Ten Startup Tips From Amazon Founder, Jeff Bezos

Angry BossIn August 2004, FastCompany published an article titled, Inside The Mind Of Jeff Bezos, written by Alan Deutschman. Although the article is informative, it is the accompanying sidebar that has remained with me over the succeeding years. Under the heading, “The Book On Bezos,” the callout lists ten actionable and impactful nuggets of startup advice.

I review these tenets with my entrepreneurial students at UC Santa Barbara at the beginning of each quarter to reinforce many of the key topics we will cover in the following weeks. They are listed below augmented with quotes from Jeff Bezos taken from various points in his career.

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  1. Establish A High Hiring Bar  -- You're Creating An Enduring Culture

    “I'd rather interview 50 people and not hire anyone than hire the wrong person.”

    “Cultures aren't so much planned as they evolve from that early set of people.”

    As discussed in Hiring Entrepreneurs, the impact of each new hire during your startup’s early days is tremendous. A mis-hire at the outset of your company can irreversibly alter the trajectory of your corporate culture. If you hire sharks, you cannot expect them to act like dolphins.

  1. Be Stubborn And Flexible

    “We are stubborn on vision. We are flexible on details…. We don’t give up on things easily. Our third-party seller business is an example of that. It took us three tries to get the third-party seller business to work. We didn’t give up.”

    If you're not stubborn, you'll give up on experiments too soon. And if you're not flexible, you'll pound your head against the wall and you won't see a different solution to a problem you're trying to solve.”

    This advice is easier said than done, as it is difficult to know when you should be flexible with your vision and when you should remain dogmatic to your ideals. As noted in Optimistically Pessimistic, successful entrepreneurs are indifferent as to the specific tactics they must employ to accomplish their fervently held strategic objectives. If your culture rewards those who seek the truth, your team will be prone to objectively identifying tactical course corrections.

  1. Obsess About Customers, Not Colleagues Or Competitors

    “We see our customers as invited guests to a party, and we are the hosts. It's our job every day to make every important aspect of the customer experience a little bit better.”

    “There are multiple ways to be externally focused that are very successful. You can be customer-focused or competitor-focused. Some people are internally focused, and if they reach critical mass, they can tip the whole company.”

    As Jeff points out, hiring right-minded people who will reinforce the attributes of your corporate culture is crucial. In this case, if enough people enter your organization with a self-serving mindset, such people will eventually dictate that selfish behavior is the norm and it will become part of the de facto culture. By obsessing on serving your customers, you can create a Long Spoon culture in which employees feed each other, rather than feed on each other.

  1. Know When To Throw Away The Organizational Chart

    “The great thing about fact-based decisions is that they overrule the hierarchy. The most junior person in the company can win an argument with the most senior person with regard to a fact-based decision. For intuitive decisions, on the other hand, you have to rely on experienced executives who've honed their instincts.”

    In the early days of a startup, the Core Team must accept input from all levels of the organization, rather than be wedded to the artificial hierarchy of an organizational chart. Although this can be a bit chaotic, the free-flow of ideas during an adVenture’s Beach Volleyball days is often crucial to its eventual success.

    Additionally, startups are constantly evolving and it is not unusual for them to be restructured several times before they reach maturity. At Expertcity (creator of GoToMyPC and GoToMeeting, acquired by Citrix), our VP of Product and Customer Experience led a number of teams during his seven-year tenure including Professional Services, Customer Service and Product Management. As noted in How To Maximize Your Value At A Startup, I also held a variety of positions while at Expertcity. Flexibility and putting the company first were intrinsic aspects of our culture.  

  1. Get Good Advice -- And Ignore It (aka: Know When To Throw Away The Rule Book)

    From the start, Amazon had an audacious goal – to sell virtually every book online. Before launching Amazon, Jeff consulted with several publishing experts, none of whom appreciated the Internet’s eventual ubiquity. They applied a rearview mirror perspective to Jeff’s proposal and attempted to dissuade him from pursuing such an encompassing strategy. Their advice was to focus on best-selling books and a handful of popular genres – the same approach which had been successful for large retail booksellers.

    “Every well-intentioned, high-judgment person we asked told us not to do it. We got some good advice, we ignored it, and it was a mistake. But that mistake turned out to be one of the best things that happened to the company.”

    By offering an inventory which far surpassed anything else available at that time, Amazon endeared itself to its early users, who happily granted the company priceless word-of-mouth promotion. If Jeff and his team had launched a more prudent, scaled-back site, it is arguable they would have never achieved the critical mass that eventually led to the company’s widespread market acceptance.

  1. Don't Chase The Quick Buck

    “Sometimes we measure things and see that in the short term they actually hurt sales. But we do it anyway, because we believe that the short-term metrics probably aren't indicative of the long term.”

    As I discuss in Entrepreneurs Should Go For The Quick Buck – Then Stop, there are situations in which a startup can generate profitable, near-term revenue that does not support, and may even undermine, its long-term strategy. In some instances, it is reasonable to generate such revenue as a means of financing your business. The toughest aspect of such opportunities is weaning your company off these  “bad profits” and focusing on opportunities that may not have an immediate payoff, but will drive long-term enterprise value.

  1. The Two Pizza Rule

    If improperly administered, meetings become counter-productive, especially as an organization grows beyond its initial startup phase. In order to avoid the meeting frenzy that can overtake a growing startup, Jeff imposed the Two Pizza Rule early in Amazon’s life. This guideline dictated that no more people than can be comfortably fed by two pizzas should meet at any one time. This encouraged task groups to be limited to five to seven individuals.

    There is usually a direct correlation between a meeting’s length and the number of participants – the larger the group, the longer the meeting. Thus, smaller meetings facilitate efficiency and accountability.
    I worked with a team from Amazon a couple years ago and they proudly told me that the Two Pizza Rule was still in place, although they conceded they were forced to relax it, “from time to time.”

  1. Growth Happens In Bounds And Leaps -- Of Faith

    The very creation of Amazon was the result of a leap of faith. Jeff left a comfortable Wall Street career to enter a world he knew little about. He was not an expert in technology, inventory logistics or publishing. Yet, like container shipping tycoon Malcom McLean, Bezos felt that the idea was so “obvious and compelling,” he had to leap.

    “The framework I found which made the decision incredibly easy was what I called – which only a nerd would call – a ‘regret minimization framework’. So I wanted to project myself forward to age 80 and say, ‘Okay, now I’m looking back on my life. I want to have minimized the number of regrets I have.’(If I did not start Amazon) I knew that that would haunt me every day.”

    Understanding the power of a thoughtful leap of faith, Jeff encouraged his employees to take their own bounds into the unknown by creating a culture that did not castigate well-reasoned risk taking.

  1. Be Simpleminded

    ”You have to use your judgment. In cases like that, we say, ‘Let’s be simpleminded. We know this is a feature that’s good for customers. Let’s do it.’”

    Ask Kevin O’Connor, Founder of FindTheBest and DoubleClick, points out in his interview, business is simple. Economically solve a problem that matters and everything else will take care of itself.

    Because of his grounding as an investment banker, Jeff appreciated the value of hard data. However, he also understood that data has its limitations. As such, Jeff encouraged early Amazon employees to not overly intellectualize the company’s problems. When in doubt, Amazon employees were told to deploy logical, common sense solutions that were in the best interest of its customers.

  1. Add Up Lots Of Little Advantages

    Web-based businesses must compete in the blinding light of total transparency. They cannot rely on discovering a propriety methodology that they can protect via intellectual property common law. Every time Amazon made a change to its website, whether it be modifications to its customer acquisition funnel, upsell techniques, customer service, etc., it was instantly broadcast to its competitors.

    This caused Jeff and his team to focus on constantly making the less evident back-office processes, as well as the consumer-facing aspects of its business, incrementally better. Numerous small changes, any one of which had a small impact on inventory costs or customer conversion metrics were compounded when combined with other small improvements. A company that is constantly improving, even in small ways, is a difficult company to beat.  

    These small, back-office changes eventually led to the technological expertise underlying Amazon Web Services (AWS), by far the most successful public cloud computing platform. Analysts predict that AWS revenues will eventually exceed Amazon’s retail sales. Thus, such “small improvements” will undoubtedly create more intrinsic value than Jeff ever envisioned when he took his initial leap of faith.

List Source: FastCompany, Inside the mind of Jeff Bezos, August 04

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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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