Latest / The Dutch Investors / #85 | Amazon's 3 Pillars of Success

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#85 | Amazon's 3 Pillars of Success · The Dutch Investors

• 0:04
  SPEAKER_00: It's 1994.
• 0:07
  SPEAKER_00: Imagine a 30-year-old Wall Street executive named Jeff.
• 0:11
  SPEAKER_00: He's sitting in a swanky office at D.E.
• 0:14
  SPEAKER_00: Shaw, a firm basically filled with the smartest people on the planet, looking at a computer screen.
• 0:23
  SPEAKER_00: This is the early days of the web, right?
• 0:27
  SPEAKER_00: He sees a number that feels like a total glitch in the matrix almost.
• 0:32
  SPEAKER_00: The World Wide Web is growing at 2300% per year.
• 0:39
  SPEAKER_00: Now, most people back then they saw the internet as this weird playground for academics or niche hobby for nerds.
• 0:50
  SPEAKER_00: But Bezos saw something different.
• 0:53
  SPEAKER_00: He saw this wave.
• 0:56
  SPEAKER_00: So he goes to his boss, David Shaw, and says, Look, I want to start an online bookstore.
• 1:05
  SPEAKER_00: His boss, being a pretty smart guy as well, takes him for this long two-hour walk through Central Park and basically says, Jeff, this sounds like a killer idea for someone who doesn't already have a high-paying fancy job like yours.
• 1:24
  SPEAKER_00: So Bezos has to make a choice.
• 1:28
  SPEAKER_00: Looking back, he used what he calls a regret minimization framework.
• 1:34
  SPEAKER_00: He literally projects himself forward to the age of 80 and asks himself, When I'm 80, am I going to care that I walked away from my 1994 Wall Street bonus?
• 1:48
  SPEAKER_00: And his answer was a plain no.
• 1:51
  SPEAKER_00: But he knew it would haunt him until the end of his days if he didn't dive into this thing called the internet and just try it.
• 2:00
  SPEAKER_00: So what does he do?
• 2:02
  SPEAKER_00: Well, you guessed it?
• 2:04
  SPEAKER_00: He quits.
• 2:05
  SPEAKER_00: He packs up a Chevy Blazer, his former wife Mackenzie takes the wheel and they head for Seattle.
• 2:12
  SPEAKER_00: And this is my favorite part.
• 2:15
  SPEAKER_00: While she's driving across the country, Jeff is in the passenger seat.
• 2:21
  SPEAKER_00: Furiously typing out a business plan on its laptop for a company he almost named Relentless.
• 2:28
  SPEAKER_00: In fact, if you type relentless.com into your browser right now, it still redirects you to Amazon.
• 2:37
  SPEAKER_00: So how did we get from that car, from a garage, with desks made out of$60 wooden doors from Home Depot to a company that basically powers the modern world?
• 2:50
  SPEAKER_00: How did a bookstore become the everything store?
• 2:54
  SPEAKER_00: This is the story of Amazon.
• 3:23
  SPEAKER_00: But if you really dig into the pages of The Everything Store by Brad Stone, you realize it's more of a story about psychology.
• 3:32
  SPEAKER_00: It's about a company that understood something profound.
• 3:36
  SPEAKER_00: While technology moves at the speed of light, human nature is basically fixed.
• 3:43
  SPEAKER_00: People will always want the lowest price.
• 3:46
  SPEAKER_00: They'll always want something cheaper.
• 3:49
  SPEAKER_00: They'll always want faster delivery.
• 3:52
  SPEAKER_00: Today we're breaking down the three permanent pillars that made them a monster.
• 3:58
  SPEAKER_00: The day one culture, the unstoppable flywheel, and the invisible infrastructure.
• 4:05
  SPEAKER_00: If you ever visit Amazon's headquarters in Seattle, the main building isn't named after a founder or a tech term.
• 4:13
  SPEAKER_00: It's named Day One.
• 4:16
  SPEAKER_00: And it's not just a fancy name, but it's also a warning for employees.
• 4:21
  SPEAKER_00: In his 2016 shareholder letter, Bezos wrote that day two is stasis, followed by irrelevance, followed by excruciating painful decline, followed by death.
• 4:37
  SPEAKER_00: So how do you keep a trillion-dollar company from getting old and slow?
• 4:42
  SPEAKER_00: You build a culture that values long-term thinking over everything else.
• 4:47
  SPEAKER_00: In the book Working Backwards, former executives Colin Breyer and Bill Carr explain that Amazon literally operates differently than any other company.
• 4:59
  SPEAKER_00: For example, they don't use PowerPoints or any presentations for that matter.
• 5:04
  SPEAKER_00: Think about that for a second.
• 5:06
  SPEAKER_00: No slides.
• 5:08
  SPEAKER_00: Bezos realized bullet points are where good ideas go to die.
• 5:12
  SPEAKER_00: They hide weak logic behind flashy graphics and well-written slides.
• 5:18
  SPEAKER_00: Instead, they write six pages.
• 5:21
  SPEAKER_00: These are full-blown documents.
• 5:24
  SPEAKER_00: And when a meeting starts, everyone sits in total silence for just 20 minutes and reads.
• 5:32
  SPEAKER_00: And it forces a level of clarity and transparency that most corporations completely lack.
• 5:40
  SPEAKER_00: But also they have this bar raiser program for hiring.
• 5:44
  SPEAKER_00: They bring in an objective person from a completely different department to interview you.
• 5:50
  SPEAKER_00: And their only job is to ensure that every single person hired is better than the average of the current team.
• 5:58
  SPEAKER_00: It's a mechanism to stop the day two, rot before it even starts.
• 6:03
  SPEAKER_00: And as Beezel says, to invent, you have to experiment.
• 6:08
  SPEAKER_00: And if you know in advance that it's going to work, it's not an experiment.
• 6:14
  SPEAKER_00: Now let's talk about the engine behind Amazon.
• 6:17
  SPEAKER_00: And this is the part where investors usually get excited.
• 6:21
  SPEAKER_00: Back in the early 2000s, Beezel sat down with Jim Collins, the guy who wrote Good to Great, and they sketched a circle on a napkin.
• 6:31
  SPEAKER_00: You can call this the flywheel.
• 6:34
  SPEAKER_00: It's a virtual cycle.
• 6:36
  SPEAKER_00: And once it starts spinning, it's almost impossible to stop.
• 6:41
  SPEAKER_00: And it looks like this.
• 6:43
  SPEAKER_00: 1.
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  SPEAKER_00: You lower prices which creates a better customer experience.
• 6:49
  SPEAKER_00: 2.
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  SPEAKER_00: That experience drives more traffic to the site.
• 6:54
  SPEAKER_00: 3.
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  SPEAKER_00: That traffic attracts third-party sellers who want to reach those people.
• 7:01
  SPEAKER_00: 4.
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  SPEAKER_00: More sellers means a bigger selection.
• 7:05
  SPEAKER_00: And 5.
• 7:06
  SPEAKER_00: A bigger selection makes the customer experience even better.
• 7:10
  SPEAKER_00: But here is the secret that legendary investor Neek Sleep picked up on.
• 7:16
  SPEAKER_00: He calls it scale economy shared.
• 7:19
  SPEAKER_00: Most companies, when they get big and their costs go down, they keep the extra profit to make Wall Street happy.
• 7:27
  SPEAKER_00: Amazon does quite the opposite.
• 7:30
  SPEAKER_00: They take those savings and they hand them back to the customer through lower prices or prime shipping.
• 7:37
  SPEAKER_00: And this makes the flywheel spin even faster.
• 7:41
  SPEAKER_00: And faster.
• 7:43
  SPEAKER_00: It creates this mode where the bigger Amazon gets, the harder it is for anyone else to even try and compete.
• 7:51
  SPEAKER_00: And as Morgan Hausell points out in Same As Ever, Amazon bet the entire farm on the fact that customers will never ask for higher prices or slower delivery.
• 8:02
  SPEAKER_00: They bet on the things that never change.
• 8:07
  SPEAKER_00: The brilliant chapter in this whole saga has to be AWS.
• 8:12
  SPEAKER_00: It's a classic story of turning a scar into a skyscraper.
• 8:17
  SPEAKER_00: Around 2003, Amazon had a mess on their hands.
• 8:21
  SPEAKER_00: Their internal computer systems were a total disaster.
• 8:26
  SPEAKER_00: Different teams couldn't even talk to each other's databases.
• 8:30
  SPEAKER_00: So they spent years building a standardized automated way for their own developers to get the computing power they needed.
• 8:40
  SPEAKER_00: And then they had this day one epiphany.
• 8:44
  SPEAKER_00: Wait a minute, they thought, if we need this, every other business on Earth is going to need it too.
• 8:51
  SPEAKER_00: And they turned an internal cost, basically the plumbing of their website, into a service they could sell.
• 8:59
  SPEAKER_00: And today, AWS is the profit engine for the entire company.
• 9:05
  SPEAKER_00: And as an investor, you have to love switching costs.
• 9:10
  SPEAKER_00: Once a company like Netflix or Airbnb builds its entire digital life on AWS, moving to a competitor is like trying to change the foundation of a skyscraper while people are still living on the 50th floor.
• 9:27
  SPEAKER_00: It creates such a high-margin sticky cash flow that can fund all their other day one experiments, from Alexa to satellites.
• 9:38
  SPEAKER_00: As we bring this story to a close, let's pull out three timeless lessons you can actually use for your own thinking and portfolio.
• 9:49
  SPEAKER_00: Lesson 1.
• 9:50
  SPEAKER_00: Bet on what stays the same.
• 9:53
  SPEAKER_00: Technology is a moving target, but human desire for speed, price and selection is permanent, something Amazon figured out very early on.
• 10:05
  SPEAKER_00: Lesson 2.
• 10:07
  SPEAKER_00: Look for a flywheel.
• 10:09
  SPEAKER_00: Find those rare companies that share their success with their customers.
• 10:14
  SPEAKER_00: That's how you build an unassailable mode.
• 10:17
  SPEAKER_00: Other examples could be Heiko, Costco, or WISE.
• 10:24
  SPEAKER_00: Lesson 3.
• 10:26
  SPEAKER_00: Culture is a strategy.
• 10:29
  SPEAKER_00: If a company can't explain its ideas in a clear written narrative, they probably haven't thought them through.
• 10:37
  SPEAKER_00: Culture will determine the outcome of a business.
• 10:42
  SPEAKER_00: A good culture will thrive, making employees happier, more productive.
• 10:48
  SPEAKER_00: Thinking out of the box, Amazon's journey from a garage to a global icon wasn't a straight line.
• 10:57
  SPEAKER_00: It was a messy series of experiments, dropping over 90% along the way.
• 11:04
  SPEAKER_00: Think about the Firephone.
• 11:06
  SPEAKER_00: It was an absolute flop.
• 11:09
  SPEAKER_00: But because they stayed in day one, they were able to take those lessons from those failures and turn them into the successes of the Kindle or Alexa or Advertising.
• 11:22
  SPEAKER_00: So, your call to action this week, go back and read that 1997 Amazon shareholder letter.
• 11:31
  SPEAKER_00: It's the genesis of this whole story.
• 11:34
  SPEAKER_00: Then look at the companies you own and ask yourself: do they have the same clarity of mission?
• 11:41
  SPEAKER_00: Or have they already slipped into the slow death of day two?
• 11:46
  SPEAKER_00: Now you know the story of Amazon.