Jeff Bezos' 1997 shareholder letter is still relevant - Axios
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Jeff Bezos' 1997 shareholder letter is still relevant


Ted S. Warren / AP

Making quick decisions and obsessing on customer outcomes are keys to keeping companies in a psychic start-up mode, CNBC's Anita Balakrishnan says in her writeup of Amazon CEO Jeff Bezos' annual shareholder letter:

Bezos compares "Day 1" companies — companies that are at the beginning of their potential — with "Day 2" companies. "Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1."

And to hammer his point about Day 1, Bezos attached a copy of his original, 1997 shareholder letter, which Business Insider founder Henry Blodget calls "still a playbook for building a great company."

"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. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.

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

To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.

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.

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.

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. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.

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.

Resist Proxies

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% 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.

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.

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.

At Amazon, we've been engaged in the practical application of machine learning for many years now. Some of this work is highly visible: our autonomous Prime Air delivery drones; the Amazon Go convenience store that uses machine vision to eliminate checkout lines; and Alexa, our cloud-based AI assistant. (We still struggle to keep Echo in stock, despite our best efforts. A high-quality problem, but a problem. We're working on it.)

But much of what we do with machine learning happens beneath the surface. Machine learning drives our algorithms for demand forecasting, product search ranking, product and deals recommendations, merchandising placements, fraud detection, translations, and much more. Though less visible, much of the impact of machine learning will be of this type — quietly but meaningfully improving core operations.

Inside AWS, we're excited to lower the costs and barriers to machine learning and AI so organizations of all sizes can take advantage of these advanced techniques.

Using our pre-packaged versions of popular deep learning frameworks running on P2 compute instances (optimized for this workload), customers are already developing powerful systems ranging everywhere from early disease detection to increasing crop yields. And we've also made Amazon's higher level services available in a convenient form. Amazon Lex (what's inside Alexa), Amazon Polly, and Amazon Rekognition remove the heavy lifting from natural language understanding, speech generation, and image analysis. They can be accessed with simple API calls — no machine learning expertise required. Watch this space. Much more to come.

High-Velocity Decision-Making

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% of the information you wish you had. If you wait for 90%, 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 11 Emmys, 6 Golden Globes, and 3 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.

A huge thank you to each and every customer for allowing us to serve you, to our shareowners for your support, and to Amazonians everywhere for your hard work, your ingenuity, and your passion.

As always, I attach a copy of our original 1997 letter. It remains Day 1.

Sincerely,

Jeff

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Pope vs. Fake News

Pope Francis. Photo: Franco Origlia / Getty Images

Pope Francis warned journalists about committing the "very serious sin" of sensationalizing the news and providing one-sided reports, per AP:

"You shouldn't fall into the 'sins of communication:' disinformation, or giving just one side, calumny that is sensationalized, or defamation, looking for things that are old news and have been dealt with and bringing them to light today."

Why it matters: The Pope is planning to dedicate his annual communications message to "fake news," the AP reports. This is one of several instances of Trump's "fake news" message making its impact around the globe.

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North Korea sanctions are keeping food, medicine from citizens

Pyongyang citizens gathering to mourn in front of a portrait of late North Korean leader Kim Jong-il at the Pyongyang Gymnasium. Photo: KCNA / AFP / Getty Images

Sanctions against North Korea could increase cases of acute malnutrition among children, and hamper humanitarian efforts, according to a Washington Post report.

Why it matters: While sanctions were enforced with the intent of punishing the regime for its nuclear threats and missile launches, an American neurosurgeon who operates in North Korea, Kee Park, told the Post "they're hurting the wrong people."

  • The U.K. announced last month it would cut off aid to North Korea.
  • South Korea hasn't "delivered on its September pledge to give $8 million to the World Food Program and UNICEF for children and pregnant women," the Post reports.
  • The U.N. resident coordinator in Pyongyang, Tapan Mishra, wrote to U.N. officials that "crucial relief items, including medical equipment and drugs, have been held up for months...they are not on the list of sanctions items."
  • A humanitarian worker in Pyongyang told the Post said Chinese suppliers "have decided that it's not worth the exposure or the risk of their reputations" to continue sending supplies, despite not sending anything already banned by sanctions.
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Inside the Pentagon's multi-million dollar program to explore UFOs

An aerial view of the Pentagon building in Washington, D.C. Photo: AFP staff / Getty Images

The Pentagon has officially confirmed the existence of its $22 million program to investigate unidentified flying objects (UFOs), reported by Politico and the New York Times almost simultaneously today.

Why it matters, per Politico's Bryan Bender: "The revelation of the program could give a credibility boost to UFO theorists, who have long pointed to public accounts by military pilots and others describing phenomena that defy obvious explanation, and could fuel demands for increased transparency about the scope and findings of the Pentagon effort, which focused some of its inquiries into subjects such as next-generation propulsion systems."

The details of the Advanced Aviation Threat Identification Program:

  • Harry Reid, the former Democratic Senate Majority Leader requested the program's funding in 2007. Much of it came from Robert Bigelow, the billionaire behind an aerospace program who currently works with NASA.
  • Bigelow said on CBS last May that he was "absolutely convinced" that UFOs have visited Earth and that aliens exist.
  • Pilots and various military personnel have claimed to see UFOs that "maneuvered so unusually and so fast that they seemed to defy the laws of physics."
  • One UFO sighting collected by the program is documented in "footage from a Navy F/A-18 Super Hornet showing an aircraft surrounded by some kind of glowing aura traveling at high speed and rotating as it moves," per NYT.

The program's funding ended in 2012, though some of the program's backers say it continues to operate. A Pentagon spokesman, Thomas Crosson, told NYT: “It was determined that there were other, higher priority issues that merited funding, and it was in the best interest of the DoD to make a change."

Why now: Luis Elizondo, a military intelligence officer who helped run AATIP, resigned in October because he said there wasn't sufficient time and effort put into the UFO investigation, according to his resignation letter to Defense Secretary James Mattis.

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The crackdown on college fraternities

The Sigma Alpha Epsilon fraternity house at Ohio State University. Photo: Dake Kang / AP

"[A]mid worries about endemic binge drinking, sexual assault and a startling spate of deaths, schools are going beyond the old practice of shutting down individual [fraternity] houses to imposing broad restrictions on all Greek life," the N.Y. Times' Anemona Hartocollis reports atop column 1:

  • "Activities like fraternity parties and initiations have been suspended or curtailed at colleges including Ball State, Indiana University, Ohio State and the University of Michigan, as well as at least five where deaths have occurred this year: Florida State, Louisiana State, Penn State, Texas State and Iowa."
  • Why it matters ... Tracy Maxwell, founder of HazingPrevention.org: "There is definitely this moment in time where society is not willing to accept behavior that in the past has been acceptable."

Go deeper: The state of college Greek life.

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Americans loathe Washington, but like home

Photo: Alex Wong / Getty Images

Americans are pessimistic about Washington and think the country is on the wrong track (69%), but are optimistic about their local communities.

That's the encouraging finding of an AP-NORC (University of Chicago) poll:

  • 9% think the country has become more united under Trump, while 67% think the country is more divided. (44% of Americans said in a poll last year that Obama's presidency had further divided the country.)
  • Even Republicans think Trump has divided America more than uniting it, 41% to 17%.
  • But, but, but ... "[P]essimism about the president and national politics doesn't extend to local communities. ... [A]bout half of Americans said they feel optimistic about their local communities" — 55% of Ds and 50% of Rs.
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Mexico grants military more power in fighting drug war

Soldiers from the Mexican Army and Mexican Marines patrol along Acapulco's coastline. Photo: AFP photo/ Francisco Robles/Getty Images

The Mexican military will be granted more control in the fight against the country's drug war, which has increasingly become more violent under President Enrique Peña Nieto, after a law passed in Mexico's Congress yesterday.

Why it matters: Critics of the law — including United Nations officials and human rights groups — argue that it would "will vastly expand military authority without checks and balances and offers no exit strategy to cede eventual leadership of the campaign to combat drugs to an effective police force," per NYT.

Why now: Violence from Mexican drug cartles has gotten worse under President Peña Nieto's tenure — NYT notes that 2017 has been "the deadliest in two decades." And since troops were first sent to combat the drug gangs in 2006, "more than 200,000 people have been killed in the drug war and 31,000 people have gone missing," according to official statistics cited by NYT.

The changes:

  • Mexico has maintained civilian control over their army for nearly the past 100 years, which has ultimately given local law enforcement officers complete jurisdiction over their areas. This law would give the government and the military more control.
  • The Mexican military currently operates in 27 of 32 states around the country — they were only in six states when Peña Nieto became president five years ago.
  • Peña Nieto would have to issue a public executive order detailing his reasons for sending in more troops to different areas. That EO would last a year.
  • The military will have more authority to carry out investigations on their own terms, thus breaking from the civilian control under which they've previously operated.
Featured

White House paper suggests solar tariff support

Workers seen by solar panels of the Isyangulovo solar power plant in Zianchurinsky District, the Republic of Bashkortostan. Vadim Braidov/TASS Photo: Vadim Braidov\TASS via Getty Images

A White House document circulating within the Trump administration lays out a case for imposing new trade restrictions on imports of solar panel equipment from Asia, according to a report in Politico.

Why it matters: It's the latest sign that President Trump's hawkish trade stance toward China will soon lead to tariffs that U.S. solar energy developers fear will sharply drive up costs and curtail new project development.

The U.S. International Trade Commission (ITC) concluded in September that low-cost imports — many of which come from Chinese owned companies operating in Asia — were a cause of "serious injury" to domestic panel manufacturers.

The finding came in response to a petition from two financially distressed manufacturing companies, Suniva and SolarWorld.

What's next: The White House is slated to make a decision as soon as next month on whether to impose tariffs or perhaps some other forms of solar trade restrictions.

In November the ITC recommended tariffs that are less aggressive than what the petitioners sought. But the White House has wide latitude to decide what form of penalties, if any, to impose.

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How Affordable Care Act cutbacks will hurt minority communities

Two Florida resents shop for insurance at a local center offering Obamacare enrollment. Photo: Joe Raedle/Getty Images

The Trump administration cut the Affordable Care Act federal insurance enrollment period in half (to 45 days), which has people scrambling to get insurance before time's up. But the administration's cutbacks to the program overall could have a disproportionate effect on minority communities, per NYT.

Why it matters: The Affordable Care Act has reduced the disparities in coverage across minority groups, even as African Americans and Hispanics throughout the country remain more likely than whites to be uninsured.

By the numbers:

  • 16% of Hispanics overall remain uninsured, down from 24.4% in 2013.
  • 10.5% of African Americans overall remain uninsured, down from 15.9% in 2013.
  • Among Hispanics ages 18-64, the uninsured rate is 17.9 percentage points higher than whites of the same age. In 2013, the difference was 26 percentage points.
  • Among African Americans ages 18-64, the uninsured rate is 4.6 percentage points higher than whites of the same age. In 2013, the gap was 10.4 percentage points.

One example of how the administrations cuts is already affecting minority communities, detailed by NYT, is at the Center for Family Services in New Jersey. The nonprofit center assists local residents across seven counties. After its federal funding was cut by 64%, the staff of 21 members who collectively spoke six different languages has been reduced to a staff of six that only speaks English and Spanish.

With a reduced enrollment period and a smaller staff, it's difficult for nonprofit groups like this to serve residents who need help signing up for insurance. “We're still getting out there and doing events," Pamela Gray, a navigator with the group, told NYT, “but the less people, the less people you're able to serve."

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Trump had fewer deportations than Obama's first year

Despite President Trump's tough-on-immigration rhetoric, there were around 177,000 fewer deportations this year than in 2009, Obama's first year in office. That number is lower than any year during Obama's presidency, according to Immigration and Customs Enforcement (ICE) data.

Data: Immigration and Customs Enforcement via FOIA office; Chart: Andrew WItherspoon / Axios

One big thing: The numbers didn't really start to decline for Obama until after he signed DACA in 2012. It protects illegal immigrants from deportation if they came here as children, but in September, Attorney General Jeff Sessions announced the end of the program.

Why it matters: Sessions gave Congress six months to figure out what to do about the Dreamers, and if nothing is done, the removal of DACA's protections could lead to an uptick in deportations.

Don't forget:

  • Since the very beginning, Trump has campaigned on a border wall, more deportation officers and tougher immigration policies.
  • In February, then-DHS Secretary John Kelly signed two memos, which allowed ICE officers to arrest anyone they suspected of violating immigration laws, among other things. The memos caused a panic, and there were several stories published about ICE roundups and immigrations raids.

Trump vs. Obama: ICE officers in Texas feel a "night and day" difference in their work between Trump's and Obama's presidency, Texas Attorney General Ken Paxton told Axios in October. He said that during the Obama administration "they were basically told not to do their job."

By the numbers:

  • Trump's highest deportation month had only about half the number of deportations as Obama's highest month.
  • In 2008, there were more than twice as many non-criminal deportations as criminal deportations. The ratio in 2016 was 0.71 — the third-lowest ratio, following 2015 and 2013.
  • Unauthorized border crossing attempts have also dropped by almost 150,000, according to Customs and Border Protection data. This could partially contribute to the declining deportation numbers, as a number of arrests and deportations occur at the border.
  • While deportations are down, there was a 25% increase in ICE arrests, the Washington Post reported.
Editor's note: This post has been updated to reflect that 2009 was Obama's first year in office, not 2008.
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Trump admin bans CDC from using certain words like "fetus"

Outside the CDC headquarters in Washington, D.C. Photo: Photo by James Leynse / Corbis via Getty Images

Policy analysts at the Centers for Disease Control and Prevention were told by the Trump administration on Thursday that they are not allowed to use the words like "science-based," "evidence-based" and "transgender," in their budget documents, according to a CDC analyst who spoke to The Washington Post.

Why it matters: The administration wants to control what it considers controversial wording from agencies as they submit documents for the president's budget for 2019, expected to be released in February. However, the analyst told the WashPost they "could not recall a previous time when words were banned from budget documents" due to ideology.

The details, per The Washington Post:

  • The list of banned words: vulnerable, entitlement, diversity, transgender, fetus, evidence-based and science-based.
  • The meeting about the banned words was led by Alison Kelly, a senior leader in the agency’s Office of Financial Services, who told the CDC officials she was just the messenger.
  • The CDC has offices that directly work with public health issues that relate to those words, such as its research on fetus development for the Zika virus and preventing HIV among transgender people.

Other CDC officials confirmed the existence of a list of forbidden words, the article said, although spokespeople from CDC or OMB did not comment by their deadline.