The Everything Store notes & summary pt. 2
Find a steady cash cow, reinvest profits into bold bets, rinse and repeat...
pg.167 - Jeff is great and driving employees into the ground, making them work harder than they’ve ever worked in their life. Many employees left due to pure exhaustion but look back on their time at Amazon as the most productive of their careers. Being able to squeeze that much out of your employees is a rare quality. Musk has it as well. How do they do it?
It starts from the top. If Jeff didn’t work that hard his employees wouldn’t. I don’t know much about the specifics of how many hours in a week Jeff worked, how many holidays he took, and how much time he spent with his wife and kids, but the book regularly mentions Jeff replying to emails at all hours, although he seems to have a decent family life. That is admirable and something the book never discusses specifically, unfortunately.
Jeff seems to be very talented, and talented people want to work with other talented people.
Employees have quite a bit of autonomy and a lot of resources backing them to do bold things that they couldn’t do elsewhere. This is balanced with lots of accountability to prevent indiscriminate spending.
Jeff believes in hiring smart people and turning them into great managers, so the organization is full of very bright people.
There’s very little breathing room at Amazon. They want 100% all of the time. This means everybody working at Amazon is super motivated, which is a great environment to be in if you want to learn more and progress in your career.
After the dot-com bubble burst Amazon employees left in droves due to a mixture of burnout and pessimism about the future prospects of their stock. I imagine it was very tempting at this time for Jeff to lower the hiring standards and expect less from his employees, but for whatever reason, he didn’t flinch. By all accounts, he still believed in their mission and future prospects. This is essential in a leader. If the captain of your ship thinks you’re going to sink, what would you think?
pg. 168 - One of his board members was Scott Cook, Intuit’s founder. A few years prior he let Scott join the board of eBay, and by 2003 the 2 companies were direct competitors. Scott had to leave the board of one company and decided to leave Amazon because eBay didn’t have the huge overhead of managing fulfillment centers (today eBay’s market cap is $25b, Amazon’s is $1t). Jeff never blamed Scott, but was very angry at himself for letting Scott join eBay’s board. No blame culture, a culture of personal responsibility.
pg. 182 - Jeff’s dad left Cuba after the socialist revolution, but his family thought it would be temporary and that he could return after the old Govt. was reinstalled. People always think wars and revolutions are temporary. People thought the same thing about the Syrian civil war in 2011 (still ongoing), the Lebanese civil war (lasted 15 years and the country has yet to recover, 32 years on from the end of the war), World War 2 (people thought Hitler would be stamped out v. quickly), the Iranian Islamic revolution (the country is still ruled by Islamic fundamentalists 40 years on), and the Iraq war (Americans and Iraqis both thought it would be a quick invasion, toppling Saddam and installing a new Govt, but it actually lasted nearly 20 years and the country has yet to recover).
I don’t believe the Ukrainian war is much different. Russia cannot afford a prolonged war, the Ukrainian Govt. is largely unchanged, and Europe wants an end to high energy prices and a war on its doorstep, so I believe the war will end in the next 6 months (60% confidence) but I do not believe Ukraine will bounce back. Almost all Ukrainian children and young women have left the country for Europe, where many of them have found jobs, are enrolled in schools, and have temporary accommodation. I believe most will not return. Further, Ukrainian cities have been pummelled and the damage is huge. Even if there is some sort of Marshall plan it will take years to complete, by which time Ukrainians will be even less likely to return even if there is decent infrastructure back home.
pg. 189 - One time, as a young kid, Jeff read that smoking increases mortality rates, and he told his smoking granny this and said she should stop smoking. His granny burst into tears. His grandad took him outside and told him that it’s harder to be kind than smart. Empathy doesn’t come naturally to smart people.
pg. 201 - When asked what keeps motivating him after becoming a billionaire, since it’s clearly not money. He said it’s people counting on him. Amazon is famous for giving employees more equity than other firms, which means their pay is largely dependent on how the firm performs, which is largely determined by Jeff himself. I don’t believe this is the only reason though, because I’m sure he could’ve sold the company numerous times which would’ve given employees a large payday. I think he’s motivated when he’s in the arena and all eyes are on him. He’s very competitive.
pg.211 - Decentralization. As Amazon grew in size it faced a problem all big companies face - getting everybody in the company working in the same direction. A team of junior managers proposed a number of different methods of cross-team communication that would get everybody on the same page and focused on the same objectives. Jeff said they were completely wrong, and time spent communicating across the organization should be minimized. Ideally, people would act in the best interest of the entire company without being told what to do. He made decentralized command central to his management philosophy to ensure teams could move quickly and respond to events faster than competitors. SPEED SPEED SPEED.
pg. 220 - Amazon famously banned PowerPoint in favor of 6-page detailed narratives, complete with charts, references, and an appendix, which are read silently at the beginning of meetings by attendees. He felt ppt was too vague and it was too easy to ‘hide behind bullet points’. He wanted his team to think deeply and develop a thorough understanding of problems. ‘[Amazon] is not a place people go to retire’.
Proposed new products or features are written in the form of a press release to customers, forcing the team to constantly think about their work in terms of how it affects consumers. It makes a lot more sense to find a problem and solve it than to create a solution and find the problem.
pg.245 - Instead of returning profits to investors, Amazon reinvested them in small, risky bets, most of which didn’t pay off and were largely unprofitable. These included an Amazon search engine and a crowdsourcing platform, neither of which really took off. It also included AWS, which produced 15% of Amazon’s revenue and 75% of Amazon’s profits in 2021. It would’ve been much easier for Amazon to simply sit back, focus on e-commerce, and collect a tidy safe profit as the market leader. Adobe did this, then Figma came along with what was basically a free, in-browser, cloud-first Adobe Suite, which Adobe was pretty much forced into buying a few months ago for $20 billion, sending its stock price down 25%. If you don’t innovate (which is the trial-and-error process of tinkering and making small bets with massive upside), if you don’t disrupt your business model, others will. Adobe got fat, lazy, and decadent.
Amazon used the profits from its retail business to fund tech bets. It was not initially much of a technology company, with the bulk of its staff working on logistics, retail, and warehousing.
pg.275 - The value of AWS is immediate and obvious to start-ups. It converts a large, up-front fixed cost for an outsourced variable cost that scales automatically, saving them time, money, and energy. By utilizing economies-of-scale, AWS was able to provide processing power and cloud storage that was cheaper & better, a complete no-brainer for companies.
The same applies for almost all businesses that convert a fixed-cost into a variable cost.
Amazon initially kept profits low even when they easily could’ve charged more for 2 reasons:
High profits slow growth.
High profits attract competition. Jeff claimed Steve Jobs made the mistake of making the iPhone too profitable too early, which attracted lots of competition before Apple could get a comfortable lead in the smartphone industry.
pg.278 - Amazon Marketplace and AWS have done so much good for the world. If you want to set up an e-commerce store you no longer need to handle orders or payments, just shipping. Every company that did anything online prior to AWS had to have its own IT team to manage its servers and buy more than it needed in case traffic spiked. Now Amazon will take care of all of that for you. The idea of a start-up managing their own servers is insane now, but it was a necessity before AWS. The amount of opportunity this has opened up for entrepreneurs is huge.
pg.288 - Platform control is everything in the tech industry. If you control the platform you are the gatekeeper to customers. All iPod music is sold through iTunes, all apps are purchased on the Apple/Google App Store, and all ebooks would be sold by whoever built the ereader. Bezos was determined to dominate the ebook market for this very reason.
This was very unpopular within Amazon’s executive team. Hardware is a different ballgame to software and extremely difficult. According to one of the executives ‘it turns out most of the things I predicted actually happened, but we powered through them because Jeff is not deterred by short-term setbacks. It was a steep learning curve but an ultimately lucrative one, and opened up the entire hardware market to Amazon.
There was also resistance within Amazon because a huge amount of its revenue was from selling books. Jeff didn’t want to repeat the Kodak mistake (Kodak built an early digital camera prototype but didn’t want to cannibalize its huge profit margins from film photography). The only way you can protect your business model from your competitors is to disrupt it yourself.
pg.290 - ‘start with the customer and work backwards’
pg.323 - Amazon stock rose 3x steadily in the 6 years after the dotcom crash, and 2.5x in 6 months in 2007. All the pain they had endured in the previous years, the losses they suffered from Prime, the disruption from Amazon Marketplace, the huge investments in fulfillment centres & logistics, the steep learning curve of hardware, all of this started to pay off in 2007 as Amazon’s YOY growth almost doubled instead of plateauing like most big companies. Its profits started increasing rapidly before shrinking again as Bezos reinvested them into other bets.
It was built in the bad times and prospered in the good times.
pg.367 - Business is war without bullets. I heard this over and over in Phil Knight’s memoir, the founder of Nike. Bezos’s acquisition strategy was ruthless and frightening. To acquire Diapers.com, a young e-commerce startup valued at around half a billion, he met with the team to learn about their operation to undermine it, under the guise of a potential acquisition. Once he figured them out he started heavily discounting diapers on Amazon, a classic strategy to stomp out competition. When Diapers.com could no longer afford to compete with Amazon, Amazon offered a $540m acquisition offer and gave them only 48 hours to accept, threatening to drive down the price of diapers even further if they rejected. The diapers team reluctantly accepted the interim deal, but soon after had a counter deal from Walmart for $600m, but they rejected it out of fear.
Loyalty is very very valuable, but very very expensive. Be judicious with it. Jeff rarely showed much loyalty to staff and had no problem getting rid of longtime employees if they weren’t performing. That’s a ruthless environment to live in and only one that the best can survive in. Long serving Amazon employees are like old mafia bosses, you should listen to old people in games where people don’t survive for long. The same goes with customers. While Amazon is famous for obsessing over customers, it shows no particular loyalty to one group of customers over another and has no problem upsetting even its most loyal customers if it’s in the best interest of the whole.
pg.376 - All sellers on Amazon.com are at the mercy of Amazon, even Nike. All developers on the iOS app store are at the mercy of Apple, even Facebook. All companies that operate in the US are at the mercy of the US Government. Platform control is power. You want to move as high upstream as possible.
pg.382 - Amazon was a hardball negotiator. They knew how to get your balls in a vice grip and weren’t afraid to clamp shut. They pretty much forced LoveFilm into a £200m acquisition deal, which is about half of what their fair value would’ve been. They did this by becoming the biggest investor, which gave it veto power over any future IPO, which Amazon threatened to use if LoveFilm sold to a competitor. This meant it would be extremely difficult if it tried to raise money, which is desperately needed if it was to fend off competition from its deep pocketed rivals BSkyB and Netflix. They needed money and Amazon made sure that LoveFilm couldn’t get it from anywhere except Amazon.
pg.384 - It seems Amazon rarely loses. Even when they lose a battle they regroup and go again. They are relentless and able to wear down their competitors. Rome used the same tactic against Carthage, they would constantly wage war against their bigger and richer adversary and everytime they lost they would simply regroup, learn from their mistakes, and go again.
Amazon only controlled about 60% of the ereader market, and the big 5 publishing houses colluded with the support of Apple to raise prices, against the wishes of Amazon. The publishing houses threatened to take all of their titles off of Amazon if Amazon forced them to sell for lower prices. Since Kindles would be worthless if there were no books on it, Amazon was forced to concede, but only temporarily. Amazon started a publishing house to put the competition out of business. If you hold a knife to Amazon’s throat they’ll hold a knife to yours.
pg.390 - Looking good and doing good are not strongly correlated. You can do a lot of bad things but if you have a decent marketing department and friends in high places you will look good. You can do some great things but make powerful enemies who will make you look bad. Tesla has done more than any other organization to accelerate humanity’s transition to renewable energy, and SpaceX has done more than any other organization, including NASA, in the last 30 years to make humanity a multi-planetary species. Despite this, if you search ‘elon musk’ on an American news websites, the coverage is largely negative, although foreign coverage is much more balanced.
As Amazon grew in size, Bezos consciously crafted Amazon’s public image to ensure people had a positive opinion of it.
pg.396 - You can email Jeff Bezos today at jeff@amazon.com. A team of assistants manage the email address and show some of those emails to Jeff. One customer emailed Jeff complaining that he was getting emails from Amazon advertising lube. Jeff raised this issue immediately with the email marketing team and nearly shut down all email marketing. Jeff takes customer complaints very seriously and regulalry asks his team for feedback and ideas. His management style is very boots-on-the-ground, he works long hours and kicks the tyres checking to make sure everything is working well and looking for small improvements.
He focuses mainly on building the new divisions and holds weekly meetings with the leaders of these divisions, asking pointed questions with high standards. Everybody in the company knows that at any time Jeff examine your work, and if it’s not up to scratch your job will be on the line.
pg.410 - Amazon spent $1.6m on Bezos’s personal security in 2013. Pretty cool.
The most admirable thing about Amazon, in my opinion, has been their ability to make bold bets without going bust. They never half-ass anything, it’s all or nothing, which is cool but very dangerous and typically leads to bankruptcy. It doesn’t seem that Amazon was ever too close to bankruptcy after the dotcom crash, although I suspect at times they got a bit too close for comfort. Amazon has been around for 28 years, a very long time, and that is key to their success. To finish first, first you must finish. To win the game you must stay in the game. Success is largely about making less mistakes than your opponent. Retail is one of the steadiest, most reliable businesses out there, and he used the fairly reliable revenues from Amazon’s retail business to fund bold bets, with notable successes like AWS, Kindle, Fire tablet, Alexa, and Audible, and a ton of failures you’ve probably never heard of. AWS’s success has been so great that the profits it has generated probably outweigh all of the money spent on all of their flops. And now AWS is funding a new series of bold bets, who knows which one will take off. Amazon is an interesting company and I really enjoyed this book, so much so that I bought the sequel, Amazon Unbound, and Jeff Bezo’s book Invent and Wander, and both of Jeff’s wife’s fiction books.
I will probably type up my notes on Amazon Unbound and Invent and Wander, but they will be much shorter. I don’t think these books are dense enough to deserve the attention I’m giving them, or at least there are other books that deserve it more.