What Startups Can Learn from Amazon’s Growth Strategies
How can such a massive company look so small in comparison to what it could be? I ask this question daily. Amazon is nothing short of fascinating, and if you’re an entrepreneur- you should be constantly studying Amazon & Jeff Bezos. How does a company with a 370B+ market cap still have growth that would make startups jealous? Here are a few lessons startups can take away from Amazon’s growth strategies:
Amazon leverages their operational efficiency to drive growth. Every single department within Amazon constantly innovates so that it can scale quickly and cost effectively. For example, Amazon cut a deal with states looking to implement sales tax on e-commerce sales by promising to build distribution centers that would create jobs in those states. By strategically building these distribution centers, they avoid a sales tax incurred by brick & mortar retailers and competing e-commerce sites. This is why Wal-Mart will struggle catching up to Amazon’s e-commerce stranglehold. Even if they convert their Superstores into fulfillment centers, they will still have to pay state sales tax. By having this competitive advantage Amazon can offer unbeatable prices.
From a startup’s perspective, it’s hard to find the time to focus on operational efficiency when product development and sales take up so much of the founders’ time. Founders often look to improve top line growth, but neglect the importance of operational efficiency & bottom line growth. Most early stage startups are forced to run a pretty lean operation out of necessity, but as they scale so do their inefficiencies. As these inefficiencies increase there is a need for a founder or COO to focus on fixing these problems as they arise. Keith Rabois said it best in an interview with First Round from 2013, “you have to find the right person to manage it, put concrete down, leave it stable, and then go on to the next thing.” The closer a startup can get to maximum efficiency, the bigger the advantage will be over competitors. Whether it is streamlining the customer acquisition process, building the infrastructure for better communication, or finding software that saves the startup time and/or money… the effect of operational efficiency can improve top line and bottom line revenues.
“We start with the customer and work backwards” -Jeff Bezos
Amazon is obsessed with it’s customers. They develop their products & services by starting with customer needs and problems. This strategy has allowed them to achieve exponential organic growth. The most recent example of this is their announcement of Amazon Go. The brick & mortar grocery stores will allow customers to walk in, scan their Amazon Go app, grab what they need, and leave. No lines, no cashiers. Obviously we haven’t seen the results from Amazon Go, but if it lives up to the hype Amazon could have found it’s next big growth opportunity.
For startups, providing a great customer experience is a must. Something as simple as a startup’s app crashing too often can decide the fate of their company. The least expensive & most effective form of marketing is customer service. Happy customers are much more likely to continue using a company’s product or service, and provide referrals. Marketing and sales is all about building trust, and if a startup can get free, trusted sales people (current customers) for the low cost of fixing their problems quickly and keeping them happy- it should be a top priority. Founders can build a great product by themselves, but they can’t build a great company without dedicated customers. Bonus: Customer service improves operational efficiency.
Focusing on What Won’t Change:
Jeff Bezos advises entrepreneurs to focus on what won’t change in 10 years rather than what will change in 10 years. Historically, people are really bad at guessing what comes next. Changes in technology and market behavior happen at varying speeds. Startups need almost perfect timing to get off the ground, but focusing on what won’t change will allow startups to become and remain successful. Even the best VCs are only right 30% of the time.
We are at a strange point in technology. Mobile is the dominant platform, but it’s getting bloated. There are potential platforms like voice (Amazon Echo, Google Home), virtual reality, augmented reality, mixed reality, etc. that are being talked about often, but not being rapidly adopted. Any one of these early platforms could replace mobile or be a total bust depending on the advancement of technology and market adoption. Startups should be building around what won’t change, not a platform or short-term trend. By following this strategy startups can begin with mobile and experiment on different platforms early to follow the growth.
Product development inside of Amazon encompasses all of the factors previously mentioned. Products begin with focusing on customer experience, are built with & for operational efficiency, and focus on what won’t change. The Amazon Echo is a shining example of these factors coming together in the fullest extent.
Homes are becoming smarter, people are shopping more online, and as smartphones become smarter they become more complicated to use. These are just some of the problems the development of the Amazon Echo solved for customers. By creating an in-home smarthub, people now have any easy way to turn on/off their smart-lights, adjust the temperature on their smart-thermostat, etc. all from one place. The genius behind integrating the Echo with smart-home devices is that it acts as a catalyst for more smart-devices to be adopted. As smart-devices become more popular, Amazon will sell more, and customers become more reliant on Alexa to run their home. Alexa ultimately makes customers lives more efficient, which makes them happier, and that won’t change any time soon. In return, Amazon gains more customer insights (free customer data) and adds another sales pipeline (that customers pay for!). Another benefit to the Echo is it’s ease of use. Unless someone is deaf or mute they can use the Echo, no matter if they are 7 years old or 70 years old. This increases Amazon’s total addressable market, and allows people who do/don’t use smartphones to order products from Amazon with less friction.
None of these growth strategies are easy to replicate, especially building a product or service that sells more of your products and services. Amazon has a lot of money to spend on R&D, and a massive team of experienced leaders & employees. But, a startup certainly has the ability to build products or provide services with up-selling, cross-selling, and new customer acquisition in mind. For example: SnapChat’s gamification by adding streaks to keep users coming back, or Uber’s credits for inviting friends in order to drive growth. If startups can build their product to keep customers coming back for more, or allow current customers to easily add new users they can drive growth that supplements traditional marketing & sales efforts.