Jeff Bezos Interviewed By David RubensteinInvestment Master Class
Just five weeks after Apple became the first trillion dollar company, Jeff Bezos’ Amazon became the second company to reach that milestone. And off the back of that, Bezos has become the world’s richest person.
And how did he get there?
Bezos has a drive for innovation and is driven by instinct. He has a preparedness to take risks and is able to embrace create thinking; all things we have noted as similar traits in other great business Mavericks.
I always enjoy listening to what Jeff Bezos has to say. And lucky for all of us, he was recently interviewed by David Rubenstein, the billionaire founder of Carlyle. Rubenstein always provides a great line-up of guests on his namesake show, ‘The David Rubenstein Show’. I’ve included some of my favorite snippets from Rubenstein’s latest peer to peer conversation with Bezos.
Don’t Think About The Stock Price
“I say when the stock is up 30% in a month don’t feel 30% smarter, because when the stock is down 30% in a month it’s not going to feel so good to feel 30% dumber. I never spend any time thinking about the daily stock price.”
The Stock Is Not The Company - The Company Is Not The Stock
“[The whole tech bubble] is very interesting, because the stock is not the company and the company is not the stock. So as I watched the stock fall from $113 to $6 I was also watching all of our internal business metrics: number of customers, profit per unit, defects, everything you can imagine. Every single thing about the business was getting better, and fast. So as the stock price was going the wrong way, everything inside the company was going the right way. We didn’t need to go back to the capital markets because we didn’t need more money. The only reason a financial bust makes it really hard is to raise money. So we just needed to progress.”
Operate In The Future - Don’t Focus On The Quarter
“All of our senior executives operate the same way I do, they operate in the future, they live in the future. None of the people that report to me should be focused on the current quarter. When Wall Street congratulates us for a good quarter, that quarter was baked three years ago. Right now, I’m working on a quarter that’s going to reveal itself in 2021. That’s what you need to be doing. You need to be two to three years in advance.
Start and Think Small
“Everything I have ever done has started small. Amazon started with a couple of people. Blue Origin started with five people and the budget was very small. Now the budget approaches a billion dollars. Amazon was literally ten people, today it’s half a million. For me it’s like yesterday I was driving packages to the post office myself and hoping one day we could afford a forklift. For me, I’ve seen small things get big and it’s part of this ‘day one’ mentality. I like treating things as if they’re small; Amazon is a large company but I want it to have the heart and spirit of a small one.”
Decision Making and Intuition
“I believe in the power of wandering. All of my best decisions in business and in life have been made with heart, intuition and guts. Not analysis. When you can make a decision with analysis you should do so. But it turns out in life your most important decisions are always made with instinct, intuition, taste and heart.”
Different Kinds of Smart
“The older I get I realize how many kinds of ‘smart’ there are. There are a lot of kinds of smart. There are a lot of kinds of stupid too. I see people all the time who I know wouldn’t have got A+’s on their calculus exams, but they’re incredibly smart.”
Focus on the Customer
“The secret sauce of Amazon, where there are several principles, but the number one thing that has made us successful by far is obsessive, compulsive focus on the customer, as opposed to obsession over the competitor. I talk so often to other CEO’s and founders and entrepreneurs and I can tell that even though they are talking about customers they’re really focusing on competitors. It is a huge advantage to any company if you can stay focused on the customer instead of your competitor.”
Identify Your Customer
“You have to identify who is your customer. At the Washington Post, is the customer the people who buy advertisements from us? No. The customer is the reader. In the school, who are the customers? Is it the parents? Is it the teachers? No. It is the child.”
Seek Customer Feedback
“I got smart and I emailed 1,000 randomly selected customers and asked them, ‘besides the things we sell today, what would you like to see us sell?’ That answer came back incredibly long tailed. The way they answered the question was for whatever they were looking for at that moment. One of the answers was ‘I wish you sold windshield wiper blades, because I really need windshield wiper blades.’ I thought to myself we can sell anything this way. If you read the original business plan it was just books.”
Fix Problems Once
“[With customer problems] we try to find real route causes and then real route fixes. So when you fix it you’re not fixing it for that one customer but for every customer. That process is a gigantic part of what we do.”
Leverage Other People’s Capex/Technology
“Amazon got started with only one million dollars of capital because I got to ride on the back of the credit card system, I got to ride on the back of the pre-existing transportation network that could deliver packages, and the pre-existing telecommunications network that could allow people to connect to our servers. All of that would have been hundreds of billions of dollars of capex but the heavy lifting was already in place.”
The Washington Post Business Model
“I wanted to be really open with myself and look in the mirror and be sure I was optimistic that it [the Washington Post] could work. If it were hopeless it would not be something I would get involved in. I looked at it and I was super optimistic. It needed to be transitioned into a national and global publication. There is one gift the internet brings newspapers and that is free global distribution. So we had to take advantage of that gift. That was the basic strategy. We had to switch from a business model where we made a lot of money per reader with a relatively small number of readers to a tiny bit of money on a very large number of readers. And that is the transition we did. I’m pleased to report the Post is profitable today, the newsroom is growing every year I’ve been there. It’s working. I know when I’m ninety, I always project myself forward to age ninety, it’s going to be one of the things I’m most proud of.”
Why Amazon? and Regret Minimization
“I came across the fact that the web was growing at something like 23,000% a year in 1994. Anything growing that fast, even if its base-line usage today is tiny, it’s growing so fast that its going to be big. I looked at that and thought I should come up with a business idea and let the internet grow around us. I made a list of the products I might sell on-line and I picked books because books are super unusual in one respect in that there are more book items in the book category than any other category. There are three million different books in print at any given time. The founding idea of Amazon was to build universal selection of books. The biggest bookstores only had 150,000 titles. I made the decision with my heart and not my head. I basically said, when I’m ninety, I want to have minimized the number of regrets in my life. Most of our regrets are acts of omission. They are the things we didn’t try, the path untraveled. Those are the things that haunt us.”
Know Your Competency
“Whenever we have dabbled in something that’s a ‘me too’ service we tend to get beaten; it doesn’t work. Our culture is much better at pioneering and inventing. So we have to have something that’s different.”
Team Inventing. Love.
“Team inventing is my favorite thing. I tap dance into the office. I love Amazon. Amazon is my full time job. I get to live two to three years into the future.”
Make A Small Number Of High Quality Decisions
“As a senior executive what do you really get paid to do? As a senior executive you get paid to make a small number of high quality decisions. Your job is not to make thousands of decisions every day. It’s different if it’s a start up company but we are not a start up.”
“Getting it wrong isn’t that bad. When we make mistakes, and we’ve made doozies, the big winners pay for thousands of failed experiments.”
Amazon Web Services’ Long Runway
“AWS completely reinvented the way companies buy computation. Then a business miracle happened. This never happens. This is the greatest piece of business luck in the history of business as far as I know. We faced no like-minded competition for seven years. It’s unbelievable. When you pioneer if you’re lucky you get a two year head start. Nobody gets a seven year head start. We had this incredible runway.”
Regulation and Big Companies
“We are so inventive that whatever regulations are promulgated or however it works, that will not stop us from serving customers. Under all regulatory frameworks I can imagine, customers are still going to want low prices, they are still going to want fast delivery, they are still going to want big selection. It is really important that politicians and others need to understand the value big companies bring and not demonise or vilify big companies. The reason is simple. There are certain things only big companies can do. Nobody in their garage is going to build an all carbon-fiber fuel efficient Boeing 787. It’s not going to happen. You need Boeing to do that. This world would be really bad without Boeing, Apple, Samsung and so on.”
The main takeaway for me on Bezos’ early years was his focus on the business operating metrics and not the share price. Basically while those metrics were moving in the right direction, he totally ignored the share price - even when the share price dropped from $113 to $6. His philosophy that ‘the stock is not the company and the company is not the stock’ is a great learning piece for all investors, I feel. Had Bezos listened to the share price, particularly when it tanked like it did, he may well have panicked and sold. In which case today, he wouldn’t hold the title, ‘the world’s richest person’.
It almost seems like de ja vu, yet once again we’re looking at a highly successful business owner with the same set of success traits as all the others we have reviewed in recent posts. And given we have seen so many people who have succeeded putting customers first, learning from mistakes and not listening to the share price, it no longer comes as a surprise to me. I hope it doesn’t come as a surprise to you.
Article by Investment Masters Class