Invent and Wander

Introduction

I was the editor of Time, and we made a somewhat offbeat decision to make Bezos our Person of the Year, even though he wasn’t a famous world leader or statesman. I had the theory that the people who affect our lives the most are often the people in business and technology who, at least early in their careers, aren’t often found on the front pages. For example, we had made Andy Grove of Intel the Person of the Year at the end of 1997 because I felt the explosion of the microchip was changing our society more than any prime minister or president or treasury secretary.

This would be an incredibly prescient choice; I don’t think many realize Isaacson was the deciding factor in Bezos becoming Person of the Year.

Every time a seismic shift takes place in our economy, there are people who feel the vibrations long before the rest of us do, vibrations so strong they demand action—action that can seem rash, even stupid. Ferry owner Cornelius Vanderbilt jumped ship when he saw the railroads coming. Thomas Watson Jr., overwhelmed by his sense that computers would be everywhere even when they were nowhere, bet his father’s office-machine company on it: IBM. Jeffrey Preston Bezos had that same experience when he first peered into the maze of connected computers called the World Wide Web and realized that the future of retailing was glowing back at him.… Bezos’ vision of the online retailing universe was so complete, his Amazon.com site so elegant and appealing, that it became from Day One the point of reference for anyone who had anything to sell online. And that, it turns out, is everyone.

I really want to read about IBM and Vanderbilt as well.

[D]uring the dot.com meltdown, he and a few other internet entrepreneurs were on an NBC Nightly News special with Tom Brokaw. “Mr. Bezos, can you even spell ‘profit’?” Brokaw asked, highlighting the fact that Amazon was hemorrhaging money as it grew. “Sure,” Bezos replied, “P-R-O-P-H-E-T.” And by 2019 Amazon stock would be at $2,000 a share, and the company would have $233 billion in revenues and 647,000 employees worldwide.

Too funny.

Shareholder Letters

[The] fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital. Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand.

This first set of shareholder letters have so many bangers. He’s laying out his entire long-term philosophy right here. He does not care about profit. He wants marketshare, which means he will funnel every single dollar he makes back into the business. He is telling you from day one that this is how he will operate; if you don’t like it, please don’t invest.

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

He really is the most long-term oriented CEO I’ve read about thus far.

We will continue to focus relentlessly on our customers. We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.

How many times in a row does he have to say it? And yet, the primary criticism from Wall Street was that Amazon was not making a profit. How dense do you have to be to not get it?

When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.

Surely at this point you understand, right Wall Street? I think this is the primary way any strong business should operate by the way.

Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com’s success. It’s not easy to work here (when I interview people I tell them, “You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three”), but we are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about. Such things aren’t meant to be easy.

A part of never being satisfied is simply saying no to the various false choices and tradeoffs. The greats always want to have their cake and eat it, too.

We intend to build the world’s most customer-centric company. We hold as axiomatic that customers are perceptive and smart, and that brand image follows reality and not the other way around. Our customers tell us that they choose Amazon.com and tell their friends about us because of the selection, ease-of-use, low prices, and service that we deliver. But there is no rest for the weary. I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us—right up until the second that someone else offers them a better service.

This is very Sol Price / Costco-esque. Customers are not dumb - they are smart. You have to provide real value or they will not choose your business.

The most important thing I could say in this letter was said in last year’s letter, which detailed our long-term investment approach. Because we have so many new shareholders (this year we’re printing more than two hundred thousand of these letters—last year we printed about thirteen thousand), we’ve appended last year’s letter immediately after this year’s. I invite you to please read the section titled “It’s All About the Long Term.” You might want to read it twice to make sure we’re the kind of company you want to be invested in. As it says there, we don’t claim it’s the right philosophy, we just claim it’s ours!

That first shareholder letter really was the single best one. Wisely, he attaches it to every future shareholder letter!

[O]perational excellence implies two things: delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all our businesses. Often, the best way to drive one of these is to deliver the other. For instance, more efficient distribution yields faster delivery times, which in turn lowers contacts per order and customer service costs. These, in turn, improve customer experience and build brand, which in turn decreases customer acquisition and retention costs. Our whole company is highly focused on driving operational excellence in each area of our business in 2000. Being world class in both customer experience and operations will allow us to grow faster and deliver even higher service levels.

This is exactly why he must funnel every dollar made back into the business. Once you get the flywheel of operational excellence going, you do not want to interrupt the compounding for a short term buck!

[T]he current online shopping experience is the worst it will ever be. It’s good enough today to attract seventeen million customers, but it will get so much better. Increased bandwidth will result in faster page views and richer content. Further improvements will lead to “always-on access” (which I expect will be a strong boost to online shopping at home, as opposed to the office) and we’ll see significant growth in non-PC devices and wireless access. Moreover, it’s great to be participating in what is a multi-trillion-dollar global market, in which we are so very, very tiny. We are doubly blessed. We have a market-size unconstrained opportunity in an area where the underlying foundational technology we employ improves every day. That is not normal.

He saw it so clearly. A lot of parallels between this and AI where it is today.

[O]ur shares are down more than 80 percent from when I wrote you last year. Nevertheless, by almost any measure, Amazon.com the company is in a stronger position now than at any time in its past. We served twenty million customers in 2000, up from fourteen million in 1999. Sales grew to $2.76 billion in 2000 from $1.64 billion in 1999. Pro forma operating loss shrank to 6 percent of sales in Q4 2000, from 26 percent of sales in Q4 1999. Pro forma operating loss in the United States shrank to 2 percent of sales in Q4 2000, from 24 percent of sales in Q4 1999. Average spend per customer in 2000 was $134, up 19 percent. Gross profit grew to $656 million in 2000, from $291 million in 1999, up 125 percent. Almost 36 percent of Q4 2000 US customers purchased from one of our “non-BMV” stores such as electronics, tools, and kitchen. International sales grew to $381 million in 2000, from $168 million in 1999. We helped our partner Toysrus.com sell more than $125 million of toys and video games in Q4 2000. We ended 2000 with cash and marketable securities of $1.1 billion, up from $706 million at the end of 1999, thanks to our early 2000 euroconvert financing. And, most importantly, our heads-down focus on the customer was reflected in a score of eighty-four on the American Customer Satisfaction Index. We are told this is the highest score ever recorded for a service company in any industry. So, if the company is better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago? As the famed investor Benjamin Graham said, “In the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.” Clearly there was a lot of voting going on in the boom year of ’99—and much less weighing. We’re a company that wants to be weighed, and over time, we will be—over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company.

If one had to defend his company after the Dotcom bubble, I’m not sure it’s possible to do a better job than this. Yeah the market is in a bad state, but Amazon’s business fundamentals are entirely sound. So why freak out? He’s basically calling out every investor and saying you guys are just short term sheep, but eventually, in the long run, you’ll come around.

At the pinnacle of the internet bubble our stock peaked somewhere around $113, and then after the internet bubble burst, in less than a year our stock went down to $6. My annual shareholder letter for 2000, as noted in Part I, starts with a one-word sentence: “Ouch.” That whole period is very interesting because the stock is not the company, and the company is not the stock, and so, as I watched the stock fall from $113 to $6, I was also watching all of our internal business metrics—number of customers, profit per unit, defects—everything you can imagine (see the 2000 letter for details). Every single thing about the business was getting better and fast. And so, as the stock price was going the wrong way, everything inside the company was going the right way, and we didn’t need to go back to the capital markets. We already had the money we needed, so we just needed to continue to progress.

In the final shareholder letter, he says the above, looking back on the bubble.

We have the brand, the customer relationships, the technology, the fulfillment infrastructure, the financial strength, the people, and the determination to extend our leadership in this infant industry and to build an important and lasting company. And we will do so by keeping the customer first.

Heck of a way to close a letter in the worst crisis tech had seen, up to that point.

In every annual letter (including this one), we attach a copy of our original 1997 letter to shareholders to help investors decide if Amazon.com is the right kind of investment for them, and to help us determine if we have remained true to our original goals and values.

I love that five years later he’s still doing this.

Why focus on cash flows? Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows more than any other single variable seem to do the best job of explaining a company’s stock price over the long term. If you could know for certain just two things—a company’s future cash flows and its future number of shares outstanding—you would have an excellent idea of the fair value of a share of that company’s stock today.

This is a very compelling argument.

In this year’s American Customer Satisfaction Index, the most authoritative study of customer satisfaction, Amazon.com scored an eighty-eight, the highest score ever recorded—not just online, not just in retailing—but the highest score ever recorded in any service industry. In ACSI’s words, “Amazon.com continues to show remarkably high levels of customer satisfaction. With a score of 88 (up 5%), it is generating satisfaction at a level unheard of in the service industry.… Can customer satisfaction for Amazon climb more? The latest ACSI data suggest that it is indeed possible. Both service and the value proposition offered by Amazon have increased at a steep rate.”

Amazon took being the world’s most customer-centric company very seriously.

Our pricing objective is not to discount a small number of products for a limited period of time, but to offer low prices every day and apply them broadly across our entire product range.

This was a marked change, by the way, after he spoke to Jim Sinegal from Costco.

Long-term thinking is both a requirement and an outcome of true ownership. Owners are different from tenants. I know of a couple who rented out their house, and the family who moved in nailed their Christmas tree to the hardwood floors instead of using a tree stand. Expedient, I suppose, and admittedly these were particularly bad tenants, but no owner would be so short-sighted. Similarly, many investors are effectively short-term tenants, turning their portfolios so quickly they are really just renting the stocks that they temporarily “own.” We emphasized our long-term views in our 1997 letter to shareholders, our first as a public company, because that approach really does drive making many concrete, nonabstract decisions.

It’s why act like an owner is a core value at Amazon - and it’s one that I believe in as well.

[W]e use the term customer experience broadly. It includes every customer-facing aspect of our business—from our product prices to our selection, from our website’s user interface to how we package and ship items. The customer experience we create is by far the most important driver of our business. As we design our customer experience, we do so with long-term owners in mind. We try to make all of our customer experience decisions—big and small—in that framework.

All the greats define it this way. Dyson and Jobs, for example, included the act of purchasing their products into the customer experience. When defined that way, there was no choice but to set up their own stores because third party distributors could not be trusted.

[I]n 1995, we empowered customers to review products. While now a routine Amazon.com practice, at the time we received complaints from a few vendors, basically wondering if we understood our business: “You make money when you sell things—why would you allow negative reviews on your website?” Speaking as a focus group of one, I know I’ve sometimes changed my mind before making purchases on Amazon.com as a result of negative or lukewarm customer reviews.

It’s crazy to imagine that this was once controversial! But of course vendors would never want the ability of customers to leave them negative reviews.

Though some may find it counterintuitive, a company can actually impair shareholder value in certain circumstances by growing earnings. This happens when the capital investments required for growth exceed the present value of the cash flow derived from those investments.

In other words, stop being short term focused. Keep putting it into growth instead of extracting profits.

[N]ot all of our important decisions can be made in this enviable, math-based way. Sometimes we have little or no historical data to guide us and proactive experimentation is impossible, impractical, or tantamount to a decision to proceed. Though data, analysis, and math play a role, the prime ingredient in these decisions is judgment.* As our shareholders know, we have made a decision to continuously and significantly lower prices for customers year after year as our efficiency and scale make it possible. This is an example of a very important decision that cannot be made in a math-based way. In fact, when we lower prices, we go against the math that we can do, which always says that the smart move is to raise prices. We have significant data related to price elasticity. With fair accuracy, we can predict that a price reduction of a certain percentage will result in an increase in units sold of a certain percentage. With rare exceptions, the volume increase in the short term is never enough to pay for the price decrease. However, our quantitative understanding of elasticity is short-term. We can estimate what a price reduction will do this week and this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on our business over five years or ten years or more. Our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.com. We’ve made similar judgments around Free Super Saver Shipping and Amazon Prime, both of which are expensive in the short term and—we believe—important and valuable in the long term.

In other words, many times, the most important decisions are going to be based on gut. That’s why it takes judgement and skill.

Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated. Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy - it would also significantly limit innovation and long-term value creation.

Often, the best decisions are extremely controversial - some are nearly universally hated.

We’re well positioned to do it, it’s highly differentiated, and it can be a significant, financially attractive business over time. In some large companies, it might be difficult to grow new businesses from tiny seeds because of the patience and nurturing required. In my view, Amazon’s culture is unusually supportive of small businesses with big potential, and I believe that’s a source of competitive advantage.

[sic]

We have many people at our company who have watched multiple $10 million seeds turn into billion-dollar businesses. That firsthand experience and the culture that has grown up around those successes is, in my opinion, a big part of why we can start businesses from scratch. The culture demands that these new businesses be high potential and that they be innovative and differentiated, but it does not demand that they be large on the day that they are born.

This is truly a unique advantage to Amazon. Google is famous for killing products that don’t immediately take off, whereas Amazon will stick to dead ends for years, pounding away until it works like in the case of Kindle and Alexa. The long term focus helps them whether short-term setbacks.

We humans coevolve with our tools. We change our tools, and then our tools change us. Writing, invented thousands of years ago, is a grand whopper of a tool, and I have no doubt that it changed us dramatically. Five hundred years ago, Gutenberg’s invention led to a significant step-change in the cost of books. Physical books ushered in a new way of collaborating and learning. Lately, networked tools such as desktop computers, laptops, cell phones and PDAs have changed us too. They’ve shifted us more toward information snacking, and I would argue toward shorter attention spans.

This is a very astute observation.

I realize my tone here tends toward the missionary, and I can assure you it’s heartfelt. It’s also not unique to me but is shared by a large group of folks here. I’m glad about that because missionaries build better products.

He absolutely is a missionary about this. Read any Bezos biography and, unsurprisingly, you will find that he is an avid reader. This man truly loves books.

[O]ur fundamental approach remains the same. Stay heads down, focused on the long term and obsessed over customers. Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate. It supports the failure and iteration required for invention, and it frees us to pioneer in unexplored spaces. Seek instant gratification—or the elusive promise of it—and chances are you’ll find a crowd there ahead of you. Long-term orientation interacts well with customer obsession. If we can identify a customer need and if we can further develop conviction that that need is meaningful and durable, our approach permits us to work patiently for multiple years to deliver a solution. “Working backward” from customer needs can be contrasted with a “skills-forward” approach where existing skills and competencies are used to drive business opportunities. The skills-forward approach says, “We are really good at X. What else can we do with X?” That’s a useful and rewarding business approach. However, if used exclusively, the company employing it will never be driven to develop fresh skills. Eventually the existing skills will become outmoded. Working backward from customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward-feeling those first steps might be.

You can read all about this approach and mentality in Working Backwards.

[W]e have strong conviction that customers value low prices, vast selection, and fast, convenient delivery and that these needs will remain stable over time. It is difficult for us to imagine that ten years from now, customers will want higher prices, less selection, or slower delivery. Our belief in the durability of these pillars is what gives us the confidence required to invest in strengthening them. We know that the energy we put in now will continue to pay dividends well into the future. Our pricing objective is to earn customer trust, not to optimize short-term profit dollars. We take it as an article of faith that pricing in this manner is the best way to grow our aggregate profit dollars over the long term. We may make less per item, but by consistently earning trust we will sell many more items. Therefore, we offer low prices across our entire product range.

You have to build your business on very stable foundations. The things your business will provide should be invariants of the human nature, which is extremely useful because humans don’t change much.

The customer-experience path we’ve chosen requires us to have an efficient cost structure. The good news for shareowners is that we see much opportunity for improvement in that regard. Everywhere we look (and we all look), we find what experienced Japanese manufacturers would call muda, or waste.† I find this incredibly energizing. I see it as potential—years and years of variable and fixed productivity gains and more efficient, higher velocity, more flexible capital expenditures.

Problems are opportunities dressed in work clothes. If you love business, then finding problems should excite you. This is the same attitude Joe Coulombe had.

We build automated systems that look for occasions when we’ve provided a customer experience that isn’t up to our standards, and those systems then proactively refund customers. One industry observer recently received an automated email from us that said, “We noticed that you experienced poor video playback while watching the following rental on Amazon Video On Demand: Casablanca. We’re sorry for the inconvenience and have issued you a refund for the following amount: $2.99. We hope to see you again soon.”

This is very true. Interacting with Amazon customer support is always truly a pleasure.

In the short run, the market is a voting machine but in the long run, it is a weighing machine. We don’t celebrate a 10 percent increase in the stock price like we celebrate excellent customer experience. We aren’t 10 percent smarter when that happens and conversely aren’t 10 percent dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company.

Every single year he finds another way to talk about how he’s long-term focused. Those are the types of investors he wants.

I’d like to close by remembering Joy Covey. Joy was Amazon’s CFO in the early days, and she left an indelible mark on the company. Joy was brilliant, intense, and so fun. She smiled a lot and her eyes were always wide, missing nothing. She was substance over optics. She was a long-term thinker. She had a deep keel. Joy was bold. She had a profound impact on all of us on the senior team and on the company’s entire culture. Part of her will always be here, making sure we watch the details, see the world around us, and all have fun. I feel super lucky to be a part of the Amazon team. It’s still Day 1.

She really was an incredible CFO and a perfect culture fit. Her quotation at the end of The Everything Store really changed my perspective on Amazon and Jeff Bezos.

A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time—with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.

Greenoaks has the same thesis.

[Corporate cultures] can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it—not creating it. It is created slowly over time by the people and by events—by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one—just that it’s ours—and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.

Marc Randolph would agree. The first version of the now-famous Netflix culture was essentially just talking to all the employees and surveying how they already worked. It is revealing the day to day culture, not creating it.

We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.

You owe it to yourself to be extremely risk seeking! Otherwise you can never capture these long tail outcomes.

One common pitfall for large organizations—one that hurts speed and inventiveness—is “one-size-fits-all” decision making. Some decisions are consequential and irreversible or nearly irreversible—one-way doors—and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that—they are changeable, reversible—they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups. As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.* We’ll have to figure out how to fight that tendency.

The origin of the now-famous type 1 vs type 2 decision making framework.

There are many ways to center a business. You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality. Why? There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.

I love this quotation. Understand that human nature is very quickly adapt to a new technology and take it for granted as the way things have always been. This is a feature not a bug. It’s why humans strive to improve the world so much. It also means that no company can rest of their laurels for too long.

One thing I love about customers is that they are divinely discontent. Their expectations are never static—they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s “wow” quickly becomes today’s “ordinary.” I see that cycle of improvement happening at a faster rate than ever before.

See the above quotation about human nature! He says this twice, but I loved it so much I included the second one anyway.

Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations. The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right.

This is the biggest danger when hiring these big company process people. They believe that the process, and not the outcome, is the goal.

[M]arket research and customer surveys can become proxies for customers—something that’s especially dangerous when you’re inventing and designing products.

[sic]

Good inventors and designers deeply understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the averages you’ll find on surveys. They live with the design.

[sic]

[Y]ou, the product or service owner, must understand the customer, have a vision, and love the offering. Then, beta testing and research can help you find your blind spots. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste. You won’t find any of it in a survey.

This is surprisingly similar to Jobs, Land, Ford, and Dyson! People think of Amazon as a pure execution play, but I actually think they are an incredibly innovative company. Kindle, Alexa, and AWS were all highly innovative for their time, and they were not done from surveys.

[B]ig trends are not that hard to spot (they get talked and written about a lot), but they can be strangely hard for large organizations to embrace. We’re in the middle of an obvious one right now: machine learning and artificial intelligence.

He called it! All the way back in 2016. But for the people who were following along, it truly was obvious.

[M]ost decisions should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.

Leadership is acting with imperfect information. Even a monkey can decide with 100% of the information necessary.

Sometimes (often actually) in business, you do know where you’re going, and when you do, you can be efficient. Put in place a plan and execute. In contrast, wandering in business is not efficient—but it’s also not random. It’s guided—by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it’s worth being a little messy and tangential to find our way there. Wandering is an essential counterbalance to efficiency. You need to employ both. The outsized discoveries—the “nonlinear” ones—are highly likely to require wandering.

If you’re long-term focused, then taking extra time to wander and find these nonlinear discoveries is worth it.

It’s critical to ask customers what they want, listen carefully to their answers, and figure out a plan to provide it thoughtfully and quickly (speed matters in business!). No business could thrive without that kind of customer obsession. But it’s also not enough. The biggest needle movers will be things that customers don’t know to ask for. We must invent on their behalf. We have to tap into our own inner imagination about what’s possible.

This is particularly true for new technologies. People don’t know what is possible in those situations, and you have to provide them with a compelling option and teach them. We’re learning this right now at Motion with AI workflow builders. People just don’t understand what these workflow builders can even do, so simply asking them “what would you like AI to do” is a very unfruitful discussion.

As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.

I love this idea - you need to take bigger swings the larger you get.

In most occupations, if you’re in the ninetieth percentile or above, you’re going to contribute. In theoretical physics, you’ve got to be, like, one of the top fifty people in the world, or you’re really just not helping out much. It was very clear. I saw the writing on the wall and changed my major very quickly to electrical engineering and computer science.

Very much a similar experience to what Bill Gates had, but about math instead of physics.

Tomorrow, in a very real sense, your life—the life you author from scratch on your own—begins. How will you use your gifts? What choices will you make? Will inertia be your guide, or will you follow your passions? Will you follow dogma, or will you be original? Will you choose a life of ease, or a life of service and adventure? Will you wilt under criticism, or will you follow your convictions? Will you bluff it out when you’re wrong, or will you apologize? Will you guard your heart against rejection, or will you act when you fall in love? Will you play it safe, or will you be a little bit swashbuckling? When it’s tough, will you give up, or will you be relentless? Will you be a cynic, or will you be a builder? Will you be clever at the expense of others, or will you be kind? I will hazard a prediction. When you are eighty years old and, in a quiet moment of reflection, narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made. In the end, we are our choices. Build yourself a great story.

This is an extremely well-written and powerful speech. I think about those last three lines on a weekly basis.

My grandfather once bought a used D6 Caterpillar for $5,000. It was an enormous bargain; it should have cost way more but was so cheap because it was completely broken. The transmission was stripped. The hydraulics didn’t work. And so we spent basically a whole summer repairing it. Giant gears would arrive by mail order from Caterpillar. We couldn’t even move the gears. The first thing my grandfather did was build a crane to move them. That’s self-reliance and resourcefulness.

If there’s one core value Bezos could impart on someone, it would be resourcefulness. Can you solve your own problems without seeking outside help? These days, it’s more fashionable to call that “high-agency”.

Even when our kids were four, we would let them use sharp knives, and when they were seven or eight, we would let them use certain power tools. My wife, much to her credit, has this great saying: “I would much rather have a kid with nine fingers than a resourceless kid,” which is a great attitude about life.

That’s an amazing parenting philosophy to have.

[T]hen a business miracle that never happens happened—the greatest piece of business luck in the history of business, so far as I know. We faced no like-minded competition for seven years. It’s unbelievable. When I launched Amazon.com in 1995, Barnes & Noble then launched Barnesandnoble.com and entered the market two years later in 1997. Two years later is very typical if you invent something new. We launched Kindle; Barnes & Noble launched Nook two years later. We launched Echo; Google launched Google Home two years later. When you pioneer, if you’re lucky, you get a two-year head start. Nobody gets a seven-year head start, and so that was unbelievable.

I talk about this a lot more in my PMF talk, but this is precisely why speed is so important. You should simply assume that your competitors will catch up in two years. That’s the base case.

I have always had a bit of skepticism about those kinds of perks because I always worry that people will stay with a company for the wrong reasons. You want people to stay for the mission. You don’t want mercenaries at your company. You want missionaries. Missionaries care about the mission. It’s actually not very complicated.

I completely agree. Peter Thiel also notes the same thing in Zero to One.

How do you hire great people and keep them from leaving? By giving them, first of all, a great mission—something that has real purpose, that has meaning. People want meaning in their lives.

This is so true. So much of modern anxiety is simply because we have lost our purpose as humans.

[T]here are two different kinds of failure. There’s experimental failure—that’s the kind of failure you should be happy with. And there’s operational failure. We’ve built hundreds of fulfillment centers at Amazon over the years, and we know how to do that. If we build a new fulfillment center and it’s a disaster, that’s just bad execution. That’s not good failure. But when we are developing a new product or service or experimenting in some way, and it doesn’t work, that’s okay. That’s great failure.

I love this distinction. Seek out failure - but seek out novel failure. Not failing because you were careless and didn’t pay attention when doing something you’ve done a thousand times before.

Let’s say you’re going to have some surgery. You should make sure the surgeon does that operation at least five times a week. Real data backs up the fact that a surgery is much safer if your surgeon is practicing it at least five times a week. And so we need to be going to space very frequently in a very routine way. One reason aviation is so safe today is because we do have so much practice.

He was mentioning this in the context of space flight - the best way to derisk launches is to launch often. I think it holds true in so many aspects of life. If you want to de-risk releases in an engineering org, release every day. The more you do something, the better you get, so paradoxically, you should do the thing that scares you more often.

We must have a future of dynamism for our grandchildren and their grandchildren. We cannot let them fall prey to stasis and rationing, and it’s this generation’s job to build that road to space so that the future generations can unleash their creativity. When that is possible, when the infrastructure is in place for future space entrepreneurs, just as it was for me in 1994 to start Amazon, you will see amazing things happen, and it will happen fast. I guarantee it. People are so creative once they’re unleashed.

A perfect note to end on. Thank you for everything, Jeff, and best of luck on Blue Origin.

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Bezos is one of the clearest writers I’ve ever read. He is concise, brilliant, and just plain entertaining. I highly recommend everyone read his shareholder letters - it is a masterclass in business.