What makes certain companies super successful over a long period of time while hundreds of others come and go? What do they do well that others don't? What makes them survive multiple black swan events and headwinds? Think Amazon, Apple, Google, Nike.
In the case of Amazon I have few observations from the time I spent 10 years working for them from 2010 to 2020. During that time its market cap grew more than 30X. I saw the company transform itself from an online retailer to an everything store while its stock price grew from $100 to above $3000. Now that I look back at my time there I realise what an amazing journey it was and I can reflect on why it is such an exceptional company in spite of many negatives it has.
I will discuss what I think are the factors that made Amazon the exceptionally successful company it is today.
Choosing online retail as the sector to disrupt
In 1994 Jeff Bezos chose the online retail space for his startup. Online retail is inherently an age-old business model of buying something from a supplier and then selling it online for a small profit margin or many times at a loss. Online retailing is a low margin business unlike other businesses such as online advertisement which google does where the profit margins are 35%. Or the high margin business of selling software to enterprises via the SAAS model which Microsoft and many of its successors does.
Because Amazon was in a low margin business from the beginning it had to always be extremely efficient and invent optimizations that other companies would not think about. Extreme optimization and efficiency was a must have feature for Amazon to survive and win against behemoths such as Walmart, Target and others.
Necessity is the mother of all inventions. Limitations force us to get creative, push ourselves to the limit and then the real growth happens. At Amazon, this is imbibed in its culture. They have a leadership principle of Frugality to embody this very trait.
Jeff Bezos had famously said “Your margin is my opportunity” implying that Amazon was going to optimise every process that was between itself and its customers which their competitors may not be doing.
When you place an order on Amazon, it gets delivered to you overnight at no extra cost. If you peel the onion there is work of hundreds of highly efficient teams to make that happen across search, detail page, payments, order fulfilment, last mile delivery just to name a few. Getting fast deliveries on time has become so ubiquitous that we don't realise what a miracle it is.
The culture of extreme optimization is something Amazon has applied to the other businesses that it has ventured into later such as the Amazon web services, Kindle, Alexa and Amazon ads. Those businesses have higher margins but are still highly efficient.
So, Amazon’s biggest challenge of operating in a low margin business in its initial days ultimately gave it the advantage it has today over its competitors.
No false virtue signalling
While this has changed in recent times, during most of my stay at Amazon what I liked was it was very clear about what it was and what it wasn’t. Except for its customers, Amazon didn't care about pandering to anyone including its shareholders, employees and politicians. The only validation it cared about was whether the customers loved them. This was powerful and it let them focus on the most important thing - the customers. As long as the customers were happy, Amazon knew it would continue to do well. Shareholders who didn't like that Amazon did not post profits left, Employees that wanted a slow paced environment left and politicians kept complaining. But Amazon was OK to be misunderstood. This was Amazon’s superpower and very few companies could be bold to replicate it.
Top Down culture
Unlike many other tech companies, Amazon has a very top down culture. Large initiatives get defined at the top leadership level and the entire company aligns with that mission to deliver it. This ensures that in a big company with hundreds of thousands of employees they are not left to figure out the right direction for themselves. They discuss, disagree and figure out the details but they are aligned on the larger direction set by top leadership. Teams spend less time getting into the “analysis and paralysis” loop and thereby getting blocked. Amazon is basically stubborn on the vision but flexible on the details. I remember, in 2011, the devices team in Amazon got the directive from Jeff Bezos to start working on a tablet. The Kindle Fire tablet launched less than 6 months later. It has been more than 10 years since its launch and it is still one of the most popular tablets. So top down culture is not necessarily a bad thing it depends on how the leadership applies it.
Ability to execute
Amazon’s ability to execute on projects is unparalleled. The iteration loop of product development is set up to continuously use data to inform decisions and improve the product a little better in endless cycles. Amazon’s pace of new feature releases is breath-taking while maintaining a high quality bar. If you compare that to other companies of its scale like Microsoft or Google, you realise how good the process is. Teams know how to prioritise. Regular project status reviews ensure that the teams can analyse and cut scope if required. The systems are built to make it easy for teams to experiment and quickly get feedback to iterate. The result is fast product development, release, evaluation and improvement. The cycle continues.
Amazon’s engineers
Amazon engineers are one of the best I have worked with. They have the perfect combination of smartness, hard working attitude, humility and come without any sense of privilege. They have an amazing sense of ownership. Makes the job of other functions like product and program management a lot easier. For the compensation they make, I would say Amazon engineers are the highest value for money.
Amazon has a great hiring process which is able to get exceptional talent at a reasonable cost. These engineers are the ones who have built this amazing money printing business worth 1.5 Trillion dollars.
Based on my observations, these were some of the things that made Amazon so successful.There are obviously many other factors but I think these are the most important ones.