Amazon critics will gather outside the tech giant’s shareholder meeting Wednesday morning in Seattle to protest the company’s actions on a variety of fronts. But when it comes to Amazon’s fundamental business strategy and approach to solving problems, a former Amazon executive is holding the company up not as a target but as an example.
John Rossman helped to launch and build the Amazon Marketplace business before leading the company’s Enterprise Services business during his tenure at the company. In his new book, “Think Like Amazon: 50 1/2 Ideas to Become a Digital Leader,” he helps other business leaders and managers understand and adopt elements of its approach.
Rossman sat down with us this week to talk about some of the ideas that define the company, and what they say about its future.
Listen to the podcast below, and continue reading for edited highlights.
Todd Bishop: As you look at the book and these 50 1/2 ideas, which are the ideas that most define Amazon in your mind?
John Rossman: Idea #22, “Relentless.com, Next Generation Operational Excellence” and Idea #31, “Lies, Damn Lies and Metrics” are really what define Amazon. If you ask somebody that works at Amazon, what is it like, it’s about metrics and accountability for trying to get to operational perfection in things that matter to customers and things that impact the business from a quality and cost standpoint. So many companies don’t understand the connective tissue between operational excellence and innovation. Constantly challenging the status quo — how do we go from world class to better than world class? — is where the inspiration for innovation comes from. I think that what’s surprising to people: the constant pressure on metrics in operational excellence at Amazon.
TB: How does that manifest itself?
Rossman: It manifests itself in a couple of ways. You’re always challenging yourself to add additional metrics, service level agreements, SLAs, and monitoring so you can have real-time understanding, maybe predictive understanding of what’s going on in your operations. Secondly, metrics is a verb at Amazon. It’s about the action that you take based on the insights that you get from your metrics. The weekly rhythm of Amazon is a set of cascading metrics meetings where people get together to discuss and debate metrics, what’s the root cause behind the issues, and driving leaders to be accountable and understand the details of their business and bring corrective measure forward.
TB: Is there a business downside to that? Are there things that you might overlook if you’re focusing on taking action on those metrics?
Rossman: The downside is, if that is all you make time for, then you’re not working in the future enough. When you hear about Amazon being such a demanding place to work from a corporate standpoint, it’s because leaders have to have command and control of their operations and their metrics and their operational excellence, and they have to be working in the future. Leaders have to do both.
TB: Can people in everyday businesses take the ideas that you’re talking about here and apply them to their own businesses, or is Amazon a unique place in that regard?
Rossman: I did leave Amazon in late 2005. I’ve been advising clients really since then. Most of these ideas are ideas that I’ve worked on with my clients. In no way would I recommend all 50 ideas. It’s about finding the three to five that fit your needs, that you personally connect to, that you’re willing to actually create a new habit around. It really does come down to leadership. Making change, which is what this is all about, making change is a leadership challenge, first and foremost. Leaders have to be willing to demonstrate new approaches, new ways of thinking, new questions to be asking.
TB: If you were a retailer, say a traditional retailer, looking to compete against Amazon, are there one or two ideas that you would study, if not to implement yourself then at least to understand the approach that Amazon takes in competing with you?
Rossman: The one that I would focus on if I were a retailer is Idea #26, which is called,” Why is This So Hard? Innovate by Reducing Friction.” As customers in so many industries, including retail, we’ve just gotten comfortably numb with the way that things work today. I think the Amazon Go store is a good manifestation of deeply understanding customer friction and setting aside all traditional approaches to it. Because really all customers want is to be able to run in, grab the Clif Bar, and walk out without ever being in a line or pulling out their wallet or anything else.
TB: Amazon, of course, has its share of critics. Are there downsides in its leadership principles and these ideas, where you can say, “This is part of what makes Amazon a target for criticism”?
Rossman: Amazon’s a competitor. Isn’t that the basis for capitalism, being competitively better in everything? And so if the downside is that you’re a great competitor, then I guess that’s the downside. But it’s tough for me to not hear complaining and whining in that.
TB: I’ve been going for many years to the shareholders meeting, and it really does tend to follow the annual letter that Jeff Bezos sends to Amazon shareholders. This year’s annual letter had to strike a chord with you. It was about the Marketplace business that you joined Amazon to build.
Rossman: Yeah, the very opening piece was a list from 1999 to 2018 of the percentage of units sold on Amazon.com by third-party retailers, and it goes from 3 percent in 1999 to 58 percent in 2018. And I thought the number was right around 50 percent. If anything, I thought that the number might be going down a little bit as Amazon takes a little more control for inventory and availability. But according to this, it’s 58 percent.
TB: Is that a success or a failure? You were saying earlier, this might’ve been a message, in part, to the first-party sales team.
Rossman: I think it’s a combination of both. And internal competition is a real healthy thing. So I think part of it is a challenge to Amazon, the first-party retailer, about, “Hey, how do we do better?” But it’s also a celebration of success and competition on the Marketplace platform that allows third-party sellers big and small to be able to have access to Amazon customers, leverage all the great tools and fulfillment capability of Fulfillment by Amazon (FBA). And so, I think it’s both.
TB: The third-party Marketplace business has also been a subject of criticism and potential antitrust action depending on who gets elected in 2020. Sen. Elizabeth Warren has said that the marketplace is an example of unfair competition, when Amazon sells its own products competing with those third-party sellers. Especially as the person who joined the company to build that third-party business, what do you think of that?
Rossman: I’m not an anti-competitive expert. I have no idea what the basis for that is. But I think it’s a tremendous success for Amazon. What people don’t remember is we launched Marketplace in 2002. It took a number of years of incubating those new categories, getting the selection that mattered, getting customer attention that you could come to Amazon for much more than books, music, video. And it was really the combination of adding in FBA and Amazon Prime. That triple combination of Marketplace, FBA, and Prime is really what turbocharged the Marketplace business. The lesson to take from this, which is what the story I’m always telling, is it takes patience at times. You always have to be testing your progress and your hypotheses and learning. But it typically takes patience to build something that really matters.
TB: I happened to bump into Tom Alberg at a conference last week in Seattle. He has been on Amazon’s board since close to the beginning, he was one of the first investors, and he is retiring from the board this week. When I asked him what the secrets to Amazon’s success have been, he said, “Well, there are no secrets. Everybody knows all these principles, but it is really difficult to live them. … Constant innovation, putting the customer first. People talk about these things, but very hard to really consistently live it.”
Rossman: I think that’s just the start of the story. Because when you’re putting the customer first, when you’re innovating and experimenting, what aren’t you doing? Well, you’re not prioritizing profitability. You’re not prioritizing a number of other things. And it’s that willingness to flop your priorities that is so hard for most leaders in most companies.
TB: You talk toward the end of the book about the financial metric that Jeff Bezos uses to measure the company’s success or failure. And it’s not net sales, it’s not the bottom line, it’s not net income or profits. It’s free cash flow.
Rossman: Free cash flow is essentially the difference in cash that you have at the end of the year, that you can then invest. And so, it is truly one of the best ways of getting non-tax-implicated, non-financially-managed numbers to understand the growth and the cash flow that you’ve generated from your business. That’s what you have in order to invest in the future. If you look at really the game that Amazon is playing, they’re a very profitable company, but they have just continually taken those excess proceeds, that free cash flow, and invested it to scale the things that are working, and try a number of new experiments … to build the next big business.
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TB: We saw a few quarters over the past year when Amazon had some pretty sizable profits. And then last quarter, all of a sudden they announced that they’re going to be shifting from two-day free shipping as the core benefit of Prime, to one-day free shipping, and it’s going to cost them $800 million in the current quarter alone. It was like they looked and said, “Oh my gosh, we have too much profit here. This is a problem. Are we becoming a Day 2 company?”
Rossman: I don’t think they looked at it from that lens. Amazon’s always believed in durable customer needs. I remember I went to a client once with Jeff, and he talked about durable customer needs and that he could never envision a world where a customer wanted higher prices, he could never envision a world where a customer wanted less selection, and he could never envision a world where a customer wanted slower delivery. And essentially within retail, those are the lanes that Amazon has always been investing in. And they’re going to continue to invest in things that are along those three durable needs.
TB: Where do you see Amazon going with things like voice and devices? There was just a report today, Jeff Bezos is very interested in cars and autonomous vehicles. Where is this headed? Is there anything that Amazon would not do?
Rossman: I think there are a lot of things that Amazon wouldn’t do. I think they like heavy-transaction, technically-complex, low-service-required types of businesses. But the most interesting things that I see in Amazon’s future might not be the things that others would think are the big things. Like the announcement from Kohl’s in accepting Amazon returns later this summer, they buried the headline in that customer doesn’t have to bring it in a box, and they don’t have to provide a shipping label or invoice. They can just drop off the item and I can picture that they just show their Amazon app. They scan the receipt, and you just hand the item, removing friction. I think that continuing to remove friction both for delivery and for returns are going to be constant things that you’re seeing from Amazon.
TB: If Jeff Bezos were to move on, and obviously he will at some point, do you think that they’ve positioned themselves to continue these traditions? Or is it dependent on him as the leader inside the company to maintain them?
Rossman: I think it’s so far past Jeff at this point. I think he serves as a great ambassador and an exemplar for the organization. But in no way does he have to keep his finger on the pulse to make sure that these principles and mechanisms are aligned. He’s got a great leadership team. And they’ve been so thoughtful about codifying and practicing and making these principles come to life every day for every employee in every meeting and everything you do. So, those habits are there. That’s the challenge for other companies and their leaders: how do you build a couple of new habits to help change the tone and tempo.
Listen to the full conversation in the audio player above, or subscribe to GeekWire in your favorite podcast app. John Rossman’s new book, Think Like Amazon, is available now. We’ll have full coverage of Amazon’s shareholder meeting later today on GeekWire.