Select quotes from Amazon annual shareholder reports by Jeff Bezos.

A characteristic of truly innovative and creative people is that they have a reality-distortion field, a phrase that was used about Steve Jobs and comes from a Star Trek episode in which aliens create an entire world through sheer mental force.

Principles

  • 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.

  • Our fundamental approach remains the same. Stay heads down, focused on the long term and obsessed over customers.

  • As I have said since my first shareholder letter in 1997, we make decisions based on the long-term value we create as we invent to meet customer needs.

  • Focus relentlessly and passionately on the customer. As he put it in his 1997 letter, “Obsess over Customers.” Each annual letter reinforces that mantra. “We intend to build the world’s most customer-centric company,” he wrote the following year. “We hold as axiomatic that customers are perceptive and smart.… 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.”

  • When you can figure out the things that are going to remain true under almost all circumstances, then you can put energy into them.

  • I want to have minimized the number of regrets that I have in my life. And most of our regrets are acts of omission—the things we didn’t try, the paths untraveled. Those are the things that haunt us. And I decided that if I didn’t at least give it my best shot, I was going to regret not trying to participate in this thing called the internet that I thought was going to be a big deal.

Hiring

  • Hire the right people. “We will continue to focus on hiring and retaining versatile and talented employees,” he wrote in an early shareholder letter. Compensation, especially early on, was heavily weighted to stock options rather than cash. “We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.”

  • There are three criteria he instructs managers to consider when they are hiring: Will you admire this person? Will this person raise the average level of effectiveness of the group he or she is entering? Along what dimension might this person be a superstar?

  • We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.

  • 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.

  • During our hiring meetings, we ask people to consider three questions before making a decision: Will you admire this person? If you think about the people you’ve admired in your life, they are probably people you’ve been able to learn from or take an example from. For myself, I’ve always tried hard to work only with people I admire, and I encourage folks here to be just as demanding. Life is definitely too short to do otherwise. Will this person raise the average level of effectiveness of the group they’re entering? We want to fight entropy. The bar has to continuously go up. I ask people to visualize the company five years from now. At that point, each of us should look around and say, “The standards are so high now—boy, I’m glad I got in when I did!” Along what dimension might this person be a superstar? Many people have unique skills, interests, and perspectives that enrich the work environment for all of us.

  • It’s often something that’s not even related to their jobs. One person here is a National Spelling Bee champion (1978, I believe). I suspect it doesn’t help her in her everyday work, but it does make working here more fun if you can occasionally snag her in the hall with a quick challenge: “onomatopoeia!”

  • 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. And you can confuse people with free massages. Like, “Oh, I don’t really like the mission here, but I love the free massages.”

  • 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.

Long Term Thinking

  • Focus on the long term. “It’s All About the Long Term,” he said in the italicized initial headline in his first shareholder letter in 1997. “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.” Focusing on the long term allows the interests of your customers, who want better and faster services cheaper, and the interests of your shareholders, who want a return on investment, to come into alignment. That’s not always true in the short term. In addition, long-term thinking permits innovation. “We like to invent and do new things,” he says, “and I know for sure that long-term orientation is essential for invention because you’re going to have a lot of failures along the way.”

  • We have a window of opportunity as larger players marshal the resources to pursue the online opportunity and as customers, new to purchasing online, are receptive to forming new relationships. The competitive landscape has continued to evolve at a fast pace. Many large players have moved online with credible offerings and have devoted substantial energy and resources to building awareness, traffic, and sales.

  • Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.

  • Because of our emphasis on the long term, we may make decisions and weigh trade-offs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:

  • We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages.

  • 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.

  • The list of immediate problems is very long, and we need to work on those things urgently, in the here and now. But there are also long-range problems: we need to work on them too, and they take a long time to solve. You can’t wait until the long-range problems are urgent to work on them. We can do both. We can work on the problems in the here and now, and we can get started on the long-range problems.

Customers First

  • 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.

  • This balance began to pay off in the fourth quarter, when we both significantly exceeded our own goals on the bottom line and simultaneously reaccelerated growth in our business. We lowered prices again in January when we offered a new class of shipping that is free (year-round) on orders over $99. Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it’s good for shareholders. Please expect us to repeat this loop.

  • Customer trust is hard to win and easy to lose. When you let customers make your business what it is, then they will be loyal to you—right up to the second that someone else offers them better service. We know that customers are perceptive and smart. We take as an article of faith that customers will notice when we work hard to do the right thing, and that by doing so again and again, we will earn trust. You earn trust slowly, over time, by doing hard things well—delivering on time; offering everyday low prices; making promises and keeping them; making principled decisions.

  • I’M A CUSTOMER of Amazon and sometimes have problems with an order. I treat these problems the same way I treat a problem that I hear about from a customer—as an opportunity to improve.

  • THE WAY YOU earn trust, the way you develop a reputation is by doing hard things well over and over and over.

  • It really is that simple. It’s also that complicated. It’s not easy to do hard things well, but that’s how you earn trust. And trust, of course, is an overloaded word. It means so many different things. It’s integrity, but it’s also competence. It’s doing what you said you were going to do—and delivering. And so we deliver billions of packages every year; we say we’re going to do that, and then we actually do it. And it’s also taking controversial stances.

Free Cash Flows

  • 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. (You’d also need to know appropriate discount rates, but if you knew the future cash flows for certain, it would also be reasonably easy to know which discount rates to use.) It’s not easy, but you can make an informed forecast of future cash flows by examining a company’s performance in the past and by looking at factors such as the leverage points and scalability in that company’s model. Estimating the number of shares outstanding in the future requires you to forecast items such as option grants to employees or other potential capital transactions. Ultimately, your determination of cash flow per share will be a strong indicator of the price you might be willing to pay for a share of ownership in any company.

  • Since we expect to keep our fixed costs largely fixed, even at significantly higher unit volumes, we believe Amazon.com is poised over the coming years to generate meaningful, sustained, free cash flow. Our goal for 2002 reflects just that. As we said in January when we reported our fourth quarter results, we plan this year to generate positive operating cash flow, leading to free cash flow (the difference between the two is up to $75 million of planned capital expenditures). Our trailing twelve-month pro forma net income should, roughly but not perfectly, trend like trailing twelve-month cash flow.

  • OUR ULTIMATE FINANCIAL measure, and the one we most want to drive over the long-term, is free cash flow per share.

  • Why not focus first and foremost, as many do, on earnings, earnings per share or earnings growth? The simple answer is that earnings don’t directly translate into cash flows, and shares are worth only the present value of their future cash flows, not the present value of their future earnings.

  • Unfortunately our transportation business is fundamentally flawed. There is no growth rate at which it makes sense to invest initial or subsequent capital to operate the business. In fact, our example is so simple and clear as to be obvious. Investors would run a net present value analysis on the economics and quickly determine it doesn’t pencil out. Though it’s more subtle and complex in the real world, this issue—the duality between earnings and cash flows—comes up all the time. Cash flow statements often don’t receive as much attention as they deserve. Discerning investors don’t stop with the income statement.

  • Free cash flow is defined as net cash provided by operating activities less purchases of fixed assets, including capitalized internal-use software and website development, both of which are presented on our statements of cash flows. Free cash flow for 2004 of $477 million is net cash provided by operating activities of $567 million less purchases of fixed assets, including capitalized internal-use software and website development costs, of $89 million. Free cash flow for 2003 of $346 million is net cash provided by operating activities of $392 million less purchases of fixed assets, including capitalized internal-use software and website development costs, of $46 million.

On Making Decisions

  • 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.

  • If it’s wrong, it’s wrong. You’ll change it. But if it’s a one-way door, analyze it five different ways. Be careful, because that is where slow is smooth and smooth is fast. You do not want to make one-way-door decisions quickly. You want to get consensus or at least drive a lot of thought and debate.

  • MANY OF THE important decisions we make at Amazon.com can be made with data. There is a right answer or a wrong answer, a better answer or a worse answer, and math tells us which is which. These are our favorite kinds of decisions.

  • 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.

  • We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.

  • Focus on the big decisions. “As a senior executive, what do you really get paid to do?” he asks. “You get paid to make a small number of high-quality decisions. Your job is not to make thousands of decisions every day.”

  • If I make, like, three good decisions a day, that’s enough, and they should just be as high quality as I can make them. Warren Buffet says he’s good if he makes three good decisions a year, and I really believe that.

Starting New Lines of Business

  • Amazon delivered ten billion packages in 2018, which is two billion more than the number of people on this planet.

  • Before we invest our shareholders’ money in a new business, we must convince ourselves that the new opportunity can generate the returns on capital our investors expected when they invested in Amazon. And we must convince ourselves that the new business can grow to a scale where it can be significant in the context of our overall company. Furthermore, we must believe that the opportunity is currently underserved and that we have the capabilities needed to bring strong customer-facing differentiation to the marketplace. Without that, it’s unlikely we’d get to scale in that new business.

  • In our experience, if a new business enjoys runaway success, it can only begin to be meaningful to the overall company economics in something like three to seven years.

  • The early days of Amazon.com provide an analog. It was tempting back then to believe that an online bookstore should have all the features of a physical bookstore. I was asked about a particular feature dozens of times: “How are you going to do electronic book signings?” Thirteen years later, we still haven’t figured that one out! Instead of trying to duplicate physical bookstores, we’ve been inspired by them and worked to find things we could do in the new medium that could never be done in the old one. We don’t have electronic book signings, and similarly we can’t provide a comfortable spot to sip coffee and relax. However, we can offer literally millions of titles, help with purchase decisions through customer reviews, and provide discovery features like “customers who bought this item also bought.” The list of useful things that can be done only in the new medium is a long one.

  • To be clear, we take these financial outputs seriously, but we believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time. Our annual goal setting process begins in the fall and concludes early in the new year after we’ve completed our peak holiday quarter. Our goal setting sessions are lengthy, spirited, and detail oriented. We have a high bar for the experience our customers deserve and a sense of urgency to improve that experience.

  • Taken as a whole, the set of goals is indicative of our fundamental approach. Start with customers and work backward. Listen to customers, but don’t just listen to customers—also invent on their behalf. We can’t assure you that we’ll meet all of this year’s goals. We haven’t in past years. However, we can assure you that we’ll continue to obsess over customers. We have strong conviction that that approach—in the long term—is every bit as good for owners as it is for customers. It’s still Day 1.

Inventing

  • Two years later is very typical if you invent something new.

  • I always point out that there 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. Innovative people will flee an organization if they can’t make decisions and take risks. You might recruit them initially, but they won’t stay long. Builders like to build. A lot of this stuff is very simple, really. It’s just hard to do. And the other thing about competition is that you do not want to play on a level playing field. This is why you need innovation, especially in domains like space and cyber.

  • To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Outsized returns come from betting against conventional wisdom, but conventional wisdom is usually right. A lot of observers characterized Amazon Web Services as a risky distraction when we started. “What does selling compute and storage have to do with selling books?” they wondered. No one asked for AWS. It turned out the world was ready and hungry for cloud computing but didn’t know it yet.

  • Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empower others to unleash their creativity—to pursue their dreams. That’s a big part of what’s going on with Amazon Web Services, Fulfillment by Amazon, and Kindle Direct Publishing.

  • With AWS, FBA, and KDP, we are creating powerful self-service platforms that allow thousands of people to boldly experiment and accomplish things that would otherwise be impossible or impractical.

  • Amazonians are leaning into the future, with radical and transformational innovations that create value for thousands of authors, entrepreneurs, and developers.

  • Invention has become second nature at Amazon, and in my view the team’s pace of innovation is even accelerating—I can assure you it’s very energizing.

  • One advantage—perhaps a somewhat subtle one—of a customer-driven focus is that it aids a certain type of proactivity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition. We think this approach earns more trust with customers and drives rapid improvements in customer experience—importantly—even in those areas where we are already the leader. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.

  • I frequently quote famed investor Benjamin Graham in our employee all-hands meetings—“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.

  • This decentralized distribution of invention throughout the company—not limited to the company’s senior leaders—is the only way to get robust, high-throughput innovation.

  • 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. Is it driving Prime? Among other things, we watch Prime free-trial starts, conversion to paid membership, renewal rates, and product purchase rates by members entering through this channel. We like what we see so far and plan to keep investing here.

  • In addition, also because of our leadership position, we now have thousands of what are effectively AWS ambassadors roaming the world. Software developers changing jobs, moving from one company to another, become our best salespeople: I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence.

  • 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.

  • Reflect on this from Theodor Seuss Geisel: “When something bad happens you have three choices. You can either let it define you, let it destroy you, or you can let it strengthen you.”

  • The whole point of moving things forward is that you run into problems, failures, things that don’t work. You need to back up and try again. Each one of those times when you have a setback, you get back up and try again. You’re using resourcefulness; you’re using self-reliance; you’re trying to invent your way out of a box. We have tons of examples at Amazon where we’ve had to do this. We’ve failed so many times—I think of this as a great place to fail. We’re good at it. We’ve had so much practice.

On Culture

  • A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They 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.

  • One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.

  • Most large organizations embrace the idea of invention but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a one hundred times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. 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. AWS, Marketplace, and Prime are all examples of bold bets at Amazon that worked, and we’re fortunate to have those three big pillars. They have helped us grow into a large company, and there are certain things that only large companies can do. With a tip of the hat to our Seattle neighbors, no matter how good an entrepreneur you are, you’re not going to build an all-composite 787 in your garage start-up—not one you’d want to fly in anyway. Used well, our scale enables us to build services for customers that we could otherwise never even contemplate. But also, if we’re not vigilant and thoughtful, size could slow us down and diminish our inventiveness. As I meet with teams across Amazon, I am continually amazed at the passion, intelligence, and creativity on display.

  • Many companies describe themselves as customer-focused, but few walk the walk. Most big technology companies are competitor focused. They see what others are doing, and then work to fast follow. In contrast, 90 to 95 percent of what we build in AWS is driven by what customers tell us they want. A good example is our new database engine, Amazon Aurora. Customers have been frustrated by the proprietary nature, high cost, and licensing terms of traditional, commercial-grade database providers. And while many companies have started moving toward more open engines like MySQL and Postgres, they often struggle to get the performance they need. Customers asked us if we could eliminate that inconvenient trade-off, and that’s why we built Aurora.

  • Our approach to pricing is also driven by our customer-centric culture—we’ve dropped prices fifty-one times, in many cases before there was any competitive pressure to do so. In addition to price reductions, we’ve also continued to launch new lower cost services like Aurora, Redshift, QuickSight (our new Business Intelligence service), EC2 Container Service (our new compute container service), and Lambda (our pioneering server-less computing capability), while extending our services to offer a range of highly cost-effective options for running just about every type of application or IT use case imaginable.

  • 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 start-ups. Can we do it? I’m optimistic. We have a good start on it, and I think our culture puts us in a position to achieve the goal. But I don’t think it’ll be easy. There are some subtle traps that even high-performing large organizations can fall into as a matter of course, and we’ll have to learn as an institution how to guard against them. One common pitfall for large organizations—one that hurts speed and inventiveness—is “one-size-fits-all” decision making.

  • From very early on in Amazon’s life, we knew we wanted to create a culture of builders—people who are curious, explorers. They like to invent. Even when they’re experts, they are “fresh” with a beginner’s mind. They see the way we do things as just the way we do things now. A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again. They know the path to success is anything but straight.

  • 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.

  • Is this person a missionary or a mercenary? The mercenaries are trying to flip their stock. The missionaries love their product or their service and love their customers, and they’re trying to build a great service. By the way, the great paradox here is that it’s usually the missionaries who make more money, and you can tell really quickly just by talking to people. Whole Foods is a missionary company, and John Mackey, the founder, is a missionary guy.

Day 1 vs. Day 2 Companies

  • Since our founding, we have strived to maintain a “Day One” mentality at the company. By that I mean approaching everything we do with the energy and entrepreneurial spirit of Day One. Even though Amazon is a large company, I have always believed that if we commit ourselves to maintaining a Day One mentality as a critical part of our DNA, we can have both the scope and capabilities of a large company and the spirit and heart of a small one.

  • I’m interested in the question “How do you fend off Day 2?” What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization? Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.

  • Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen.

  • As companies get larger and more complex, there’s a tendency to manage to proxies. This comes in many shapes and sizes, and it’s dangerous, subtle, and very Day 2. A common example is process as proxy. 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. Gulp. It’s not that rare to hear a junior leader defend a bad outcome with something like, “Well, we followed the process.” A more experienced leader will use it as an opportunity to investigate and improve the process. The process is not the thing. It’s always worth asking, do we own the process or does the process own us? In a Day 2 company, you might find it’s the second.

  • Another example: market research and customer surveys can become proxies for customers—something that’s especially dangerous when you’re inventing and designing products. “Fifty-five percent of beta testers report being satisfied with this feature. That is up from 47 percent in the first survey.” That’s hard to interpret and could unintentionally mislead. 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.

  • I’m not against beta testing or surveys. But you, 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.

  • The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them and you have a tailwind. These big 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. Over the past decades, computers have broadly automated tasks that programmers could describe with clear rules and algorithms. Modern machine learning techniques now allow us to do the same for tasks where describing the precise rules is much harder.

  • Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions. Easy for start-ups and very challenging for large organizations. The senior team at Amazon is determined to keep our decision-making velocity high. Speed matters in business—plus a high-velocity decision-making environment is more fun too. We don’t know all the answers, but here are some thoughts. First, never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong? I wrote about this in more detail in last year’s letter. Second, most 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. Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this, but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes. This isn’t one way. If you’re the boss, you should do this too. I disagree and commit all the time. We recently greenlit a particular Amazon Studios original. I told the team my view: debatable whether it would be interesting enough, complicated to produce, the business terms aren’t that good, and we have lots of other opportunities. They had a completely different opinion and wanted to go ahead. I wrote back right away with “I disagree and commit and hope it becomes the most watched thing we’ve ever made.” Consider how much slower this decision cycle would have been if the team had actually had to convince me rather than simply get my commitment. Note what this example is not: it’s not me thinking to myself “Well, these guys are wrong and missing the point, but this isn’t worth me chasing.” It’s a genuine disagreement of opinion, a candid expression of my view, a chance for the team to weigh my view, and a quick, sincere commitment to go their way. And given that this team has already brought home eleven Emmys, six Golden Globes, and three Oscars, I’m just glad they let me in the room at all! Fourth, recognize true misalignment issues early and escalate them immediately. Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion, no number of meetings will resolve that deep misalignment. Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision. I’ve seen many examples of sincere misalignment at Amazon over the years. When we decided to invite third-party sellers to compete directly against us on our own product detail pages—that was a big one. Many smart, well-intentioned Amazonians were simply not at all aligned with the direction. The big decision set up hundreds of smaller decisions, many of which needed to be escalated to the senior team. “You’ve worn me down” is an awful decision-making process. It’s slow and de-energizing. Go for quick escalation instead—it’s better. So, have you settled only for decision quality, or are you mindful of decision velocity too? Are the world’s trends tailwinds for you? Are you falling prey to proxies, or do they serve you? And most important of all, are you delighting customers? We can have the scope and capabilities of a large company and the spirit and heart of a small one. But we have to choose it.

Standards

  • I’d like to share with you the essentials of what we’ve learned (so far) about high standards inside an organization.

  • First, there’s a foundational question: are high standards intrinsic or teachable? If you take me on your basketball team, you can teach me many things, but you can’t teach me to be taller. Do we first and foremost need to select for “high standards” people? If so, this letter would need to be mostly about hiring practices, but I don’t think so. I believe high standards are teachable. In fact, people are pretty good at learning high standards simply through exposure. High standards are contagious. Bring a new person onto a high standards team, and they’ll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread. And though exposure works well to teach high standards, I believe you can accelerate that rate of learning by articulating a few core principles of high standards, which I hope to share in this letter.

  • Another important question is whether high standards are universal or domain specific. In other words, if you have high standards in one area, do you automatically have high standards elsewhere? I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest. When I started Amazon, I had high standards on inventing, on customer care, and (thankfully) on hiring. But I didn’t have high standards on operational process: how to keep fixed problems fixed, how to eliminate defects at the root, how to inspect processes, and much more. I had to learn and develop high standards on all of that (my colleagues were my tutors).

  • Understanding this point is important because it keeps you humble. You can consider yourself a person of high standards in general and still have debilitating blind spots. There can be whole arenas of endeavor where you may not even know that your standards are low or nonexistent, and certainly not world class. It’s critical to be open to that likelihood. What do you need to achieve high standards in a particular domain area? First, you have to be able to recognize what good looks like in that domain. Second, you must have realistic expectations for how hard it should be (how much work it will take) to achieve that result—the scope.

Meetings

  • We don’t do PowerPoint (or any other slide-oriented) presentations at Amazon. Instead, we write narratively structured six-page memos. We silently read one at the beginning of each meeting in a kind of “study hall.” Not surprisingly, the quality of these memos varies widely. Some have the clarity of angels singing. They are brilliant and thoughtful and set up the meeting for high-quality discussion. Sometimes they come in at the other end of the spectrum.

  • Here’s what we’ve figured out. Often, when a memo isn’t great, it’s not the writer’s inability to recognize the high standard, but instead a wrong expectation on scope: they mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more! They’re trying to perfect a handstand in just two weeks, and we’re not coaching them right. The great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two. The key point here is that you can improve results through the simple act of teaching scope—that great memo probably should take a week or more.

  • Beyond recognizing the standard and having realistic expectations on scope, how about skill? Surely to write a world-class memo, you have to be an extremely skilled writer. Is it another required element? In my view, not so much, at least not for the individual in the context of teams.

  • Even in the example of writing a six-page memo, that’s teamwork. Someone on the team needs to have the skill, but it doesn’t have to be you. (As a side note, by tradition at Amazon, authors’ names never appear on the memos—the memo is from the whole team.)

  • So, the four elements of high standards as we see it: they are teachable, they are domain specific, you must recognize them, and you must explicitly coach realistic scope. For us, these work at all levels of detail. Everything from writing memos to whole new, clean-sheet business initiatives. We hope they help you too.

AWS

  • Much of what we build at AWS is based on listening to customers. 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.

  • AWS itself—as a whole—is an example. No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS but didn’t know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building—reworking, experimenting, and iterating countless times as we proceeded.* Since our founding, we have strived to maintain a “Day One” mentality at the company. By that I mean approaching everything we do with the energy and entrepreneurial spirit of Day One. Even though Amazon is a large company, I have always believed that if we commit ourselves to maintaining a Day One mentality as a critical part of our DNA, we can have both the scope and capabilities of a large company and the spirit and heart of a small one.

  • I TEACH LEADERSHIP CLASSES at Amazon for our most senior executives. I also speak to interns. Across the spectrum I get the question about work-life balance all the time. I don’t even like the phrase “work-life

  • life balance.” I think it’s misleading. I like the phrase “work-life harmony.” I know if I am energized at work, happy at work, feeling like I’m adding value, part of a team, whatever energizes you, that makes me better at home. It makes me a better husband, a better father.

  • Likewise, if I’m happy at home, it makes me a better employee, a better boss. There may be crunch periods when it’s about the number of hours in a week. But that’s not the real thing. Usually it’s about whether you have energy. Is your work depriving you of energy, or is your work generating energy for you?

  • The most important thing for doing well against competition—in business and also, I think, with military adversaries—is to be both robust and nimble.