Barely a Berkshire Hathaway AGM passes without Warren Buffett referring to the 1990 Salomon Brothers Treasury Bond scandal where he famously stepped in to protect the greater Berkshire group’s reputation. How Buffett reacted defined his company’s future.
Amazon founder Jeff Bezos’s equivalent is his 1997 letter to shareholders, a famous missive in which he referred to the time as being “Day 1 for the Internet”. He committed the company to a long-term focus on and obsession for customers.
At the dawning of the Internet Age, for those of us who also grasped the potential of the marvel, Bezos’s ideas were like a beacon. At a time when everyone was thrashing around trying to find a revenue model – and capture an elusive slice of a then tiny e-commerce pie – Amazon was the giant, already selling more than $150m worth of books online.
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When the dotcom bubble burst in January 2000, Bezos disappeared from magazine covers. But for those who still believed, his star never waned. For his part, Bezos simply dusted himself off, pulled out his Day 1 thesis and refocused. The results have been spectacular with his group today worth $450bn and Bezos himself universally lauded for his genius.
Little wonder he refers so often to that 1997 masterpiece. He did so again in the latest letter to shareholders, reminding them (and himself) how vital it is to always stay in Day 1. Because, as he writes, “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Most of this year’s shareholder letter explains how Amazon keeps Day 1 alive. And therein lie pearls for the rest of us, with direct advice from the man Charlie Munger referred to over the weekend as so good an entrepreneur “he’s a different species.”
Bezos says first requirement is true customer obsession because they are “always beautifully, wonderfully dissatisfied even when they report being happy.” He says this requires patient experimentation, the acceptance of occasional failure and doubling down when you hit something customers love – because they always want something better.
Next comes what Bezos describes as “resisting proxies”. This is when companies get so caught up in processes they stop looking at the outcomes. Number three is grabbing a business tailwind by embracing the big trends quickly. Identifying them is easier than you might imagine as “they get talked and written about a lot.” The big trends right now, he adds, are machine learning and artificial intelligence. It is into these areas that Amazon is investing most heavily (Prime Air delivery drones; Alexa; Echo; Amazon Go; etc)
Another aspect critical for a Day 1 company is “high-quality, high velocity” decisions carrying reversibility. And a fully aligned management team with a policy to “disagree and commit” should they not be won over by new ideas. Lots in there to reflect on. Deeply.
