Day 1 is a big deal at Amazon (AMZN, Financial). Indeed, there is an Amazon.com building with that name in Seattle.
For Jeff Bezos and the Amazon team, Day 1 is startup, when a new company is full of energy and ready to move vigorously ahead. But, having a Day 1 suggests there is also a Day 2. In his 2016 letter to shareholders, Bezos confirmed it: “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Obviously, Day 2 is to be avoided, and if you’re Bezos, avoided at all costs. As a banker and investment banker before starting Amazon, he undoubtedly saw what happened when fast-growing companies reached their zenith: complacency, slower growth and, as discussed previously, slower decision making because of the need to find deals that would materially affect the bottom line. Those characteristics are the very antithesis of Bezos’ vision for Amazon.
Bezos, being Bezos, has some ideas about staying in Day 1 and avoiding Day 2. In the 2016 letter he offered several elements to help defend Day 1, saying, “There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it.” Those bits are:
- Customer Obsession: He says this is, by far, the best protector of Day 1 vitality. In response to a rhetorical “Why?”, he says customers are “always beautifully, wonderfully dissatisfied, even when they report being happy and business is great.” That is, they always want something better, whether they know it or not. He points to Amazon Prime as an example: No customer asked for it, but customers really wanted it after it was created. To find these new, currently unknown, value-added offerings, Bezos recommends patient experimentation, the acceptance of failure, the planting of seeds, protecting saplings and doubling down on customer delight.
- Focus on Results, Not Process: Bezos titled this section “Resist Proxies,” but its essence is that processes can end up being proxies for results. In other words, management and employees can escape accountability. Another danger comes from allowing market research and customer surveys to become proxies for real customer insights. These devices generate averages and other data that mask the real customer. Bezos argues for getting to know the customer “deeply” and says good inventors and designers expend much energy developing their intuition.
- Embrace External Trends: He pointed out that Amazon was (in 2016) embracing an important one: machine learning and artificial intelligence (AI). While computers have already automated tasks that could be described with clear rules and algorithms, machine learning makes it possible to achieve similar goals when the rules are less clear. He said some of the results are visible (delivery drones, Amazon Go convenience stores and AI assistant Alexa). Others are less visible and include demand forecasting, product and deal recommendations, and more.
- High-Velocity Decision Making: In this section, Bezos articulated his ideas and scope of decision making. Day-2 companies, for example, make high-quality decisions, but make them slowly -- too slowly for his liking. Other notes: Never use a one-size-fits-all decision-making model. Be prepared to decide which 70% of the information you need, not 90%. Quickly recognize and correct bad decisions. Be prepared to commit to something even if you disagree. Finally, identify true misalignment issues and escalate them right away.
Bezos' Day 1 and Day 2 message has many fans and adherents, including Nasdaq CEO Adena Friedman. She told CNN's Boss Files with Poppy Harlow, "It means that you're never going to be complacent," and "I honestly feel that every single day, I have to work for my job and work for my company."
A writer at RetailOasis made the point that this letter discussed the success of business being based on culture, not strategy, and that this is a lesson in Bezos' philosophy. As Pippa Kulmar summed it up (her emphasis): "Culture eats strategy for breakfast."Ă‚ She also worried that traditional retailers will try to out-Amazon Amazon, with strategy alone, when it's culture that is the key to success.
In conclusion, an important way to look at this 2016 letter is to see it as a distillation of the many elements of Bezos’ philosophy throughout all his letters. The Day 1-Day 2 concept provides an arc under which issues such as a long-term perspective (implied), a customer-centric focus and more can be drawn together.
And, speaking of the long term, many CEOs, investors and financial observers emphasize distant horizons. Bezos distinguishes himself by seeing both positive and negative long-term results. He knows his company could turn into another big, comfortable and mediocre company, and the time to prevent that is now, not when it has already become one.
The distinction between culture and strategy, raised above, also has an important part in the Bezos philosophy. For a company with a long-term vision, strategy can change from year to year, but culture is far stickier and far more useful in guiding management and employee behavior.
Finally, because of his emphasis on free cash flow, rather than a bottom-line metric, Bezos has the financial flexibility to avoid Day 2. He has taught investors in Amazon to give less emphasis to quarter-to-quarter, and even year-to-year, results as he continues to operationalize his vision.
Disclosure: I do not own shares in any company listed, and do not expect to buy any in the next 72 hours. I do list books for sale on Amazon.com and other online book retailers.
