that. All right. Working backwards is the title for 2008. If you think about this, I got to meet several founders that are still running their businesses. Normally, it's like family-run businesses in their 70s. They've told me the same thing. You are truly long-term oriented. As the years go by, you'll have fewer and fewer competitors. By endurance, we conquer. And part of this is

Because of human nature, if you seek instant gratification, you're going to find it proud. In this turbulent global economy, remember it's 2008, our fundamental approach remains the same. Stay head down focused on the long term and obsess over customers. Long term taking lovers or existing abilities and lets us do new things that we couldn't otherwise contemplate. It supports the failure and iteration required for invention and it frees us to pioneer in unexplored spaces. So,

seek instant gratification and chances are you'll find a crowd there ahead of you. Long-term orientation interacts well with customer obsession. If we can identify a customer need and if we can further develop conviction that that need is meaningful and durable...

Our approach permits us to work patiently for multiple years to deliver a solution. Working backwards from the customer needs can be contrasted with a skills forward approach where your existing skills and competencies are used to drive business opportunities. This is where you just get the sense that

He's thought a lot about this, very critical thinking. You see this ferocious intelligence that he has about this. Not only were you designing, you can design better experiences if you work back to the customer, right? But I've never heard anybody else contrast this with what most people do. Most people say, hey, what am I good at? Skills forward.

And then where can I take the existing skills I have and just let me apply that to this business? And he talks about why this is so valuable. The skills forward approach says we're really good at X. What else can we do with X? If used exclusively, the company employing it will never be driven to develop fresh skills. Eventually, the existing skills will become outmoded.

Working backward from the customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward feeling those first steps might be. So he gives an example of working backwards and with the invention of the Kindle. Kindle is a good example of our fundamental approach. More than four years ago, we began with a long-term vision. Every book works.

ever printed in any language, all available in less than 60 seconds. The customer experience we envisioned didn't allow for any hard lines of demarcation between Kindle, the

the device, and Kindle, the service. The two had to blend together seamlessly. Amazon had never designed or built a hardware device. But rather than change the vision to accommodate our then existing skills, we hired a number of talented and missionary hardware engineers and got started learning a new institutional skill. One that we needed to better serve readers in the future.

In other words, if you're working backwards from the customer needs, this will make you, it'll force you to be a more skilled operator over time. So then Bezos gets into the importance of frugality, the fact that the benefit of eliminating waste actually compounds

So he says, the customer experience path we've chosen requires us to have an efficient cost structure. The good news for share owners is that we see much opportunity for improvement in that regard. Everywhere we look, we find what experienced Japanese manufacturers would call muda, translates to waste. Wherever we look, we find waste. I find this incredibly energizing. I see it as potential years and years of variable and fixed productivity gains and

more efficient higher velocity and more flexible capital expenditures was a great story in one of the books I read on Jeff one of his employees came to him one time he's retellings like have we

I would tell Jeff about a problem in our business and he'd get excited. And this is the exact reason. It's like, oh, this is incredibly energizing. Jeff asked, at a fulfillment center recently, one of our Kaizen experts asked me, I'm in favor of a clean fulfillment center, but why are you cleaning? Why don't you eliminate the source of the dirt? And Jeff said, and he said that to him, that I felt like karate kid. So then Amazon had an incredible response.

result for 2009. And he makes the point here. He says the financial results for 2009 actually reflect the cumulative effect of 15 years of customer experience improvements. And again, something I repeat over and over again. It's in the book 01 from Peter Thiel. He focused on near-term growth above all else. You missed the most important question you should be asking. Will this business still be around a decade from now? You can even add, will it be around two, three decades from now? I just did this episode on Ken Griffin.

Talks about Citadel, I think is the most successful hedge fund. Now three decades into that and his most, the most financial success he's had actually came within the last four years. So it was 26 years into the company. He focused on near-term growth above all else. She missed the most important question. Is she asking, will this be, this is around a decade or two or three decades from now. We believe that focusing our energy on the controllable inputs of our business is the most effective way to maximize financial outputs over time.

Our fundamental approach will always be start with the customer and work backwards. The big test is constantly setting the tone that Amazon's going to lead. They're going to invent. They're not going to follow. They're going to keep experimenting. They're going to be bold. We hear Bezos speak. He considers himself an inventor. That's how he describes himself.

Many of the problems we face have no textbook solutions. So we happily invent new approaches. He's given examples, did not do AWS before that, didn't know how to do the Kindle. All of these new businesses, like, well, we're trying to learn the skills to do what we want to do.

All the effort we put into technology might not matter that much if we kept technology off to the side in some sort of R&D department, but we do not take that approach. Technology uses all of our teams, all of our processes, our decision-making, and our approach to innovation in each of our businesses. It is deeply integrated into everything we do. Invention is in our DNA, and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide our customers.

And so when he talked about building these new businesses, he heavily is biased towards the self-serve, like building ones that are self-serve. You don't have to talk to us. You can use FBA, AWS. They're ad business now. And so he says, I'm empathizing the self-service nature of these platforms because it's important for a reason I think is somewhat non-obvious. Even well-meaning gatekeepers flow innovation. When a platform is self-service, even the improbable ideas can get tried because there's no expert gatekeeper ready to say that'll never work.

And guess what? Many of those improbable ideas do work and society is the beneficiary of that diversity. Another year, he has an entire letter dedicated to the importance of being internally driven. Our energy at Amazon comes from the desire to impress customers rather than the zeal to best our competitors. One advantage of a customer-driven focus is that it aids a certain type of proactivity.

When we're at our best, we don't wait for external pressures. We are internally driven to improve our services, adding benefits and features before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by a reaction to competitors'

Bezos has a great example of this. We built automated systems that look for occasions when we provided a customer experience that isn't up to our standards, and those systems then proactively refund customers. One industry observer recently received an automated email from us that said, we noticed that you experienced poor video playback while watching a rental on Amazon Video On Demand. We're sorry for that inconvenience and have issued a refund for the following amount. So three bucks, it cost you to rent the video. We didn't like that it was buffering.

It issued a refund without even asking for it. We hope to see you again soon. Surprised by the proactive refund, he ended up writing about the experience. Ian was on notice that I experienced poor video playback and they decided to give me a refund because of that. Wow. Talk about putting customers first.

I love this idea and how Jeff describes it. These are characteristics of a business that you should never sell. A dreamy business offering has at least four characteristics. Number one, customers love it. Number two, it can grow to a very large size. Number three, it has strong returns on capital. Number four, it is durable in time with the potential to endure for decades. When you find one of these, get married. We are now happily wed to what I believe are three such partners, Marketplace, Prime, and AWS.

And then a little later, he talked about from the outside, a lot of people are confused. Amazon, the retail company, e-commerce platform, AWS, like these businesses don't seem to have much economy. He's like, oh, no, they actually do. He says there's a connection between these two businesses. They share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles. This is what I mentioned earlier. It's very obvious. You read about Japanese.

He identified a handful of principles and then just repeated that for 23 years and a few years before that, before he went public. They share a distinctive organization culture that cares deeply about and acts with conviction on a small number of principles. I'm talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer,

willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence. Through that lens, AWS and Amazon Retail are very similar indeed. This is so important to remember. I think this is one of his most famous quotes that you see posted online a bunch. It's excellent. And it's on that big winners pay for many, many experiments. I

Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a 10% chance of a 100x payoff, you should take that bet every single time.

but you're still going to be rolling nine times out of ten. We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four.

In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it's important to be bold. Big winners pay for so many fair runs. I end every episode always saying there's always 1,000 books to go. Pretty sure I got that idea from this section right here because it's my version of Bezos' idea of it's always day one. The title of this shareholder is Fending Off Day Two.

What does day two look like? That's a question I just got at our most recent all-hands meeting. I've been reminding people it's day one for a couple of decades. I worked in an Amazon building named day one, and when I moved buildings, I took the name with me. I spend time thinking about this topic. Day two is stasis, followed by irrelevance, followed by excruciating, painful decline, followed by death.

And that is why it is always day one. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest day two for decades, but the final result would still come.

I'm interested in the question, how do you fend off day two? What are the techniques and tactics? How do you keep the vitality of day one even inside a large organization? Such a question cannot have a simple answer. There will be many elements, multiple paths, and many traps. I don't know the whole answer, but I know bits of it. Here's a starter pack of essentials for day one defense. Customer obsession, ADM.

a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision-making. So I think we got the customer obsession part down this time. So let's go right to resisting proxies. Very interesting. I know you don't hear it repeated in many other places.

As companies get larger and more complex, there's a tendency to manage to proxies. This comes in many shapes and sizes, and it's dangerous, subtle, and detour. A common example is process as proxy. Good process serves you so you can serve customers. But if you're not watchful, the process can become the thing.

This can happen very easily in large organizations. The process becomes a proxy for the result you want. You stop looking at outcomes and just make sure you're doing the process right. Gulp. It's not that rare to hear a junior leader defend a bad outcome with something like, well, we followed the process. A more experienced leader will use it as an opportunity to investigate and improve the process. The process is not the same.

Good inventors and designers, these are two of my favorite paragraphs in this book. Good inventors and designers deeply understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the average you find on surveys. They live with their design.

I am not against beta testing or surveys, but you, the product or service owner, must understand the customer. You must have a vision and you must love the offering. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, and taste. You will not find it in a survey. Another way to stay bofting too is to embrace external trends.

He's saying this is 2016.

The outside world can push into day two if you can't or won't embrace powerful trends quickly. If you fight them, you're probably fighting the future. Embrace them and you have a tailwind. These big trends are not that hard to spot. They get talked and written about a lot, but they can be strangely hard for large organizations to embrace. We're in the middle of an obvious one. Remember when he's saying it's 2016. We're in the middle of an obvious one right now. Machine learning and artificial intelligence.

Another idea in Steve-Off Day 2. You have to make high-velocity decision-making. Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. You have to somehow make high-quality, high-velocity decisions. Amazon is determined to keep our decision-making velocity high because speed matters in business. So...

I don't think it's in this. I think this is in another book by him, but he talks about the importance of this. I think it might even be one of the speeches he gives in the back of the book, where if you make your decisions slowly, you're just going to drive away talented people. Because talented people are like, hey, I like the mission, but I can't build anything here because you guys make your decisions too goddamn slow. So he says, Amazon is determined to keep our decision-making velocity high, speed matters in business. And he's going to talk about, well, obviously, make high-quality decisions as fast as you can. So why don't people do this? And he makes a lot of this.

First, never use a one-size-fits-all decision-making process. Many decisions are reversible two-way doors. I think he was the one who popularized this idea. One-way door decision, you take a lot of time because once you go through that door, you can now reverse course easily. But most decisions you're making in your business are two-way doors. You go in, it's not working out, jump back out of the door.

So he says, most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90% of the information that you want, in most cases, you're probably being slow. Plus, either way, you need to get good at quickly recognizing and correcting bad decisions. If you're good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.

And so one way he speeds up decisions is because he believes in using the phrase inside your company that you disagree and permit.

I disagree and commit all the time. We recently greenlit a particular Amazon Studios original. I told the team that in my view, it was debatable whether it'd be interesting enough, complicated to produce, and the business terms are not that good. And we have a lot of other opportunities. They had a completely different opinion and wanted to go ahead. I wrote back right away, I disagree and commit, and I hope it becomes the most watched thing we've ever made.

Consider how much slower the decision cycle would have been if the team hadn't actually convinced me rather than simply getting my commitment. And here's another one of Jeff's great ideas, that high standards are contagious and that you have to make sure you eliminate unrealistic beliefs on scope.

So he says,

and certainly not world-class, it is critical to be open to that likelihood. And so he gives an example of this by using this metaphor of his friend that decided she wanted to learn how to do a perfect freestanding handstand. You know, you can't hit her. You can't lean against the wall. It's not just for a few seconds. Like, you can literally just do a handstand with no assistance. And she was having trouble doing this. And so she hired a coach, and Jeff was...

was shocked that there's even a coach for such a thing but he thought the coach says something was fascinating this is what the coach said most people think that if they work hard they should be able to master a handstand in about two weeks the reality is that it takes about six months in daily practice if you think you should be able to do this in two weeks you're just going to end up quitting unrealistic no this is jeff writing unrealistic beliefs on scope off are up in hidden and undiscussed

and they kill high standards. Amazon doesn't do PowerPoints. We're going to do six-page memos at the beginning of every meeting. People are like, oh, I can write a six-page memo easy. Do it in a few hours. No, you can't. Your six-page memo is going to suck if you do that. When a memo isn't great, it's not the writer's inability to recognize the high standard, but instead a wrong expectation on scope. They mistakenly believe that a high-standard six-page memo can be written in one or two days or even a few hours.

when it really might take a week or more. They're trying to perfect a handstand in just two weeks, and we're not coaching them right. The great memos are written and rewritten, shared with a colleague who's asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply cannot be done in a day or two.

The key point here is that you can improve results through the simple act of teaching scope that a great memo should probably take a week or more. Another one of Jeff's ideas is the importance on wandering. Sometimes in business, you do know where you're going. And when you do, you can be efficient.

put in place a plan and execute. In contrast, wandering in business is not efficient, but it's also not random. It's guided by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it's worth being a little messy and tangential to find our way there.

Wandering is an essential counterbalance to efficiency. The outsized discoveries, the non-linear ones, are highly likely to require wandering. AW itself is an example. No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS, but it didn't know it yet.

We had a hunch, followed our curiosity, took the necessary financial risks, and began building, reworking, experimenting, and iterating countless times as we proceeded. And I think wandering is also related to Jeff's idea that your failures need to scale as well.

As the company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn't growing, you're not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multi-billion dollar failures.

This kind of large-scale risk-taking is part of the service we as a large company can provide to our customers and to society. The good news for shareholders is that a single bid-winning bet can more than cover the cost of many losers. Development of the Fyre phone and Echo was started around the same time.

While the Fire Phone was a failure, we were able to take our learnings, as well as our developers, and accelerate our efforts building Echo and Alexa.

No customer was asking for the Echo. This was definitely us wandering. Market research doesn't help. If you had gone to a customer in 2013 and said, would you like a black always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions, that also turns on your lights and plays music, I guarantee you they would have looked at you strangely and said, no thank you. And since then...

Amazon has sold a couple hundred million. I think last time I looked, it was something like 500 million of those devices. And then he ends his very last shareholder letter with one of the most important lessons that he taught over the 23 years that he's running them. He titles it, Differentiation and Survival in the Universe Wanted to be Typical. This is my last shareholder letter as CEO of Amazon, and I have one last thing of utmost importance I feel compelled to teach.

So he's going to quote from this book called The Blind Watchmaker. And he's talking about this basic fact of biology. And he's going to tie this into what he wants to teach you. And I'm going to read the entire excerpt because he got it as important enough to put in here. This is from The Blind Watchmaker. Staving off death is a thing that you have to work at. Left to itself, the body tends to revert to a state of equilibrium with its environment.

If you measure some quantity such as temperature in a living body, you will find that it is markedly different from the corresponding measure in its surroundings. Our bodies, for instance, are usually hotter than our surroundings and in cold climates they have to work hard to maintain that differential. When we die, the work stops, the temperature difference starts to disappear, and we end up the same temperature as our surroundings.

Not all animals work so hard to avoid coming into equilibrium with the surrounding temperature. But all animals do some comparable work. For instance, in a dry country, animals and plants work to maintain the fluid content of their cells, work against a natural tendency for water to flow from them into the dry outside world. If they fail, they die.

More generally, if living things didn't work actively to prevent it, they would eventually merge into their surroundings and cease to exist as autonomous beings. This is what happens when they die. That is the end of the excerpt that Jeff picks up. In what ways does the world pull at you in an attempt to make you normal? How much does it take to maintain your distinctiveness, to keep alive the things that make you special?

We all know that distinctiveness, originality is valuable. We're all taught to be yourself. What I'm really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness. The world wants you to be typical in a thousand ways. It pulls at you.

Don't let it happen. You have to pay a price for your distinctiveness and it's worth it. The fairytale version of be yourself is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading. Being yourself is worth it, but do not expect it to be easy or free. You have to put energy into it continuously.

And it leaves us excellent parting advice. To all of you, be kind, be original, create more than you consume, and never, never, never let the universe smooth you into your surroundings. It remains day one.

And that is where I'll leave it. Highly recommend reading all the shareholders letters. You can read them for free online. I'll put the link down below. Also highly recommend buying the book that I was working from, Invent and Wander, the collective writing subject. You can buy the book using the link that's in the show notes in your podcast player. Also available at founderspodcast.com. You'll be supported in podcasts at the same time. That is 388 books down, one dozen to go. And I'll talk to you again soon.