Does your company culture demonstrate a passion for customers? Would you love to evolve your business so that it is always inventing on behalf of the customer. Today’s guest Steve Anderson, will show you how this can be done. His first book, The Bezos Letters: 14 Principles to Grow Your Business Like Amazon, deconstructs Jeff Bezos’s personal letters to Amazon shareholders between 1997 and 2018, providing readers with a guide on the key takeaways and principles that Bezos leveraged in turning an online bookstore into a trillion-dollar company in just over two decades.
In this episode we discuss:
- How to always be in start-up mode when it comes to winning over your customers
- What it means to be obsessed about your customer and how Amazon got it right
- How to create systems to measure, question, then trust your gut when making decisions
I hope this episode helps you learn from this successful business owner how to reignite the drive you had for your business when you first started!
Josh Fonger: [00:00:00] Welcome to the Work the System podcast. Where we help entrepreneurs make more and work less using systems. And I'm host Josh Fonger. And today we have a special guest, we have Steve Anderson. Steve has spent his thirty five year career helping the insurance industry understand, integrate and leverage current and emerging technologies. From Business management systems, to social platforms, Steve can analyze what's happening now and explain its implications for the future. And that's why I'm excited to have Steve on to share his new book and the wisdom of the new book, which is called The Bezos' Letters 14 Principles to Grow Your Business Like Amazon, which we'll be discussing today. All right, so, Steve, excited to have you on why don't you tell us a little bit about your backstory, your history, and what makes you uniquely qualified to analyze Jeff Bezos, letters?
Steve Anderson: [00:00:51] Letters yeah. Well, Josh, thank you for having me on. It's a real pleasure to be here at; as you said, I been in the insurance industry, primarily as an insurance agent broker for my entire career, working at two independent agencies, one in Washington, D.C. area, one in the Dallas-Fort Worth area. Kinda during that time, I got very interested in technology and how it was impacting agents and brokers and the insurance industry at large. And so about a little over 20 years ago, I started my own firm doing research, speaking, writing and consulting around technology and its impact on the industry. And so that led me to really understanding risk, but the risk in conjunction with technology development. And I came to the conclusion a few years ago that one of the biggest risks businesses face today is not actually taking enough risk. And so as I was researching that idea, I came across Amazon and widely known as innovative, forward thinking, obviously growing really rapidly. So I started asking, okay, what did they do differently? And that led me to the Bezos' letters to shareholders. So 1997 through 2018, 21 letters that what I discovered is I did a deep dive as he actually laid out what I call hidden in plain sight. His plan for building Amazon that I was fascinated with and felt like some really good nuggets of ideas and wisdom and what became the 14 principles that any business could use.
Josh Fonger: [00:02:28] Mm hmm. Oh, very cool. I'm excited to dive into these. So, you know, knowing that small business owners are the audience here, can they learn from a company like Amazon or Amazon to big to learn from or what? What do you think?
Steve Anderson: [00:02:43] Well, Amazon was a small company when Bezos started it. It was literally himself as the first employee in nineteen ninety four, went live in nineteen ninety five, went public in nineteen ninety seven and continued to grow from there. So yes I think we can't learn and I make the point of the book. You don't necessarily want to be Amazon. Maybe. And that's OK, but aren't you a bit curious how they did it? And that was the mindset that I; I came and what I discovered and reading through the letters is that I believe Bezos as the master of risk, and that's my insurance background, risk management background. But he uses risk strategically to grow. And so I believe any business, certainly small business and frankly, any organization, even a nonprofit, can learn from what he's done and how he set things out. So I am not saying you're going to be the next Amazon. Probably you aren't, but that doesn't mean you can't grow in the area. And as much as you want to grow.
Josh Fonger: [00:03:49] Well before we get into all 14 principles and we probably won't get through all of them. So, I'm curious, so did; did his letters change from the beginning to the end in terms of the way he dealt with the risk of the way you thought about risk? Or was it was it consistent?
Steve Anderson: [00:04:05] Actually, it was remarkably consistent. I actually think as the years went on, he realized he needed to take more risk. And in fact, in 2016 and 17, he said that as Amazon has grown, thus the size of their failures need to grow. And that's really counterintuitive. Right. And we think a failure as we don't want to do that. And so the first principle I have in growth is successful failure. And it's the idea of and this is all about Bezos and what Amazon is doing. It's about experimenting with what might work. And an experiment, by its very nature means it could fail. In fact, if you know it's not going to fail, it's not an experiment. But most businesses absolutely think of failure as failure, not as what am I learning that I can I can do something else with an even small businesses. You know, I've gotten the question a bit around. Well, you know, entrepreneurs, people who start small businesses are risk takers. And I would say, yes, they are, except if you look at the percentage that are still in business after the first year of the five years and you know, all those numbers, you know, there are a lot that don't make it. And so it's not just taking risk without any idea of how do I be successful with the risk that I'm taking? And how do I protect the downside? So he and me think about that. In fact, he says we need to have billion dollar failures as a company. Now they're big. OK. So I'm not saying that your company on one thing. But think about how can I structure it so it's a smart risk. And so I can test in the beginning and the 14 principles I've actually broken down into four cycles test, build, accelerate and scale. And every business is always going through those cycles based on department division, product service that you might be thinking about providing to your customers.
Josh Fonger: [00:06:17] Well maybe we can run through a scenario because I've got a client who is dealing with this, I got a lot of clients who are dealing with this. But one in particular, I'm thinking about where they have had a history of always doing marketing a certain way. So they send out direct mail there in heart. Other magazines and they do a referral where they got sign up. And they want to transition to more social media. They want to read this and do more digital marketing, more advertising. And they don't know will it work? Will not work. They don't have a huge budget at a stop there. Their old marketing take the money to go to the new marketing with this test build, accelerate scale without fail. Would that work with this kind of situation?
Steve Anderson: [00:06:58] Yeah, I think it would, especially the test area. So, you know, taking a risk is a smart risk. And so what can we do? Even taking a small percentage of their existing budget and putting it into something new. And then part of the key there obviously is is tracking and figuring out, OK, how is this working? How many leads are we getting in? What happens with those leads? Do we have a correct follow up process in place? So if it's a digital lead coming to a Web site, are we capturing the name and. Right. I think probably what they might know intuitively and one of the other principles and it's in the accelerate area so test is, OK, let's find out. Build is OK. Let's take more steps to maybe transition more of that money. Accelerate is OK. We're seeing some success here. How can we build on that? Well, I think one of the things that a lot of business owners get into is decision paralysis. And so Bezos in his 2016 letter actually lays out their decision process. And at Amazon, there are two types of decision. They call them type 1 and type 2, so type 1 decisions are irreversible. Bet the farm. We make a decision. It's really difficult, if not impossible, to move back. And Basso says very few decisions that a business are type 1, type 2 decisions are reversible and one of Amazon's leadership principles is default to action. And he says. You should make decisions with 70 percent, maybe even less of the information you wish you had. But if you wait, you have more information, you're going to slow. And so type 2 decisions he calls reversible, if we walk through that door and we decide, you know what? This isn't working. We don't like what hap what's happening. We just make another decision either back through the door or a different door in a different direction. But we default to action. And one of the dangers in a larger company as you grow is that you tend to have decision making process slow down because now you have more layers to get through. And at Amazon, they have created a system and a process to allow decisions to be made quickly at the lowest level possible and to go back to successful failure saying, OK, we know all decisions are going to be the right decisions the first time. But we also know that if we keep moving, we'll get there eventually and typically quicker than we would have if we waited for the information we needed or thought we needed.
Josh Fonger: [00:09:41] Interesting. So the idea is if you make a decision that'll give you maybe that extra 30 percent of information you couldn't have gotten anyways. You must make the decision to learn it.
Steve Anderson: [00:09:50] You might just make it make this decision to learn to go forward. Dan Sullivan at Strategic Coach calls this the 80:20. And he basically says no matter what project you're working on, you will only get 80 percent done no matter how long you work on it. Because until you put it out there and you get feedback, you can't get to that next 20 percent. And so now if you do the 80 percent again, now you're at 96 percent. What you're getting feedback. Google taught that to us, you know, many years ago with G-mail. Right. And all of their different products that they put out in Beta sometimes for years as they were getting feedback and building. And I think that's that action taking steps to move forward and not in in terms of your client, I go back to and not going, oh, we don't know what we're doing. Well, you know what? You're not going to know what you're doing until you actually do something and you can learn from people like yourself and others. But action is the best step to move forward and be smart about the investment that you make. So another concept in the book I'll introduce here is I'm sure that client of yours is looking at OK, what's my return on investment, right? My ROI. Well I introduce a concept in the book called ROR. What's your return on risk? So if I don't take this risk, what's the negative consequence if I do take this risk? What are the consequences and what are the potential advantages? So evaluating in a similar way your risk taking to be able to move forward. And again, re-emphasize in today's world, with technology changing as rapidly, it is as it is, you know, businesses just don't have the time they used to. They could take a year or two years to figure out what's coming. They can't do that today.
Josh Fonger: [00:11:32] Yeah, things are defiantly moving faster and I like the idea of most of this isn't in business can be reversed quite quickly.
Steve Anderson: [00:11:39] Yes.
Josh Fonger: [00:11:40] And you can pivot quite a; businesses are much more nimble than they used to be. It's not like you are building this skyscraper. Then you change your mind. You move it 10 feet to the left. I mean, you do have that ability. I think you forget, forget that.
Steve Anderson: [00:11:52] No question. And Amazon has this process. Again, I describe a little bit of the book called a six page memo. So at Amazon, PowerPoint or keynote presentations are banned. Nobody does it. If they have a meeting, they, somebody calls a meeting that needs a decision to move forward, let's say it's a new product introduction, we want to do this. The person calling the meeting is required to write what's called a six page memo, and it starts with a press release on the day the product's released. So the person or the team that's actually ends up being the team that's proposing this new venture, new product, new service, they write this memo. The meeting comes together. You sit down at the meeting and hand out the memo, memo you do not handed out beforehand. And you spend the first 15, 20, 25 minutes, everybody reading the memo. Fascinating process, because now what it does is you don't get people saying, oh, yeah, I looked at the memo when they really didn't. And you get the focused time. Their study hall is what they call it and everybody's on the exact same page. And now they don't go over what is it, because they've just read the whole structure of what we're proposing now. They can go here, the questions we have. So they their meetings actually are more efficient, even though it takes more time to prepare for it.
Josh Fonger: [00:13:14] That's very interesting. So they start with the idea that it's already being released to the public. And what would that look like.
Steve Anderson: [00:13:19] And work back now and again? Because Amazon is so customer focused. In fact, they very specifically use the terms customer obsessive. They obsess over customers. But it's always starting from the customer review viewpoint. What's the benefit and then working back. What do we have to do to deliver that benefit?
Josh Fonger: [00:13:39] So do the concepts of testing, building, accelerate,scale? Are those in sequence, do you have to do them in that order? Can you do scale before testing? Or is it have to go that way?
Steve Anderson: [00:13:49] Well, more than likely. You know, if you're an existing business, you may already be having trouble with scaling. Right. In terms of, OK. We've got a product, we've got a service. We might need to add a few here or there that would be testing and building. But you might jump in and go, you know what, we need to help in scaling and scaling. How do how do you maintain culture? I mean, so think about it. Amazon literally starting in twenty five years, going from a handful of employees to over six hundred and fifty thousand employees today with actually about 20 to 30 job thousand job openings. Right now, they're looking for people. How do you maintain a culture that, again, that could be going from five to twenty five? Right. So the scale there. But the same question comes up, how do you maintain the values, the vision, the the DNA of what makes us a business as you scale and bring more people in? And then the business owner now has a harder time, right. Doing one on one with everybody. So I've got to I've got to almost now be a teacher, too, to incorporate those ideas for our business that make us who we are and make a successful.
Josh Fonger: [00:15:01] So it sounds like different aspects of your business are in the testing phase, in some different aspects are in the building and the acceleration in the scale all simultaneously. So you can't say that company as a whole is accelerating and maybe it is sales wise, but maybe some parts of business are weak. I think the products. But the culture is strong or vice versa.
Steve Anderson: [00:15:21] Absolutely. You know, I think that's a really good way to explain it, that a business that that's and that's why cycle is the name we ended up with, because you are cycling through and different areas of the business, as you said, are more than likely in different cycles at one time. And they move through and, you know, you could have a division, have a new product that's in the test cycle, but have existing products that are and they accelerate or the scale cycle. So, yeah, no question.
Josh Fonger: [00:15:52] Ok, so going back to this company is trying to change, you know, change their marketing standpoint. They would test it out for a while, then they might build a few features onto their test. And then what does accelerate mean other different aspects to accelerate that cycle?
Steve Anderson: [00:16:09] Yeah. So, you know, again, some of the principles within the accelerate is one of them is make complexity simple. So Amazon does an amazing job of making complex things simple. Couple of quick examples. Kent, the Kindle Reader. So in 2007, when the Kindle was released, Bezos writes in that 2007 letter that we had the audacious goal of reinventing a book, something that had been around for five hundred years. And so we knew we had to do something that made the experience for the customer better than holding a book in your hand. And so the Kindle reader came out and you could hold more. It was lighter. And the experience of reading what they said was the Kindle needed to fade into the background just like a book does when you're reading a good book. You don't think about the book. You think about the story. And the Kindle reader needed to do the same thing. So it needed to be simple. And they created whisper sync. So if you have a Kindle, you realize that you can read the book on any device you in, if you've got your phone, Kindle app, your tablet, Kindle app, your physical Kindle reader, you can be at any one of them and have the book synced to the exact spot you finished at on another device that's incredibly complicated and incredibly technology technologically difficult to do and you don't nobody even thinks about it anymore. So that's the idea of making complexity simple. So in their case, how could they add the phrase I like to use is remove friction from the interaction with the magazine buyer in your case. So what are the points along the way of finding out about a subscription of, you know, clicking through? I'm thinking of me filling out forms, right. Of getting the information. And if it's a paid subscription paying, if it's a it's a free subscription, they need more information. Right, for advertising revenue. And are there ways to streamline that process? So I've experienced an email saying, oh, here's a magazine, we've got a special deal going on. Right. Dollar introductory offer where I click on the link and the information they already have on me is pre-filled into the form online. So that would be a simple example of how to how to make it simpler for me so that I can actually respond to it and not get to a point where I don't know what to do next or stop. So simplify the interaction and take the friction out of the transaction.
Josh Fonger: [00:18:59] Ok. Yeah. Technology's out as you can do that more and more and more.
Steve Anderson: [00:19:03] Do it more easily. And. And it can be a benefit. And I think to thinking from the magazine buyers perspective, you know, what is it that they want? You know, I'm a provider of magazine subscriptions, but. Is that what they want or do they want information? I mean, think it through and then how can we engage better with that type of buyer in all of our, you know, online or interactions or our processes, et cetera?
Josh Fonger: [00:19:34] Mm hmm. So let's it because our time is as short. I'm looking forward to getting this book. So with the accelerate. So we talked with a little bit. What are you what's one of the big things from this scale category? Because, you know, it was that was a quite large scaling. It was a big thing. But what if what if you only have five employees? You know, is the scale section of your book worth reading? Or should they just stick with the testing and building?
Steve Anderson: [00:20:02] Well, I think very much so. The scale of it, you know, is and again, as I said a couple of times, I you know, it's not about employee size or amount of revenue or or any of those things. It's how am I thinking about the business and am I thinking about scaling right now? Again, if I have five employees, I might be thinking about how am I going to make payroll next week so I may spend more time in some of the other areas, but at some point, success does come. And how can I scale? Well, well, again, four principles. Let me pick one. Measure what matters. Question what's measured and trust your gut. So Amazon is a data measuring machine. I mean, they measure everything and you see the results of that, by the way, in their customer action. When you go online, you can see people who bought this, also bought that or your, you know, your browser and looked at this here, some other books that you might like. And that's all customer focused. So they're and they make decisions. A lot of decisions, data driven meaning. Here's the data. We know this works or that doesn't work. And again, back to yours. a/b testing is a simple example of. We know this headline worked better than this headline because we had more clicks over here and we tracked that question, what's measured is data is not the only thing. And so one of the things Amazon doesn't and Bezos talks about this in one of his letters. He actually publishes his email address at Amazon. In the letter, it's Jeff at Amazon.com. You can actually email that address. And there is a team who looks at those emails and you can email him directly with a problem. You know, I had this problem and a team, as he says, I don't get the chance to respond anymore, but I have a team who looks at it. And if they see trends, they actually forward me the email to look at. And then if he questions, why is this happening? He actually forwarded the email to the head of that group with just a question mark. And by the way, as the head of that group, you do not want to get an email from Jeff Bezos was just a question mark, because what he's saying is something's not working. Right. We'd have a problem that needs to be fixed. Why is this happening? So that's questioning what's measured there. Their data may have not indicated there was a problem, but that anecdotal information is really important to Amazon. So it's measure absolutely a question what's measured and then trust your gut. And so an example of that is Marketplace, Amazon Marketplace. So I suspect some of your listeners might be a seller on Amazon Marketplace. Well, when when Amazon created that platform, there was significant push-back and senior leadership at Amazon didn't want to do it. Why should we let third parties put their products on our page? And by the way, they had two iterations of that before that were complete. Failures, back to my successful failures before they got to Marketplace. But Bezos intuitively knew he trusted his got that if we help the customer find what they want, even if it's not sold by Amazon, but it's sold by a third party, more people are going to come to the platform and trust the platform. And then we make a month; money on Marketplace. And so in 2018, 58 percent of all sales, e-commerce sales` at Amazon were through the marketplace. So now the marketplace sellers are actually selling more on Amazon's platform than Amazon is directly. So again, measure question and then trust your gut. Bezos made the decision against advice of senior leadership. I think this is the right thing to do because in his gut, he knew it was going to pay off and it has spectacularly.
Josh Fonger: [00:24:04] Well. So what was one surprise, you had done some deep analysis in all these letters? Was there anything that you; that you read through and you said, wow, I never heard this concept was principal or this idea before, this is really surprising as you got there?
Steve Anderson: [00:24:22] I probably would go back to customer obsession. And what's interesting, what really captured my attention is certainly your listeners and in the insurance industry, we all talk about good customer service, a good customer experience, customer focus. But there's something different about customer obsession. And with Amazon, they everything starts with the customer. They invent on behalf of the customer. And it's part of their culture and DNA. And it's very different than I see in other businesses in terms of their absolute. And I mean, Josh really. What do you think of when you hear the word obsession? Right. Some of it's negative like way whoa. You're way overboard here. Well, that's they don't apologize for being way overboard about their customers. And I think there's a lot all of us can learn from that focus.
Josh Fonger: [00:25:19] Yeah, I really like the customer obsession overboard. If that's what your business is designed to do, then what else should you be obsessed about?
Steve Anderson: [00:25:27] Right. Exactly.
Josh Fonger: [00:25:29] That really focuses all the decisions, even gut level decisions.
Steve Anderson: [00:25:33] Even gut level decisions. I mean, I. I don't know how much time we have left, but a quick. I'll try a quick story. I say that my wife orders from Amazon all the time. And as we were writing the book, she ordered some decaf coffee and she got Colombian like high test full caf. A case of Keurig. So she went online. Did the chat and said, you know, I ordered this. I didn't get this chat back and forth. We'll order it again if you get it again. Please call us. Here's a number. She ordered again, got the exact same thing, called up customer service, answered the phone, which, you know, sometimes is amazing. And they said, OK, there's a problem in our system. So we've actually removed that product off of our catalog. I've ordered a different decaf product for you and we're apologize for the hassle that you've had. So keep those two that you already have. And we're crediting your account with a $10 gift certificate. So, I mean, so, again, think about that in terms of responding and always focusing on the customer.
Josh Fonger: [00:26:41] Mm hmm. Yeah. No. That's amazing. That person was able to make this decision.
Steve Anderson: [00:26:46] And that person was able to make that decision. I think that's a really key factor. You're right.
Josh Fonger: [00:26:51] Yeah. When everything is a choice between buying something from a e-commerce store or Amazon in the box similar, she will always good to Amazon just because of a return policy or customer support or the ability to change things if need be. Knowing the support is going to be there.
Steve Anderson: [00:27:07] Exactly.
Josh Fonger: [00:27:08] So that's. Yeah that crazy.
Steve Anderson: [00:27:09] And that's what they built a reputation on.
Josh Fonger: [00:27:12] Mm hmm. So. One last question. What's the question? I did not ask you that. I should have that. You think the audience, you know small business, should should know about you or your book.
Steve Anderson: [00:27:24] Well, I I think given your audience with a large number of Amazon Marketplace people, I comment I'd like to say to to them, is that customer obsession we just talked about? You need to have as a marketplace seller because you hear stories about, you know, sellers getting banned or getting their account frozen or. And it's almost always around not treating the customer as Amazon would want the customer treated. So I think having that mindset as you are working through and with the Amazon platform, you know, absolutely is something important to keep in mind as you leverage what they have built for your own small business. And then one final comment. This is final. This is just a stat statement. Fourteenth principle is it's always day one. Bezos, certainly over the last 10 years always ends his shareholder letters with one. As is my custom, I attach the 1997 letter to this and it's always day one and for Bezos always day one means we are always in startup mode. We always have a mindset of we're just getting going. We're not an old company that is sitting back on its successes of the past. We're continuing to push and move forward. And I think that's a mindset for any business owner to remember those early days of the excitement and the need to move forward.
Josh Fonger: [00:29:03] Yeah. And if you had made a lot of mistakes before in the past, those are washed away. And you can start with day one.
Steve Anderson: [00:29:11] Start with day one.
Josh Fonger: [00:29:11] That really opens it. And if you get a lot of successes, the history of your successes aren't going to hold you back from taking those risks. You're like, well, I'm kind of here, I'm just coast. No that's great, it's great principle. I wrote that one down. Well, we'll good. Well, how can people find about more about you in your book if they're interested and picking it up?
Steve Anderson: [00:29:30] Yeah. So the book is available at any bookstore, online or off. There will be audio, electronic and physical book and the Web site for the book is the Bezos letters dot com. So Bezos is B E Z O S. And letters is plural dot com. And you'll find resources, some additional resources there. And if you buy the book, let us know because we had some special bonus material that you can access as a book buyer.
Josh Fonger: [00:29:59] Good. All right. Well, see, this is a really fun for me. I learn a lot it one. I'm looking forward to getting the book and reading through it and hopefully applying some of those messages to my clients and to my own business that were here working the system. And thanks, everybody, for tuning in today to today's podcast. We'll be on again next week to share with you another guest like Steve, who is an expert, our author or my clients, or maybe I'll be sharing with you a message. But some ways that you can grow your business. You can make more and work less. And if you'd like to leave us a review and get a copy of that book right there behind me. Sam Carpenter's best selling book signed, mailed to you. Leave us to comment on any platform you're watching or listen to this. Take a picture of it. Send it to info at work the system dot com. Then we'll mail out a one book week to the winner of the week. Alright, thanks everybody and we'll see you next week.