Legit or Bullshit? Breaking down Jeff Bezos’ 2017 letter to Amazon shareholders

Last week, Amazon founder and CEO Jeff Bezos published his latest annual letter to shareholders, in which he shares some of the business insights and philosophy that have helped him turn Amazon from a fledgling online bookstore startup into the $425 BILLION behemoth it is today.

Bezos’ annual letters began in 1997 and have become absolute must-reads for anyone working in tech, and for good reason — since its founding in 1994, no company has weathered as many storms and defied our expectations as much and as frequently as Amazon. And it’s all happened under the watchful eye of Bezos, who has steadfastly remained CEO through all 22 years of the company’s history.

I’m sure a sizable chunk of letter’s readers were startup folks (like myself) looking to apply some of Jeff Bezos’ hard-earned insights at our own companies, and it didn’t disappoint. His latest letter was as thought-provoking as ever, and I could feel myself getting smarter while reading it.

However, on subsequent readings I slowly started to realize how potentially misleading some of this advice could be for a lot of people, without the proper context.

For my own benefit (and hopefully for others’), I thought it would be useful to go through each of his points one by one, and evaluate which ones are usable as-is, and which ones require extra consideration.

In this blog post, I’ll be excerpting each main idea from Bezos’ letter and then classifying it as LEGIT or BULLSHIT:

• LEGIT is for ideas that are broadly applicable to most companies and most contexts. In other words, almost any company reading will be able to apply it right away and benefit.
• BULLSHIT is for ideas that sound cool and impressive, but are either useless in the real world, or could end up causing more harm than good.

Day 1 → Day 2

“Jeff, what does Day 2 look like?”

That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades.

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

LEGIT

This is a very real phenomenon, and one that’s observable in a lot of other fields as well.

• In art, the challenge is to constantly be reinventing yourself. The moment a musician decides to play the same songs the same way at every concert, or a painter decides to only paint the same style of paintings over and over, that’s when they stop being artists.
• In sports, it’s hard to become a champion, but it’s even harder to stay a champion. Once you’re on top, you can’t help but start to lose the hunger and drive that got you there. Champions have to keep finding new and different ways to motivate themselves, and this was perhaps most famously depicted in the movie Rocky III, when world champion boxer Rocky Balboa is knocked out by a younger, hungrier contender and has to build himself back up and regain his “Eye of the Tiger” in order to win back his title.
• And in physics, the second law of thermodynamics states that in an isolated system (one that is not taking in energy), entropy (aka disorder) always increases over time.

The unifying theme here is that people, companies, and systems all naturally tend to lose energy and devolve into a dull, dreary equilibrium over time.

The solution, according to Bezos, is to always keep yourself in Day 1 mode. Or, as Steve Jobs famously said, “Stay Hungry, Stay Foolish”.

1) True Customer Obsession

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.

LEGIT

This is one of those enduring pieces of wisdom that sounds so obvious, and yet is so hard for people to follow through on consistently, because it goes against our most basic instincts.

We all know we should be laser focused on customers’ needs, but too often we let ourselves get distracted by bullshit vanity metrics and other activities that seem fun and interesting but don’t actually help us build better solutions for our customers’ problems.

Customer obsession has been a recurring theme for Amazon, and it should always be a welcome reminder for us as well.

2) Resist Proxies

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% 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.

BULLSHIT

This here is what we call a false dichotomy. Bezos is contrasting two things — market research, which tends to be more quantitative, and design research, which tends to be more qualitative.

Which is more important? Bezos says it’s the latter, but the correct (and boring) answer is “neither” — they are complementary and will produce better decisions together, than either one can by itself.

Bezos’ advice makes sense for Amazon because they’re a gigantic company, and most companies that get that big tend to gradually neglect design research and end up looking at their customers more as data points than as fully fleshed-out human beings.

However, this advice could be dangerous for new startups and developing businesses who are already having to rely mostly on intuition and anecdotes to make decisions, and could greatly benefit from better data and market research. Context matters!

3) Embrace External Trends

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.

BULLSHIT

On one hand, this is a useful insight because all enduring businesses are built on some larger growing trend(s), and it’s much easier to compete in a growing market than a shrinking one.

However, Jeff Bezos makes it sound like embracing a big trend is simply a matter of indecision, and companies simply have to “man up” to start reaping the rewards.

What he fails to mention is that embracing the wrong trend, or embracing it at the wrong time, can be just as dangerous as not embracing one at all.

Amazon has embraced AI and Machine Learning because Amazon is an internet giant that generates unfathomable quantities of data every day, and that kind of big data is the lifeblood of machine learning algorithms.

While there are a lot of big trends happening right now — AI & Machine Learning, Mobile Messaging, VR & AR, On-Demand Delivery, Drones, Cryptocurrencies, IoT, Self-driving cars — most of them would probably be a total waste of time for your company. Embracing a growing trend is only useful if it allows you to provide an even better solution to your customers’ problems. Otherwise, embracing them will only cause you to fail faster.

4) High-Velocity Decision Making

4a) 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.

LEGIT

He goes into more detail in last year’s letter, where he says there are two types of decisions:

1. Decisions that are mission-critical ones and require great care and methodical deliberation from the top down
2. Decisions with lower stakes which can be made (and reversed) quickly by empowered individuals and teams.

As companies get bigger, they tend to overuse the slower Type 1 decision-making process for most decisions, including for many Type 2 decisions.

This is a great way to think about decisions, and how to better allocate your time and energy to the ones that matter most. Unfortunately, fast and empowered grassroots decision-making is one of the first things to go as companies grow.

The lack of Type 2 decision-making is why we hate bureaucracies so much, and why centrally planned economies didn’t work in the Soviet Union, Cuba, North Korea, etc.

By the way… Type 1 vs Type 2… Day 1 vs Day 2… Are we sure Jeff Bezos isn’t a Sith Lord? :P (“Only a Sith deals in absolutes.”) Would that make Elon Musk a Jedi, then? But I digress…

4b) Making decisions with 70% information

Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.

BULLSHIT

This sounds smart on the surface, but it’s actually bullshit because this idea of “70% information” doesn’t work in practice.

For example, if I asked you to apply this idea to your next work project, how would you go about doing that? What would “70% information” look like for you? How would you know when you’ve gotten to 70% information, so you can stop and move on to your next decision(s)?

“70% information” implies you can somehow know and measure what 100% information is. However, for real-world business decisions of consequence, 100% information is simply not quantifiable. 100% information is basically infinity, and there’s no such thing as 70% of infinity.

4c) Use the phrase “disagree and commit”

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.

LEGIT

This is a much more actionable version of the “70% rule” above.

Anyone who’s worked on a difficult project with an urgent deadline knows that you will inevitably reach a point where your time is almost up and you either (A) have insufficient information or (B) you’re just unable to reach a consensus. You can’t predict when those moments will happen, but you will definitely “know it when you see it”.

In those moments, Jeff Bezos’ advice to “disagree and commit” makes a lot of sense. The ability to confidently make bold (but informed) leaps of faith in these kinds of situations of uncertainty is what separates the good companies (and leaders) from the bad.

4d) 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.

LEGIT

This is generally true, but there are instances (particularly in tech and other fast-changing industries) where teams are purposely misaligned, by design.

Sometimes companies will intentionally try to “disrupt” themselves in order to innovate, by creating new product teams that have fundamentally different and conflicting goals from the core “cash cow” product team.

WeChat is the most popular mobile messaging app in China today, but it was originally created by a skunkworks team within its parent company Tencent that directly competed with their already-successful product named QQ, which was China’s equivalent of AOL Instant Messenger at the time.

Apple has famously cannibalized its own products many times over. The iPhone and its built-in iTunes music player cannibalized the iPod. The iPad tablet cannibalizes the Macbook Air and other Mac laptops.

Misalignment isn’t always a bad thing, but it does have to be managed properly, and while conflict between misaligned teams will be inevitable, it can be minimized with the right incentive structures.

Stay Wary, Stay Skeptical

Speaking of misaligned incentives… When the cost of publishing content online is free, and the easiest way to monetize that content is through ads and page views, it’s no wonder we’re living in an age of never-ending clickbait and #FakeNews.

Anytime you’re reading something on the internet that you didn’t directly pay for, you should always be asking yourself:

1. Who is the intended audience?
2. Why was this written? and
3. Who is this meant to benefit?

In the case of Bezos’ annual letters to Amazon shareholders, a lot of people will read them expecting to gain insights that they can immediately start applying at their own startup.

But that’s not Bezos’ goal, at all:

1. Those letters are intended for Amazon shareholders, first and foremost; NOT for startups and their employees.
2. Their main purpose is to convince shareholders that Bezos knows what he’s doing, and that Amazon is a stock worth buying for the long term.
3. The letters are meant to benefit Jeff Bezos and his companies; NOT you. He has zero interest or accountability in whether or not his advice works for you.

To be fair, when it comes to content quality, Bezos’ letters still rank near the top.

However, the same can’t be said for most “startup content” you’ll come across online. Most of it is either just bad, and even if it’s good, you have to remember that its primary purpose is to promote a brand and business that is NOT yours.

If you really want a successful person to share their most valuable and usable business insights with you, you should either be paying them, or persuading them to invest in you.

When it comes to (free) online content though, you get what you pay for, and that almost always ends up being “nothing”.

And while there is genuine wisdom to be found online, it can be hard to find amongst all the noise and clutter. It takes discipline and a discerning eye to be able to effectively filter for the wisdom that is (A) actually usable and (B) actually relevant to your company.

It’s something I’m always working on, and I hope this helps you in that regard as well :)