#321 Working with Jeff Bezos

Not long after the launch, my boss Steve took me aside. He told me that he had an interesting meeting with Jeff, who made it very clear that setting and insisting on high standards was an essential part of Steve's job. To make his point, Jeff asked Steve if he had ever seen the movie The Aviator, the story of Howard Hughes, the business tycoon Aviator and film director. Jeff described a scene in which Hughes, played by Leonardo DiCaprio, visits one of his aircraft manufacturing facilities to

the project of his latest project, the Hughes H1 racer, which is a sleek, single passenger plane designed to set new speed records. Hughes examines the plane closely, running his fingers along the surface of the fuselage. His team watches anxiously.

Hughes is not satisfied. Not enough, he says. Not enough. These rivets have to be completely flush. I want no air resistance on the fuselage. She's got to be cleaner. Cleaner, do you understand? The team leader nods back to the drawing board. Jeff had told Steve that it was his job to be like Howard Hughes. From then on, Steve had to run his fingers over each new Amazon product, checking for anything that might reduce the risk of losing the company.

That might reduce the quality and insisting that his team maintain the highest standards. Steve was telling me the story for two reasons. First, it was a heads up. He wanted me to know as one of his senior team members that he would be sending me and my team back to the drawing board if our product didn't measure up. Second, he was telling me that I too was responsible for setting high standards for our products. He was telling me that I had to be more like Howard Hughes.

That was an excerpt from the book that I'm going to talk to you about today, which is working backwards. Insights, stories, and secrets from Inside Amazon, and it was written by Colin, Briar, and Bill Carr. This is the second time I've read this book, and I think this book is actually perfect to giving you an idea of what it was like working with Jeff Bezos. The two co-authors actually worked with Jeff for combined 27 years.

One of the co-authors, Colin, was actually Jeff's shadow, everywhere with him, every single meeting for two straight years. The purpose of this episode is going to mirror the purpose of the book, where they said, this book is primarily about showing you some of the unique principles and processes that Amazon with enough detail that you'll be able to implement them if you choose to.

Most of my notes and highlights are ideas directly from Jeff. What makes this book so special and what I really want to focus on today, obviously Jeff's brilliant. He's going to have a lot of fascinating and genius level insights, but he also explains the reason behind his insights. He says, when I write about what led Jeff to making key decisions in this book, I can do so because I often directly asked him for his specific thinking behind his insights.

And the reasoning behind them was often more illuminating than the insights themselves. And as that be like Howard Hughes' story illustrates, Jeff is a masterful communicator. He's able to identify a handful of principles are important to him in the building of his company, and then he finds ways to teach those principles and to repeat those principles for everybody inside the company.

And so they make the point at the very beginning of a company. The founder is the culture. The founder is the one that's teaching everybody the principles. So it says, Amazon opened for business in July 1995, staffed by a handful of people hand picked by Jeff Bezos. He decided that getting in on the growth of the internet was a once in a lifetime opportunity. So he gave up his lucrative and promising career. He wanted to create a new and compelling experience for customers.

So there's just a few things to get started, few traits to get started. One, hand picked core, two, try to find and pursue a once in a lifetime opportunity. And then the third thing that he's going to repeat over and over again for the next 20 years is that a company can be a fast follower, they can copy, they can imitate or they can innovate. He repeats over and over again. Amazon is here to innovate.

We are here to create new and compelling experiences that did not yet exist. The hands on nature of Jeff Bezos at the beginning and really throughout the entire book cannot be understated. In the very early days of the company, when it consisted of a handful of people working at a three small rooms, there was no formal leadership principles because Jeff was the leadership principles.

He wrote the job descriptions, he interviewed the candidates, he packed in ship boxes and read every email that went out to customers, taking part in every aspect of the business allowed him to communicate the Amazon philosophy informally to the relatively small group of employees.

Jeff was never shy about how he wanted things done and he began to instill guiding principles like customer obsession and unrelentingly high standards into every small step his team took. Jeff had one simple rule, it has to be perfect. He'd remind his team that one bad customer experience would undo the goodwill of hundreds of perfect ones.

If you've ever read Jeff's shareholder letters, you already know these principles, he identified them from the very beginning and repeats them over and over again. I made I think three episodes now on Jeff's shareholder letters. I'll leave them all linked in the show notes if you haven't listened to them. But the principles he would repeat are customer obsession, innovation, frugality, personal ownership, bias for action, high standards, under promising and over delivering.

He talks about in the book that the fact he would prove read all the customer service emails. And so one thing that he wanted to do at the very beginning speaking of under promising and over delivering is when you go to buy something on the website, you know, they'd say, hey, we're going to send this US Postal first class mail, you might get it in about a week.

Then once you place the order, you would get an email from Amazon saying, hey, we upgraded you for free and you should have your item within two to three business days. People love this.

Under promise over deliver this is one response from a customer that Jeff particularly liked. This was called out as a complimentary upgrade in the shipment confirmation email. Thank you emails for the upgrade included one that read quote you guys are going to make a billion dollars when Jeff saw that he roared with laughter and then printed out a copy to take back to his office.

There's so many people that work with Jeff that actually describe him the same way, he say he's relentless. He is unreasonably high standards and he's prioritizes speed and so he has a genius idea on organizing groups within your company. But I think it could be traced back actually to the very first job description of very first ad he ran for Amazon employees.

And so it says the job description of the hero for the very first employee said you must have experience designing and building large and complex systems and you should be able to do it in about one third the time that most competent people think possible.

And so that idea that he repeats over and over again is the fact that speed matters in business and so he's constantly looking for ways to remove blocks that slow down the speed of which his company can move and so he comes up with this idea which I'll get to in one minute, which is called single threaded leadership.

So he says the organization that moves faster will innovate more simply because it's able to conduct a higher number of experiments per unit of time yet many companies find themselves struggling against their own bureaucratic drag which appears in the form of layer upon layer of permission ownership and accountability all working against fast decisive forward progress.

So that is the problem that Amazon is encountering and then almost every other company is going to encounter and so this is the solution they come up with this the answer lies in an Amazon innovation called single threaded leadership. So let me define single threaded leadership. They say it's been one of Amazon's most useful inventions.

The basic premise is that for each project there is a single leader whose focus is that project and that project alone and that leader oversees teams of people whose attention is similarly focused on that one project. And so this is a main point that they're going to come back to over and over and over again that everyone in your company should work on one thing only full time.

I saw a very similar idea in Peter Till's book zero to one I want to read from that book right now Peter wrote the best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing.

Every employee's one thing was unique and everyone knew I would evaluate him only on that one thing I had started doing this just simplify the task of managing people but then I noticed a deeper result defining roles reduced conflict Jeff and his team at Amazon are going to realize that but they also realize that if you can avoid dependencies you actually move faster and spend less so let's jump into what they figured out or what the more about the problem they were trying to solve and why they came up with this idea of single threaded leadership.

We were spending more time coordinating and less time building and so what they do is they identify and then try to avoid dependencies so anytime two teams within a company have to speak to one another or have to coordinate with one another to accomplish something that slows the entire company down each overlap created a dependency and they define dependency is something one team needs but can't supply for itself.

And so the more dependencies you have the more bureaucratic drag you have why is that because managing dependencies requires coordination meaning we have to talk to each other people sitting down and hashing out a solution and coordination takes time we were spending too much time coordinating and not enough time building and so that leads directly into one of Jeff's best known ideas and this idea that he says that communication internal company communication is actually a sign of dysfunction he is not trying most companies Jeff's point is most companies are not going to be able to do that.

And so Jeff's point is most companies try to get better at communicating to Jeff that means you're encouraging he doesn't want to encourage communication he wants to eliminate communication and so this is more about why and then Jeff's solution to this when your dependencies keep growing it's only natural to spot dry speeding things up by improving your communication.

We finally realized that our all of this cross team communication didn't really need refinement at all it needed to be eliminated it wasn't just that we had the wrong solution mine rather we've been trying to solve the wrong problem altogether we finally grass that the true identity of our problem the ever expanding cost of coordination among teams this change in our thinking was nudged along by Jeff I heard him say many times that if we wanted Amazon to be a place where builders can build we need to eliminate communication.

Not encourage it when you view communication across groups as a defect which Jeff does the solution to your problems start to look quite different than traditional ones he suggested that each software team should build and clearly document a set of application program interfaces so API is what everybody calls APIs right for all the services that they offer an API is a set of routines protocols and tools for building software applications and defining how software components should interact Jeff's vision was that we needed to focus on loosely coupled.

Interaction via machines to well define APIs rather than via humans through emails and meetings this would free each team to act autonomously and move faster.

Okay so two things one you got to stick with me because it's remarkable how all of Jeff's ideas fit together and how the logic is cohesive and everything relates one thing relates to another but the second thing is if you don't already on this book I'm going to highly recommend that you buy it to no brain or I think I pay like 20 bucks for it but now he's going to go into why this is so important a few pages later.

Jeff insisted that instead of finding new and better ways to manage our dependencies we figure out how to remove them why these largely independent teams could now do their work in parallel before you had two teams waiting on each other now you have two teams working continuously right these largely independent teams could now do their work in parallel instead of coordinating better they could coordinate less and build more now why is that why is fixing this so important right this is an entire chapter dedicates this and if you really think about what they're saying here is like the reason that I'm going to do this is because I'm going to do this.

Like the reason that fixing this is so important is because less coordination means more building more building means more experimenting more experimenting leads to more unpredictable but lucrative products there's a there's a sentence a couple pages earlier that I think relates to everything time and time again they want how many freaking projects products or inside Amazon right what they're about to tell us is very valuable time and time again we learn that customers would behave in waves we hadn't imagined especially for brand new features.

Brand new features or products getting to the building of those brand new features and products faster is unbelievably important and one way to do that is through this Amazon innovation called single threaded leadership.

So this is one of my favorite things he's ever said this is Jeff on decision making speed and what you hear the way he thinks about this you understand why he keeps emphasizing prioritizing and repeating the need for speed and this is from his 2016 shareholder letter Jeff suggested that most decisions should probably made with somewhere around 70% of the information you wish you had if you wait for 90% he said in most cases you're probably being slow plus either way you know what I'm going to do is I'm going to do this.

Either way you need to be good at quickly recognizing and correcting bad decisions if you're good at course correcting being wrong maybe less costly than you think whereas being slow is going to be expensive for sure and what's

going to be a lot of things when you apply this idea to your company realize the bottom that goes from being too much communication and too much waiting around for other people which delays your ability to build new products to actually the limiting factors going to be great leaders we were able to identify some brilliant managers they turned out to be notoriously difficult to find in sufficient numbers even at Amazon great team leaders proved be rareities another way to think about that is great anything is where the limiting factor here is great leadership.

And then the second part of that is they have to work on this full time they cannot do anything else this is a fantastic line on why the best way to fail and inventing something is by making it somebody's part time job. And so the problem that they were trying to solve in the vision they had was how to move faster remove remove dependencies but what they also realized once this was in place that ownership and accountability are much easier to establish under the single threaded leader model.

And why because Jeff Bezos just like Peter teal are only evaluating that person on one thing and one thing only.

Another unique idea in the way to build and run Amazon that Jeff came up with he actually found this idea in a paper and then decided to use it so that something I'm going to repeat over and over again for me stand on pass podcast but if you're paying attention the whole world is a classroom you'll be shocked if you go to this book you be shocked at how many ideas Jeff got from reading a paper reading a book having a conversation that he used inside of Amazon.

If you're paying attention the whole world is a classroom. So says if you were asked recently hired Amazon employees what is surprised the most in their time at the company so far one response would certainly top the list the eerie silence in the first 20 minutes of many meetings the reason for the silence a six page document that everyone must read before a discussion begins.

Amazon relies far more on the written word to develop and communicate ideas than most companies and this difference makes for a huge competitive advantage so this is when they kick out power point and they switch to these narratives so Colin is Jeff shadow at the time.

Remember he goes everywhere Jeff goes sits on every single meeting this the insights that he has in this book are remarkable and so long time ago way before Wi-Fi on planes he would take a lot of flights with Jeff and so one thing that I love that I've learned about Jeff from the very first book I read on him and it's really important I think a lot of people already know to use this company.

The importance of a shared base of knowledge if Jeff thinks there's a book that's valuable to read he doesn't it's not that he reads by himself he makes this entire executive team read this and so on this flight they're both reading the same essay the idea was like we're going to read and then discuss this essay this is way before the narrative structure of the meetings right they're still using power point and it's not going well and sort of looking for solutions so again if you're paying attention the whole world is a classroom after a particularly difficult presentation in early 2004 we had some downtime on a flight and so we read it.

And so we read and discuss an essay called the cognitive style of power point pitching out corrupts within written by Edward Tuft Tuft identified in one sentence the problem that we'd been experiencing as analysis becomes more causal multi variant comparative evidence based and resolution intense the more damaging the bullet list power point becomes tough proposed a solution in the essay for serious presentations it would be useful to replace power point slides with paper handouts with the most important things that I'm going to do is to get a lot of information about the story of the story.

Power point slides with paper handouts with words high resolution handouts allow viewers to contextualize compare narrate and recast evidence he offered wise advice on how to get started make this transition in large organization making this transition in large organizations requires a straight forward executive order.

From now on your presentation software is Microsoft word not power point get used to it that is Tuft words and that is essentially what we did and so Jeff sends an email just can only come from him to us team received an email with the following subject like no power point presentations from now on the message was simple and direct as team members would be required to write short narratives describing their ideas.

Jeff was the only person in the company who could mandate such a change and he offered a short explanation for the reason behind the change the reason writing a four page memo is hard of in writing a 20 page power point is because the narrative structure of a good memo forces better thought and better understanding of what's more important than what and how things are related power point style presentations somehow give permission to gloss over ideas to flatten out any sense of relative importance and to ignore the interconnectedness of a

lot of ideas. And then they describe why spending the first you know 20 minutes of an hour long meeting in silence reading these narratives together is so valuable is one of my favorite sentences are paragraphs in the entire book to why books have lasted for 5,000 years in fact I got a text from a founder for on the other day.

He was asking me why why five notice that bit why billionaires read so much I guess that minute the silence can be unsettling at first but it becomes routine even though you cannot hear it with a well written narrative there is a massive amount of use for information that is being transferred in those 20 minutes there is a massive amount of useful information that is being transferred in those 20 minutes.

So a friend text me the other day him and his brother or co-founders of a company is doing really really well they're both relentless learners and they raise the bunch of money for their startup from several billionaires many of which are world famous if I had mentioned them you know who they are and in many cases they get to spend time with them they they go to their houses they see their libraries and

I got a text from the other day said something like I know a bunch of middle entrepreneurs companies aren't that successful they don't read at all and then yet I spend time with these billionaires and is they read all time is like why do billionaires read so much and I think this sentence right here describes that even though you cannot hear it and there's a massive amount of useful information that is being transferred in those 20 minutes that use information that knowledge can then obviously be turned into profit it can make their companies better can make them more money that is why you see said and I have a question.

I talked about this on the I had lunch with Sam's all I think it's episode 297 and you know I've seen this over and over again to I had the same realization that my friend had but I just remember after spending two hours with Sam's all talking about all I mean you knew everything about you knew way more about business history and read way more biographies than I have and I remember on the drive back it just hitting me it's like yeah of course you don't go and you don't go and sell a company for $38 billion and then read and learn all this stuff he'd been doing that since he was 20.

By the time I met him he was an entrepreneur for over 61 years and he was still up until the day he died still reading books still listening to podcasts still being curious about the world around him still treating the world like a classroom and so not only do they read a lot but they also are able to produce unique insights this is a simple tip from Jeff Bezos on how to produce unique insights in what you're reading Jeff has an uncanny ability to read an narrative and consistently arrive at insights that no one else did.

Even though we're all reading the same thing after one meeting I asked him how he was able to do that he responded with a simple and useful tip that I have not forgotten. He assumes each sentence he reads is wrong until he can prove otherwise he's challenging the content of the sentence not the motive of the writer and I love this part Jeff by the way was usually among the last to finish reading.

Okay so they realize a narrative structure is superior to run their meetings what they wind up also realizing is that it's superior for building products for meetings it's called a six page narrative for product design or new product creation it's called the PR FAQ the Kindle is actually the first product and we're getting more detail about how the Kindle came to be including this is very important meeting that Jeff Bezos and Steve Jobs had in 2003.

And so this idea of working backwards is so ingrained in the Amazon culture they thought it was so important that they named the book after it and really it's just you start with the desired customer experience. So it says most of Amazon's major products since 2004 have one thing in common they were created the way process called working backwards it is so central to the company success that we used it as the title for this book.

Working backwards is a systematic way to vet ideas and create new products it is a key tenant or should be its key tenant is to start by defining the customer experience then iteratively work backwards from that point until a team achieves clarity of thought around what to build its principle tool is a second form of written narrative called the PR FAQ short for press release frequently asked questions.

And so you start from the customers perspective you literally write a press release for a product that does not exist right the press release that literally announces the product is if we were ready to launch and an FAQ anticipating the tough questions and then work backwards from that. And so once again we see Jeff come up with unique insights because they weren't doing this originally right so they would come up with new ideas and they pitch them to Jeff and the book says listen we just tried.

We used like MBA style methods we would gather data about the size of a market we would construct financial models that project annual sales we would calculate gross margins assuming a certain cost of goods from our suppliers we would we project operating margins we would outline deals that we could make with other media companies.

And Jeff did not find that this was a good use of their time we had several meetings with Jeff to present our ideas he never seems satisfied or convinced he found our proposals light on the details as to how the service will work for customers he finally asked where are the mockups.

Jeff was referring to the visual representations that would show exactly how the new service would look on the Amazon website we didn't have any mockups we just wanted to sell Jeff on the opportunity we would deal with the customer experience and other details once we got his go ahead but if Jeff wants to see mockups you had better make a mock up a few weeks later we were back with mockups.

Jeff listen carefully to our presentation yet again and then began asking detailed questions there's so many sentences in the book just like that you're talking to him you're presenting to him and he gets right to the heart of the matter of read that in other books as well and so it just goes straight down the details he would ask questions about every button every word every link every color for music he asked how our service would be better than iTunes for ebooks he wanted to know how much the ebooks would cost he asked if people would be able to read their ebooks on a tablet or a phone as well as their PC we answered as we had before we had not figured out the

stuff yet that answer did not go over well at all Jeff wanted to know exactly what we were going to build and how would be better for customers to Jeff a half baked mockup was evidence of half baked thinking and he was quick to say so often using strong language to make his point and so this is the first time I wrote in the book and on my notes but it's over and over again founders force the issue founders are forcing functions a forcing function and event

that forces one to take action and produce a specific result remember this for later it is a mentioned over and over again the fact that this is the role that Jeff is playing inside of Amazon Jeff suggested a different approach for the next meeting right a narrative document in it described your best idea for a device or service for the digital media business he even offered to do it with them this is incredible so the next time they meet they bring their ideas and it looks like a press release announcing what their idea does for the customer and then they're going to work backwards from that to that

this is the birth of this idea one person proposed an ebook reader that would use new ink screen technology another described a new take on the MP3 player Jeff wrote his own narrative about a device he called the Amazon puck when I'm about to this is crazy when I want to read to you he wrote in 2004 he is going to describe the Amazon echo which is going to sell hundreds of millions of these things the Amazon puck would sit on your countertop and could respond to voice commands like puck please do you want to see the next one?

puck please order a gallon of milk and the puck would then place the order with Amazon why is Jeff forcing the issue why is he insisting that we're doing this because writing required us to be thorough and precise we had to describe features pricing how the service of work why customers would want it half baked thinking was harder to skies on the written page and in PowerPoint slides Jeff then push the idea further he is the forcing function what if we thought of the product concept narrative as a press release usually in a conventional organ

organization a press release is written at the end of the product development process in this standard process that company works forward and really what they're telling you is Amazon inverted this process and so the Kindle is going to be the first product in which they used and they created using this press release approach and this is part of one of the reasons why it's so important previously they were working forward like every other company another working backwards when we were working forward we were trying to invent a product that would be good for Amazon

the company not the customer when we wrote a Kindle press release and started working backwards everything changed we focused instead on what would be great for customers an excellent screen for great for a great reading experience an ordering process that would make buying and downloading books easy a huge selection of books low prices we would never have had the breakthrough necessary to achieve that customer experience

where not for the press release process which forced the team to invent multiple solutions to customers problems and in the Kindle chapter there's an entire chapter dedicated to describing the product development they go into why working backwards helps your company develop new skills you develop new skills over a

long period of time your company obviously comes more valuable another thing that Jeff insisted on you have to have constraints the press release portion of these documents has to be one page or less and then I think they limited to about five pages five pages or less for the FAQ section and then this is why I just use the word forcing function as the founder that's the term they actually use here

restricting the length of the document is a forcing function we have seen that it develops better thinkers and communicators founders develop better teammates which in turn develop better products it's the same idea

so I want to spend a lot of time on the development of the Kindle before I get there I wanted to go back to this idea that the whole world is a classroom and you can't help but notice how many times Jeff is just using ideas from other companies are from things that he's reading and he's using

them inside of Amazon right he's using them as a metaphor to use it to help his company perform better but I was also struck by this idea while I was reading this book that you can think of the belief system of the founder as the language of the company that is why

you she written down and repeated over and over again and it definitely is the case in Amazon but you also see the belief system of the founder express through their actions and so this idea that Jeff identified with from day one that we're going to

access over customers he'd make every single person in the company including himself work customer service actually take calls and so I love this and there's a lot of good ideas here including the importance of combining data and anecdotes data and anecdotes make a powerful combination when they're in sync and they're valuable check on one another when they're not the most

powerful anecdote in this regard features Jeff himself Amazon has a program called customer connection which is mandatory for corporate employees every two years the corporate employee is required to become a customer service agent for a few days they have to listen in on calls watch email and chat interactions and then handle some customer contacts directly Jeff is not exempted from this program while I was working as his shadow it came time for his customer connection

recertification Jeff was particularly good with customers over the phone know he was sometimes overly generous he gave one customer a full product refund when the policy was to refund the shipping cost only as one example

but this is fascinating he's going to use an idea from Toyota and realize oh we Toyota has an idea and implement an idea in their company that we're lacking here and it's because of this again he's showing with his actions how important customer service is on the first day of training we listen to the CS to CS agents handle a few calls on one call the customer

claim that her lawn furniture had arrived damage the CS agent asked for the product number as the customer was looking for the CS agent muted the call and said to us I bet she's referring to this lawn chair and pointed to the product on the Amazon site sure enough when the customer read out the number from the package slip it was the one that the CS agent had predicted it would be after the call was ended Jeff asked how did you know the customer is going to say that the CS agent responded

to happen quite often with this newly listed product the packaging was inadequate and the furniture got banged up in transit Jeff had recently been learning about how Toyota approach quality control and continuous improvement he mentions this over and over on his shareholder letters by the way this this idea of continuous improvement that he learned from the Japanese one technique they use in their automobile assembly line was the and in corn and on cord when any worker notices a quality problem they're authorized to pull a cord that stops the entire

assembly line a team of specialists swarms to the cord puller station they troubleshoot the issue and they develop a fix so the error never happens again here was a similar situation at Amazon except without the and on cord Jeff yelled out we need an and on cord for customer service and so they wind up

instituting one it turns out that the Amazon version of the and on cord empowered the right people those on the front line to we're talking directly to customers it's surface serious issues as soon as they were noticed okay so then we're going to go into why working backwards was so important and the development of the kindle before we go to that they quote heavily from Jeff shareholder letters to really explain remember the belief system of the founder is the language of the company

Jeff's belief systems were written down in the shareholder letters and then repeated over and over again inside the company and so this is Jeff writing in his shareholder letters sharing his belief right we want to be a large company that's also an invention machine we want to combine the extraordinary customer

serving capabilities that are enabled by size with the speed of movement nimbleness and risk acceptance mentality normally associated with entrepreneurial startups I believe we are the best place in the world to fail

and we have plenty of practice and failure in the he's not failing just for failure say he doesn't want to fail right this guy's super competitive but this is his main point failure and invention are inseparable twins he just said Amazon will be a place the best place in the world to invent so failure invention are inseparable twins to invent you have to experiment and if you know an advance is going to work it's not an experiment the kid they did not know an advanced to kindle is going to work

most large organizations embrace the idea of invention but are not willing to suffer the string of failed experiments necessary to get there

and so one competitive advantage advantage that is Jeff is who sees it the Amazon has is they're willing to fail for a longer period of time long term thinking levers are existing abilities unless it's new things we couldn't otherwise contemplate long term orientation interacts well with customer obsession if we can identify a customer need and if we can further develop conviction that the need is meaningful and durable

our approach permits us to work patiently for multiple years to deliver a solution the key word here is patiently many companies will give up on an initiative if it does not produce the kind of returns they're looking for within a handful of years Amazon will stick with it patience and carefully manage investment over many years can pay off greatly

and so you might be thinking okay that's great to do with working backwards and they're about to get into that working backwards is expose skill sets that company needs but does not yet have so the longer your company works backwards the more skills develops and the more valuable valuable becomes the more things it can invent and his whole key for inventing is he only wants to invent where and when differentiation matters invention works well where differentiation matters in the company's early days the hardware that power Amazon's data centers

was not the point of differentiation that changes with time which will get to in a little bit was not a point of different differentiation with the customer creating a compelling book buying online experience was whereas with the kindle which is where we're about to go into others were selling ebooks so there was a real value in owning and controlling the creation for an outstanding device for our customers to read the ebooks on

differentiation with customers is often one of the key reasons to invent and so they're constantly talking about the way hey normal companies they build things with a skills forward approach what does that mean they look inside the company like what are the assets that we have what are the skills we have what can we build with that working backwards forces you to master new skills that again working backwards expose skill sets that your company needs but does not have yet so the longer that your company works backwards the more skills the develops and the more skills the develops the more valuable

what becomes over time Amazon's working backwards process starting with customers needs and not corporate needs or competencies often demands that in Jeff's words we exercise new muscles never mind how uncomfortable and awkward feeling those first steps might be and so I say all that to set this up a meeting with Steve jobs led to the invention of the kindle

so you can really think about what's about to take place here is how the iPod and iTunes influenced the development of the kindle this meeting is going to happen in 2003 at this time I think 77% of Amazon 70 or 77% somewhere on their Amazon's revenue came from like physical books books CDs music that kind of thing right and they clearly see that this wasn't going to last forever so says in 2003 Jeff and a bunch of people from Amazon traveled to the Apple campus in Cupertino to meet Steve jobs who had invited us down

for a visit jobs got to the real purpose of the meeting and announced that Apple had just finished building their first windows application he calmly and this is why I love jobs I love his confidence he calmly and confidently told us that even those apples first attempt to build for windows he thought it was the best windows

application anyone had ever built he then personally gave us a demo of the soon to be launched iTunes for windows during the demo jobs talked about how this would transform the music industry up until this point if you wanted

to buy digital music from Apple you needed a Mac which at this time comprised less than 10% of all the home computer market apples first for a building software on the competing windows platform showed how serious they were about the digital music market now anyone with the computer would be able to purchase digital music from Apple

and then jobs immediately attacks Amazon's business jobs said that CDs would go the way of other outdated music formats like the cassette tape and their importance and portion of overall music sales would drop quickly his next comment could be construed as either a matter of fact statement or an attempt to go Jeff into making a bad business decision by acting

in post-savvy he said Amazon has a decent chance of being the last place to buy CDs the business will be high margin but small you'll be able to charge your premium for CDs since they'll be hard to find Jeff did not take the bait only Jeff can speak to how the meeting impacted his thinking what we can say is what Jeff did and did not do afterward what he didn't do and what many companies would have done is to kick off an all hands on deck project to combat this competitive threat

and race to build a copycat digital music service over and over again Jeff says I do not want to be a copycat I don't want to follow I don't want to be a fast follower I want to lead and I want to invent instead Jeff took time to process what he learned from the meeting and formed a plan he appointed a single threaded leader

which is the guy Steve from the Howard Hughes story at the very beginning so you have a single threaded leader named Steve to run digital who would report directly to Jeff so they could work together to formulate a vision and a plan for digital media and I love the explanation of this I'm going to read the whole paragraph to you because I think it's so great in other words his first action was not at what decision it was a who and how decision this is an incredibly important difference

Jeff did not jump straight to focusing on what product to build which seems like the straightest line from A to B instead the choices he made suggests that he believed that the scale of the opportunity was large and the scope of the work required to achieve success was equally large and complex he focused first on how to organize the team and who was the right leader to achieve the right result

at that time Amazon did not have billions of dollars to spend on digital media or anything else for that matter so we would need to lean heavily on the frugality principle to stay in the game with the bigger players Jeff was a student of history and regularly reminded us that if a company didn't or couldn't change and adapt to meet shifting consumer needs it was do remember

he's got a transition to his business from 70% physical but goods to essentially all digital and he used the example of code acts failure to do so as a warning sign you don't want to become code act he would say referring to the once mighty photography giant that had missed a turn from film to digital we were not going to sit back and wait for this to happen to Amazon

so let's pause here before we move on again goes back to this main idea in the book you need to have single threaded leadership on every single important initiative or project inside your company why Jeff felt that if we tried to manage digital media as a part of the physical media business it would never be a priority the bigger business carried the company after all and would always get the most attention

getting digital right was highly important to Jeff and he wanted Steve to focus on nothing else in other words Jeff is disrupting himself then we go back again you can think of the belief system of the founder as a language of the company what is he going to repeat you can invent or copy we choose to invent we had many meetings with Jeff I would present our ideas for our music product or company we might acquire each time we had these meetings Jeff would reject what he saw as copy cat thinking

emphasizing again and again and again that whatever music product we built it had to offer a truly unique value prop for the customer let me repeat that

any product we build has to offer a truly unique value proposition for the customer he would frequently describe the two fundamental approaches that each company must choose between when developing new products and services we could be a fast follower and make a close copy of successful products we just make another iTunes right we could go that route we can make a close copy of successful product

other company built or we can invent a new product on behalf of our customers he wanted Amazon to be a company that invents he would immediately force this he recognize the building a copycat version of the iPod and iTunes was a non starter he chose the path of invention by looking beyond the music category

this is so important because every other big company essentially at this time just copying our attempt to copy apple they want to go into these like this conference where these these music executives are speaking they know Jeff's in the audience they kind of like encourage him because these are just more revenue for the music industry right like yeah Amazon should build this and this would be more revenue for Amazon and more revenue for universal music and just like you're not controlling what I'm thinking

you don't get to dictate the products that my company makes there is no differentiation we cannot beat we can't out apple apple so you don't try what it war buffets a how do you beat bobby fisher the answer is you plan any game except chess back to this he chose a path of invention by looking beyond the music category which led him to begin Amazon for a into digital by focusing on ebooks and an ebook reader device in doing so Jeff demonstrated his belief that true invention leads to greater long term value for customers and shareholders

Jeff is so good this guy is so good look how he takes what apple did to the music industry what they use for iPod and iTunes and how it influenced the development of the Kindle there's a reason why I keep making podcasts after podcasts and reading book after book of Jeff Bezos in fact there's a line I read years ago in the CB insights newsletter that really hits home how special this guy is and it says to read Jeff Bezos to share her letters is to get a crash course and running a high growth internet business for someone who

mastered it before any of the playbooks were written listen to what he does here Jeff zeroed in on the fundamental difference between the digital media retail business and are existing physical media retail business our competitive advantage advantage in physical media was based on having the broadest selection of items available on a single website but this could not be a competitive

advantage in digital media where the barrier to entry was low any other company could match our offering any other company could build an ebook store where they offer the same breath and depth of books and songs as any other digital venue they just had to be willing to undertake the tedious work of aggregating the digital files together into a single online catalogue so we knew we couldn't meet Jeff's requirement that our digital

business have a distinct and differentiated offering just on selection and aggregation remember that he's he's the forcing function he's saying our digital business must have a distinct and differentiated offering and so Jeff tell Steve right the guy with a single threaded leader on here we have to move out of the middle and venture to either side of the value chain in digital that meant focusing on applications and devices consumers used to read watch or listen to

content as Apple had already done with iTunes and the iPod we all took note of what Apple had achieved digital music in a short period of time and sought to apply those learnings to our long term product vision our long term product vision in books not music we believe that customers would want the ebook equivalent of the iTunes iPod experience an app paired with a mobile device that offered

any book ever written the content available at a low price that they could buy download and start reading in seconds but we would need to invent the device ourselves the idea this is so crazy remember now we know how successful I had the first kind of by the way which is like this big bulky white like 400 bucks to it was crazy but anyways this is like now this makes sense but

back then this is how this is why he so special the idea that Amazon a pure e-commerce e-commerce distributor of retail products made by others which is what they were at this time the idea of the Amazon a pure e-commerce distributor of retail products made by others would become a hardware company and make it and sell its own reader device was controversial the Kindle chapter in this book is incredible I'm still in it no

not myself I wrote in the margin actually outsource and your company doesn't acquire the skills Amazon wants to skills what does that mean our decision to become a hardware device manufacturer would inform a number of decisions down the road many companies that decide to enter a business area in which they have little internal

expertise are capability which is what Amazon had doesn't have a description of Amazon this time right they choose to outsource this can some times we mistake and they use an example in the early days of e-commerce brick

and mortar retailers created their first online retail sites they brought in third party developers this approach enabled them to move quickly but it deprived them of the flexibility to innovate and differentiate and that's a big problem because who had that ability to differentiate and innovate and who are now these brick and mortar retailers going online and competing directly against Amazon

we know how that ends retail is to outsource e-commerce like the ability to ideate and test new products and so you list a bunch of products that Amazon was able to test way fast because they had this ability they can only pick from a menu of options from their outsource provider at best they would be fast followers of what the innovators built the innovators being Amazon so like okay we're going to we're going to take that same idea and go out and acquire the skills necessary to become to transform from a pure e-commerce

distributor of retail products made by others to hardware makers and this directly leads to an idea that you and I've been talking about over and over again today founders forced the issue not outsourcing means it can be more expensive and spend a lot more money it's going to take longer to get a product

there but at the end of that if we are successful we have a set of skills that we lack beforehand then we can go out and do this over and over again again founders forced the issue we'd known that the kindle would take time and money to develop by the middle of 2005 became clear that it was taking much longer in consuming more money than we had anticipated what was Jeff Bezos' reaction to this there was a heated discussion about the surprising ramp up in expenses at some point in the debate someone asked Jeff point blank

how much more money are you willing to invest in Kindle Jeff calmly turned to our CFO shrugged his shoulders and asked how much money do we have that was Jeff's way of signaling the strategic importance of Kindle

another example the whole world is a classroom and Jeff taking an idea from another company Jeff went through many blackberry devices this was a lyris a few of which had been fried by sweat dripping on them during his workouts the sounds really intense the feature that really attracted him to the blackberry was constant connectivity Jeff love that his phone was always connected and automatically refresh itself to display every new email in those early days of digital media this was a first and the blackberry did this without having a connector computer

and so he has a said he has like what's the kindle what's that idea the principal behind that idea that we can apply to the Kindle he wanted the Kindle to be like the blackberry no wires never need to connect to your PC he talked over and over again about the ability to be patient to have long term thinking and to want to invent and invest in that invention that meeting with Steve Jobs happened in 2003

the Kindle goes on sale for the first time all the way in November of 2007 it retails for 399 dollars and would hold 200 books it sold out in less than six hours and so another example of being influenced by another company if you ever read the everything store it's talked about bunch in there that fact that Jeff met with Costco founder Jim Synical and the meeting change the trajectory of Amazon he implemented a bunch of ideas in that meeting into Amazon

one of those led directly to this membership program then now over 100 million people are members of myself included which is Amazon Prime what's fascinating is how fast they built prime Jeff sends a email in October 2004 saying we need to do this and by February of next year it is live and a product that actually exists this is what the email read we should not be satisfied member back to the founders of forcing function right we should not be satisfied with the growth of our retail business

this is a house on fire issue and we need to dramatically improve the customer experience around shipping we need a shipping membership program let's build and launch it by the end of the year and so they're thinking was let's not do what people expect now but where is this going before you drive to the store to get something then you order an Amazon maybe comes a week 10 days later

then five days later then three days later now today comes in a few hours right they knew this all the way back in 2004 so let's start building for that future today two days shipping and eventually one day shipping and same day shipping will become the norm therefore while what we've built is good it is not good enough

we should do this now we have an unshakable conviction that long term interest of shareholders are perfectly aligned with the interest of customers this is clearly in the interest of our customers so we will do it now and again there is many such sentences like this one in the book Jeff insisted on this path which resulted in Amazon Prime

now it was fascinating as they develop prime we see that Jeff is just very uncomfortable with mediocrity and he still wants to make sure that his company is not going with the skills forward approach that most companies have let's start with the optimal customer experience and work backwards from that and you're like Jeff what we don't have the skills exactly so we're going to go out and acquire those skills in overtime that's going to make our company more valuable

now the customer is a guy in a taste of free shipping the normal one to be forced to choose between slow and free and fast and expensive Jeff exhibits discomfort when presented with an either or proposition in which both results are mediocre viewed through his customer obsession lens the only answer to the question which would you rather have slow and free or fast and expensive is fast and free

so the catch was that fast and free was where Amazon needed to go next but our fulfillment capabilities were not yet up to the task if you read the book up until this point this what about tell you not in the book but you would drive this conclusion at the end of that says the fast and free was where Amazon need to go next but our fulfillment capabilities were not up to the task period most skills forward companies would stop there that's not where Amazon stopped it's where they started

another great idea walk your store walk your store again goes back to the founders is the forcing function more most retail CEOs walk the store when they have a chance and Jeff is no exception the typical physical retail CEO can pay a visit to his outlet when they're in the area and they'll do a bit of browsing and observe what's going on an online retail CEO like Jeff can walk the story anytime

and just preferred walking the store time was early Saturday and Sunday mornings it was not unusual for me to wake up at 7 a.m. on a weekend and read five or six messages from Jeff to the relevant teams on issues that he had found while walking his store that morning this is what he expects when he emails you when he sent a team an idea it did not need to be implemented but it definitely needed to be evaluated and that evaluation needed to be communicated back to him again he's showing with his actions this is a

important to him there's supposed to have a meeting on prime the Jeff schedule the meeting on Friday forcing Amazon had this they had a like a site wide outage there was their experiencing technical issues so this guy named VJ he actually had to cancel the meeting which is the right thing to do and then we schedule for another time Jeff took an

stride and said okay we can reschedule the meeting how about tomorrow morning in my house and this idea that Jeff says that the meeting is genius that's when Jeff and all these other people met at his house to go over what he's going to come Amazon Prime Jeff said this is his main director this is genius Jeff said he wanted to build a moat around his best customers he wanted to build a moat around his best customers

so prime starts with the free two day shipping that everybody knows they now have added a bunch of different benefits and no additional cost I think I started off paying like $79 a year and I think it paid like $129 a year so I guess there is a cost but at this time it was the same price and what was fascinating is I didn't know so obviously know that you know every prime member has access to prime video but I didn't know or I didn't remember

rather that they had started it out like trying to compete with other streaming services and so they went from one bad idea to the next and again remember how he said that Jeff can read the same document as everybody else and get different insights Jeff actually comes up with another idea that no one was thinking of

based an idea that worked for another company in a different context and that company was Netflix so it says Jeff came up with a simple idea let's make videos free for prime members they were trying to make it a separate stand-alone subscription product it was not succeeding so they're like let's just add to prime because again his whole thing is how are we going to be differentiated now listen to this this had not been on anybody's list of ideas

Jeff reminded us of how Netflix got started off by offering watch now streaming videos to its DVD subscription service so I need to back up and take on more detail you may remember this I've been a subscriber to Netflix forever when I first subscribed I would get DVDs in the mail

that was all Netflix offered then eventually they said oh now you can stream but they're streaming offerings was like really really they wasn't good so instead trying to sell it they just gave it to existing members for free so now you have Amazon Prime video that's not really good so why don't we just take the idea from Netflix and just add it as a benefit for our existing subscribers

so this is Jeff remind us how Netflix got started off by offering watch now streaming videos to its DVD subscription service it's an oh by the way offering he said when Netflix started they didn't have a great selection of movies and TV shows either not good enough that customers would pay extra for them instead

Netflix gave their customers additional value as part of their existing subscription Netflix was essentially saying the service you pay for is great and oh by the way here is something extra for you to watch and then he says why he wants to do this Jeff argue that prime with streaming video would be a unique offering and a competitive differentiator any competitor might launch a prime

shopping clone he said or they could potentially build a new Netflix type service but it was unlikely that any one of them would be able to do both and then over time obviously further differentiation is hey we're bidding against Netflix and Hulu and all these other such like studio and the content creators have the supply

then all these streaming service coming over the top and say hey how much you want for that and another stream service says oh you you'll pay a billion I'll pay two billion and so they realize like we don't want to be in this never ending cycle of bidding against Netflix and and Hulu we don't want to keep paying studios more

additional fees for every country that they enter and there's all these like issues that they go into detail and so again they're like well if you wanted to be truly differentiated what would you do and once they ask themselves that question it says that led to a start-in-the-conclusion we had to create our own content it was time to make our own movies and TV shows

and I just want to share one more idea that I think ties a lot of these ideas that you and I've been talking about today together the world is a classroom we're going to differentiate we're not going to copy we're going to work backwards from the optimal customer experience and we're going to use a written narrative to guide product development Jeff and I attended an O'Reilly emerging technology conference and we went to a panel featuring Stuart Butterfield who co-founded Flickr and later Slack

someone asked Stuart to describe a typical day at Flickr his answer was surprising he said that about half the day was probably the same as it was for many of the people in the audience scrambling to keep their technology platform one step ahead of the rapid growth of their business they worked on scaling their databases web servers software and hardware half the day right

Stuart said they did not spend as much time as he would like on innovating things that were unique to Flickr after the panel Jeff and I had a brief chat about Stuart's comments we both noticed the same thing a phenomenon that Amazon would later refer to as undifferentiated heavy lifting that is the tasks that we could do for the companies that would enable them to focus on what made them unique

this was an opportunity the kernel for the opportunity for AWS obviously in building and operating one of the world's largest websites we had acquired a core competency only a few other companies could match

working backwards documents for the early AWS products the PR FAQ stated that we wanted the student in a dorm room to have access to the same world class computing infrastructure as any Amazon software engineer that powerful metaphor in the PR FAQ document really help crystalize the thoughts and ideas of the AWS product development teams

and that is where I leave it no brainer absolutely no brainer to buy this book I buy this book for yourself for a bunch of people on your team if you buy the book using the length it's in the show that's in your podcast player you'll be supporting the podcast on the same time

this is definitely a book I will reread and revisit into the future if you want more episodes that are like this one I did an episode very similar to this but it's about Steve Jobs it's called working with Steve Jobs it's number 281

by my count this is the 8th Jeff Bezos episode that I have made if you want to listen to them episode 282 Jeff Bezos to share her letters episode 180 Jeff Bezos invention of a global empire that is the sequel to the everything store episode 179 Jeff Bezos to the everything store episode 155 Jeff Bezos invent and wander episode 71 Jeff Bezos to share her letters

episode 38 spacebearance which goes into the difference between the way Jeff is building his rocket company and Elon is building his that would be an interesting book to revisit because I was probably five or six years ago I did a book and episode 17 Jeff Bezos the first time I did an episode in him as always everything I mentioned will be linked down in the show notes and available at Founders Podcast dot com that is 321 I think that's 321 books down 1,000 ago and I'll talk to you soon