Sunday, September 2, 2012

Get the Vision Right - Why Amazon Made it Big?

Studying strategy of a company does not make sense in isolation

In my current context, it is not possible to understand what Amazon did right without understanding what its competitors did wrong.  So I spent the last few days studying Amazon’s IPO filing, early annual reports, Barnes and Noble’s annual reports, financial statements, early customer reviews, press articles from that era and so on.

While I found tons and tons of interesting things (some of which I will share over next few posts), all of these stem from very basic things that form the foundation of strategy – mission, vision, conviction. I had my own epiphany in the process – It came rushing to me why it is important to have a crystal clear vision, mission, and goals. We all say that we know that there needs to be a clear vision and mission but I don’t think a whole lot of us really realize what it means.

When you are competing, you are faced with choices and decisions. Your clarity of vision and mission would guide you through those decisions. If your vision is clear and you are committed to it from your heart, you will be able to relate to the winning side of the story. [I do not know the whole story yet, but I know that there is no other way this can be].

On a side note, I think I was lucky that Rajul and Bennett made us spend 3 whole weeks on mission and vision. Without that background, I’d have never had this epiphany.

Jumping back to the topic at hand, Mr. Bezos had started in very early days of internet. Broadband had not even made its debut and internet penetration was below 10%. Online retail was a nascent phenomenon and a very tiny fraction of retail.

Two important things happened at this stage:
  1. Jeff Bezos formed a strong conviction in growth of internet and value of online retail
  2. He developed a clear long term vision and mission for Amazon

Put these two things together and you get a powerful result – even if Bezos did not know when e-tailing will take off, he believed it would eventually and he had the conviction to be patient and focussed without compromising his path. He was firm on vision and flexible on details – all the choices that Amazon made – affiliate programs, online marketing spend, website feature, selling at a loss for several years – stand the test of being vision guided.

Selling at a loss for several years appeared as a bottomless pit to analysts and even till date that strategy is received with suspicion (as comments on the SBR Reliance e-tailing post testify). Bezos on the other hand was convinced enough to go all in.

Moreover, Bezos was clear in his communication of the same. Here are few excerpts from his letter to shareholders in 1997:

It's All About the Long Term
We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position.
Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy
We aren't so bold as to claim that the above is the "right" investment philosophy, but it's ours, and we would be remiss if we weren't clear in the approach we have taken and will continue to take.

To conclude this post, I think one of the biggest things that Amazon did get right was their vision and leadership’s conviction in that vision.

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