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not long after the launch my boss Steve took me aside he told me that he had an interesting meeting with Jeff who made it very clear that setting and insisting on high standards was an essential part of Steve's job to make his point Jeff
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asked Steve if he had ever seen the movie The Aviator the story of Howard Hughes the business tycoon Aviator and film director Jeff described a scene in which Hughes played by Leonardo DiCaprio visits one of his aircraft manufacturing facilities to check on the progress of
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his latest project the Hughes H1 racer which is a Sleek single passenger plane designed to set new speed records Hughes examines the plane closely running his fingers along the surface of the fuselage his team watches anxiously Hughes is not satisfied not enough he
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says not enough these rivets have to be completely flush I want no air resistance on the fuch she's got to be cleaner cleaner do you understand the team leader nods back to the drawing board Jeffy told Steve that it was his job to be like Howard Hughes from then
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on Steve had to run his fingers over each new Amazon product checking for anything that might reduce the quality and insisting that his team maintain the highest standards Steve was telling me the story for two reasons first it was a heads up he wanted me to know as one of his
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senior team members that he would be sending me and my team back to the drawing board if our product didn't measure up second he was telling me that I too was responsible for setting high standards for our products he was telling me that I had to be more like
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Howard Hughes that was an exert from the book I'm going to talk to you about today which is working backwards Insight stories and secrets from inside Amazon and it was written by Colin Brier and Bill Carr this is the second time I've read this book and I think this book is
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actually perfect to giving you an idea of what it was like working with Jeff Bezos the two co-authors actually worked with Jeff for Combined 27 years and one of the co-authors Colin was actually Jeff's shadow went every everywhere with
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him every single meeting for two straight years and so the purpose of this episode is going to mirror the purpose of the book where they said this book is primarily about showing you some of the unique principles and processes at Amazon with enough detail that you'll
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be able to impl them if you choose to and most of my notes and highlights are ideas directly from Jeff and what makes this book so special and what I really want to focus on today obviously Jeff's brilliant he's going to have a lot of
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fascinating and genus level insights but he also explains the reason behind his insights so he says when I write about what led Jeff to making key decisions in this book I can do so because I often directly asked him for his specific thinking behind his insights and the
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reasoning behind them was often more Illuminating than the insights themselves and as that be like Howard Hughes story illustrates Jeff is a masterful communicator he's able to identify a handful of principles that are important to him in the building of
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his company and then he finds ways to teach those principles and to repeat those principles for everybody inside the company and so they make the point at the very beginning of a company the founder is the culture the founder is
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the one that's teaching everybody the principles so it says Amazon opened for business in July 1995 staffed by a handful of people handpicked by Jeff Bezos he decided that getting in on the growth of the internet was a once in a-lifetime opportunity so he gave up his
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lucrative and promising career he wanted to create a new and compelling experience for customers so there's just a few things to get started few few traits to get started One handpick Core two try to find and pursue a once in a-lifetime opportunity and then the
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third thing that he's going to repeat over and over again for the next 20 years is that a company can be a fast follower they can copy they can imitate or they can innovate he repeats over and over again Amazon is here to innovate we are here to create new and comp
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experiences that did not yet exist the Hands-On nature of Jeff Bezos at the beginning and really throughout the entire book cannot be understated in the very early days of the company when it consisted of a handful of people working
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out of three small rooms there was no formal leadership principles because Jeff was the leadership principles he wrote the job descriptions he interviewed the candidates he packed and Shi boxes and read every email that went out to customers taking part in every
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aspect of the business allowed him to communicate the Amazon philosophy informally to the relatively small group of employees Jeff was never shy about how he wanted things done and he began to instill guiding principles like customer Obsession and unrelentingly
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high standards into every small step his team took Jeff had one simple rule it has to be perfect he'd remind his team that one bad customer experience would undo the Goodwill of hundreds of perfect ones so if you've ever read Jeff's shareholder letters you already know
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these principles he identified them from the very beginning of repeat them over and over again I made I think three episodes now on Jeff shareholder letters I'll leave them all Linked In the show notes if you haven't listened to them but the principles here were to repeat
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are customer Obsession Innovation frugality personal ownership bias for Action high standards under promising and overd delivering in fact talks about in the book that the fact he would proofread all the customer service emails and so one thing that he wanted
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to do at the very beginning speaking of under promising and overd delivering is on when you go to buy something on the website you know they'd say hey we're going to send this US Postal first class mail you might get it in about a week then once you place an order you would
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get an email from Amazon saying hey we upgraded you for free and you should have your item within two to three business days people love this under promise overd deliver this is one response from a customer that Jeff particularly liked this was called out
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as a complimentary upgrade in the shipment confirmation email thank you emails for the upgrade included one that read quote you guys are going to make a billion dollars when Jeff saw that he roared with laughter and then printed
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out a copy to take back to his office there's so many people that work with Jeff that actually describe him the same way they say he's Relentless he has unreasonably high standards and he's prioritized his speed and so he has a genius idea on organizing uh groups
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within your within your company but I think it could be traced back actually to the very first job description the very first ad he ran for a for Amazon employes and so it says the job description that he wrote for the very first employee said you must have
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experience designing and building large and complex systems and you should be able to do it in about onethird the time that most competent people think possible and so that idea that he repeats over and over again is the fact that speed matters in business and so
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he's constantly looking for ways to remove blocks that slow down the speed of which his company can move and so he comes up with this idea which I'll get to in one minute which is called single threaded leadership so he says uh the organization that moves faster will
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innovate more simply because it's able to conduct a high number of experiments per unit of time yet many companies find themselves struggling against their own bureaucratic drag which appears in the form of layer upon layer of permission
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ownership and accountability all working against fast decisive forward progress so that is the problem that Amazon's encountering and that almost every other company's going to encounter and so this is the solution they come up with this the answer lies in an Amazon Innovation
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called single threaded leadership so let me Define single thre threaded leadership they say it's been one of Amazon's most useful inventions the basic premise is that for each project there is a single leader whose focus is that project and that project alone and
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that leader oversees teams of people whose attention is similarly focused on that one project and so this is a main point that they're going to come back to over and over and over again that everyone in your company should work on one thing only fulltime I saw a very
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similar idea in Peter tals book 0 to1 I want to read from that book right now Peter wrote the best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing every employes one thing was unique and everyone knew I
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would evaluate him only on that one thing I had started doing this just to simplify the task of managing people but then I noticed a deeper result defining roles reduced conflict Jeff and his team at Amazon are going to realize that but
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they also realize that if you can avoid depend pendencies you actually move faster and spend less so let's jump into what they figured out or what the more about the problem they were trying to solve and why they came up with this idea of single-threaded leadership we
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were spending more time coordinating and less time building and so what they do is they identify and they try to avoid dependencies so anytime two teams within a company have to speak to one another or have to coordinate with one another
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to accomplish something that slows the entire company down each overlap created a dependency and they Define dependency as something one team needs but can't supply for itself and so the more dependencies you have the more bureaucratic drag you have why is that
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because managing dependencies requires coordination meaning we have to talk to each other people sitting down and hashing out a solution and coordination takes time we were spending too much time coordinating and not enough time building and so that leads directly into
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one of Jeff's best known ideas and this idea that he says that c communication internal company communication is actually a sign of dysfunction he is not trying most companies Jeff point is most companies try to get better at communicating to Jeff that means you're
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encouraging it he doesn't want to encourage communication he wants to eliminate communication and so this is more about why and then Jeff's solution to this when your dependencies keep growing it's only natural to SP try speeding things up by improving your
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communication we finally realized that our all of this cross team communication didn't really need refinement at all it needed to be eliminated it wasn't just that we had the wrong solution in mind rather we've been trying to solve the
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wrong problem altogether we finally grasped at the true identity of our problem the ever expanding cost of coordination among teams this change in our thinking was nudged Along by Jeff I heard him say many times that if we wanted Amazon to be a place where
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Builders can build we need to eliminate communication not encourage it when you view communication across groups as a defect which Jeff does the solution to your problem start to look quite different than traditional ones he suggested that each software team should
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build and clearly document recommend a set of application program interfaces so apis what everybody calls apis right for all the services that they offer an API is a set of routines protocols and tools for building software applications and
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defining how software components should interact Jeff's Vision was that we needed to focus on loosely coupled interaction via machines through well-defined apis rather than via humans through emails and meetings this would free each team to act autonomously and
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move faster Okay so two things one you got to stick with me because it's remarkable how all of Jeff's ideas fit together and how the logic is cohesive and everything relates one thing relates to another but the second thing is if you don't already own this book I'm
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going to highly recommend that you buy it it's a no-brainer I think I paid like 20 bucks for it but now he's going to go into why this is so important a few pages later Jeff in insisted that instead of finding new and better ways to manage our dependencies we figure out
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how to remove them why these largely independent teams could now do their work in parallel before you had two teams waiting on each other now you have two teams working continuously right these largely independent teams can now do their work in parallel instead of
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coordinating better they could coordinate less and build more now why is that why is fixing this so important right and this is an entire chapter dedicated to this and if you really think about what they're saying here is like the reason that fixing this is so
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important is because less coordination means more building more building means more experimenting more experimenting leads to more unpredictable but lucrative products there's a there's a sentence a couple Pages earlier that I think relates to everything time and
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time again think about how many freaking project products are inside Amazon right what they're about to tell us is very valuable time and time again we learned that customers would behave in waves we hadn't imagined especially for brand new
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features or products getting to the building of those brand new features and products faster is unbelievably important and one way to do that is through this Amazon Innovation called single-threaded leadership autonomous teams are bu for Speed we must move
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faster then he ties this to everything this is one of my favorite things he's ever said this is Jeff on decision-making speed and once you hear the way he thinks about this you you understand why he keeps emphasizing prioritizing and repeating the Need for
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Speed and this is from his 2016 shareholder letter Jeff suggested that most decisions should probably be made with somewhere around 70% of the information you wish you had if you wait for 90% he said in most cases you're probably being slow Plus either way you
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need to be good at quick 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 and what's fascinating is once you apply this idea to your company you realize
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the bottleneck goes from being too much communication and too much waiting around for other people which delays your ability to build new products to actually the limiting factor is going to be great leaders we were able to identify some brilliant managers they
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turned out to be notoriously difficult to find in sufficient numbers even at Amazon great team leaders prove to be Rarities another way to think about that is great anything is rare the limiting factor here is great leadership and then
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the second part of that is they have to work on this full-time they cannot do anything else this is just a fantastic line on why the best way to fail at inventing something is by making it somebody's part-time job and so the problem that they were trying to solve
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and the vision they had was how to move faster and remove dependencies but what they also realized once this was in place that ownership and accountability are much easier to establish under the single-threaded leader model and why because Jeff Bezos just like Peter teal
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are only evaluating that person on one thing and one thing only another unique idea in the way to build and run Amazon that Jeff came up with he actually found this idea in a paper and then decided to use it so it's something I'm going to
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repeat over and over again you've heard me say it on past podcast but if you're paying attention the whole world is a classroom you'll be shocked if you go through this book you'll be shocked at how many ideas Jeff got from reading a paper reading a book having a
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conversation that he used inside of Amazon if you're paying attention the whole world is a classroom so it says if you were to ask recently hired Amazon employees what has surprised them most in their time at the company so far one response would certainly top the list
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the Eerie silence in the first 20 minutes of many meetings the reason for the silence a six-page document that everyone must read before a discussion begins Amazon relies far more on the written word to develop and communicate ideas than most companies and this
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difference makes for a huge competitive advantage and so this is when they kick out PowerPoint and they switch to these narratives so Colin is Jeff Shadow at the time remember he goes everywhere Jeff goes sits on every single meeting this the insights that he has in this
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book are remarkable and so a long time ago way before WiFi on planes he would take a lot of flights with Jeff and so one thing that I love that I've learned about Jee from the very first book I read on him and it's really important I think a lot of people already know to
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use the company the importance of a shared base of knowledge if Jeff thinks there's a book that's valuable to read he doesn't it's not that he reads it by himself his entire he makes this entire executive team read this and so on this flight they're both reading the same
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essay the idea was like we're going to read and then discuss this essay this is way before the narrative uh structure of the meetings right they're still using PowerPoint and it's not going well and S of looking for Solutions and so again if
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you're paying attention the whole world is a classroom after a particularly difficult presentation in early 2004 we had some downtime on a flight and so read and discussed an essay called the cognitive style of PowerPoint pitching out corrupts within written by Edward
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tuft tuft identified in one sentence the problem that we'd been experiencing as analysis becomes more causal multivariant comparative evidence-based and resolution intense the more damaging the bullet list PowerPoint becomes tough proposed a solution in the essay for
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serious presentations it would be useful to replace PowerPoint slides with paper handouts with words high resolution handouts allow viewers to contextualize compare narrate and recast evidence he offered wise advice on how to get started make this transition in large
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organization making this transition in large organizations requires a straightforward executive order from now on your presentation software is Microsoft Word not PowerPoint get used to it that is tough's words and that is essentially
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what we did and so Jeff sends an email cuz this can only come from him s team received an email with the following subject line no PowerPoint presentations from now on the message was simple and direct s team members would be required to write short narratives describing
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their ideas Jeff was the only person in the company who could mandate such a change and he offered a short explanation for the reason behind the change the reason writing a four-page memo is harder than writing a 20page PowerPoint is because the narrative
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structure of a good memo forces better thought and better understanding of what's more important than what and how things are related PowerPoint style presentations somehow give permission to gloss over ideas to flatten out any sense of relative importance and to
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ignore the interconnectedness of ideas and then they describe why spending the first you know 20 minutes of an hourong meeting in silence reading these narratives together uh is so valuable it's one of my favorite sentences or paragraphs in the entire
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book it's why books have lasted for 5,000 years in fact I got a text from a Founder friend the other day he was asking me why why if I've noticed that why billionaires read so much I'll get to that in a minute the silence can be unsettling at first but it becomes
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routine even though you cannot hear it with a well-written narrative there is a massive amount of useful information that is being transferred in those 20 minutes there is a massive amount of useful information that is being transferred in those 20 minutes so a
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friend text me the other day him and his brother or co-founders of a company that's doing really really well they're both Relentless Learners and they've raised a bunch of money for their startup from several billionaires many of which are world famous if I had
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mentioned them you would know who they are and in many cases they get to spend time with them they they'd go to their houses they'd see their libraries and I got a text from them the other day that said something like I know a bunch of
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middling entrepreneurs companies aren't that successful they don't read at all and then yet I spend time with all these billionaires and and they read all the time he's like why do billionaires read so much and I think this sentence right
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here describes that even though you cannot hear it there's a massive amount of useful information that is being transferred in those 20 minutes that useful information that knowledge can then obviously be turned into profit it can make their companies better it can
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make them more money that is why you see s and I I I talked about this on the um I had lunch with samel episode I think it's episode 297 and you know I've seen this over and over again too I had the same realization that my friend had but
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I just remember after spending two hours with Sam zel talking about all I mean he knew everything about he knew way more about business history and read way more biographies than I have and I remember on the drive back it just hitting me it's like yeah of course you don't go
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and you don't go and sell a company for $38 billion and then read and learn all this stuff he'd been doing that since he was 20 by the time I met him he was an entrepreneur for over 61 years and he was still up until the day he died still reading books still listening to
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podcasts still being curious about the world around him still treating the world like a classroom and so not only do they read a lot but they also are able to produce unique insights this is a simple tip from Jeff Bezos on how to produce unique insights in what you're
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reading Jeff has an uncanny ability to read a narrative and consistently arrive at insights that no one else did even though we were all reading the same thing after one meeting I asked him how he was able to do that he responded with
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a simple and useful tip that I have not forgotten he assumes each sentence he reads is wrong until he can prove otherwise he's challenging the content of the sentence not the motive of the writer and I love this part Jeff by the way was usually among the last to finish
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reading okay so they realize the narrative structure is superior to run their meetings what they wind up also realizing is that it's Superior for building products for meetings it's called a six-page narrative for product design or new product creation it's
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called the pr FAQ the Kindle is actually the first product and we'll get into more detail about how the Kindle came to be including this very important meeting that Jeff Bezos and Steve Jobs uh had in 2003 and and so this idea of working backwards is so ingrained in the Amazon
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culture they thought it was so important that they they named the book at after it and really it's just you start with the desired customer experience so it says most of Amazon's major products since 2004 have one thing in common they
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were created through a process called working backwards it is so Central to the company's success that we used it as the title for this book working backwards is a systematic way to vet ideas and create new products it is a key tenant or excuse me its key tenant
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is to start by defining the customer experience then iteratively work backwards from that point until a team achieves Clarity of thought around what to build its principal tool is a second form of written narrative called the prfq short for press release frequently
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asked questions and so you start from the customer's perspective you literally write a press release for a product that does not exist yet right the press release that literally announces the product as if it were ready to launch and an FAQ anticipating the tough
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questions and then work backwards from that and so once again we see Jeff come up with unique insights because they weren't doing this originally right so they would come up with new ideas and they'd pitch them to Jeff and in the book it says listen we just tried we
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used like MBA style methods we would gather data about the size of a market we'd construct Financial models that project annual sales we would calculate gross margins assuming a certain cost of goods from our suppliers we we' project
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operating margins we would outline deals that we could make with other media companies and Jeff did not find that this was a good use of their time we had several meetings with Jeff to present our ideas he never seems satisfied or
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convinced he found our proposals light on the details as to how the service would work for customers he finally asked where are the mockups Jeff was referring to the visual representations that would show exactly how the new service would look on the Amazon website
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we didn't have any mockups we just wanted to sell Jeff on the opportunity we would deal with the customer experience and other details once we got his go-ahead but if Jeff wants to see mockups you had better make a mockup a few weeks later we were back with
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mockups Jeff listened carefully to our presentation yet again and then began asking d detailed questions there's so many sentences in the book just like that you're talking to him you're presenting to him and he gets right to the heart of the matter I've read that
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in other books as well and so he just goes straight down to details he would ask questions about every button every word every link every color for music he asked how our service would be better than iTunes for ebooks he wanted to know
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how much the ebooks would cost he asked if people would be able to read their eBooks on a tablet or a phone as well as their PC we answered as we had before we had not figured out the stuff yet that answer did not go over well at all Jeff wanted to know exactly what we were
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going to build and how it would be better for customers to Jeff a half-baked mockup was evident of Half Bake thinking and he was quick to say so often using strong language to make his point and so this is the first time I wrote In the book and on my notes but
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it's over and over again Founders force the issue Founders are forcing functions a forcing function an event that forces one to take action and produce a specific result remember this for later it is mentioned over and over again the fact that this is the role that Jeff is
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playing inside of Amazon Jeff suggested a different approach for the next meeting write a narrative document in it described your best idea for a device or service for the digital media business he even offered to do it with them this is incredible so the next time they meet
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they bring their ideas and it looks like a press release announcing what the their idea does for the customer and then they're going to work backwards from that this is the birth of this idea uh one person proposed an ebook reader that would use new e ink screen
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technology another described a new take on the MP3 player Jeff wrote his own narrative about a device he called the Amazon Puck what I'm about to this is crazy what I'm about to read to you he wrote in 2004 he is going to describe the Amazon Echo which is going to sell
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hundreds of millions of these things the Amazon Puck would sit on your countertop and could respond to voice commands like Puck please order a gallon of milk and the puck would then place the order with Amazon why is Jeff forcing the issue why
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is he insisting that we're doing this because writing required us to be thorough and precise we had to describe features pricing how the service would work why customers would want it Half Bake thinking was harder to disguise on the written page than in PowerPoint
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slides Jeff then pushed the idea further he is the forcing function what if we thought of the product concept narrative as a press release usually in a conventional organization a press release is written at the end of the product development process in this
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standard process that company Works forward and really what they're telling you is Amazon inverted this process and so the Kindle is going to be the first product in which they used and they created using this press release approach and this is part of one of the
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reasons why it's so important previously they were working forward like every other company now they're working backwards when we were working forward we were trying to invent a product that would be good for Amazon the company not
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the customer when we wrote a Kindle press release and started working backwards everything changed we focused in instead on what would be great for customers an excellent screen for great for a great reading experience an ordering process that would make buying
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and downloading books easy a huge selection of books low prices we would never have had the Breakthrough necessary to achieve that customer experience were not for the press release process which forced the team to invent multiple solutions to customers
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problems and in the Kindle chapter there's an entire chapter dedicated to describing the product development they go into why working backwards helps your company develop new skills you develop new skills over a long period of time your company obviously becomes more
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valuable another thing that Jeff insisted on you have to have constraints the the press release portion of these documents has to be one page or less and then I think they limit it to about five pages uh five pages or less for the FAQ
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section and then this is why I just use the word forcing function as the founder that's a term they actually use here restricting the length of the document is a forcing function we have seen that it develops better thinkers and communicators Founders develop better
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teammates which in turn develop better products it's the same idea so I want to spend a lot of time on the development of the Kindle before I get there I want to go back to this idea that the whole world is a classroom and you can't help but notice how many times Jeff is just
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using ideas from other companies or from things that he's reading and he's using them inside of Amazon right he's using them as a metaphor to use it uh to help his his company perform better but I also struck by this idea while I was reading this book that you could think
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of the belief system of the founder as the language of the company that is why juji written down and repeated over and over again and it definitely is the case in Amazon but you also see the belief system of the founder expressed through
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their actions and so this idea that Jeff identified with from day one that we're going to obsess over customers he'd make every single person in the company including himself work customer service actually take calls and so I love this and there's a lot of good
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ideas here including the importance of combining data and anecdotes data and anecdotes make a powerful combination when they're in sync and they're valuable check on one another when they're not the most powerful anecdote in this regard features Jeff himself
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Amazon has a program called customer connection which is mandatory for corporate employees every two years the corporate employee is required to become a customer service agent for a few days they have to listen in on calls watch email and chat interactions and then
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handle some customer contacts directly Jeff is not Exempted from this program while I was working as his shadow it came time for his customer connection recertification Jeff was particularly good with customers over the phone no he
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was sometimes overly generous he gave one customer a full product refund when the policy was to refund the shipping cost only as one example but this is fascinating he's going to use an idea from Toyota and realize oh Toyota has an idea and implements an idea in their
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company that we're lacking here and it's because of this again he's showing with his actions how important customer service is on the first day of training we listened to the Cs to CS agents handle a few calls on one call the customer complained that her lawn
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furniture had arrived damaged the Cs agent asked for the product number as the customer was looking for it the Cs agent muted the call and said to us I bet she's referring to this lawn chair and pointed to the product on the Amazon
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site sure enough when the customer read out the number from the package slip it was the one that the Cs agent had predicted it would be after the call was ended asked how did you know the customer was going to say that the Cs agent responded that it happened quite
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often with this newly listed product the packaging was inadequate and the furniture got banged up in transit Jeff had recently been learning about how Toyota approached quality control and continuous Improvement he mentions this over and over again in shareholder
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Letters by the way this this idea of continuous Improvement that he learned from the Japanese one technique they used in their automobile assembly line was the andon cord andon cord when any worker notices a quality problem they are authorized to pull a cord that stops
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the entire assembly line a team of Specialists swarms to the cord polar station they troubleshoot the issue and they develop a fix so the error never happens again here was a similar situation at Amazon except without the andon cord Jeff yelled out we need an
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andon cord for customer service and so they wind up instituting one it turns out that the Amazon version of the andon cord empowered the right people those on the front lines who were talking Direct to customers it surfaced serious issues as soon as they were
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noticed okay so then we're going to go into why working backwards were so important in the development of the Kindle before we go to that they quote heavily from Jeff shareholder letters to really explain remember the belief system of the founder is the language of
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the company Jeff's belief systems were written down in the shareholder letters and then repeated over and over again inside the company and so this is Jeff writing in his shareholder letter sharing his belief right we want to be a large company that's also an invention
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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 startups I believe we are the best place in the
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world to fail and we have plenty of practice and failure and he's not failing just for failure's sake he doesn't want to fail Right This Guy's super competitive but this is his main point failure and invention are inseparable twins he just said Amazon
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will be a place the best place in the world to invent so failure and invention are inseparable twins to invent you have to experiment and if you know in advance it's going to work it's not an experiment the kind they did not know in
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advance the Kindle was going to work most large organizations embrace the idea of invention but are not willing to suffer the string of failed experiments necessary to get there and so one competitive Advantage Advantage as jezo sees it that Amazon has is they're
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willing to fail for a longer period of time long-term thinking levers are existing abilities unless it's do new things we couldn't otherwise contemplate long-term orientation interacts well with customer Obsession if we can identify a customer need and if we can
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further develop conviction that the need is Meaningful and durable our approach permits us to work patiently for multiple years to deliver a solution the key word here is patiently many companies will give up on an initiative if it does not produce the kind of
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returns they are looking for within a handful of years Amazon will stick with it patience and carefully manage investment over many years can pay off greatly and so you might be thinking okay that's great David but what does this have to do with working backwards
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and they're about to get into that working backwards exposes skill sets that your company needs but does not yet have so the longer your company Works backwards the more skills it develops and the more valuable valuable it becomes the more things it can invent
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and his whole key for inventing is he only wants to invent where and when differentiation matters invention works well where differentiation matters in the company's early days the hardware that powered Amazon's data centers was not the point of differentiation that
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changes with time which we'll get to in a little bit was not a point of different differentiation with the customer creating a compelling book buying online experience was whereas with the Kindle which is what we're about to go into others were selling
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eBooks so there was a real value in owning and controlling the creation for an outstanding device for our customers to read the eBooks on differentiation with customers is often one of the key reasons to invent and so they're constantly talking about the way hey
33:32
normal companies they build things with a skills forward approach what does that mean they look inside the company like what are the assets that we have what are the skills we have what can we build with that working backwards forces you
33:43
to master new skills that again working backwards exposes skill sets that your company needs but does not have yet so the longer that your company Works backwards the more skills it develops and the more skills it develops the more valuable it becomes over time Amazon's
33:57
working backwards process starting with customers needs and not corporate needs or competencies often demands that in Jeff's words we exercise new muscles never mind how uncomfortable and awkward feeling those first steps might be and so I say all that to set this up a
34:14
meeting with Steve Jobs led to the invention of the Kindle so you can really think about what's about to take place here is how the iPod and iTunes influenced the development of the Kindle this meeting is going to happen in 2013 three at this time I think
34:30
77% of Amazon 70 or 77% somewhere around there of Amazon's revenue came from like physical books books CDs music that kind of thing right and they clearly see that this wasn't going to last forever so it says in 2003 uh Jeff and a bunch of
34:44
people from Amazon traveled to the Apple campus in Cupertino to meet Steve Jobs who had invited us down for a visit jobs got to the real purpose of the meeting and announced that apple had just finished building their first Windows application he calmly and
34:58
this is why I love jobs I love his confidence he calmly and confidently told us that even though it was Apple's first attempt to build for Windows he thought it was the best Windows application anyone had ever built he then personally gave us a demo of the
35:10
soon Tobe launched iTunes for Windows during the demo jobs talked about how this would transform the music industry up until this point if you wanted to buy digital music from Apple you needed a Mac which at this time comprised less than 10% of all the home computer Market
35:25
Apple's first foray into building software on the competing Windows platform showed how serious they were about the digital music market now anyone with a computer would be able to purchase digital music from Apple and then jobs immediately attacks Amazon's
35:39
business jobs said that CDs would go the way of other outdated music formats like the cassette tape and their importance and portion of overall music sales would drop quickly his next comment could be construed as either a matter OFA statement or an attempt to go Jeff into
35:54
making a bad business decision by acting impulsively he he said Amazon has a decent chance of being the last place to buy CDs the business will be high margin but small you'll be able to charge a premium for CDs since they'll be hard to
36:08
find Jeff did not take the bait only Jeff can speak to how the meeting impacted his thinking what we can say is what Jeff did and did not do afterward what he didn't do and what many companies would have done is to kick off an all hands on deck project to combat
36:24
this competitive threat and race to build a copycat digital music service over and over again Jeff says I do not want to be a copycat I I don't want to follow I don't want to be a fast follower I want to lead and I want to invent instead Jeff took time to process
36:39
what he learned from the meeting and formed a plan he appointed a single threaded leader which is the guy Steve from the Howard Hughes story at the very beginning so you have a single-threaded leader named Steve to run digital who would report directly to Jeff so that
36:55
they could work together to formulate a vision and a plan for digital media and I love the explanation of this I'm going to read the whole paragraph to you CU I think it's so great in other words his first action was not a what decision it
37:06
was a who and a how decision this is an incredibly important difference Jeff did not jump straight to focusing on what product to build which seems like the straightest line from A to B instead the choices he made suggest that he believed
37:17
that the scale of the opportunity was large and the scope of the work required to achieve success was equally large and complex he focused first on how to organize the team team and who was the Right leader to achieve the right result at that time Amazon did not have
37:33
billions of dollars to spend on digital media or anything else for that matter so we would need to lean heavily on the frugality principle to stay in the game with the bigger players Jeff was a student of history and regularly reminded us that if a company didn't or
37:47
couldn't change and adapt to meet shifting consumer needs it was Doom remember he's got to transition his business from 70% physical Goods to essentially All Digital and he used the example of kodak's failure to do so as a warning sign you don't want to become
38:01
Kodak he would say referring to the once Mighty photography giant that had missed a turn from film to digital we were not going to sit back and wait for this to happen to Amazon so let's pause here before we move on again goes back to
38:13
this main idea in the book you need to have single-threaded leadership on every single important initiative or project inside your company why Jeff felt that if we tried to manage digital media as a part of the physical media business it would never be a priority the bigger
38:26
business the company after all and we would always get the most attention getting digital right was highly important to Jeff and he wanted Steve to focus on nothing else in other words Jeff is disrupting himself then we go back again you can
38:42
think of the belief system of the founder as the language of the company what is he going to repeat you can invent or copy we choose to invent we had many meetings with Jeff I would present our ideas for our Music product or a company we might acquire each time
38:55
we had these meetings Jeff would reject what he saw is Copycat thinking emphasizing again and again and again that whatever music product we built it had to offer a truly unique value prop for the customer let me repeat that any product we build has to offer a truly
39:10
unique value proposition for the customer he would frequently describe the two fundamental approaches that each company must choose between When developing new products and services we could be a fast follower and make a close copy of successful products we
39:21
could just make another iTunes right we could go that route we could make a close copy of a successful product that other company had built or we could invent a new product on behalf of our customers he wanted Amazon to be a company that invents he would
39:33
immediately Force this he recognized that building a copycat version of the iPod and iTunes was a nonstarter he chose the path of invention by looking beyond the music category this is so important because every other big company is essentially
39:47
at this time just copying or attempting to copy Apple they wind up going to these like uh this conference where these these music executives are um speaking they know Jeff's in the audience they kind of like encourage him because these are just more revenue for
40:00
the music uh industry right they're like yeah Amazon should build this and this would be more revenue for Amazon and more revenue for Universal Music and just like you're not controlling what I'm thinking you don't get to dictate the products that my company makes there
40:13
is no differentiation we cannot beat we can't out Apple Apple so you don't try what did Warren Buffett say how do you beat Bobby fiser the answer is you play him in any game except chess back to this he chose the path of invention by looking beyond the music category which
40:27
led him to begin Amazon's fora into digital by focusing on ebooks and an ebook reader device in doing so Jeff demonstrated his belief that true invention leads to Greater long-term value for customers and shareholders Jeff is so good this guy is
40:42
so good look how he takes what Apple did to the music industry what they use for iPod and iTunes and how it influenced the development of the Kindle there's a reason why I keep making podcast after podcast and reading book after book of
40:54
Jeff Bezos in fact there's a line I read years ago in uh the CB insights newsletter that really hits home how special this guy is and it says to read Jeff Basil's shareholder letters is to get a crash course in running a high growth internet business from someone
41:08
who mastered it before any of the playbooks were written listen to what he does here Jeff zeroed in on the fundamental difference between the digital media retail business and our existing physical media retail business our competitive Advantage advantage in
41:21
physical media was based on having the broadest selection of items available on a single website but this could not be a competitive advantage in digital media where the barrier to entry was low any other company could match our offering any other company could build an ebook
41:37
store where they offer the same breadth and depth of books and songs as any other digital venue they just had to be willing to undertake the tedious work of aggregating the digital files together into a single online catalog so we knew
41:50
we couldn't meet Jeff's requirement that our digital business have a distinct and differentiated offering just on elction and aggregation remember he he's the forcing function he's saying our digital business must have a distinct and differentiated offering and so Jeff
42:05
tells Steve right the guy with the single threaded leader on here we have to move out of the middle and venture to either side of the value chain in digital that meant focusing on applications and devices consumers use to read watch or listen to content as
42:18
Apple had already done with iTunes and the iPod we all took note of what Apple had achieved in digital music in a short period of time and sought to apply those learnings to our long-term product Vision our long-term product Vision in books not music We believe that
42:34
customers would want the ebook equivalent of the iTunes iPod experience an app paired with a mobile device that offered customers any book ever written the content available at a low price that they could buy download and start reading in seconds but we would need to
42:48
invent the device ourselves the idea this is so crazy remember now we know how successful is I had the first Kindle by the way which is like this big bulky white it's like 400 bucks too it was crazy but anyways this is like now this
43:02
makes sense but back then this is how this is why he's so special the idea that Amazon a pure e-commerce e-commerce distributor of retail products made by others which is what they were at this time the idea that Amazon a pure e-commerce distributor of retail
43:18
products made by others would become a hardware company and make it and sell its own reader device was controversial the Kindle chapter in this book is incredible I'm still in it not left myself I wrote in the margin actually uh Outsource and your company doesn't
43:32
acquire the skills Amazon wants the skills what is that mean our decision to become a hardware device manufacturer would inform a number of decisions down the road many companies that decide to enter a business area in which they have
43:42
little internal expertise our capability which is what Amazon H doesn't have h a description of Amazon at this time right they choose to Outsource this can some times be a mistake and they use an example in the early days of e-commerce brick and mortar retailers created their
43:56
first on online retail sites they brought in third-party developers this approach enabled them to move quickly but it deprived them of the flexibility to innovate and differentiate and that's a big problem because who had that ability to differentiate and innovate
44:09
and who are now these brick and mortar retailers going online and competing directly against Amazon we know how that ends retailers who outsourc e-commerce lack the ability to ideate and Test new products and so they list a bunch of products that Amazon was able to test
44:24
way faster because they had this ability they could only pick from a menu of options from their outsourced provider at best they would be fast followers of what the innovators built the innovators being Amazon so like okay we're going to
44:37
we're going to take that same idea and go out and acquire the skills necessary to become to transform from a pure e-commerce distributor of retail products made by others to Hardware makers and this directly leads to an idea that you and I have been talking
44:52
about over and over again today Founders force the issue not Outsourcing means it's going to be more expensive we're going to spend a lot more money it's going to take longer to get a product out there but at the end of that if we are successful we have a set of skills
45:03
that we lacked beforehand then we can go out and do this over and over again again Founders forc the issue we known that the Kindle would take time and money to develop but by the middle of 2005 it became clear that it was taking much longer and consuming more money
45:15
than we had anticipated what was Jeff bezos's reaction to this there was a heated discussion about the surprising ramp up in expenses at some point in the debate so someone asked Jeff Point Blank how much more money are you willing to
45:31
invest in Kindle Jeff calmly turned to our CFO Shrugged his shoulders and asked how much money do we have that was Jeff's way of signaling the Strategic importance of Kindle another example the whole world is a classroom and Jeff taking an idea from another company Jeff
45:49
went through many Blackberry devices this was hilarious a few of which had been Fried by sweat dripping on them during his workouts this sounds really intense the feature that really attracted him to the Blackberry was constant connectivity Jeff loved that
46:02
his phone was always connected and automatically refresh itself to display every new email in those early days of digital media this was a first and the Blackberry did this without having to connect to a computer and so he has this idea is like what what's the Kindle
46:15
what's that idea the principle behind that idea that we can apply to the Kindle he wanted the Kindle to be like the Blackberry no wires never need to connect to your PC he talked over and over again about the ability to to be patient to have long-term thinking and
46:29
to want to invent and invest in that invention that meeting with Steve Jobs happened in 2003 the Kindle goes on sale for the first time all the way in November of 2007 it retails for $399 and would hold 200 books it sold out in less than 6
46:49
hours and so another example being influenced by another company if You' ever read the everything store it's talked about a bunch in there the fact that Jeff met with cost co-founder Jim Sagal and the meeting changed the trajectory of Amazon he implemented a
47:01
bunch of ideas in that meeting into Amazon one of those led directly to this membership program that now over 100 million people are members of myself included which is Amazon Prime what's fascinating is how fast they built Prime Jeff sends a email in October 2004
47:17
saying we need to do this and by February of next year it is live and a product that actually exists this is what the email read we should not be satisfied remember back to the founders forcing function right we should not be satisfied with the growth of our retail
47:30
business this is a house onfire issue and we need to dramatically improve the customer experience around shipping we need a shipping membership program let's build and launch it by the end of the year and so their thinking was let's not
47:43
do what people expect now but where is this going before you had to drive to the store to get something then you order on Amazon maybe comes a week 10 days later then 5 days later then 3 days later now today it comes in a few hours right and they knew this all the way
47:56
back back in 2004 so let's start building for that future today 2-day shipping and eventually one day shipping and same day shipping will become the norm therefore while what we've built is good it is not good enough we should do this now we have an unshakable
48:10
conviction that long-term interest of shareholders are perfectly aligned with the interest of customers this is clearly in the interest of our customers so we will do it now and again there is many such sentences like this one in the book Jeff insisted on this path which
48:25
resulted in Amazon Prime now was fascinating is as they develop Prime we see that Jeff is just very uncomfortable with mediocrity and he still wants to make sure that his company is not going with this skills forward approach that most companies
48:38
have let's start with the optimal customer experience and work backwards from that and you're like Jeff but we don't have those skills exactly so we're going to go out and acquire those skills and over time that's going to make our company more valuable now that customers
48:48
have gotten a taste of free shipping they no longer wanted to be forced to choose between slow and free and fast and expensive Jeff exhibits discomfort when when presented with an either or proposition in which both results are mediocre viewed through his customer
49:03
Obsession lens the only answer to the question which would you rather have slow and free or fast and expensive is fast and free so the catch was that fast and free was where Amazon needed to go next but our fulfillment capabilities were not yet up to the task if you had
49:23
read the book up until this point this what I'm about to tell you is not in the book but you would D derive this conclusion at the end of that says the fast and free was where Amazon needed to go next but our fulfillment capabilities
49:33
were not up to the task period most skills forward companies would stop there that's not where Amazon stopped it's where they started another great idea walk your store walk your store again goes back to the founders is the forcing function
49:48
more most retail CEOs walk the store when they have a chance and Jeff is no exception the typical physical retail CEO can pay a visit to his Outlet when near in the area and they'll do a bit of browsing and observe what's going on an online retail CEO like Jeff can walk the
50:02
store anytime and Jeff's preferred walking the store time was early Saturday and Sunday mornings it was not unusual for me to wake up at 7:00 a.m. on a weekend and read five or six messages from Jeff to the relevant teams on issues that he had found while
50:16
walking his store that morning this is what he expects when he emails you when he sent a team an idea it did not need to be implemented but it definitely needed to be valuated and that evaluation needed to be communicated back to him again he's showing with his
50:32
actions this is important to him they're supposed to have a meeting on Prime that Jeff scheduled the meeting on Friday fortunately Amazon had this they had a like a sitewide out outage there was they were experiencing technical issues
50:42
so this guy named VJ he actually had to cancel the meeting which is the right thing to do and then reschedule for another time Jeff took an his stride and said okay we can reschedule the meeting how about tomorrow morning at my house and this idea that Jeff says that the
50:54
meeting is genius that's when Jeff and all these other people met at his house to go over what would become Amazon Prime Jeff said this is his main directive this is genius Jeff said he wanted to build a moat around his best customers he wanted to build a moat
51:07
around his best customers so Prime starts with the free two-day shipping that everybody knows they now have added a bunch of different benefits at no additional cost although I think I think I started out paying like $79 a year and I think I pay like
51:20
$129 a year so I guess there is a cost but at this time it was the same price and what was fascinating is I didn't know so obviously know that you know every Prime member has access to Prime video but I didn't know or I didn't remember rather that they had started it
51:34
out like trying to compete with other streaming services and so they went from one bad idea to the next and again remember how he said that Jeff can read the same document as everybody else and get different insights Jeff actually comes up with another idea that no one
51:44
was thinking of based on idea that worked for another company in a different context and that company was Netflix so it says Jeff came up with a simple idea let's make videos free for Prime members they were trying to make it a separate Standalone subscription
51:59
product it was not succeeding it's like okay let's just add it to Prime because again his whole thing is how are we going to be differentiated now listen to this this had not been on anybody's list of ideas Jeff reminded us of how Netflix
52:11
got started off by offering watch now streaming videos to its DVD subscription service so I need to back up they go into more detail you may remember this I've been a subscriber to Netflix forever when I first subscribed I would get DVDs in the mail that was all
52:25
Netflix offered then eventually they said oh now you can stream but their streaming offerings was like really really it wasn't good so instead of trying to sell it they just gave it to existing members for free so now you have Amazon Prime video that's is not
52:37
really good so why don't we just take the idea from Netflix and just add it as a benefit for our our existing subscribers so it says Jeff remind us how Netflix got started off by offering watch now streaming videos to its DVD Subscription Service it's an oh by the
52:50
way offering he said when Netflix started they didn't have a great selection of movies and TV shows either not good enough that customers would pay extra for them instead Netflix gave their customers additional value as part of their existing subscription Netflix
53:04
was essentially saying the service you pay for is great and oh by the way here is something extra for you to watch and then he says why he wants to do this Jeff argued that Prime with streaming video would be a unique offering in a competitive differentiator any
53:21
competitor might launch a prime prime shopping clone he said or they could potentially build a new Netflix type service but it was unlikely that any one of them would be able to do both and then over time obviously further differentiation is hey we're
53:37
bidding against Netflix and Hulu and all these other essentially like studio and the content creators have the supply then all these streaming servers come in over the top and say hey how much you want for that and another streaming server says oh you you'll pay a billion
53:50
I'll pay 2 billion and so they realize like we don't want to be in this NeverEnding cycle of bidding against Netflix and and Hulu we don't want to keep paying the studios more additional fees for every country that they enter and there's all these like issues that
54:01
that they go into detail and so again they're like well if you wanted to be truly differentiated what would you do and once they asked themselves that question it says that led to a stting the conclusion we had to create our own content it was time to make our own
54:13
movies and TV shows and I just want to share one more idea that I think ties a lot of these ideas that you and I have been talking about today together the world is a classroom we're going to differentiate we're not going to copy we're going to
54:24
work backwards from the optimal C customer experience and we're going to use a written narrative to guide product development Jeff and I attended an O'Reilly emerging technology conference and we went to a panel featuring Stuart Butterfield who co-founded Flickr and
54:39
later slack someone asked Stuart to describe a typical day at Flickr his answer was surprising he said that about half the day was probably the same as it was for many of the people in the audience scrambling to keep their technology platform one step ahead of
54:55
the rap growth of their business they worked on scaling their databases web servers software and Hardware half the day right Stuart said they did not spend as much time as he would like on innovating things that were unique to
55:10
flicker after the panel Jeff and I had a brief chat about Stuart's comments we both noticed the same thing a phenomenon that Amazon would later refer to as undifferentiated heavy lifting that is the tasks that we could do for the companies that would enable them to
55:29
focus on what made them unique this was an opportunity the colonel for the opportunity for AWS obviously in building and operating one of the world's largest websites we had acquired a core competency only a few other companies could match working backwards
55:47
documents for the early AWS products the pfaq stated that we wanted the student in a dorm room to have access to the same worldclass Computing infrastructure as any Amazon software engineer that powerful metaphor in the prfq document really helped crystallize the thoughts
56:08
and ideas of the AWS product development teams and that is where I'll leave it no-brainer absolute no-brainer to buy this book I'd buy this book for yourself for a bunch of people on your team if you buy the book using the link that's
56:22
in the show notes in your podcast player you'll be supporting the podcast at the same time this is definitely a book I will reread and revisit into the future if you want more episodes that are like this one I did an episode very similar to this but it's about Steve Jobs it's
56:34
called working with Steve Jobs it's number 281 by my count this is the eighth Jeff Bezos episode that I have made if you want to listen to them episode 282 Jeff bezos's shareholder letters episode 180 Jeff Bezos invention of a global Empire that is a sequel to
56:49
the everything store episode 179 Jeff basos the everything store episode 155 Jeff basos and vent and wander episode 7 71 Jeff basos shareholder letters episode 38 space Barons which goes into the difference between the way Jeff is building his rocket company and Elon is
57:05
building his that would be an interesting book to revisit because that was probably five or six years ago they did a book and episode 17 Jeff Bas was the first time I did an episode in him as always everything I mentioned will be linked down in the show notes and
57:16
available at Founders podcast.com that is 321 I think that's 321 books down 1,000 to go and I'll talk to you again soon I'm glad you made it to the end Founders listeners are not quitters if you have not already signed up for the founders
57:34
AMA private feed I highly recommend doing that right now I will leave a link down below but it's also always available at Founders podcast.com because of the insane amount of research that I have done over the last seven years for this podcast I have a very
57:47
unique set data set that's available nowhere else there's over 20 thou I've read over 100,000 Pages we at like 300 what 15 books something like that I have somewhere between like 20 and 21,000 highlights and notes from this project 90% oh probably over 90% of my
58:05
highlights and notes never make it on to the podcast yet the information contained in them is excessively valuable so what I what I did is like I'm constantly getting questions all the time right and I look at them like their unique prompts to try to get some of
58:18
this information out of my head and out into the world so it's actually useful to you and one way to do this so everybody benefits is by actually making a private AMA feed so if you become a member you'll be able to ask me questions directly there's a private
58:31
email address that you get in the confirmation email after you sign up do not share that email address because I read every single one of these emails myself I don't have an assistant doing it I'm the only one that has access to that email so I read every single one
58:46
myself now the questions that I get from these emails I turn I answer and I turn them into short AMA episodes so that allows other members to learn from the questions of other members you can also add a name and link to your website with
59:00
your question so that other members can check out what you're working on I've already got I've already heard from uh subscribers to the AMA feed that they've actually got new paying customers from people that discovered their business
59:11
from an AMA question I plan on making several new episodes every week if you are an Enthusiast of Founders podcast I highly recommend that you become a member you can join by using the link that's in the show notes on your podcast player or we going to Founders podcast.com