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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Trump gets personal with new attacks on Morning Joe hosts

AP

President Trump's Twitter attacks got personal Thursday morning when he went after Morning Joe hosts and engaged couple Joe Scarborough and Mika Brzezinski — his old friends:

"I heard poorly rated @Morning_Joespeaks badly of me (don't watch anymore). Then how come low I.Q. Crazy Mika, along with Psycho Joe, came... to Mar-a-Lago 3 nights in a row around New Year's Eve, and insisted on joining me. She was bleeding badly from a face-lift. I said no!"

Flashback: When Joe and Mika broke the news of their engagement in a Vanity Fair interview last month, they revealed that Trump — over lunch with the couple, as well as Ivanka and Jared Kushner — offered to officiate their wedding, and recommended they hold the ceremony at Mar-a-Lago or the White House. Mika told Vanity Fair, "If it weren't Trump, it might be something to think about."

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Reports: Trump routinely confuses Medicaid and Medicare

Evan Vucci / AP

A Republican Senator told the New York Times on Tuesday that President Trump gave the impression that he "did not have a grasp of some basic elements of the Senate plan" and that he was "especially confused" by the idea of opponents calling the bill "a massive tax break for the wealthy." More aides described Trump as uninterested in the particulars of health care.

"There would be times when he would describe what was clearly Medicare...but say Medicaid, and when we pointed that out, he would say, 'That's what I said, Medicare and Medicaid."
  • When asked if Trump had an understanding of the important aspects of the House and Senate health care bills, a close aide laughed and replied, "not to my knowledge."
  • "The president understands winning," a different official said.
  • Aides don't point out Trump's misunderstandings, not wanting to make him feel or look "dumb."
  • On Trump's campaign promises about repealing and replacing Obamacare, a former campaign aide said, "It wasn't really a policy oriented campaign—policy wasn't on our radar. The sense was, say what wins and figure out the details later."
  • Just as his intelligence briefings have been cut short compared to those of Obama, an official told the Daily Beast, "It is fair to say the president takes [a] similar approach to health care... [It's] 'less is more.'"
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Even Nike can't resist the Amazon revolution

Michael Noble Jr / AP

Sportswear giant Nike announced an agreement earlier this month to sell its products directly through Amazon.com, despite resisting the online retailer's entreaties for more than a decade.

The Wall Street Journal reports the decision was made after third-party sellers offering Nike products began to proliferate on the site, loosening the firm's control over pricing and distribution. Nike can't stop third-party sellers from reselling lawfully-purchased product, and following the liquidation of bankrupt Sports Authority's inventory last year, the market was flooded with Nike product that could be resold at deep discounts. Nike therefore decided to strike a deal to sell its products on Amazon in exchange for its help in stopping unauthorized third-party sales.

Why it matters: When consumers want to buy any type of product, be it electronics or apparel, an increasing share think of Amazon first.

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Ex-Binary Capital employee sues for alleged harassment

Binary Capital website

A female former employee at Binary Capital alleges that the VC firm tried to silence her after she quit, including alleged threats to withhold her share of the profits from successful investments (i.e., carried interest), according to a lawsuit filed in San Mateo Superior Court on Thursday.

The details: The former employee, Ann Lai, says that Binary Capital's culture was sexist, including commentary about sexual encounters, women's bodies, and inappropriate behavior toward female staff. After she resigned in May 2016, Binary Capital partner Justin Caldbeck allegedly threatened her ability to find work if she disclosed anything about her time at the firm. She quickly lost out on multiple jobs because of the firm's statements about her and her performance.

Piling on: Lai's complaint comes a week after a report from The Information revealed that Caldbeck had been sexually harassing some female startup founders. Since then, it's also been revealed that apparel startup Stitch Fix requested in 2013 that Calbeck, at the time working for Lightspeed Venture Partners, be removed from its board after he harassed the startup's founder, though she was forced to signed a non-disparagement agreement about the situation. Over the last few days, both Caldbeck and his partner, Jonathan Teo have effectively resigned, and Binary is expected to be wound down.

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Mining by machine: Automation hits coal industry

Anupam Nath / AP

If you want to work in coal, forget using a shovel. As Bloomberg's Tim Loh writes: "Coal…executives are starting to search for workers who can crunch gigabytes of data or use a joystick to maneuver mining vehicles hundreds of miles away."

The coal industry's workforce composition is increasingly going to be skilled workers, and overall hiring is likely to dip. As Heath Lovell, a spokesman for coal producer Alliance Resource Partners LP, puts it: "Whether coal comes back or not is not necessarily directly related to jobs," since as tech makes the industry more efficient it will be able to produce the same amount with fewer employees.

  • To get a sense of how successful the coal industry is going forward, look to production levels, not hiring. Remaining competitive, particularly with natural gas, likely means cutting labor.
  • The tech now: The machines that are likely to displace workers in the next 10 to 15 years include the longwall machine (which cuts coal in mile-long strips without many employees), joysticks to mine by remote control (with the help of videos, sensors, and positioning software), autonomous haul loaders, autonomous trucks, autonomous long-haul trains, semi-autonomous crushers and more. Read more, via the International Institute for Sustainable Development.
  • Likely Impacts: Accenture predicted in 2010 that employing autonomous tech in open pit mines would reduce employment by 75%. Miners, drivers, and maintainers will see more layoffs, per ComputerWorld. It is also likely that the introduction of automation will reduce fuel consumption and spending but also lost tax revenue, IISD claims.
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The iPhone went on sale 10 years ago today

Sergey Ponomarev / AP

The Economist: "No product in recent history has changed people's lives more. Without the iPhone, ride-hailing, photo-sharing, instant messaging and other essentials of modern life would be less widespread. Shorn of cumulative sales of 1.2bn devices and revenues of $1trn, Apple would not hold the crown of the world's largest listed company. Thousands of software developers would be poorer, too: the apps they have written for the smartphone make them more than $20bn annually."

  • The next decade: "[T]he era of stand-alone electronic devices, however slick, is coming to an end. They will increasingly become a vehicle for — and be subsidized by — services based on machine learning and other artificial-intelligence techniques. The quality of these offerings will in turn largely depend on how much data developers have access to... Although Apple's Siri was one of the first digital assistants, Google's and Amazon's offerings are now much smarter."
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The story behind Trump's Medicaid tweet

On Wednesday afternoon, President Trump tweeted a graph from his personal account showing Medicaid spending under the Republican Senate health bill.

There's a story behind that tweet: In the Oval Office on Wednesday, Marc Short, the White House Legislative Affairs director, showed Trump a piece of paper with the graph of Medicaid spending pointing up. Trump wanted to tweet it, according to a source told about the meeting.

Why it matters: The graph doesn't show the other side of the Medicaid changes: the fact that spending would go down compared to current law, which is how Senate Republicans get $772 billion in savings. That's the whole point of the new spending limits.

This is all part of a broader White House strategy: They want to change the way it's presented in the media to help sway some of the Senate Republican holdouts.

  • For the longest time, Republicans in all branches of government failed to frame the argument over Medicaid in terms of the Medicaid dollars going up. Some in the administration had concluded it was an argument they couldn't win. But a number of officials saw they were getting killed every day in the press, with reports of the billions being cut out of Medicaid. Some officials wanted to aggressively reframe the argument as a growth in spending — and a slowing of the growth rate under Obamacare rather than a raw "cut."
  • Even at this late stage, the White House believes it's crucial to change the media narrative. A number of officials believe that some crucial senators are more heavily swayed by media coverage than they are by the substance of the cuts to the Medicaid spending under the Affordable Care Act.

HHS Secretary Tom Price has been making this argument, and tweeted a similar graph of Medicaid spending on Tuesday:

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Stop going to the White House press briefings

With all the legitimate gripes reporters have with this White House, perhaps the least worthy of your (or their) time and attention is the WWE-style smackdown over briefings. Every day, the White House hides or dodges. Every day, reporters protest and whine.

Here's an idea: Quit going.

  • Even if the spokespeople were fully looped in, appeared on camera, and shot straight, what would you miss by blowing it off? There are transcripts and this thing called Twitter, where the rare newsy nugget will quickly appear.
  • Truth is, with cable and the internet, the briefings were pretty useless, even pre-Trump. Government officials are paid to make little news, and spin the best take they can. It's low-grade propaganda at best, and full-blown B.S. at worst.
  • You're wasting time in your day you'll never get back. For a White House reporter who doesn't work in the building, it can take a good chunk of the workday to get to the briefing, sit through it, then complain about it afterward.
  • Work plugged-in sources instead. It's not as if this White House is a watertight ship: Aides are remarkably candid about the hour-by-hour intrigue, infighting and strategizing.
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No one came out of yesterday's Senate GOP meeting sounding hopeful

David J. Phillip / AP

Senate Republicans spent a whole lot of time talking about the health care bill yesterday, but not a whole lot of time reaching any deals. That makes it harder to see how they could get an agreement by Friday on a revised bill.

It didn't help when Sen. Ted Cruz said he wants to let insurers sell plans that don't have any protections for pre-existing conditions — as long as they also sell plans with that offer those protections and follow the Affordable Care Act's other insurance rules.

Reaction to Cruz's comment:

  • One Senate GOP aide told Caitlin Owens that many of the Republican senators were "surprised and pissed" because most Republican senators had already agreed not to touch the ACA's pre-existing condition protections.
  • Another aide summed up: "No matter how narrowly-proposed, wading into pre-ex is not just a 'No,' it's a 'Hell No' for the vast majority of the Senate GOP."
  • A Cruz spokesman, however, said the senator has been talking for weeks about the idea, which is part of a proposal to give consumers a choice between health plans that meet all of the ACA rules and plans that don't. He's been handing out a card that includes that pitch.

No one came out of yesterday's Senate GOP meeting sounding hopeful.

  • Sen. Susan Collins: "It's very difficult...I'm concerned about a number of aspects, such as coverage, Medicaid cuts, impact on premiums."
  • Sen. Shelley Moore Capito: "I'd like to see a [Medicaid] growth rate that matches the projected growth, or at least is close to projected growth." She also wants $45 billion in opioid treatment money over 10 years.
  • Sen. Rob Portman: "I'd rather see us stick to the [Medicaid] growth rates that were worked out by the House."
  • Sen. Rand Paul: Any tradeoff that gives more money to moderates and more deregulation to conservatives "sounds to me like a Washington deal...I'm not going to go for that."

Most of the optimism is coming from the White House. Here's how an administration source summed up the mood to Jonathan Swan last night: "I think we're going to pass this. I really think they'll bribe off the moderates with Opioid money and then actually move policy to shore up Mike Lee and Ted Cruz."

This is how it's going: Even Sen. John McCain, who hasn't been one of the most vocal holdouts, says he's not ready to vote for the bill. Since he's from Arizona, which expanded Medicaid, he wants to offer three Medicaid amendments that he's worked out with Gov. Doug Ducey.

"That has a lot to do with whether I support the bill or not," McCain told reporters as he stepped into an elevator. When asked what the amendments were, he motioned to the elevator operator to hit the button: "Basement!"

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Staples being bought for $6.9 billion

Mark Lennihan / AP

Private equity firm Sycamore Partners has agreed to acquire office retailer Staples for $6.9 billion, or $10.25 per share. The move comes around one year after federal regulators prevented Staples from acquiring rival Office Depot, which soon was followed by Staples naming Shira Goodman as its new CEO. Goodman is expected to remain in place after the buyout is completed later this year.

Price talk: The $10.25 per share is higher than Staples has traded for most of the past two years, but well below its late 2014 high of $17.98 per share.

What to know: Staples is known for its bricks-and-mortar stores, but that's not necessarily where Sycamore's interest lies. Per Reuters: "Sycamore will be organizing Staples along three lines: its stronger delivery business, its weaker retail business and its business in Canada, two sources familiar with the deal said. This structure will give Sycamore the option to shed Staples' retail business in the future." Also don't be shocked if Sycamore at some point tries to revive the Staples-Office Depot merger concept, particularly now that a new Administration is in place.

Data: Money.net; Chart: Axios Visuals