Bezos’s Approach to Decisions: Risk, Failure, and Day 1

This morning I listened to Keji Daodu’s introduction to Amazon and Bezos. If interested, see the link in the first comment. There have also been many articles discussing Bezos’s retirement. It is worth revisiting how the world’s richest person makes decisions and sees things. ---- Over the past 27 years, words such as boundaryless, innovative, and disruptive have described not just Amazon, but Bezos himself. At its fourth-quarter 2020 earnings call on February 9, Amazon also announced that founder and CEO Bezos would step down as CEO in the third quarter of this year, handing the role to cloud-computing chief Andy Jassy. In an open letter to employees, Bezos said: This journey began about 27 years ago, when Amazon was only an idea. The question I heard most was, ‘What is the internet?’ Fortunately, I have not had to explain that for a long time. Today, we employ 1.3 million talented, dedicated people, serve hundreds of millions of customers and businesses, and are widely regarded as one of the world’s most successful companies. Invention is the root of our success. I do not know another company with an invention record comparable to Amazon’s. ---- Bezos divides decisions into two types. In his 2015 shareholder letter, he wrote: There are two types of decisions. The first are mission-critical, highly consequential decisions affecting broader strategy. The second involve less risk and can be reversed if necessary. Type 1 decisions are doors you walk through without being able to return. Bezos stresses: ‘These decisions must be made thoughtfully and in consultation, methodically, carefully, and slowly. If you walk through and dislike what you find on the other side, you cannot return to where you were.’ Type 2 decisions are reversible choices made by individuals or small groups. They are two-way doors. Bezos saw his decision to start Amazon as reversible. If it failed, he could return to his previous job. He would still have learned a great deal and would not regret trying, so he took the risk. He says: ‘If you make a suboptimal Type 2 decision, you do not have to live with the consequences for very long. You can reopen the door and go back.’ But remember: reversibility is not an excuse for recklessness or failing to understand the situation. It reflects a conviction. #DecisionMakingReflectsConviction Bezos says: ‘If I make three good decisions a day, that is enough.’ #MakingTheBestDecisions Ideally, irreversible Type 1 decisions should take 10% of your working time. They consume considerable energy and time, but they do require your attention. Do not make Type 1 decisions when angry, hungry, lonely, or tired of the process. Reversible Type 2 decisions can be made relatively quickly by delegating them to team members. Again, do not let emotion overwhelm you. Learn as much as possible about the problem. You can also consult experts with different perspectives before settling a major decision. #PrepareForUnintendedConsequences Many decisions have unintended consequences. You might create a product customers love, then discover how much time fulfilling orders and providing technical support require. These unintended outcomes are usually Type 2 decisions you can manage through delegation or outsourcing. ‘Type 2 decisions can be made quickly by individuals or small groups with good judgment.’ Focus on Type 1 decisions, and outsource Type 2 decisions so they can be handled and executed quickly. #ChooseTheRightRisks Sometimes the largest rewards come from decisions that contradict conventional wisdom. If paperback books are readily available, why buy e-books on a digital device? Why should a company focused on e-commerce enter cloud hosting and services? Bezos: ‘If there is a 10% chance of a hundredfold return, you should take that risk.’ #BePreparedToFail Amazon has placed many bets over the years. Some, such as Kindle and cloud services, have paid off. Others, such as Amazon Webstore, a Shopify competitor, and the Fire phone, were costly failures. The latter cost the company more than US$170 million. Bezos sees these failures as part of the job. He says: ‘You may still be wrong nine times out of ten. In business, when you occasionally hit a home run, you can score 1,000 runs. That long-tailed distribution of returns is why bold investing matters. The big winners pay for many earlier attempts.’ Entrepreneurs and executives who can accept their choices learn much more than those who avoid choosing. Once you recognize that some decisions are reversible, you can see them as opportunities to learn faster. At company level, letting teams make reversible decisions and learn from them helps you move at an entrepreneurial pace. This is Bezos’s approach to decision-making. It also directly or indirectly shaped Amazon’s two-pizza rule, because decisions made by small teams are more often reversible. ---- #EfficientDecisionMakingAtAmazon #TheTwoPizzaRule Bezos established a rule: Every internal team should be small enough to feed with two pizzas. It reflects Amazon’s focus on two goals: efficiency and scalability. The first is obvious. A smaller team spends less time on management and keeping employees informed, leaving more time for the work itself. But the second matters most to Amazon. The more people involved, the less efficient a meeting becomes. Most participants end up agreeing with others instead of offering distinctive insights or ideas. Bezos uses pizza count as a measure of team size. If two pizzas cannot feed a project team, it may be too large. The human brain cannot process too many people’s opinions. A crowd often produces conformity rather than distinctive individual ideas. Meetings with fewer participants often work better. How many people can two pizzas feed? Perhaps six or seven. Some companies believe more hands make work easier and that large project teams save time and money. Bezos believes that putting creative people into a large team often creates problems rather than solving them. When a team is too large for members to communicate deeply, they shift responsibility and blame, ultimately stalling or completely derailing the project. Bezos found that the two-pizza rule helps prevent projects from stalling or failing. Leaders must recognize talent, identify the people crucial to a project’s success, and give them as many resources as possible to move it forward. Having a small team work on a project and discuss it together makes consensus and business innovation easier. In fact, Bezos recommends holding meetings only when absolutely necessary. He is known for insisting that meetings be productive. To support that, he requires the presenter to write a memo of no more than six pages, circulated to everyone at the beginning of the meeting. In a letter to investors, he praised the memo practice: ‘Some people are exceptionally talented and thoughtful, providing high-quality discussion for meetings.’ Amazon employees spend weeks refining their memos. The process clarifies their thinking and improves the quality of decisions and discussion. In running the business, Bezos developed a distinctive management style. He is not always ‘nice.’ He can inspire employees and also berate them furiously. But he consistently emphasizes independent thinking. ‘Bezos wanted a thoroughly decentralized—even disorganized—company, allowing independent ideas to flourish and setting collective opinion aside.’ A former Amazon executive recalled a manager suggesting at a meeting that employees communicate more with one another. Bezos stood up and said loudly: ‘No, communication is terrible.’ ---- #FiveTimeManagementTips 1. Take the initiative in scheduling A common time-management trap in today’s workplace is responding endlessly to emails and messages. Although it is necessary, Bezos warns employees against making it the priority: it only fragments the day further. He has his own systematic approach to scheduling. For administrative matters, he sets aside three days a week for meetings, replies, and travel. Tuesdays and Thursdays are his own: he observes customers at shopping centers, browses company webpages, and brainstorms improvements to the business. By integrating personal time into work, he can recharge and gain fresh perspectives, breaking routine to improve creativity and efficiency. 2. Give up perfectionism Perfectionism may help you succeed at school but can harm your work performance, making projects and time management difficult. Bezos believes perfectionism produces continuing losses in e-commerce, where speed is the key to success. He encourages employees to move faster, even if the initial product is poor. His approach is to finish quickly and then fix small problems promptly. He emphasizes this way of working over the final product itself so that he can adapt rapidly to changes in the online market. Even if a product ultimately fails, the business can still learn and grow from the experience. 3. Know when to delegate By assigning tasks to subordinates, Bezos frees time to innovate and reassess company goals. Effective delegation also develops employees’ capabilities, helping them grow and benefiting the company. Delegating time-consuming work lets you refocus on business development rather than minor paperwork. 4. Keep your business in view For Bezos, every moment can offer insight and innovation. He often uses apparently unproductive time, such as a morning commute or a flight, to brainstorm ideas for Amazon. Using spare time during the day can make room for innovative thinking. The lesson is that you can train your mind both to concentrate at any moment and to rest fully. 5. Get enough sleep Bezos makes sure he sleeps eight hours every night. He sees sleep as the best relief from stress and overwork. To protect his sleep, he follows these practices: Do not cut sleep short; avoid morning meetings; keep a sleeping bag at the office. Bezos: ‘I go to bed early and get up early. I like reading newspapers and drinking coffee. I like having breakfast with my children before school. I always prioritize eight hours of sleep; it gives me more energy and a better mood. As an executive, your job is to make a few high-quality decisions, not thousands every day. In business decisions, quality matters far more than quantity. If sleeping less leaves you tired and irritable and making more decisions of lower quality, the trade-off is not worth it.’ ---- #ItIsAlwaysDay1 #Day1 At the end of a letter to Amazon employees, Bezos wrote: Keep inventing, and do not despair because the initial idea seems crazy. Remember to let your mind wander. Let curiosity be your compass. Remember, it is still Day 1. He has said that we can choose between two mindsets: Day 1 and Day 2. ‘Day 2 is stagnation, followed by irrelevance, then a painful operational decline, and finally closure. That is why we must always remain in Day 1.’ As businesses grow and expand, they also become slow and resistant to change. Once successful, it is easy to lose the original hunger. We need to grow. When our attention shifts from taking risks to avoiding them, we also kill innovation. Sticking with what you already know may be tempting, but it is often the riskiest choice. Once we stop focusing on customer experience, customers will shop elsewhere. That applies even to Amazon. ‘Amazon is not too big to fail... If we start focusing more on ourselves than our customers, that will signal the beginning of the end.’ #WeChatAccountBijixia