amazon strength lies in scale

“We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise. Because of our emphasis on the long term, we may make decisions and weigh trade offs differently than some companies.”

Jeff Bezos letter to shareholders 1997 1/22

Takeaway

• Don’t let short-term success, including going public, distract from the long-term focus. Amazon’s focus is market leadership, customer growth, retention, and brand — even if these come at the expense of near-term profits or the risk of negative “Wall Street reactions.”
• Key to this growth has been Bezos’ clear, consistent message. Each year, it helps attract investors who share the company’s vision and maintains their financial support even when Amazon is at odds with the norm.

Challenge

• Building an e-commerce company in the early days of the internet meant building on the precipice of huge growth, in terms of infrastructure and huge changes in consumer behavior. Taking advantage of these opportunities meant investing all available cash into growing and delivering value to customers.
• Bezos explained Amazon would never focus on profits or shareholder returns directly, but would focus 100% of its energy on building value for its customers.
• When his first letter to shareholders was composed in 1997, Amazon was already a successful company by some metrics — 838% year-over-year growth had recently brought the online bookstore’s revenues to $148M. But much of Wall Street was skeptical of the still-unprofitable company that had just gone public, didn’t pay dividends, and didn’t seem to care about becoming profitable.
• In that first letter, Bezos didn’t try to convince investors that Amazon was profitable — instead, he explained why profitability was the wrong metric by which to judge a company like Amazon.

Solution

• Amazon’s real strength is scale. As a company grows, if it’s smart about its costs, these can be minimized while sales increase. Margin expansion follows, and a team suddenly has a chance to grow at a faster and faster rate. More customers also mean more data, which leads to even greater decision-making power.
• Shareholders who understand this can reap exponential gains.

• Bezos ended his 1997 letter by reminding Amazon’s shareholders that it was their responsibility to decide whether this was a thesis worth investing in. In the opinions of many analysts of the time, it was not. Many were proved wrong. He still talks about every day being Day 1 and those who invested with a similar goal of inventing each and every day have been rewarded.

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.

Jeff Bezos Letter to Shareholders 1997

links to all letters

• 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