The Philosophy of Jeff Bezos

Originally Published on May 8, 2021

Preface

This post is a part of a game that I am playing with myself.

I always wanted to read the annual letters that Jeff Bezos has written to his shareholders over the years. Yesterday, I finally decided to pick them up and read. Soon a few things were very clear to me. One, Bezos is a genius - his letters are profound, his thoughts prophetic, and his words crystal. Sun Tzu would be proud.

Two, by the letter number three, noise starts taking over the signal and letters start becoming boring. At the end of the day, these are shareholder letters, and even with a brilliant writer like Bezos, shareholder letters can be very boring. I think this is due to two reasons. First, there are numbers and terms that make little sense if you are not well-versed with Amazon as a business and the time during which each letter was written. Second, a lot of this content is irrelevant to people like me, who are not operating in the e-commerce space.

So, this post is my attempt to make the task of reading these letters less boring, for me and for you. I am gamifying the task by setting myself a goal of filtering all the relevant content from the letters and categorizing them into different themes. There are 23 letters in total and I plan to synthesize them within a week. This game will make it less boring for me.

I will do it all in a series of 6 posts. I will split the 23 letters across the first five posts and the sixth and final post will be a categorized compilation of all the letters along with my annotations for more context. I hope this will make it less boring for you too.

On Long-Term Thinking

It’s All About the Long Term...We believe that a fundamental measure of our success will be the shareholder value we create over the long term...1997

Because of our emphasis on the long term, we may make decisions and weigh trade-offs differently than some companies. ...1997

We plan to invest aggressively to build the foundation for a multi-billion-dollar revenue company serving tens of millions of customers with operational excellence and high efficiency. Although this level of forward investment is costly and carries many inherent risks, we believe it will provide the best end-to-end experience for customers, and actually offer the least risky long-term value creation approach for investors...1998

I invite you to please read the section titled “It’s All About the Long Term.”* You might want to read it twice to make sure we’re the kind of company you want to be invested in. As it says there, we don’t claim it’s the right philosophy, we just claim it’s ours!...1998

Editor's note: The philosophy from "It's All About the Long Term" can be found in its entirety in the last section of this post.

OUCH. IT’S BEEN a brutal year for many in the capital markets and certainly for Amazon.com shareholders...So, if the company is better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago? As the famed investor Benjamin Graham said, “In the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.”...2000

Editor's note: 2000 was when the internet bubble burst. The stock market crashed, people couldn't raise any money for their businesses and as a result, many companies, mainly internet companies, went out of business. Amazon also took a hit as it lost money when the companies it had invested in, went bust.

On Customers

From the beginning, our focus has been on offering our customers compelling value...We dramatically lowered prices, further increasing customer value. Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us...1997

We intend to build the world’s most customer-centric company...Our customers tell us that they choose Amazon.com and tell their friends about us because of the selection, ease-of-use, low prices, and service that we deliver....1998

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 are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation...1998

Our vision is to use this platform to build Earth’s most customer-centric company,...We’ll listen to customers, invent on their behalf, and personalize the store for each of them, all while working hard to continue to earn their trust...1999

On Hiring

It’s not easy to work here (when I interview people I tell them, “You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three”), but 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. ...1997

...We love to be pioneers, it’s in the DNA of the company, and it’s a good thing, too, because we’ll need that pioneering spirit to succeed. We’re proud of the differentiation we’ve built through constant innovation and relentless focus on customer experience...1998

Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com’s success....1998

During our hiring meetings, we ask people to consider three questions before making a decision:

Will you admire this person?...I’ve always tried hard to work only with people I admire, and I encourage folks here to be just as demanding. Life is definitely too short to do otherwise.
Will this person raise the average level of effectiveness of the group they’re entering? We want to fight entropy. The bar has to continuously go up.
Along what dimension might this person be a superstar? Many people have unique skills, interests, and perspectives that enrich the work environment for all of us....1998

On Risk Taking

... 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....1998

On Technology

...the current online shopping experience is the worst it will ever be. It’s good enough today to attract seventeen million customers, but it will get so much better...We have a market-size unconstrained opportunity in an area where the underlying foundational technology we employ improves every day. That is not normal....1999

Editor's note: This is probably true for every revolutionary technology.

Appendix:

It's all about the long term...1997

...we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:

We will continue to focus relentlessly on our customers.
We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.
We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures.
We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.
When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.
We will share our strategic thought processes with you when we make bold choices (to the extent competitive pressures allow), so that you may evaluate for yourselves whether we are making rational long-term leadership investments.
We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.
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.
We will continue to focus on hiring and retaining versatile and talented employees and continue to weight their compensation to stock options rather than cash. We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.
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.