Bezos recognised failure and invention are inseperable twins: to remain innovative as you grow, you need to understand which decisions are reversible and should be executed quickly and which have lasting consequences and should thereful be mulled over more slowly.
Jeff Bezos letter to shareholders 2015
KEY MESSAGE 18/22
“Some decisions are consequential and irreversible or nearly irreversible – one-way doors — and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. . . . But most decisions aren’t like that — they are changeable, reversible — they’re two-way doors. . . . [These] decisions can and should be made quickly by high judgment individuals or small groups.”
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.
Big companies stop being creative because, in large part, their decision-making processes become slower and more drawn out as they scale. Caution creeps in, and people are less likely to move quickly or place risky bets.
For Bezos, the problem is that people treat reversible decisions like momentous problems requiring caution. They miss opportunities that nimbler companies don’t.
To remain innovative as you grow, you need to understand which decisions are reversible and should be executed on quickly,
and which have lasting consequences and should therefore be mulled over more slowly.
Big companies are less tolerant of failure because they have more to lose, especially if they are public and have shareholders. Companies say they want to remain innovative, but they’re often not willing “to suffer the string of failed experiments necessary to get there.”
But it’s a mistake to take the overly cautious approach. “Every once in a while, when you step up to the plate, you can score 1,000 runs,” Bezos writes.
The key is figuring out how to marry the innovative spirit with the reality of risk aversion that exists at any large organization.
Amazon’s success, according to Bezos, is rooted in the company’s acceptance of risk.
“I believe we are the best place in the world to fail,” he writes, “and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.
The way Amazon achieves its risk acceptance mentality, according to Bezos, is through acknowledging which decisions can be easily reversed (and should therefore be decided on by small, fast-moving teams) and which cannot (and should therefore be more carefully considered).
“Failure and invention are inseparable twins.”
He refers to these as two different types of decisions, Type 1 and Type 2.
Type 1 decisions are almost impossible to reverse. They’re “one-way doors.” Type 2 decisions, on the other hand, can easily be reversed. They’re “two-way doors.”
Type 1 decisions should be made slowly and with caution, and Type 2 decisions should be executed quickly.
Mistaking Type 2 decisions for Type 1 slows the team’s pace. It leads to unchallenged risk aversion. And, in the end, it means less innovation.
Bezos’ advises to figure out what types of decisions your organization is making and treat them accordingly. Don’t treat lighter Type 2 decisions like Type 1 decisions. When you know you can reverse the outcome if you don’t like it, don’t get too mired in details and projections (no one will know the outcome until it actually occurs), and don’t let the project suffer death by committee. Just execute.
link to all letters to shareholders
Jeff Bezos Letter to Shareholders 1997
- 1997: Bring on shareholders who align with your values
Jeff Bezos Letter to Shareholders 1998
- 1998: Stay terrified of your customers
Jeff Bezos Letter to Shareholders 1999
- 1999: Build on top of infrastructure that’s improving on its own
Jeff Bezos Letter to Shareholders 2000
- 2000: In lean times, build a cash moat
Jeff Bezos Letter to Shareholders 2001
- 2001: Measure your company by your free cash flow
Jeff Bezos Letter to Shareholders 2002
- 2002: Build your business on your fixed costs
Jeff Bezos Letter to Shareholders 2003
- 2003: Long-term thinking is rooted in ownership
Jeff Bezos Letter to Shareholders 2004
- 2004: Free cash flow enables more innovation
Jeff Bezos Letter to Shareholders 2005
- 2005: Don’t get fixated on short-term numbers
Jeff Bezos Letter to Shareholders 2006
- 2006: Nurture your seedlings to build big lines of business
Jeff Bezos Letter to Shareholders 2007
- 2007: Missionaries build better products
Jeff Bezos Letter to Shareholders 2008
- 2008: Work backwards from customer needs to know what to build next
Jeff Bezos Letter to Shareholders 2009
- 2009: Focus on inputs — the outputs will take care of themselves
Jeff Bezos Letter to Shareholders 2010
- 2010: R&D should pervade every department
Jeff Bezos Letter to Shareholders 2011
- 2011: Self-service platforms unlock innovation
Jeff Bezos Letter to Shareholders 2012
- 2012: Surprise and delight your customers to build long-term trust
Jeff Bezos Letter to Shareholders 2013
- 2013: Decentralize decision-making to generate innovation
Jeff Bezos Letter to Shareholders 2014
- 2014: Bet on ideas that have unlimited upside
Jeff Bezos Letter to Shareholders 2015
- 2015: Don’t deliberate over easily reversible decisions
Jeff Bezos Letter to Shareholders 2016
- 2016: Move fast and focus on outcomes
Jeff Bezos Letter to Shareholders 2017
- 2017: Build high standards into company culture