Recently Jeff Bezos, founder and CEO of Amazon, released a new letter to shareholders which was included in his annual report. The letter can be found here. There are a lot of powerful messages in the letter, but what is most powerful is that Amazon, founded in 1994 and now with 341,000 employees, still behaves like an entrepreneurial organization. It is still driven by a leader who remembers what it is like to start a business, to sweat the details, and to focus his effort.
This is a leader who has built Amazon into one of the most important companies in the world. I use the word “important” because Amazon is teaching us so many things. It is teaching small companies how to think big, how to have a bold vision and how to obsessively focus on the customer. He’s also teaching big companies how to be nimble, but I’m not sure many are listening. Here’s why.
Big companies in so many industries fear Amazon. Retailers the world over are closing their doors faster than ever before and much of this can be attributed to Amazon’s growing influence in retail and online shopping. And of course retailers are aware of what Amazon is doing, and have a strategy to defend against Amazon, but are they learning from them? No. The evidence is all around us. Let’s dig into Bezos’ letter a bit more and find examples to support fear and not lessons.
Bezos starts by talking about remaining what he calls a “Day 1 company.” This concept of Day 1 sets the culture for everything else. If you aren’t a company that focuses like a Day 1 company, you can’t do anything after this. The letter then describes four characteristics of defending a Day 1 company. For those reading this post, let’s reframe this into reverting back to a Day 1 company from a Day 2 company. These four characteristics are:
- Customer obsession
- Resisting proxies<
- Eager adoption of external trends
- High-velocity decision making
Let’s start with customer obsession. Few of us would describe a bricks-and-mortar retail experience as customer obsessed. Let’s use the recent trend of “buy online, pick up in store.” Many existing retailers have been using this strategy and framing it as a customer win. Whether it’s designed to keep prices low, or get customers into the store, retailers are leveraging this strategy as a customer-first experience.
The retailer already has the customer in their store (online), and now it is asking them to leave that store and get into their car, subway, or bus, and go to another store to pick up their package. A customer-obsessed business realizes you already have the customer in a store; keep them there and figure out a way to get the product to them. Reduce friction and delight customers. Bricks-and-mortar retailers are still physical store focused, and until that changes, the retail experience will be pushed to an online-first experience. Tesla is challenging this framework in the car industry. Will anyone be surprised when you buy a Tesla and it just drives itself to your house when it’s been built? I won’t be, and I’ll be delighted when it does.
Resisting proxies is something that established companies are famous for — both using process as a proxy for results and focus groups as a proxy for customer insight. Every industry has examples of companies that are so focused on the process, they forget what the process is for and what outcome it was designed to achieve. No one’s job is to ask “why” the process exists and if it is achieving the customer-centric outcome. The insurance industry is going to lose the battle with the customer if it doesn’t figure out how to begin focusing on the customer and forget about leaning on regulation and process as excuses for a crappy customer experience. Artificial Intelligence is already beginning to disrupt that industry and there will be more disruption to come.
This feeds nicely into the next of Bezos’ themes of maintaining the culture of a Day 1 company: adopting external trends. We speak a lot about external forces in our corporate innovation strategy. This is the first section of the framework because it is what the top people in the organization are primarily responsible for. These are forces that the company and leadership cannot control, yet they will shape its existence in the future. Technology trends. Competitors. Regulation. Global geopolitical forces. If your senior leadership team is not addressing your company’s future based on these forces, you won’t have to worry about them for long, because your organization won’t be in existence for much longer.
Going back to retail, online commerce is not new. Amazon, Paypal, and eBay are all pioneers in this space. Brick-and-mortar retailers were very aware of the trend, but dismissed it early, and then tried to play catch up later. But they built their e-commerce sites on a framework of what they already knew … existing retail processes. Amazon had the advantage in that it didn’t have any storefronts or franchise owners to placate, so it built its e-commerce site based on customer experience. When building a team with the goal of heading back to a Day 1 culture, don’t forget about industry expertise, but don’t be a slave to it, either. Day 1 companies are different than Day 2 companies, and therefore you need different people, processes and thinking.
Finally, Bezos ends with velocity. Our blog and podcast are named Nimble Hippo for this exact reason. If you are a Day 2 company, you require both acceleration and velocity to get back to being a Day 1 company. Acceleration is the rate of change of the organization’s speed and direction. Velocity is the speed and direction that it is going at the current time.
So, in a large company, you need both the direction of the company to change (see external forces paragraph) and how fast it gets there. It’s not good enough to have one. If you are focused on trends but too slow to get there, you’ll miss the trend. If you accelerate to a high velocity quickly, but don’t look to the trends, then you will build something that no one wants. Examples of both are plenty.
The main point here is that in order for large organizations to become Nimble Hippos, they must do many things differently at once, and it’s hard and uncomfortable. Get used to it because the world is changing quickly. Those organizations that can respond and get back to being a Day 1 company will survive and most likely thrive. Those that ignore the trends, focus on their processes and not the customer experience and can’t break away from the inertia that keeps them moving slowly, well, their future is already written, and the business world is littered with famous company names that ignored the trends and lost the opportunity to be in business.
Lessons Learned:
- Understand who your customer is and obsessively focus on them. Understand them. Live with them. Be them. It’s not about the company, anymore.
- Do the hard work of focusing on the results, and not the process. Following the process is easy because there is always something else to blame. Focus on why you are doing the things you are doing and the customers will find you.
- Your leadership team (CEO, board of directors) are responsible for understanding the external forces that impact the business. Shareholders must hold them accountable to the future, not just the results of this quarter.
- Big companies must accelerate before attaining a high velocity. Understand what needs to be done to overcome inertia, then accelerate fast and understand where the company should be headed.
