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"I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a 100-plus years. We have to try and delay that for as long as possible." — Jeff Bezos

This is my book summary of The Amazon Way: Amazon’s 14 Leadership Principles by John Rossman. The Amazon Way translates Amazon's unique culture and management practices into insights and opportunities, as only an Amazon executive and expert advisor could do for the Amazon Leadership Principles giving listeners one of the essential business leadership books for the digital era. This book summary includes my favorite quotes, excerpts, stories, notes, and ideas from the book.

On this page:

• Introduction
• Customer Obsession
• Ownership
• Invent and Simplify
• Leaders Are Right, A Lot
• Learn and Be Curious
• Hire and Develop the Best
• Insist on the Highest Standards
• Think Big
• Bias for Action
• Frugality
• Earn Trust
• Dive Deeper
• Disagree and Commit
• Deliver Results
• More Books Like This‍
• Buy the Book

Introduction

John Rossman shared this story about an Amazon S-Team meeting with Jeff Bezos, where Jeff ripped into him for not having the answer to a simple quantitative question:

With less than a year under my belt as Amazon's director of merchant integration, I am still considered the new guy on the block. At the moment, I am sitting in a conference room in the company's Seattle headquarters, surrounded by what's called the S-Team, a group that includes Amazon's twenty most senior executives, and I happen to be the center of attention. Unfortunately, this is because the founder and CEO,Jeff Bezos, is frustrated.

All eyes turn in my direction when Jeff asks me a deceptively simple question: "How many merchants have launched since the first of the year?"

The question puzzles me since, at the moment, there simply aren't any third-party sellers ("merchants" in Jeff's parlance) to launch, which is out of my direct control.

A bit apologetically, I respond, "Well, you see, as of right now—"

Before I can finish, Jeff erupts, "The answer to that question begins with a number!"

Jeff's reputation for pyrotechnic displays of emotion is already part of his legend. Jeff doesn't worry about your feelings; he doesn't give a damn whether or not you're having a good day. He only cares about results-and they'd better be the right results. Everyone who joins Amazon understands this; it's part of the deal. But this is the first time I've found myself at the business end of his double-barreled fury, and I'm more than a little shell-shocked by the experience.

I hesitate, frantically juggling possible responses in my head. Finally, taking a big gulp, I offer the simple answer he is asking for, "Six, but—"

Jeff pounces like a lion tearing into the soft underbelly of its kill. "That is the most pathetic answer I have ever heard!"

The ensuing rant is neither a simple exercise in humiliation nor some sort of power play designed to reinforce Jeff's status as the alpha dog of Amazon. It's an educational exercise using this situation as an opportunity to set an example and to transmit a series of cultural, strategic, and operational messages to the leaders of the company. The lecture is classic Jeff because, despite its thunderous volume and tone, it contains valuable lessons about the principles that define Amazon. In the next five minutes, Jeff touches on a half dozen of these principles as he describes my shortcomings in painful detail. I am chastised for my failure to sufficiently obsess over the customer, for not taking complete ownership of my project and its outcomes, for not setting higher standards for myself and my team, for not thinking big enough, for not possessing a bias for action, and for not being firmly and vocally self-critical when it was clear my performance was lacking. Throughout, I am pinned to my chair as if by a hurricane-force gale.

When Jeff's rant finally ends, he simply leaves the room without another word and, just like that, the S-Team meeting has ended. As I allow myself to start breathing again, processing what has just happened, I notice that many of the other senior leaders are smiling at me—and not unkindly. A few make a point of congratulating me as they gather their things and file out of the conference room.

"He likes you," one explains with a pat on the shoulder. "He wouldn't take the time to embarrass you like that if he didn't."

In a fog, I stumble from the conference room, clutching my notes and half-questioning how it is that I am still employed. How can anyone possibly withstand the white-hot crucible of Jeff's expectations? I wonder.

Amazon's leaders work hard to make their thinking very clear-to be clear not only about what they decide but also about precisely why they decide as they do. This quest for clarity has created an organization whose actions are based on a specific philosophy and a consistent set of values and principles. It's a way to get the details right and scale the business successfully-something Amazon has arguably done better than any other company in history.

Customer Obsession

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

Long before Jeff had fully realized his own vision for Amazon, he had profoundly internalized two truths about customer service:

• When a company makes a customer unhappy, she won't tell a friend or two or three; she'll tell many, many more, and
• The best customer service is no customer service—because the best experience happens when the customer never has to ask for help at all.

Amazon's goal has always been to minimize the time and energy its talented people must spend on routine service interactions, freeing them to innovate new ways to delight the customer.

Jeff believed that people don't actually like to talk to customer service representatives. He was right.

The more frictionless the experience, the more loyal the customer and the lower the control costs. And this includes marketing and advertising costs as well. Price and Jaffe explain, "Amazon has enjoyed a 90 percent reduction in its CPO [contacts per order], meaning that it could keep customer care costs (headcount and associated operational expenses) flat with a 9x increase in orders (revenues), a major contributor to the company's profitability beginning in 2002."

Jeff doesn't focus on margins. He's more focused on free cash flow—that is, the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Amazon invests the free cash flow generated back into the holy trinity: price, selection, and convenience.

Sometimes, the lever you need to pull in order to create the flywheel effect can be sticky and difficult to budge. The effort involved can be costly, even painful.

Not every CEO has the stomach this requires.

But Jeff's readiness to pay the price has produced much of Amazon's success.

Jeff talks about "durable customer needs" and explains that if you define your business around a set of durable customer needs, you can have a better orientation as to how to grow and innovate. For Amazon, Jeff said that he could "never imagine a world where a customer wants less selection, higher prices, or slower delivery."

During one S-Team meeting, someone opined, "If the retailer with the lowest price doesn't have the item in stock, then we shouldn't match the price. Why bleed the margin for no reason?"

Jeff immediately objected, pointing out how this might backfire. If customers saw that our price was higher, they'd grudgingly buy an item unavailable elsewhere, but the transaction would leave a bitter taste in their mouth that they would associate with Amazon. Jeff rejected the idea of protecting our profit margin, emphasizing that what really mattered was What customers were thinking.

In the end, Amazon's strategy for remaining the world's most customer-obsessed company leans heavily on another leadership principle: a bias for action. Rarely do you find Jeff Bezos reacting to a competitor's initiative. In his mind, it's preferable to launch a new innovation based on customer needs and experience and force your competitors to react—even if that innovation struggles or fails.

There are two ways to extend a business. Take inventory of what you're good at and extend out from your skills. Or determine what your customers need and work backward, even if it requires learning new skills.

Ownership

Summary: Leaders are owners. They think long term and don't sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say, "That's not my job."

One of the biggest mistakes you can make as a leader at Amazon is sacrificing long-term value for short-term results. Jeff wants his people to approach every business situation as an owner, not a renter.

The key, of course, is balancing a culture of long-term commitments with the need to deliver short-term excellence. You want a patient CEO, but you don want an extremely patient workforce.

During my time at Amazon, we had a philosophy called "the open kimono." If you weren't willing to be completely honest

about where you, your project, or your numbers stood, then there was simply no chance of attaining your goals. You had to open your kimono and willingly expose the faults, errors, and limitations of your situation.

When asking for a report on a failed project, all Jeff ever wanted to know was the following, "Here's what didn't work, why it didn't work, and how we're going to change."

In The Everything Store, Brad Stone examines this culture of unyielding accountability and summarizes how Bezos's incredibly high standards frequently overwhelmed his people:

"Many just couldn't take working for Bezos any longer. He demanded more than they could possibly deliver and was extremely stingy with praise. At the same time, many would later marvel at how much they accomplished." Accountability is not painless, but it's the only sure path to achievement.

Amazon employees quickly learn that the phrase "That's not my job" is an express ticket to an exit interview. Ownership means not only mastering your domain but also being willing to go beyond the boundaries of your role whenever it's needed to improve customer experience or fix a problem.

At Amazon, one of your primary directives is to identify and tenaciously manage every potential business-derailing dependency you have. It is not okay to fail because of a breakdown of dependencies.

When called to account for a problem caused in part or in whole by a dependency breakdown, you must be able to say, "I did these things to manage my dependencies. went above and beyond the reasonable in my efforts to manage them." That means having rock-solid contracts, service-level agreements, and penalties in place, as well as continual, active management of communications. You can assume nothing.

In that 2003 S-Team meeting, Jeff Bezos broke down the process of managing dependencies in three easy steps:

1.   Whenever possible, take over the dependencies, so you don't have to rely on someone else.
2.   If that is impossible, negotiate and manage unambiguous and clear commitments from others.
3.   Create hedges wherever possible. For every dependency, devise a fallback plan—a redundancy in a supply chain, for example.

Taking absolute responsibility for every possible dependency under your purview is no small task. This is one reason that very few have the rigor, determination, and tenacity to make it in a leadership role at Amazon. It is a company of control freaks run by control freaks and lorded over by the king of control freaks.

It took Amazon three attempts to launch a successful third-party selling platform. In the 2014 Shareholder Letter, Bezos gives the quick history:

Marketplace's early days were not easy. First, we launched Amazon Auctions. I think seven people came, if you count my parents and siblings. Auctions transformed into zShops, which was basically a fixed-price version of Auctions. Again, no customers. But then we morphed zShops into Marketplace.

Internally, Marketplace was known as SDP for Single Detail Page. The idea was to take our most valuable retail real estate—our product detail pages—and let third-party sellers compete against our own retail category managers. It was more convenient for customers, and within a year, it accounted for 5% of units. Today, more than 40% of our units are sold by more than two million third-party sellers worldwide.

An organization without commitment doesn't give it a third try.

For innovation to work, many factors have to align. It has to fulfill a real customer need; the experience has to be great; the operations have to scale; the unit economics have to be in line; and market adoption has to be primed. It is rare that all of these factors (and more) are in alignment and ready to go from the start. How do you compensate? Patience.

Jeff Bezos answer to Business Insider’s Henry Blodget, who asked “What the hell happened with the Fire Phone?”

"The Fire Phone, like all of Amazon’s projects, was an experiment. What really matters is, companies that don't continue to experiment, companies that don't embrace failure, they eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their corporate existence. Whereas companies that are making bets all along even big bets, but not bet-the-company bets, prevail. I don't believe in bet-the-company bets. That's when you're desperate. That's the last thing you can do."

Invent and Simplify

Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by "not invented here." As we do new things, we accept that we may be misunderstood for long periods of time.

If forced to name what I believe is Amazon's most important and distinctive leadership principle it is "Invent and Simplify" (combined with patience, combined with diving deep combined with customer focus). It is their willingness to invest in now hundreds, if not thousands, of simultaneous innovations, the majority of which either won't succeed or won't make a major difference to their business.

The combination of looking for the next

"dreamy business" and seeking out the smallest of free cash flow improvements on each order, which add up on a massive and scaling business, is what makes Amazon the imposing hurricane bearing down on so many industries and incumbents.

The best design is the simplest. Simple is the key to easy, fast, intuitive, and low cost. Simple scales much better than complex.

When a process is automated it's not only easier to scale but also simpler to measure while manual effort, even when it begins at a seemingly insignificant level, can evolve into

an expensive, non-scalable, and non-real-time capability.

The second page of Jeff's 2011 shareholder letter entitled "The Power of Invention" is a manifesto about the undeniable impact of data science and computer science on the growth of Amazon's platform businesses:

Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empower others to unleash their creativity—to pursue their dreams. That's a big part of what's going on with Amazon Web Services, Fulfillment by Amazon, and Kindle Direct Publishing. With AWS, FBA, and KDP, we are creating powerful self-service platforms that allow thousands of people to boldly experiment and accomplish things that would otherwise be impossible or impractical. These innovative, large-scale platforms are not zero-sum—they create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers.

Amazon Web Services has grown to have thirty different services and thousands of large and small businesses and individual developers as customers. One of the first AWS offerings, the Simple Storage Service, or S3, now holds over 900 billion data objects, with more than a billion new objects being added every day. S3 routinely handles more than 500,000 transactions per second and has peaked at close to a million transactions per second. All AWS services are pay-as-you-go and radically transform capital expense into a variable cost. AWS is self-service: you don't need to negotiate a contract or engage with a salesperson— you can just read the online documentation and get started. AWS services are elastic-they easily scale up and easily scale down.

In just the last quarter of 2011, Fulfillment by Amazon shipped tens of millions of items on behalf of sellers. When sellers use FBA, their items become eligible for Amazon Prime, for Super Saver Shipping, and for Amazon returns processing and customer service. FBA is self-service and comes with an easy-to-use inventory management console as part of Amazon Seller Central. For the more technically inclined, it also comes with a set of APIs [application programming interfaces] so that you can use our global fulfillment center network like a giant computer peripheral.

I am emphasizing the self-service nature of these platforms because it's important for a reason I think is somewhat non-obvious: even well-meaning gatekeepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there's no expert gatekeeper ready to say, "That will never work!" And guess what-many of those improbable ideas do work, and society is the beneficiary of that diversity.

When working on a problem, force yourself to ask and answer: "If I had to completely automate the process and eliminate all manual steps, how would I design it?" Instead of aiming for a ten-percent reduction in friction, push a much more radical rethinking of assumptions; ask "the five whys" and have the willingness to challenge the status quo.

Good process is absolutely essential. Without defined processes, you can't scale, you can't put metrics and instrumentation in place, you can't manage. But avoiding bureaucracy is essential. Bureaucracy is process run amok.

One of Jeff Bezos’ favorite techniques is to create a forcing function—a set of guidelines, restrictions, or commitments that force a desirable outcome without having to manage all the details of making it happen. Forcing functions are a powerful technique used at Amazon to enforce a strategy or change. One example of a forcing function was the concept of direct vs. indirect headcount:

Direct headcount for a particular project would typically include software development engineers (SDEs), technical program managers, and people who negotiated contracts, such as vendor managers. In Jeff Bezos’ mind, these were the essential skills to build a scalable company. All other headcount—all the people that don't directly create a better customer experience—was considered indirect. The forcing function was that acquiring direct headcount was relatively easy to get approved. However, indirect headcount was constrained and had to be justified by demonstrating that it would decrease with scale in the business.

In building the third-party business, my indirect headcount consisted of the account managers I hired to help assist merchants in completing their integration into Amazon. These account managers initially launched 15 to 20 merchants at a time, but before long, they were launching 50 to 100 merchants. Eventually, the number became astronomical. The forcing function did exactly what it was intended to do it enable us to build capabilities and processes that scaled well and became more efficient over time.

On the need to endure skepticism and ridicule in order to innovate from Jeff Bezos at TheBushCenter’s “Forum on Leadership”:

If you're going to do anything new or innovative, you have to be willing to be misunderstood. And if you can't tolerate that, then for god sake, don't do anything new or innovative. Every important thing we have done has been misunderstood, often by well meaning, sincere critics. Sometimes, of course, by self-interested, insincere critics.

A thousand years ago, we started this thing called customer reviews. We let customers review books. We only sold books at the time. Customers could come in and rate a book between 1 and 5 stars and they could write a text based review. You are very familiar with this. Now this is a very normal thing.

But back then, this was crazy, and the book publishers did not like this because of course, not all the reviews are positive. I got a letter from one publisher that said "I have an idea for you. Why don't you just publish the positive customer reviews." And I thought abut this. His argument that he was making to me was that our sales would go up if we just published the positive customer reviews.

When I thought about this, I said I don't actually believe that because I don't think we make money when we sell something. We make money when we help someone make a purchase decision. And it's just a slightly different way of looking at it because part of what people are paying us for is helping them make purchase decisions. If you think about it that way, then you want the negative reviews too.

Of course it has been extremely helpful for people to have negative customer reviews and by the way, it's come full circle now where the product manufacturers use the customer reviews to improve the next generation of the product. It's actually helping the whole ecosystem. So now nobody criticizes customer reviews and here in the year 2018 if some e-commerce company where to say "we are only going to publish the positive customer reviews" that would be the craziest thing that would get criticized.

So the new and innovative quickly becomes the new normal... I tell my employees that when we are criticized, there's a simple process we need to go through. First, you look yourself in the mirror and decide "is your critic right?" "Do you agree?" "Are we doing something wrong?" If you are, change.

And by the way, if you look yourself in the mirror, and decide that your critic is wrong as we did with customer reviews, then do not change no matter how much pressure is brought to bear. Do the right thing in that case as well. Have a deep keel. You have to have a deep keel.

Leaders Are Right, A Lot

Summary: Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.

Practices like "fudging the numbers,"

"guesstimating," "approximating," and "bending the rules," as well as deadlines that aren't real deadlines and targets that are purely aspirational rather than firm objectives—all of these are anathema at Amazon.

Great leaders (like Jeff Bezos) develop a strong, clear framework; then, they constantly apply that framework and articulate it accurately to their team. Get this right from the outset, and you've got an excellent mechanism for scaling good decision-making from top to bottom.

The narrative was a useful tool for sharing a set of ideas with your colleagues. But even more important was the process of working on the plan or proposal, describing it in a narrative so that important nuances, principles, and features were clear is a critical goal. As Dwight D. Eisenhower said. "Plans are nothing planning is everything."

If you want to increase your chances of achieving your goals when launching any important initiative, make sure you define and explain those goals with utter clarity from the very beginning. The future press release is a useful tool for making that happen.

There is no hiding from your failures in a culture that holds people accountable for their metrics. As Manfred Bluemel, a former senior market researcher at Amazon, once said, "If you can stand a barrage of questions, then you have picked the right metric. But you had better have your stuff together. The best number wins." Bluemel was referring to Amazon's "gladiator culture."

Because the numbers provide crystal-clear, incontrovertible proof of which leaders are most often correct, Amazon operates as close to a true meritocracy as possible. I cannot overstate how important this is for minimizing bureaucracy in the organization. When Jeff purchased The Washington Post in 2013, a reporter at the paper interviewed me about this cultural phenomenon at Amazon. I explained how key judgments were made during my years at the company: "It was not the title but rather who's got the best idea. Who's bringing the solution to the table? That's what was most important."

To be blunt, as an Amazon leader, you don't get the chance to make a lot of mistakes. Screw up for long enough, or for the wrong reasons, and the island will simply vote you off. It is the strongest culture of performance I have ever experienced, and it is directly tied to metrics, results, and being right, a lot.

At Amazon, having a balanced, well-engineered scorecard of metrics that are consistently reviewed day over day, week over week, provides deep insights into what works and what doesn't.

Repeatable, consistent performance reflected in metrics is the gold standard for success at Amazon.

Amazon relies on real-time metrics or instrumentation more than any other company I have ever been involved with.

Real data and real insights from the customer experience are used continually to answer the question, "Did I have a good day today?" If your metrics are in place, they are real-time, and your team and processes use them, this question yields a simple "yes" or "no" answer.

Your business should operate like a nuclear reactor. If a problem arises, you need to be aware immediately.

This is why the word instrumentation is useful. It gives a different feel than metrics or business intelligence. An airplane pilot needs accurate real-time data. There can be no latency because there is no "downtime" in a plane.

During my time at the organization, Amazon tracked its performance against roughly 500 measurable goals, nearly 80% of which had to do with customer objectives.

When John Rossman created the metrics and instrumentation to measure seller performance, he wanted them to be as actionable and close to real-time as possible. Here are the metrics he developed:

We started with the concept of "perfect orders," already used in Amazon retail as a way of measuring seller performance, and worked backwards.

Order defect rate (ODR). This is the percentage of a seller's orders that have received negative feedback (such as a one-star or two-star customer rating), an A-to-Z Guarantee claim, or a service credit card chargeback request (when a customer disputes a credit card charge with his or her bank). ODR allows, Amazon to measure overall performance with a single metric.

Obviously, a seller who maintains a high percentage of negative feedback is failing to live up to Amazon's customer-centric philosophy.

Pre-fulfillment cancellation rate. This is the percentage of orders canceled by a seller for any reason prior to shipment confirmation.

Late shipment rate. This is the percentage of orders with a shipment confirmation that is overdue by three or more days. Orders that are ship-confirmed late may lead to increased customer contacts and negatively impact customer experience.

Refund rate. This is the percentage of orders refunded by a seller for any reason.

All sellers should be working toward achieving and maintaining a level of customer service that meets the following performance targets:

Order defect rate: < 1%

Pre-fulfillment cancel rate: < 2.5%

Late shipment rate: < 4%

Internally, seller metrics become bundled with even more measures of effectiveness and quality of seller performance, including customer ratings and the number of customer service contacts.

Clarification is the Amazon way, and it is the basis for the culture of accountability that Jeff Bezos prides himself on creating.

Learn and Be Curious

Summary: Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.

In 2018, Jeff Wilke, CEO of World Wide Consumer at Amazon, said this about Amazon’s learning focused leadership principle:

The most important driver of that addition was the notion that we were getting very good and successful, and the accompanying fear that we would become complacent.

A key source of complacency is laziness about learning. We were just talking about how companies transition from Day 1 to Day 2 companies. One thing that happens at successful companies is that executives start to believe their own press. You might say that's covered by the line in the Earns Trust principle that says ‘leaders don't believe their body odor smells of perfume.' But that's a negative. It's not instructive. It doesn't address how to avoid complacency.

The 'how' is to focus on constant learning and staying curious about all things. Curious about defects, curious about things in the world that aren't right and you can improve, inventing for customers, the relationships among the people you lead. That's why we added 'Learn and Be Curious'-a ‘how' among the leadership principles. I'm glad we did.

Inventors have this paradoxical ability to have that 10,000 hours of practice and be a real domain expert and have that beginner's mind, have that look at it freshly even though they know so much about the domain and that's the key to inventing. You have to have both. I'm going to become an expert and I'm going to keep my beginner's mind.

Hire and Develop the Best

Summary: Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others.

On continually raising the bar on hiring:

Jeff famously put the philosophy this way, "Five years after an employee is hired, that employee should think, I'm glad I got hired when I did because I wouldn't get hired now."

Jeff Bezos would frequently tell us all that a hiring decision was probably the most important decision we could make as a member of the organization.

The kiss of death at Amazon is being known as a "solid guy."

Jeff Bezos told us to focus our positive reinforcement on our A+ people; he was comfortable with a high degree of churn below that standard.

Only seeking out, hiring, and retaining the very best people make it possible to insist upon the highest standards of performance in the everyday activities of your company.

Insist on the Highest Standards

Summary: Leaders have relentlessly high standards—many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high-quality products, services, and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.

On Amazon’s practice of setting and tracking Service Level Agreements across the entire company:

A service level agreement (SLA) is a kind of contract that specifies the precise standards to which a particular service will be held. A well-written SLA will define the inputs, outputs, and metrics that will be used to define acceptable quality and performance. At Amazon, SLAs are used to define expectations for the services provided to both external and internal customers.

Because bad customer experiences are simply not acceptable at Amazon, SLAs are written in such a way that the worst experiences are still very, very good compared to the rest of the industry. When you settle for the median, mediocrity sets in. That's where many companies get SLAs wrong.

Jeff Bezos relentlessly conveys to his team that even small service failures are far from trivial. For example, one of Amazon's metrics shows that even a minuscule 0.1-second delay in a webpage loading can translate into a 1% drop in customer activity. For that reason, the Amazon SLA specifies that the worst page load time—experienced by customers no more than one-tenth of one percent of the time—must be three seconds or less. These SLAs are heavily negotiated.

Part of the weekly metrics review is discussing and understanding the root causes of SLA failures and the planned fixes. What's probably most impressive is that everything at Amazon has an SLA-everything. For instance, the time between an image's upload and the moment it appears on the website has an SLA. So does the time it takes to change a third party's inventory from ten to eight. If it can be measured, it is—and an exceptionally high standard of service is attached to it.

This dedication to real-time metrics and SLAs is one of the most unique aspects of Amazon. Most organizations don't have the ability to collect and manage this much near-real-time data. They don't have the ability to insist on SLA instrumentation and agreements or the investment mentality to make this happen. Doing so is not cheap, but at Amazon, instrumentation is a non-negotiable launch requirement for any new program.

As a result, Jeff Bezos and his leadership team always have a very clear picture of the organization's health. Needless to say, if your numbers don't reflect Jeff's expectations, you'll hear about it soon enough.

The goal always needs to be "How do we get better?"

Think Big

Summary: Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.

Jeff Bezos recommends that people "think about the great expanse of time ahead of you and try to make sure that you're planning for that in a way that's going to leave you ultimately satisfied."

In his April 2013 letter to shareholders, Jeff Bezos addressed one of the most important factors in Amazon's massive success-willingness to sacrifice this year's profits to invest in long-term customer loyalty and product opportunities that will create bigger profits next year and for years thereafter.

Low prices not only drive customer loyalty but also discourage competition.

If you want to jump into the fray against Amazon, you can't just match them on value; you must significantly beat them. But that's easier said than done. Jeff has left very little room to huddle beneath Amazon's price umbrella.

Jeff Bezos touched on why free cash flow matters in a Harvard Business Review interview in January 3, 2013:

Percentage margins are not one of the things we are seeking to optimize. It's the absolute dollar free cash flow per share that you want to maximize. If you can do that by lowering margins, we would do that. Free cash flow, that's something investors can spend.

Jeff Bezos likes the FCF (free cash flow) model because it provides a more accurate view of actual cash generated through Amazon's operations (primarily retail sales) that is truly free to use in doing a number of things.

Jeff Bezos believed then, as he does now, that without constant innovation a company will stagnate. The wrong type of emphasis on finances and business will work against taking bets and innovating. "Our finance team modeled Prime. It was horrible. Had to use heart and intuition. Getting it wrong is not that bad. Don't have enough time to list all our failures. But a couple of big ideas pay for all the failed experiments."

Jeff Bezos explains it this way: "Take a long-term view, and the interests of customers and shareholders align." That's the philosophy that has made Amazon so successful. Another way of saying it is if you're inefficient and have fat margins you die a Darwinian death.

Bias for Action

Summary: Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk-taking.

In his book, The Wall Street Journal Essential Guide to Management, Alan Murray points out that a corollary of that physical principle is this: It's usually easier to stop things from happening than it is to make them happen.

Lead somewhere that Hall of Fame NFL coach Bill Parcells posted a sign in his locker room that read "Blame Nobody. Expect Nothing. Do Something."

That's where the metrics come in. Creating an operational environment that automates processes and makes them clear and transparent allows you to invest more time and energy on the thornier issues that require more work and creativity.

A key to creating and sustaining a successful bias for action is having the right data in front of you at the right time.

Then there's the Just Do It award, which is presented at the quarterly all-hands meeting to employees who exemplify the values of a bias for action, ownership, frugality, and self-starting. The award may just be an old tennis shoe that's been mounted and bronzed, but it's also a highly-coveted, visible icon that winners display proudly in their offices.

Frugality

Summary: A leader at Amazon tries not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention.  No extra points are awarded for growing headcount, budget size, or fixed expense.

Jeff Bezos often said, "One of the only ways to get out of a tight box is to invent your way out. Every dollar saved is another opportunity to invest in the business."

More than anything else, Jeff Bezos fears and loathes complacency—especially since the company still operates on razor-thin profit margins, relying on high and growing volume to pay the bills. Keeping costs down is one way of fending off complacency.

That hasn't stopped Jeff Bezos from searching for opportunities to create fresh symbols of frugality. For example, at the company's annual shareholders meeting in 2009, Bezos revealed that all the light bulbs had been taken out of the cafeteria vending machines. "Every vending machine has light bulbs in it to make the advertisement more attractive," Jeff explained. "So they went around to all of our fulfillment centers and took all the light bulbs out." Amazon estimated that the measure saved tens of thousands a year on electricity. Not a huge sum in itself, but the gesture speaks volumes about the way this multi-billion-dollar company thinks.

In The Everything Store, Brad Stone writes about how employees are impacted by the emphasis on frugality:

Parking at the company's offices in South Lake Union costs $220 a month, and Amazon reimburses employees— for $180. Conference room tables are a collection of blond-wood door desks shoved together side by side. The vending machines take credit cards, and food in the company cafeterias is not subsidized. New hires get a backpack with a power adapter, a laptop dock, and orientation materials. When they resign, they're asked to hand in all that equipment-including the backpack.

A longtime Amazon leader told me that frugality is often evaluated by how a leader uses the one non-replenishable asset: time. Amazon leaders try to apply more of their time at “working in the future."

Every algorithm improvement, reduced error, and eliminated warehouse move all add up to a business.

Earn Trust

Summary: Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team's body odor smells of perfume. They benchmark themselves and their teams against the best.

Dive Deeper

Summary: Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdotes differ. No task is beneath them.

At Amazon, ownership means accountability. The leader is responsible for the entire lifecycle of a project or transaction and for all its possible outcomes. If you are a leader, you must be willing to go beyond the parameters of your job to improve the customer experience.

Leaders at Amazon understand details and metrics two to three degrees deeper than senior executives at most companies.

The dive-deep philosophy is also driven by Jeff Bezos’ awareness that a company is very much like an ecosystem It is complex, constantly evolving, and thrives on diversity. This means that numerous possibilities for failure are continually emerging.

As SVP of Consumer Business Jeff Wilke once said, "Math decisions always trump opinion and judgment. Most corporations make judgment-based decisions when data-based could be made."

The Five Whys is an iterative question-asking technique we used at Amazon to explore the cause-and-effect relationships underlying a particular problem. Here's how it works:

•  Write a description of the problem. This helps you formalize the problem and helps ensure the entire team understands and is focused on the same problem.
•  Ask why the problem happens and write the answer below the problem description.
•  If the answer you just provided doesn't identify the root cause of the problem, ask "why?" again, and write that answer down.
• Loop back through the second and third steps until the team is in agreement that the problem's root cause has been identified. This may take fewer than five whys or more, depending on the complexity of the problem.

Here's an example of how the Five Whys might work in practice.

Suppose you have suffered from a technology outage. The problem description might read, "Customers were unable to access our service for forty-five minutes on Saturday evening." When you ask why, the first answer might be, "There was an unprecedented demand from other services."

However, you and your team might agree that this does not identify the root cause of the service outage. Therefore, you ask a second why, which yields the answer, "Our service was dependent upon another service that could not handle the demand."

This, in turn, forces you to ask a third why, for which the answer is, "The service we were calling did not meet their service SLA."

Which leads to a fourth why, whose answer is, "The other service did not have adequate service capacity to meet their SLA." But so far, this leads us to simply put accountability on someone else. What is our accountability?

And this leads to a fifth why, which elicits the answer, "Because I have not engineered it to handle these conditions and exceptions."

Ah! And there we have it.

Finally, after starting with a vague sense of the cause of the problem that basically boils down to finger-pointing and saying, "It was their fault," the real answer finally emerges: "I need to engineer my technology service to gracefully handle any condition that it might be required to address. Now, how do we build that?"

By diving deep into the real conditions and managing the dependencies of others, true answers to problems are found.

At Amazon, no big decision is made without first ensuring that it is based on a deep dive into the underlying details that will determine its success.

"In God We Trust, All Others Must Bring Data" - This well-known management slogan isn't an Amazon leadership principle, but it could be. The ability to combine data, facts, and a customer-centered approach along with an uncanny ability to dive deep into the details are the fundamental tools of leadership at Amazon.

Disagree and Commit

Summary: Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.

Jeff Bezos likes to describe the Amazon culture as friendly and intense but adds, "If push comes to shove, we'll settle for intense." If you're a member of his S-Team, he expects you to challenge him. He demands a robust conversation.

Amazon can be a gladiator culture. No one leaves the coliseum unbloodied, but if you fight hard, you may obtain glory and, at the worst, live to fight another day. But you refuse to do battle for the emperor altogether, you're guaranteed to be carried out on your shield.

If you want to succeed in Jeff Bezos’ relentless and fiercely competitive world, you cannot:

• Feel sorry for yourself
•  Give away your power
• Shy away from change
• Waste energy on things you cannot control
• Worry about pleasing others
• Fear taking calculated risks
• Dwell on the past
• Make the same mistakes over and over
• Resent others' success
• Give up after failure
• Feel the world owes you anything
• Expect immediate results

Deliver Results

Summary: Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.

Here are four subtle-but-critical lessons to help build a culture of accountability and pioneering based on Amazon's mission to consistently "deliver results."

1. Focus on the inputs. "Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs," wrote Bezos. "To be clear, we take these financial outputs seriously, but we believe that focusing our energy on be controllable inputs to our business is the most effective way to maximize financial outputs over time."
2. Intensely debate and coordinate. Each annual goal (most years there are <500 goals across the company) required four multi-hour reviews before they could be submitted. The debate is a combination of clearly understanding what they are trying to achieve, understanding the "controllable input" to achieve that goal, and then setting a stretch but achievable target. Leaders who think like owners are crucial to this process because you don't want people who prioritize short-term results at the expense of long-term enterprise value.
3. Good teams are gritty. When the goals are clear, achievable, and within your control, good teams double-down, recommit, and overcome regardless of challenges and obstacles. They have grit.
4. The closed-loop management process. Amazon’s performance management philosophy is rooted in three principles:some text
   • A BIG difference exists between "A" and "B" performers.
   • Promotions are heavily scrutinized.
   • Live the leadership principles. If you violate the leadership principles by failing to obsess over the customer, communicating vaguely, or failing to hire or develop a first-rate team or if you allow low standards, ignore details, or fail to "think big," you won't deliver the right results.

For more, I highly encourage you to order The Amazon Way: Amazon’s 14 Leadership Principles and read the entire book yourself.

Recommended Reading

If you enjoyed The Amazon Way: Amazon’s 14 Leadership Principles, you might also like:

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• "Turning $2 Million Into $2 Trillion" from Charlie Munger's Biography‍
• ‍Charlie Munger on "The Berkshire System" - 50th Anniversary Essay on Berkshire Hathaway‍
• “The Multidisciplinary Approach to Thinking“ Talk by Peter Kaufman‍
• Warren Buffet's Memo to Berkshire's Managers on The Importance of Reputation
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