Bet on ideas with unlimited upside

Bet on ideas that have unlimited upside

Jeff Bezos letter to shareholders 2014

KEY MESSAGE 17/22

Jeff Bezos has been writing a letter to shareholders since 1997 and looking at all if them gives an insight to the organisation and a masterclass in leadership. This is a series of short blogs  that gives you a snap shot / key takes outs of each letter, along with links to them all.

“A dreamy business product has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time—with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.”

Takeaway

Be aggressive about placing bets on dreamy business ideas. You’ll have failures, but sufficiently big winners will more than make up for all of your failed experiments.

Challenge

Many relationships, particularly business ones, require bold moves to get going. And to find true success, you have to commit for the long haul. The problem is that these moves don’t just appear risky — often, they’re hard to rationally justify at all.


When your risk tolerance is high, you can make bets all over the map.

Organizations that want to make data-driven decisions often have a difficult time with placing risky bets because those bets often don’t have clear quantitative evidence to support them. If they did, there wouldn’t be a risk of failure, there wouldn’t be experiments, and there wouldn’t be such a big upside.

Solution

Place your bets where your downside is capped but your upside is unlimited.

For Bezos, the best bets are on dreamy businesses. You know you have a “dreamy” business idea when:

  1. Customers love it
  2. It has the potential to become very large
  3. It has the potential of very strong returns
  4. It has the possibility to endure

Each of the three major bets that Bezos mentions in this letter — Marketplace, Amazon Web Services (AWS), and Prime — was a risky idea.

With Prime, for example, no one on the Amazon team could point to numbers showing that giving customers free shipping for a yearly fee would ever pay for itself.

Today, each of these three bets is a pillar of Amazon’s business. In fact, in 2017, all of Amazon’s operating income came from AWS, a once-risky bet on a “dreamy” business idea. With almost $17.5 billion in sales in 2017, and about $4.5 billion in profit, it was Amazon’s second-largest source of revenue.

Not every bet that Amazon has ever placed has succeeded. The company was a significant shareholder in both Pets.com and living.com, for example. They lost their investment, but stood to gain so much more if they turned out right.

link to all letters to shareholders

  • 1997: Bring on shareholders who align with your values

Jeff Bezos Letter to Shareholders 1997

  • 1998: Stay terrified of your customers

Jeff Bezos Letter to Shareholders 1998

  • 1999: Build on top of infrastructure that’s improving on its own

Jeff Bezos Letter to Shareholders 1999

  • 2000: In lean times, build a cash moat

Jeff Bezos Letter to Shareholders 2000

  • 2001: Measure your company by your free cash flow

Jeff Bezos Letter to Shareholders 2001

  • 2002: Build your business on your fixed costs

Jeff Bezos Letter to Shareholders 2002

  • 2003: Long-term thinking is rooted in ownership

Jeff Bezos Letter to Shareholders 2003

  • 2004: Free cash flow enables more innovation

Jeff Bezos Letter to Shareholders 2004

  • 2005: Don’t get fixated on short-term numbers

Jeff Bezos Letter to Shareholders 2005

  • 2006: Nurture your seedlings to build big lines of business

Jeff Bezos Letter to Shareholders 2006

  • 2007: Missionaries build better products

Jeff Bezos Letter to Shareholders 2007

  • 2008: Work backwards from customer needs to know what to build next

Jeff Bezos Letter to Shareholders 2008

  • 2009: Focus on inputs — the outputs will take care of themselves

Jeff Bezos Letter to Shareholders 2009

  • 2010: R&D should pervade every department

Jeff Bezos Letter to Shareholders 2010

  • 2011: Self-service platforms unlock innovation

Jeff Bezos Letter to Shareholders 2011

  • 2012: Surprise and delight your customers to build long-term trust

Jeff Bezos Letter to Shareholders 2012

  • 2013: Decentralize decision-making to generate innovation

Jeff Bezos Letter to Shareholders 2013

  • 2014: Bet on ideas that have unlimited upside

Jeff Bezos Letter to Shareholders 2014

  • 2015: Don’t deliberate over easily reversible decisions

Jeff Bezos Letter to Shareholders 2015

  • 2016: Move fast and focus on outcomes

Jeff Bezos Letter to Shareholders 2016

  • 2017: Build high standards into company culture

Jeff Bezos Letter to Shareholders 2017

  • 2018: Wandering is an essential counterbalance to efficiency

Jeff Bezos Letter to Shareholders 2018

Author: Andrew Mann

Managing Partner at NorthBailey. Having had senior marketing & insight roles at Tesco, Sainsbury's, Asda, Coop and M&S, I'm now using my experience & network to solve strategic marketing problems for NorthBailey clients

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