The importance of high standards: Key takeaways from Jeff Bezos’ latest shareholder letter

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I recently published a post summarizing what I learned from Jeff Bezos after reading every Amazon shareholder letter. As I noted in that post, Bezos’ letters are incredibly thought-provoking and are a must-read for anyone interested in business or tech. This afternoon, Bezos released his 21st annual letter to shareholders and this edition is no exception. Bezos discusses the importance of having high standards in an organization and shares some of the key milestones the company achieved in 2017. Below I have summarized the top highlights.

The Importance of Having High Standards

Bezos kicks off the letter by thanking his 560,000 employees who come to work obsessed about the company’s customers and committed to operational excellence. He also thanks his millions of customers who continue to rank Amazon as #1 in terms of customer satisfaction. As Bezos has stated in the past, customers are fickle; they are loyal to a company until a competitor offers a better service. He states that customer expectations “are never static — they go up… Yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’”. In order to meet these rising expectations, Bezos stresses the importance of having high standards. He shares some of the essentials around what he’s learned about high standards inside Amazon.

  • Intrinsic or Teachable? Bezos believes that high standards are teachable and that people are good at learning high standards through exposure. He states that high standards are contagious. Adding someone new to a high standard team? He or she will adapt quickly. However, the opposite is also true. Low standards can also spread like wildfire. By articulating a few core principles of high standards, you can accelerate the rate of learning.
  • Universal or Domain Specific? Bezos notes that high standards are domain specific, meaning you have to “learn high standards in every arena of interest”. When Bezos started, he had high standards on inventing, customer care, and hiring, but he didn’t have high standards on operational process (how to keep fixed problems fixed and eliminate defects at the root). He learned and developed high standards with the help of his colleagues.
  • Recognition and Scope: To achieve high standards in a particular domain area, you have to: 1) recognize what good looks like in that domain, and 2) have realistic expectations for how hard it is and how much work it will take to achieve that result — the scope. “Unrealistic beliefs on scope — often hidden and undiscussed — kill high standards”. To achieve high standards, you must communicate realistic beliefs about how hard something is going to be. In the letter, Bezos shares two examples which clearly illustrate this point.
  • Skill: How does skill factor in? For an individual in the context of teams, skill is not a required element. “A football coach doesn’t need to be able to throw, and a film director doesn’t need to be able to act. But they both do need to recognize high standards for those things and teach realistic expectations on scope”. Someone on the team needs to have the skill, but it doesn’t have to be you.

Bezos closes off the section on high standards by discussing the key benefits this brings to an organization:

  1. Organizations with high standards build better products and services for customers
  2. People are drawn to high standards, which helps with recruiting and retention
  3. A culture of high standards is protective of all the “invisible” but crucial work that goes on in a company
  4. High standards are fun

Amazon has a list of Leadership Principles that the company uses every day when discussing ideas for new projects or deciding on the best approach to solving a problem. One of these principles is an insistence on high standards.

“Leaders have relentlessly high standards — many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high quality products, services and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.”

Milestones in 2017

In this letter, Jeff Bezos also highlights the company’s key milestones in 2017, which are summarized below:

  • Prime: Prime now exceeds 100 million paid members globally and in 2017, Amazon shipped more than five billion items with Prime worldwide. Last year, more new members joined Prime than in any previous year. Amazon charges $99 per year for Prime membership, which offers free two-day shipping and access to the company’s streaming-video library and other media.
  • AWS: Amazon Web Services is now a $20 billion revenue run-rate business. In 2017, AWS pushed the pace on innovation and announced over 1,400 significant services and features. Active users of the company’s machine learning services increased more than 250% last year, driven by Amazon SageMaker. In November, over 40,000 people attended re:Invent, the company’s AWS conference.
  • Marketplace: In 2017, over half the units sold on Amazon were from third-party sellers, including SMBs. Over 300,000 US-based SMBs started selling on Amazon last year, and Fulfillment by Amazon shipped billions of items worldwide. Customers ordered more than 40 million items from SMBs on Prime Day 2017.
  • Alexa: Alexa-enabled devices ranked among the best-selling items on Amazon. There has been strong adoption by other companies to build on top of Alexa, with over 30,000 skills created from outside developers. The company has improved far-field speech recognition and spoken-language understanding considerably.
  • Amazon Devices: 2017 was Amazon’s best year for hardware sales. Customers purchased tens of millions of Echo devices and bought twice as many Fire TV sticks during the holiday season over the prior year. Kindle also celebrated its 10th anniversary and Amazon launched Kindle Oasis, the most advanced reader yet.
  • Whole Foods: Amazon closed its acquisition of Whole Foods for $13.7 billion. The company is committed to making high-quality, natural and organic food available to everyone. Since the acquisition, Amazon has lowered prices and introduced free two-hour delivery for orders over $35.

Bezos also noted a number of Amazon’s other impressive achievements in 2017. The company’s Prime Video offering continues to drive Prime member adoption and retention. Amazon Music continues to grow with over 10 million paid customers. The company introduced its first fashion-oriented Prime benefit, Prime Wardrobe which allows customers to try before they buy. Amazon Go opened to the public in January in Seattle. Users can walk in and out of a store without checking out. The experience is apparently “magical”. Amazon.in is the fastest growing marketplace in India. Amazon remains committed to sustainability and minimizing carbon emissions. Finally, in 2017, more than 140,000 SMBs surpassed $100,000 in sales on Amazon, the company created more than 130,000 new jobs, and Amazon expanded its Career Choice initiative (funding education for hourly associates looking for degrees in high-demand occupations) to ten countries.

At Amazon, Every Day is Day One

As he has done in each letter since the original, Bezos reprinted the 1997 shareholder letter and attached it to the end of his note. This letter provides a glimpse into the consistency and focus Bezos has maintained over the course of 20+ years as CEO. To this day, Amazon remains a “day one” company… always focused, always hustling, and on the path to becoming much more than the first US trillion-dollar company.

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