Unlocking Amazon’s Secrets to Success with Steve Anderson

He provides listeners with a guide on key takeaways and principles that Bezos leveraged in turning an online bookstore into a trillion-dollar company in just over two decades . The four cycles test , build , accelerate and scale along with the 14 principles , can help any business grow , like Amazon . Very excited to have Steve on the show today . Welcome , steve .

For that , independent agents is my niche within the wide world of insurance helping them with technology and embracing it and figuring out what works for them , et cetera . And that's really kind of what led to the question I started asking , which is , with technology developing so rapidly , it has for many years , continues to do so .

In fact , we might have seen over the last year or so a further acceleration of some of those changes . But I started asking the question is the biggest risk an agency face actually not taking enough risk ? And I expanded that out to businesses now because I believe that's the same issue or question that they need to be asking .

Businesses 20 years ago could sit back for a few years and kind of look and see how things were working out . They don't have the luxury of that anymore .

So I started researching companies that had once been very successful and are no longer here why , and those companies that are successful continue to be successful and why , what are the differences In that process came across . Amazon , I kind of say now , of course , as an example of a successful company and continued to be successful .

But even further in my research , I started reading the letters to shareholders that Jeff Bezos wrote . And you know letters to shareholders for public companies and CEOs typically are boring . You know they're pitch fest for how great the company is typically are boring , they're pitch fest for how great the company is .

And what attracted me with Bezos is he did some of that , but a lot of it that he wrote in the letter was how he was doing it , how he was growing Amazon , how to think about business and growth and kind of that lens that I have with risk , because you know , taking more risk is counterintuitive to the industry .

We're all about , right , shifting risk , mitigating risk , getting rid of risk , not getting more .

But I believe Jeff Bezos and I call him this in the book is the master of risk , and so as I examined all those letters , I realized there were threads that were pretty consistent going through over the years , and that's what led me to actually that my first iteration was what I called a one-page executive summary for each of the letters that had been published

so far . Highlights , couple quotes some key takeaways . Fortunately my wife is in the publishing business and I showed it to her . I was pretty excited about it . I thought there was some really good stuff there and she said that's not a white paper , that's a book .

So that started a whole journey of putting all of that into what was eventually published as the Bezos letters .

And what he said was you need to experiment to figure out what's going to work , and if you're going to experiment , you're going to fail .

Because if you have an experiment and you know it's going to work , and if you're going to experiment , you're going to fail , because if you have an experiment and you know it's going to work , it's not an experiment , and so built into the culture at Amazon is not even a willingness but an encouragement to try new things , knowing that actually most ideas don't

work , but it's the ones that do that drive business growth . And so that's why , in the test cycle , the first principle is encourage successful failure , and Amazon has had a lot of those over the years where they tried something , fail , but then the results of what they learned in that failure grew into multi-billion dollar products .

So this again is one of those threads that goes through the letters and even today when I talk about it it conjures up a different mindset than a customer journey , a customer focus , a customer service right . Every business that starts knows they have to take care of customers so they won't be in business long .

But what's the difference between that and obsessing over customers ? And I think , at Amazon , that idea of the customer and it's not even the idea that customer is always right , because customers don't know what they want or need until they learn about what they couldn't live without , literally .

So here's an example I , literally just before we started , had got an email from Amazon . I'm a Prime member I kind of think it's like foolish not to be one , but people don't always agree with me on that but a Prime member and the email was announcing that a new benefit of being a Prime subscriber is delivery-free Grubhub .

So they have partnered with Grubhub and I've not used it so I don't know exactly how it works , but evidently there's a fee for somebody going and picking up and then bringing it , and they have a partnership now where that , as an Amazon Prime member , you don't pay that delivery fee . Well , did customers at Amazon clamor for having them do that ?

No , probably not . But if you're customer obsessed , you know your customers wants , needs and desires so deeply that you can and again , and desires so deeply that you can and again . This is a Bezos phrase you can invent on their behalf . So somebody figured out that this could be a , and they actually had a test .

They tested it out , which is , again , is another experiment . Right , they didn't fully commit until they figured out , but they must have figured out that this added another layer or another reason not to unsubscribe from Prime . There are already so many . Why do they need another ?

Because if it's better for the customer , it'll ultimately be better for Amazon , and I think that mindset is what sets obsession apart from service journey focus .

I'm a prime member . I didn't know about that . I don't use Grubhub either . My kids do but I don't .

Can you explain the four cycles and kind of at a high level of each one ?

And there are three principles in that particular cycle . Accelerate is they're getting some success . So how do we accelerate that success to again accelerate growth ? And again , three principles in that cycle . Excuse me , I said accelerate next , so I'm not even talking about it the right way , oh my gosh . The second cycle is build .

So test first what's going to work . Build we build on the successes that we had and actually build on the failures too I'd like to talk about that at some point . But you build . So again three principles there , and then continued success . You accelerate that growth and then you scale .

And part of what happens is for a lot of businesses , they scale , but what happens is they start protecting what got them there , not looking for the next thing . A phrase I use quite a bit is that invention is more important than innovation . So everything you hear in the business press is about companies need to innovate .

Well , that's sort of the innovator's dilemma , chris Christensen , the idea that if you're not inventing something new , you can only innovate or iterate so often before the world shifts and you're all of a sudden irrelevant . That's again what Amazon , what Bezos would say that's a day two company , a day , two mindset shift .

So you have to keep these cycles going in order to continue to be growing . And again , look at Amazon . So again we all know the founder story , which I think is reasonably true , but started with books . He never intended to stay with books . He started with books because it could have the biggest impact .

With the internet , he could have a bookstore with an unlimited shelf space where the biggest box stores at the time , and really still today , might have 150,000 to 175,000 books in inventory .

But at Amazon they have every book ever published and even when they first started out , even rare books , I mean , they did a whole lot of things , but he always had in his mind adding other stores to that , and video and DVDs and some of the early stores were part of how then Amazon grew .

Steve is , and David and I have , you know , kind of fallen victim to this in our own companies , and what I think you had mentioned is like bread and butter , like when a company has something that's working , they kind of or maybe they'll test a few other things and do a few other things , but they always kind of go back to like what was their bread and

butter and what's working , instead of like going moving forward and inventing and scaling out that way . So this is an interesting concept . Now you mentioned you wanted to cover some of the failures in there . I really like talking about failures . I think we learn the most from when we talk about those . Can you hit on those a little bit ?

It made shopping on Amazon a little easier , but who's going to buy a phone just to shop on Amazon ? So , anyway , he pushed it out . Big announcement nothing . And that 2014, . By the end of 2014 , they wrote off $280 million in inventory and development costs . Literally , they sold it for a penny and they couldn't give it away .

And so that's the failure Pretty big one , and you can point to some other ones , but here's the success coming out of the failure . Amazon had to learn about voice processing to develop the phone , they had to learn about how to take voice in , how to do things just typical phone stuff and to learn how to do that .

Well , four months after he announced the Fire Phone , he got his first demonstration for a cylinder that you could talk to . We now know it as the Echo . Yeah , alexa as the machine learning software that powers the device called Echo , and again successful .

But even now there are some , I guess , rumblings of Echo's losing a lot of money , and Alexa because what they thought it would allow is people to shop easier , and it hasn't fulfilled that original purpose . So we'll see what happens . But that's another principle is that they think long term . I mean , it's been around a long time .

They keep trying to figure out how can we do it . The other one that immediately comes to mind is just all the physical stores and in fact he talks about in one of his letters I remember what year it was now I think 2016 .

He talks about , you know , we get asked when we're going to open physical stores and he said not yet we haven't figured out how to have a . This is a really good phrase I like a lot a meaningful differentiation experience for the customer in a retail store . And they've tried all kinds of things , like you know , the just walk out technology .

So you know , literally there is no checkout , you're monitored by what you pick off the shelves , et cetera . They tried to scale that into grocery stores .

Didn't work out so well , expensive , and so they've closed all of their retail stores , except for the grocery stores , and they're iterating , experimenting , inventing in the grocery space , because there's such a large opportunity there , they think they can have some impact .

So what immediately comes to mind is pharmacy , healthcare and grocery so really big industries , and what people don't seem to get with Amazon and I said it before , they have a long-term thinking mindset . They think multiple years into the future and they're willing to invest . Now I suspect I'm going to pause here .

I suspect some people listening are going yeah , but they got billions of dollars . Of course they can .

Well , they didn't at the beginning , and it's that mindset that they continue , which actually is a really interesting study or thought process , for how has Amazon scaled to where they have and still maintain their culture and their ideals , and that's a really , to me , really interesting lesson that I think people can take .

They're really big , they're really consequential and those types of decisions should be made by the highest level , whatever that means in your company and with as much information as you can possibly get , and probably ends up being a gut feel . And so I would say a type one decision for Amazon might have been picking a second headquarters .

If you remember all of that right , they had a contest in all kinds of cities for bidding and giving them tax breaks and all kinds of stuff , because it would be an economic boom . So big decision . They took a long time , lots of data .

Part of what's interesting , though , if you remember , they picked New York City , the Bronx , I think area , new York City , the Bronx , I think area and after they announced significant pushback politically from New York , and so I'd have to look up now . It went on for a number of weeks .

They finally announced we changed our mind , we're not going to go someplace where we're not wanted , and so they doubled down on their Arlington Virginia location , just outside Washington DC and actually Nashville where I'm from , they put in a operations center like 5,000 plus employees here that they've brought in away from the West Coast in Seattle , etc .

So that's a type one decision , is my point here . Type two are decisions that are more easily reversible , and he says those types of decisions should be made by the lowest group in the company that is capable of making the decision , that has the knowledge , skill and experience to make the decision .

And he said you should make a decision with at most 70% of the information you wish you had , meaning you're not going to get it all and it really is that move fast Because , again , if we're not afraid of failure , then if we make a decision and determine after that it was the wrong decision , we can pivot , we can do a different direction or we can just

cut it and stop it . So what Bezos says is very few decisions at a company are type one , most decisions are type two . But as a company grows , accelerate and scale , they tend to add bureaucracy to the decision-making process and you have to go through multiple levels of approval to get something done and when that happens all that does is slow down growth .

It slows down your ability to respond to current conditions .

I wonder if they said let's get into DC and let's get our employees going in there before we .

So you don't go into something and don't do your due diligence , don't do your work , don't do the research and have the effort . You go into it saying I need or want this to work , but understanding that , no matter what , it need or want this to work , but understanding that no matter what , it's not always going to work right .

There's one tool I want to bring out here that I just really like . That is a core at Amazon and it started out as the six-page memo . It's now called the . Typically , what I see is the working backward document , so working backward from the customer to what they want .

But Bezos sent an email out to senior leadership team in 2004 , long time ago , 20 years ago , now that I think about it and that memo said no longer will a slide-oriented presentation be allowed in our senior leadership team meetings . No keynote , no PowerPoint , nothing .

Instead , those who are bringing the request for a decision need to write out physically , write out a memo describing the decision , starting with a future press release Meaning on the day this product service that you're proposing we do . This is the press release as it goes out . It's customer focused , it's why it benefits the customer , et cetera .

And then FAQs here are the questions that we think will come up , here are answers to them , and then some data and some other things , but a maximum of six pages . And then some data and some other things , but a maximum of six pages . Here's what Bezos said .

He said one executives are busy and people hide behind PowerPoints , bullet points and PowerPoints , meaning they haven't thought through everything , and when you're presenting a slide oriented , people raise their hand for questions and often you'll say that's a couple slides down versus writing everything out , which requires a different level of thinking .

If you're going to write something down and this is , I think , what ultimately attracted me to the letters is Bezos is a really good writer and he thinks by writing , and so if somebody has to write that out , they don't send it out before the meeting .

They literally print it out on paper , hand it out at the meeting and the first 10 , 15 , 20 , maybe 30 minutes of the meeting is spent everybody reading the memo , because here's what Bezos said again , executives are busy , they say they'll read it before they get there and they won't .

So we'll just make sure everybody's literally on the same page , and one Amazon employee on LinkedIn described this process as magical Because literally everybody's on the same page .

They're making notes of questions , so now they're not rehashing what's already there , they're getting into what's not there , or additional questions or disagreement maybe on the decision or the process .

So that is a way to mitigate the risk of experiment , because if it fails , now you have a document to go back to for an after action review and you can say okay , what didn't we understand that ultimately made this project fail . So now again , you have another learning opportunity and another way to iterate so you don't do the same thing the next time .

And then my primary social platform is LinkedIn , and so you know , if you're listening to this , you have additional questions . Connect with me on LinkedIn and I'll be glad to answer some of those questions for you .

But just this idea of what is an entrepreneur Are they really , are they having an entrepreneurial seizure or are they a technician that think they can do it better ? And that makes a real difference in how you go about building a business .

The first is a simple steak , so I like a good ribeye . But the technique I use is called sous vide . I don't know if you've heard of that , but it's vacuum sealed in water and you set the water at the temperature you want your steak and it can't overcook . And the longer it's held at that temperature the more tender it becomes .

So , like a ribeye , doesn't need to be held very long . But a flank steak . I've actually cooked a flank steak for 48 hours and it comes out as a tenderloin and as beefy as a flank . I will tell you if we have a minute . I got another quick one . So another technique it's a takeoff on the sous vide .

I actually did this weekend for Memorial Day , as we're recording this and I took a pork shoulder , double wrapped it in heavy aluminum foil . I have a thermometer that has eight different sensors on it so it measures like the core temperature , the surface temperature and the ambient temperature .

I put it in the oven because it's typically too big to put in a water bath and vacuum seal , and all that and mimicked sous vide , so I call it oven sous vide . So I took the temperature of the oven to 167 , which is fork tender pork and left it in for 23 hours .