How President Obama took a leaf from the playbook of Jeff Bezos
On March 23 2010, President Barack Obama signed into law the Affordable Care Act (ACA). It was the first step towards ensuring universal and affordable healthcare for all Americans. In 1994 Amazon.com launched as an online bookstore. Few predicted that it was the first step towards becoming one of the worlds most successful companies and (maybe) the first company to reach a trillion dollar market capitalization. Studying the similarities in strategy between Obamacare and Amazon is both interesting and helpful for understanding why the “replace Obamacare” mantra of the Bernie Sanders campaign was misguided and short-sighted.
It’s All About the Long Term — Jeff Bezos, Amazon 1997 Letter to Shareholders
The total and utter failure of Paul Ryan and the Republicans to repeal Obamacare last Friday got me thinking. Why? What makes the ACA so hard to repeal? For a law to be so hated and criticized and yet not be repealed, it must have done something right. The sheer incompetence of Paul Ryan and the GOP is staggering and entertaining, they couldn’t get rid of something they railed against it for seven years! But when one side controls both houses and the oval office, and still can’t repeal something, there surely is something other than craven incompetence and groupthink at play. I was reading The Republican Waterloo by Mark Frum in The Atlantic when this quote gave me a model for how to think about Obamacare:
[By passing Obamacare] America committed itself for the first time to the principle of universal (or near universal) health-care coverage. That principle has had seven years to work its way into American life and into the public sense of right and wrong. It’s not yet unanimously accepted. But it’s accepted by enough voters — and especially by enough Republican voters — to render impossible the seven-year Republican vision of removing that coverage from those who have gained it under the Affordable Care Act.
And then I realized, Obamacare is using the exact same strategy as Amazon. Actually, many successful businesses use similar strategies, but Amazon is perhaps the best example. This strategy can be roughly summarized in 5 steps:
- Think about the long term. Identify your long term goal.
- Pick your point of attack, or beachhead. Identify something that incumbents are not delivering.
- Establish your beachhead. Go after that simple but important customer need, ferociously.
- Make your beachhead indestructible. Turn your beachhead into a self-perpetuating flywheel.
- Look for the next landing site. Start looking for the next flywheel to propel you towards your goal
First: Think about the long term
Identify your long term goal.
- Obama: Universal, affordable healthcare for all Americans.
- Amazon: Becoming the worlds largest retailer/company.
Second: Pick your point of attack
Identify something incumbents are not delivering.
For Amazon, there are many examples. They began as a book store with lower prices and greater selection. Then they moved onto faster shipping, computing-on-demand and a simple device to tie your smart home together. Each of these were independent business that started small and simple
The US healthcare system has many problems. Americans pay a 50–70% premium compared to other countries. The VA system, Medicare and Medicaid are all notoriously inefficient. But Obama identified the shamefully high number of uninsured people as his first priority. Before Obamacare 15% of Americans went without health insurance. That’s 45 million people, or approximately 1.25x the size of Canada (they have universal healthcare by the way). Obama correctly identified that once these people had coverage, taking it away from them would require political ovaries of steel or a plan for something better.
Third: Establish your beachhead
Go after that simple but important customer need, ferociously.
There were three distinct advantages to selling books which made them a good choice for Amazons first landing site. First, books are small and easy to ship. Second, books benefit from a long tail, so unlike, say, laundry detergent the extra selection in Amazons warehouses compared to a physical store actually matters to customers. Third, unlike clothes or food, books don’t expire or go out of fashion. All of these made books the right choice and that is one of the reasons Amazon succeeded where others like Webvan and Pets.com failed. Amazon had to make some tough decisions. They pushed their employees hard, they squeezed their suppliers, and they cut corners. They did whatever it took to satisfy the customer demand for lower prices and greater selection.
The thing Obama identified was the millions of Americans without healthcare. He could have tried to reduce the price of healthcare, or the power of insurance companies, or tried to get a single-payer system past a hostile house and senate. But he didn’t. Obamacare was criticized for giving more power to insurance companies, for not being sustainable, for not going far enough, and these were all valid criticisms. Obama did one thing right, but it was the most important thing, he put together a bill that for all its faults did one thing well: increased the number of Americans with insurance. To be precise, 24 MILLION more people had coverage by the end of 2016. It also increased coverage in every single congressional district between 2013 and 2015.
Fourth: Make your beachhead indestructible
Turn your beachhead into a self-perpetuating flywheel.
Jeff Bezos and other leaders at Amazon aim to turn their various business units into flywheels. The first flywheel for Amazon was the marketplace. Lower prices and greater selection drives customers to the site, which in turn drives sellers to the site, which in turn drives lower prices and greater selection. The second flywheel is Prime, the third flywheel is Amazon Web Services (AWS). Mark my words that they are looking for a fourth flywheel, which is why they are investing so heavily in Alexa and logistics.
The flywheel of Obamacare is that the more people who have coverage, the harder it is to take it away from them. Even as costs rise, insurance companies become more powerful and America gets sicker, you can’t take away insurance from 24 million people without some serious political blowback. People will get a lot angrier if you take their healthcare away than if they had never gotten it in the first place, this is called the endowment effect.
Endowment effect — people ascribe more value to things merely because they own them
Fifth: Look for the next landing site
Start looking for the next flywheel to propel you towards your goal.
Amazon uses its flywheels to generate cash, increase customer trust, grow employees into leaders and learn more about their customers. Every time you see Amazon dabbling in something that seems experimental, or inconsequential you can rest assured that it’s a beachhead into some enormous market like all physical retail, global logistics or all of enterprise IT.
Obamacare has drastically reduced the number of uninsured Americans, and there are many millions more who still need coverage. But now with the beachhead and flywheel established, those who want to see universal, affordable healthcare in America can start looking for the next landing site to attack. The obvious candidates could be reducing costs, increasing efficiency, or improving outcomes. Each of these issues is hairy and complicated by itself, but by thinking about the long term, looking for beachheads and turning them into flywheels we can get there in the end.
Why all of this matters
The reason I think this is important is that next time we have a public debate like the one between Bernie and Hillary in the democratic primary, I don’t want to hear the same tired-old magical thinking and Monday-morning quarterbacking of decisions. We need to think about the long term and make decisions that are part of a strategy to get us there. Obama did the best he could given the circumstances, Hillary wanted to take that progress and build on it. So all of the people whining that Hillary was selling out by not arguing for a single-payer healthcare system were missing the point. If you are a progressive, and you want progress, then you need a strategy and plans. The idea that Bernie would have been able to get a single-payer system past the houses and senate was magical thinking. If you only have vague notions that single-payer is better (which may be true), or that the rich are getting richer (which they are) then when you actually get into power you will find yourself in the same position as Paul Ryan: utterly failing at achieving your goals. The next time we debate choices made by a politician, it might help to take a step back from the minutiae of policy and the back-and-forth of daily politics to think about:
- Are they thinking about the long term?
- Did they pick the right place to attack?
- Are they succeeding in building a beachhead?
- Are they turning that beachhead into a flywheel?
- Are they looking for the next flywheel?
You can be executing a great strategy, in pursuit of the wrong long term goal. Or you can have the right goal, right strategy and then fail to execute. You can even have the wrong goal, wrong strategy AND fail to execute. But when somebody has the right goals, the right strategy and then executes, then they tend to leave an indelible mark on history.
Thanks for reading and feel free to send me feedback!