What if we said we have a direct line to Jeff Bezos?
Yes, that Jeff Bezos: The all-knowing wizard/entrepreneur that’s the founder and CEO of a little site named Amazon.
And we have a way of knowing what he’s thinking, what he’s planning next, and everything else related to Amazon’s business strategy.
Okay, so we don’t have his cell number.
But, we do have his annual shareholder newsletters.
For over 20 years, Bezos has been providing unparalleled insight into his business.
These newsletters are also a peek into his way of thinking that has led him to build Amazon into the powerhouse it is today.
And when we say Amazon is thriving, we mean it.
The platform earned $56 billion in revenue in Q3 2018, and it’s in no small part due to Bezos’ gold standard of business management.
Now, we’re sharing the top 5 lessons learned from those newsletters with you.
We combed through those two decades of material in order to pick out the five that we think provide the best business tips and tricks.
Whether you’re a small business or a corporation, this advice can help you succeed.
So get the notepad ready: It’s time to take a page out of Jeff Bezos’ own book.
Dream Big and Take Risks
In his 2014 newsletter, Bezos discusses a “dreamy business product”:
“A dreamy business product 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.”
This piece of business advice can be intimidating.
Essentially, it’s describing the perfect product while subliminally saying you should risk everything to get it.
The Amazon Example
It helps to see how this concept worked in the scheme of Amazon’s business strategy.
Amazon Prime is the perfect example.
Since it was first founded in 2005, Amazon Prime’s core tenant has been providing members with free shipping at a low annual fee.
Even now, free shipping remains the cornerstone of the $99/year annual membership.
However, the idea to offer free shipping came with no solid numbers to support it.
Clearly, the risk paid off.
2017 was the best year for Prime sign-ups so far.
And, Prime members spend up to 4.6X more than non-Prime customers.
The service checks every box of Bezos’ dreamy business criteria:
- Customers love it
- It’s highly scalable
- The returns can be huge
- It can endure over time
You can apply similar criteria to your own business ventures.
Sure, taking risks means you’ll experience some failures.
Let’s not forget Amazon’s own Pets.com debacle.
But, learning how to run a business the right way also means forgiving a lack of quantitative evidence in order to pursue a bold venture.
Make Every Team Part of the R&D Department
You don’t need to be told about the rise of technology and the importance of innovation in business.
A little piece of business advice, though: Don’t rely on a single department for finding ways to advance your company.
Your entire company should get involved with innovating,
Sales departments can try new pitch techniques and strategies.
Marketing teams can investigate how to leverage new platforms and tools.
Whatever the department, everyone in your company should be participating in research and development.
R&D – The Amazon Way
Bezos has always emphasized R&D as a major component of the Amazon business strategy.
To attest to this, Amazon spends more than any other U.S. company on R&D.
In 2017, this number was $22.6 billion, an increase of 41% from 2016.
In the words of Bezos from his 2010 newsletter:
“Our architects and engineers have had to advance research in directions that no academic had yet taken. Many of the problems we face have no textbook solutions, and so we — happily — invent new approaches.”
Every single part of Amazon is rooted in a technology that’s often created internally.
For example, AWS evolved from an internal infrastructure of software.
This isn’t just a tip for businesses to keep up with competition, either.
Having all branches of your company involved in R&D helps you create better products your customers will love.
Create a Work Culture That Maintains High Standards
It’s a business tip that never stops being applicable: create a positive organizational culture.
The impact of a great work culture on everything from sales to productivity is often immense.
According to Bezos in his 2017 newsletter, a positive business culture is the best way to create and maintain high standards.
And high standards are the key to success.
“How do you stay ahead of ever-rising customer expectations? There’s no single way to do it — it’s a combination of many things. But high standards (widely deployed and at all levels of detail) are certainly a big part of it.”
It takes a combination of an excellent management strategy, the right recruitment, and effective internal initiatives to create high standards.
The Amazon Definition of High Standards
Bezos boils the management/hiring/internal strategy combination into two concepts that can hinder high standards:
In terms of scope, he is referring to when employees can identify high quality but cannot understand what or how long it takes to reach that level themselves.
When an employee is unable to consider the difficulty of achieving a higher standard, they’ll have greater trouble reaching it.
“To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be.”
Recognition refers to employee understanding of what high quality looks like.
Differentiating between a good job and a bad job is essential for achieving goals.
It’s also a way to create a benchmark for measuring success.
An excellent hiring and management strategy will encourage employees to understand what it takes to reach a higher standard.
Leadership can also help staffers recognize and define quality.
In doing so, your business can continuously create better products for customers while improving internal work culture.
Let Customer Needs Drive Business Decisions
When considering how to run a business, it’s often simple to think about what you’re good at then create a product from that.
This “skills-forward” strategy relies on expertise to drive the momentum of business.
This isn’t always the best method, however.
Take this successful business tip from Bezos himself from his 2008 newsletter:
“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.”
When you rely only on an existing skill-set, it inhibits learning innovative and new methods.
As a result, your business’ success can hit a cap as you run out of new ideas.
So instead, consider what your customers want or need.
Then, work backwards to innovate products or services that fulfill this desire.
Leveraging this piece of business advice can open up your organization to product opportunities and expand success into these new directions.
How Customers Created the Amazon Kindle
When the Amazon Kindle first debuted in 2007, it was the first consumer product from the company.
The concept for the e-reader began with a customer-driven vision, as described by product designer Charlie Tritschler:
“We created that rallying cry of any book from anywhere in the world in 60 seconds or less.”
Bezos led the charge of creating and optimizing the Kindle.
It was his belief that this ease of access was something missing in the publishing industry that customers wanted.
Thus, the Kindle was born from recognizing a customer pain point and working backward to create a product to fill that gap.
By enlisting top talent and launching the Kindle Direct Publishing platform as a complementary product, the Kindle reached immense success.
Now, Amazon commands an 83% share of the e-book market in the U.S.
Following this Amazon business strategy of consumer-driven innovation starts with customer research.
Creating products with customers at top of mind makes it more likely that it will be a hit right from launch.
Spend Money on Customer Retention
It’s difficult to justify spending money preemptively to build value for customers.
You can’t be sure you’ll see returns – or at what pace they’ll come in.
But, among the best business tips and tricks is the idea of proactively working on your customer retention.
This means building value and pleasing customers by spending more.
Not only will it boost loyalty and attract new consumers, but it’s also a way of getting ahead of the competition.
As Bezos puts it in his 2012 newsletter:
“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. . .invent before we have to.”
Sure, spending is a risk.
But for the sake of customer retention, it’s one that often pays off.
The Amazon Business Strategy for Pleasing Customers
There’s no doubt that Amazon customers are a loyal group.
That’s mostly due to the fact that the e-commerce platform is a one-stop-shop for online shopping in a way that’s unlike any of its competitors.
It’s what’s led 85% of Prime members and 56% of non-Prime members to visit the site at least once a week.
And it’s why 46% of Prime members make a purchase on Amazon at least once a week.
But Prime wasn’t always such a lucrative business.
As we discussed earlier, it was actually one of the company’s greatest risks.
Even today, the greatest draw of Prime – free, two-day shipping – is putting investors on edge.
And yet, the platform is still drawing Prime members and exceeding revenue goals.
The lifetime value alone of a Prime member is enough to prove Amazon’s business strategy for customer retention is working.
A Prime member boasts an LTV of $2283.
Meanwhile, the industry average for an e-commerce customer LTV is just over $150.
Spending money to make money is a successful business tip you should never forget.
Beyond just boosting your bottom line, real value can be gained in customer retention and loyalty.
Subscribe to the Amazon Model of Business
Clearly, Bezos’ newsletters are full of valuable business tips and tricks.
These don’t just apply to Amazon’s business strategy, either.
Leverage these insights for your own brand, and you’ll be amazed at the success that follows.
Take risks, innovate, maintain quality, apply a customer-forward approach, and consistently build value.
So, take it from Bezos and apply this business advice to every facet of your company.
It worked for Amazon and we’re confident it can work for you, too.