Amazon’s High Standards and 2018 Shareholder Letter

Based on a few posts (1, 2) recently, you can tell that I’m more than slightly focused on Amazon. I’m also more than slightly concerned about Amazon colonizing Philadelphia over the next decade, although I’m open to debate and obviously see the multitude of benefits.

I do, however, find what Amazon has done in the last two decades awe-inspiring (and again, terrifying) on a number of fronts.

There are reasons that Amazon is as dominant as it is. There are reasons they have zero cost of capital and play by different rules than every other business, public or private. There are reasons Bezos is the wealthiest person in the world. There are reasons they continue to be increasingly ranked #1 on customer and employee satisfaction rankings.

You could cite any number of factors as the important reasons, but I believe the most critical are Bezos’ high ceiling along with his impossibly high standards. The first is mother nature, the second is a choice.

This pattern is not new, and does show up predominantly in the leadership of the most successful companies, historically. And, coupling those factors with Amazon’s launch timing into the nascent internet and their ability to execute, allows us to see why they continue to be notably different – even against the other titans of industry, past and present.

I read Amazon’s 2018 shareholder letter this morning. You can find it here.

Last year was an excellent commentary on Day 1 vs Day 2 companies (link). This year was an excellent follow-up, highlighting a focus on their leadership principle (core value) of “High Standards”. Below is the full principle from Amazon’s list:

“Insist on the Highest Standards. Leaders have relentlessly high standards – many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high quality products, services and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.”

I appreciate the adjective “unreasonable” tossed in there. I certainly aspired to unreasonable, and it was difficult for my team at times.  If the leader is not anchoring the bar higher than anyone else would, then how does the  average of the total org improve consistently over time vs reverting to the mean of other maturing (Day 2) companies?

Standards come top down and if you explain why they are critical, the right folks will adapt, adopt and forgive you for their occasional ragged edge. The wrong ones will complain their way out the door, one way or another. And that’s fine too. The trick is sniffing the latter out during the hiring process and eliminating the turnover altogether, but that’s another post for another time….

Also, keep in mind that amazing as they are to watch, unless your business’ moat is deep and wide, the great white shark from Seattle is coming for you, too. Hoping they won’t is not a strategy.

#neversettle