PF #65: Good-bye CEO Jeff Bezos

Is Amazon's magic sustainable as they shift into the post Bezos era

Thanks for reading and sharing ProductFix. I am just getting back into things after a bit of a hiatus. This week I am tackling slightly different content but related to product management and strategy in the broad sense. Enjoy! 😎


Headline May 26, 2021:Jeff Bezos to formally step down as Amazon CEO on July 5, Andy Jassy to take over

There is no doubt that Jeff Bezos has built a remarkable business in Amazon. As he steps down from the role of CEO, it is worth asking if it will endure when he is no longer at the helm?

We can debate whether he will still be driving things as the Exec Chairman of Amazon’s board and to whats degree. However, at some point he will be less involved.

So it is both interesting to look at how the company got here and if it has been built-to-last. As an investor, competitor, partner, customer, or business person looking to adopt best practices - it pays to analyze such a remarkable case.

Working Backwards

I am a customer, small retail investor, and product manager who has followed Amazon for many years. I have never worked there. Nor have I met Mr Bezos. Lucky for me (and you), an excellent behind the scenes book called Working Backwards by Colin Bryar and Bill Carr recently shed light on how the sausage gets made.

This book is the basis for much of my insights into some major decisions and practices there. In the product management community, Amazon is known for some unique approaches that many attempt to copy, this book sometimes resembles a love letter to the Amazon way of doing things.

The authors paint a picture of a company with Jeff Bezos at the helm, that is built around principles and practices that are the true hero. Repeatedly, they claim these practices can be reused in others organizations looking to solve similar organizational problems. Implicitly, they are saying that the success of Amazon is now in the DNA of it, and regardless of Jeff Bezos, they have and will continue to succeed.

Signs of being Built-to-Last

Jim Collins and Jerry Porras wrote the best selling book Built-to-Last based on a 6 year research project of exceptional companies, that were an average of 100 years old and continuously outperformed the markets and competition. From that they identified key characteristics to sustaining outsized market success:

  • Be a clock builder, not a time teller

  • Build your company around a core ideology

  • Build a cult-like culture

  • Homegrow your management

  • Stimulate Progress: BHAGs, Experimentation, and Continuous Improvement

  • Preserver the core AND stimulate progress

I see no reason to make up my own criteria, so I will evaluate Amazon based on these 6 key criteria (quick reference). Let’s go…

Be a clock builder, not a time teller

At its core, lasting companies make their business the ultimate product of their success. In a sense, a well built company should be built to continuously innovate and bring new products to market. If it is not, then it may get a few big successes out of the door, but eventually they will fail to innovate.

Further, while a visionary leader may be an excellent time teller (able to make the business work now) they need to focus on clock building, so the business can work into the future without them.

The entire book, Working Backward, is a tribute to the principles and processes that make Amazon a special company. Clearly, the authors believe that Amazon has been built by its visionary leader into a system that can not only survive but continue to be an innovative leader into the future.

We want to be a large company that’s also an invention machine. We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness, and risk-acceptance mentality normally associated with entrepreneurial start-ups.“ - Bezos, 2015 Letter to Shareholders

Bezos was clearly thinking about Amazon as the core product - an invention machine. Not only is it known for specifically successful products, it is also well known for its culture and practices that include:

  • Press Release/Frequently Asked Questions (PR/FAQ). Approach to working backwards. Start with the end result you have in mind as a way to anchor a team around the future they are building towards.

  • Six-pagers. Documents - not PowerPoints - used to give an in-depth briefing to review or propose a business idea. Together with the 20 minutes of reading silence to kick-off a meeting to discuss them.

  • Bar Raiser Hiring. A process for creating repeatable success in hiring involving strict structure and a specifically trained internal third-party - the Bar Raiser.

  • Single-Threaded Leadership. Removes organizational dependencies in order to give teams maximum focus and autonomy to succeed.

  • Intense focus on Input Metrics the Weekly Business Review (WBR). Executive teams must focus most of their energy on the critical input metrics that are in their control. They share these in their WBR meetings with cross functional leaders that are expected to go deep into the numbers.

The most notable characteristic about all of these Amazonian practices is that all but one were created with direct involvement of Jeff Bezos. Bar Raising, was not his brainchild, but a consequence of teams failing to hire the best talent once Amazon had gotten too big for him to be directly involved in all hiring.

So the question arises, can Amazon continue to evolve and create new practices necessary for continued success without his leadership?

Build your company around a core ideology

The most successful companies tend to rally around a core ideology, some central focus that can obsessively align the organization across diverse activities. Bezos made a point that Amazon is not lucky to have some singular great advantage, instead they must focus on combining many small advantages. This is the notable runner-up as their core ideology, as expressed through their products and practices.

However, the most clear ideology expressed in many anecdotes throughout the book, is the intense focus on the customer. Of the Amazon Leadership Principles this is #1.

Customer Obsession. Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.

When making significant business decisions, the team repeatedly challenges their ideas against this core principle. Often this means putting their interests second - in the expectations that over-time this is the path to the most business success.

Build a cult-like culture

Much as Disney created their own values and language, being an employee of Amazon, aka Amazonian, has meaning. The well-known practices and principles are a badge of proud insider success to anyone I know that works there. I mean, how many of you have written a book about how great your former company is - like Working Backwards - fawning over it from head to toe?

I wonder if the compensation structures that are heavily equity biased, while capping base salary at $160,000/year even for the most senior execs, could create this sort of viral marketing pyramid scheme? Everyone with lots of equity, even after they leave, has a vested interest to keep up propping up the perception, that Bezos and Amazon are the most amazing place on earth.

This creates a highly competitive situation to get corporate jobs there - that would make Walt Disney envious. Hence, the marketplace for training and coaching would be Amazonians.

The key question, we cannot answer now, will the allure die out post-Bezos? Does it center on Bezos or Amazon, itself? I suspect it will be retained while he remains as Exec Chairman. If Andy Jassy can demonstrate successful continuity then the cult will persist. If there is a hiccup over the next few years, it will be interesting to see how resilient it can be.

Homegrow your management

Built to Last research showed that only 2 of 18 visionary long standing companies, meeting their standards, hired an outside CEO. This reflected 1,700 total years of existence. Only 4 times did these 18 companies hire an outside exec. The comparison comparable company group was 6x more likely to hire outside.

This theme repeated in Collins book Good-to-Great. Often, the cited issue is that boards of directors think bringing in a CEO from the outside is the path to future success. Often, companies make this outside choice even after a successful run by the current CEO whether or not they were the founder.

However, the board is usually influenced by the current CEO. How deep is the leadership team? Has the current CEO built an executive team that can be promoted to the CEO post?

In this regard, Amazon seems well prepared for the future. Bezos is remaining on the board and Andy Jassy, a highly regarded homegrown exec, is taking the helm. Jassy, has been there since 1997 and started AWS, the primary profit generating engine of Amazon.

Stimulate Progress

Big Hairy Audacious Goals (BHAGs), Experimentation, and Continuous Improvement are the hallmarks of consistently successful companies. Bezos has clearly demonstrated the importance of these tools in words and deeds.

I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of innovation, but are not willing to suffer the string of failed experiments to get there. - Bezos, 2015 Letter to Shareholders

After some small experiments, Bezos pushed the team hard to develop and launch Amazon Prime while in the middle of the critical Christmas holiday season. This was a response to slowing growth and a recognition that customers greatest problem was dealing with shipping costs.

When Bezos became convinced that digital media was the future, he further recognized that they had to build the hardware device to create a great reading (and simple buying) experience tied to digital. They had never built hardware before. When challenged on the seemingly endless spending on the Kindle bet, Bezos reportedly asked the CFO “How much money do we have?”.

AWS came as a consequence of many small experiments, primarily around providing marketplace participants with simple APIs to integrate Amazon data into their websites. Then iterating on surprising usage data and direct user feedback. While not the original goal, Amazon sniffed out an entire new customer segment that had very different needs than their retail consumers.

In all of these cases, Bezos identified this trend, enabled the organization with single threaded teams, and then set BHAGs to drive them toward the future. Sometimes, with urgency, but sometimes with a commitment to a long game built around incremental progress.

Amazon Prime was a case study in focusing on the long game and being willing to fail in some experiments along the way. They saw technical challenges that doomed the original UnBox service. Followed by business model challenges with the successor Amazon Video On Demand. Bezos was committed, and when he came up with the idea of bundling video with Prime, it changed the game.

Once again, I want to emphasize that while Amazon has been amazing at continuously finding ways to stimulate progress toward massive commercial success, all the major examples in Working Backwards put Bezos at the center.

Either it was Bezos’ idea directly, he instigated progress, or he was unrelenting in steering the teams toward success. Was it not Bezos but the organizational DNA that made this possible? Can Jassy do the same?

Preserver the core AND stimulate progress

Experiments almost never happen in a vacuum. Great companies are able to balance continuous progress on their core business while making the big bets to build out the future.

While Collins found this in his research, I think this fits with the McKinsey Three Horizon’s model. Visionary companies need to keep an eye toward the future, Horizon 3, to develop viable options which driving continuous improvement today, Horizon 1.

Enduring Ideas: Three Horizons of Growth - McKinsey & Co, Dec 2009.

The only thing the McKinsey’s model misjudged, is the pace at which the 3 horizons can apply today especially in the case of Amazon.

Amazon Prime subscription service, while a substantial bit of progress, was incremental in many ways - starting with Super Saver Shipping. They started with free shipping on some orders over $99. Over time, they have increased the available products and reduced shipping times to 2 days or less — and shifted the order size limit into an annual subscription.

Amazon Prime was, at its heart, all about preserving the core business, while energizing its growth. While all the practices of Amazon are designed to do the same, this offering is the greatest single example of handling the ANDs required to do multiple things at the same time.

Conclusions

As far as the textbook goes, it seems like Bezos has built Amazon to last. As I analyzed Amazon against Collins’ criteria, it almost feels like it was his plan all along.

As noted, I can’t shake the real concern that so many of the notable successes in Amazon’s history have been directly tied to the vision and leadership of Bezos himself. I am very curious to see where this ends up in the future.

Is Jassy the real deal? If Amazon is truly built-to-last, it should not matter, as long as he is a good steward of its practices.

Perhaps the most existential risk is Congress’s Case to Break Up Amazon. Long simmering, there are multiple new bills (June 2021) that could force them to break their monopoly power. If this happens, all bets are off.