Working Backwards: My Highlights
Introduction
This book stands out as one of the most insightful I've read about managing large organizations and exceptional leadership on a day-to-day basis. It offers a rare (IMO) insider's perspective on a company of Amazon's scale, providing a level of detail that is typically hard to come by. While we often only see the results of corporate decisions and the carefully crafted narratives presented to shareholders after the fact, this book dives deep into the decision-making process itself and what worked at Amazon. This genuine emphasis on process over results is what I find unique.
What follows are some of the key highlights from the book, which I've reorganized into broad themes that I found particularly interesting. This structure differs from the book's original format, which follows each process and then the product launches in subsequent chapters. By presenting the ideas thematically, I want to focus on the key underlying principles and strategies that have driven Amazon's success overall, instead of highlighting product specific learnings. This essay is structured as follows:
- Customer Centric Innovation
- Leadership and Organizational Culture
- Strategic Decision-Making and Execution
- Product Development and Business Growth
- Competitive Advantage and Business Model Innovation
Customer-Centric Innovation
At the heart of Amazon's success lies an unwavering commitment to customer-centric innovation. The company's core mission revolves around delivering a superior customer experience, with a relentless focus on optimization and innovation to consistently exceed customer expectations. This customer-first approach is embodied in Amazon's unique "work backwards" methodology, where the ideal customer experience is defined first, and products or services are then developed to achieve this vision.
Amazon's innovation strategy is driven by a keen understanding of the ever-evolving nature of customer satisfaction. The company recognizes that today's "wow" factor quickly becomes tomorrow's standard, pushing them to continuously raise the bar. This philosophy propels Amazon to strive for meaningful improvements in speed, ease of use, and cost-effectiveness, always aiming for stepwise changes that significantly enhance the customer experience.
The company places a strong emphasis on inventing new products on behalf of the customer, often taking ownership of the entire customer experience when it serves as a key market differentiator. This commitment extends to Amazon's approach to pricing and delivery, encapsulated in mantras like "It's not free, it's included" and "Fast and Free is the right answer." These principles guide Amazon's efforts to provide unparalleled value to its customers, cementing its position as a leader in customer-centric innovation.
Leadership and Organizational Culture
Amazon's leadership and organizational culture are defined by a set of 14 guiding principles that permeate every level of management within the company. These principles emphasize high standards, innovation, and unwavering commitment, forming the backbone of Amazon's unique corporate ethos. At its core, the company culture values "missionaries" over "mercenaries," seeking out employees who are genuinely passionate about Amazon's mission rather than those solely motivated by financial gain.
This commitment to excellence is reflected in Amazon's hiring practices, particularly through its "Bar Raiser" approach. This innovative method ensures that each new hire brings something unique to the team, continually elevating the company's collective capabilities. Once on board, leaders are empowered through the concept of "single-threaded leadership," which grants them the autonomy to make decisions and perform independently within their domains.
Amazon's culture demands that new business ventures be high-potential, innovative, and differentiated, though not necessarily large at inception. This approach fosters an environment of continuous innovation and calculated risk-taking. Leaders are expected to demonstrate conviction and tenacity, fully committing to decisions once made, even if it means being misunderstood for extended periods when pursuing groundbreaking initiatives.
The company's approach to employee morale is equally distinctive. Rather than focusing on traditional morale-boosting tactics, Amazon concentrates on attracting world-class talent and creating an environment that allows them to build and innovate freely. This strategy is based on the belief that when impediments to building and innovation are removed, morale naturally takes care of itself, resulting in a highly motivated and productive workforce.
Strategic Decision-Making and Execution
Amazon's approach to strategic decision-making and execution is characterized by a nuanced understanding of different types of decisions and a commitment to swift, informed action. The company distinguishes between consequential, irreversible decisions that require careful deliberation, and reversible ones that can be made more quickly with limited information. This differentiation allows Amazon to move fast when possible while still exercising due caution when necessary.
Central to Amazon's decision-making philosophy is the belief that waiting for perfect information often leads to missed opportunities. The company advocates for making decisions with about 70% of desired information, asserting that waiting for 90% often results in slow action detrimental to business agility. This principle is complemented by Amazon's "Bias for Action," which recognizes that speed is crucial in business, especially when many decisions are reversible.
When tackling new inventions or hard problems, Amazon emphasizes full commitment rather than part-time efforts. The company culture encourages careful evaluation and feedback on ideas, even those coming from top leadership, fostering an environment of open dialogue and continuous improvement. This approach extends to problem-solving, where Amazon employs the DMAIC process (Define, Measure, Analyze, Improve, Control), with a strong emphasis on uncovering root causes rather than merely treating symptoms.
Amazon's strategic meetings predominantly focus on execution rather than theoretical planning, reflecting the company's practical, results-oriented approach. The company also acknowledges that initial assessments of problems are often incorrect, advocating for deeper analysis to identify true root causes. This combination of swift decision-making, commitment to execution, and thorough problem-solving forms the cornerstone of Amazon's strategic approach, enabling the company to navigate complex challenges and drive continuous innovation.
Product Development and Business Growth
Amazon's approach to product development and business growth is marked by a strategic focus on innovation, scalability, and customer-centricity. The company concentrates its inventive efforts in areas where differentiation matters most, while judiciously outsourcing commoditized aspects of the business. This targeted approach to innovation is coupled with a recognition that as the business grows, the scale of inventions must grow proportionally to remain impactful and move the needle for the company.
A key aspect of Amazon's product development philosophy is the acceptance of setbacks, hard lessons, and failures as necessary costs of innovation. The company views these challenges as inevitable when embarking on new initiatives, fostering a culture that embraces risk-taking and learning from failures. To fuel its innovation pipeline, Amazon employs a New Project Initiatives (NPI) system, cultivating a rich stock of exciting business ideas from across the organization.
Central to Amazon's product development process is the PR/FAQ methodology, which ensures that all product development efforts remain firmly focused on customer needs and experiences. This customer-centric approach is complemented by a strategic choice between being a "Fast Follower" or an "Inventor" when developing new products and services, allowing Amazon to adapt its strategy based on market conditions and opportunities.
The company demonstrates a willingness to make significant investments to acquire or build critical capabilities necessary for long-term success. This often involves separating potentially disruptive initiatives from established business units to ensure proper focus and resources. Amazon also recognizes the "cold start problem" in new offerings, understanding that significant upfront investment may be necessary to create a compelling product that attracts a large customer base.
Competitive Advantage and Business Model Innovation
Amazon's approach to competitive advantage and business model innovation is characterized by a bold vision, customer-centricity, and strategic long-term thinking. The company recognizes the potential for "infinite upside" in business innovations, which drives continuous experimentation and calculated risk-taking. This mindset allows Amazon to pursue high-conviction, potentially transformative initiatives, even if it means being misunderstood by the market for extended periods.
At the core of Amazon's competitive strategy is the concept of creating a "moat" not just around the business, but specifically around the customer. By making their services indispensable, Amazon aims to create such a compelling value proposition that customers would find it difficult or "irresponsible" not to engage with their offerings. This is exemplified by services like Amazon Prime, which are designed to be so valuable that customer membership becomes a no-brainer.
Amazon continually seeks "global maximum peaks" that set new standards or redefine product and service experiences in their industry. This pursuit of game-changing innovations is guided by a focus on key "North Star" input metrics such as price, selection, and convenience, rather than output metrics. This approach allows the company to concentrate on factors that directly impact customer experience and drive long-term value.
The company's business model innovation extends to its pricing and customer engagement strategies. Amazon consciously avoids training customers to wait for deals, believing this erodes long-term value. Instead, they focus on consistently delivering value, leveraging the economics of subscription businesses to drive profitability once fixed costs are covered.
Perhaps most importantly, Amazon creates formidable competitive advantages through multi-faceted offerings that are difficult for competitors to replicate in their entirety. The combination of services like Prime shipping and Prime Video creates a value proposition that is greater than the sum of its parts, establishing a strong moat around Amazon's customer base.
General Ideas
- Don't fall for very clever ideas that simply don't work - there are many of these and they target very smart people who admire the idea instead of the outcomes
- Be stubborn on the vision but flexible on the details
- If you're building something big, with high conviction, you may have to tolerate being misunderstood for a very long time - Amazon, Netflix etc. - focus on input metrics - if they are healthy - keep building, head down
- Invention works well in areas where differentiation matters - invent the things that make you truly unique to your customer (like customer experience) and outsource things that are commoditized or not your core business
- Unlike in baseball where a home run can bring at most 4 runs, a home run in business can bring infinite upside - keep hitting as many balls as you can
- The magnitude of your inventions must grow in sync with the size of your business - if not, your inventions and risk will likely not be enough to move the needle
- The cost of novelty and aspiration is setbacks, hard lessons, false starts and painful failures. You CANNOT Expect anything else
- "It takes exceptionally patient and unwavering leadership to persevere through the prolonged process of building a new business and navigating through transformative times in an established industry with entrenched interests"
You can find this book on Amazon on Amazon.