5 Lessons from Jeff Bezos's 21 Years of Shareholder Letters
Grow Your Business, Not Your Inbox
Every once in a while, something is published that packs so much insight and inspiration that it becomes required reading for our entire team. Jeff Bezos's 21 years' worth of Amazon shareholder letters is just that.
The letters, released annually, from 1997 through 2017 -- offer a unique perspective on the core principles that led to Amazon's becoming only the second company in history to reach a $1 trillion market cap and to Bezos having a personal net worth almost equal to those of Bill Gates and Warren Buffet, combined, according to the New York Times.
Shareholder letters have a time-honored reputation of being repositories of insight and wisdom, with Warren Buffet’s letters for Berkshire Hathaway widely considered essential reading for anyone with a serious interest in investing and finance. Following is a summary of five particularly salient points from Bezos’s shareholder letters.
I enthusiastically recommend that you read both the CB Insights article and the individual letters themselves, which I quote from here
Lesson 1, 1997: "It's all about the long term."
Right from the beginning, Bezos was always up-front with his shareholders about his intention that many of the metrics traditionally employed to gauge the success of a company -- particularly those that measure short-term success -- would not apply at Amazon.
In what would become ecurring themes, Bezos claimed that it was “Day 1” for both Amazon and the internet and that “the fundamental measure of [Amazon’s] success [would] be the shareholder value we create over the long term.”
Comment: Amazon’s earnings show that it didn’t turn a quarterly profit until 2001 and that it has seen many nonprofitable quarters since, but by focusing on growth rather than earnings over the short-term, Amazon has handsomely rewarded investors who bought into Bezos’ long-term strategy.
In the last quarter of 2017, Amazon posted $1.86 billion in profit, more profit than it had earned in the previous 14 years combined, according to Quartz. Had you been astute enough to purchase Amazon shares at $18, their price at the IPO -- and had you hung on to them per the advice in Bezos’ first shareholder letter -- you would have seen a 9,900 percent increase in their value. Current stock prices are hovering around $1,800.
Bezos considers his 1997 shareholder letter so prescient that he still appends a copy of it to every annual shareholder letter. If you have time to read only one, make it this one.
Lesson 2, 1998: "Wake up every morning terrified" of your customers.
For many businesses, concerns about their competitors drive much of their decision-making. In his goal to make Amazon “the world’s most customer-centric company,” Bezos cautioned his employees in 1998 to fear not the competition but the customer. As he said, “We consider [our customers] to be loyal to us -- right up until the second that someone else offers them a better
Comment: This laser focus on customer experience is a reason why Amazon has captured 49 cents of every ecommerce dollar spent in the United States as of September 2018, according to the New York Times.
Lesson 3, 2006: "Plant seeds that will grow."
One of the hallmarks of Amazon’s success has been its ability to plant seeds, as Bezos advised in his 2006 letter. "Planting seeds that will grow into meaningful new businesses takes some discipline, a bit of patience and a nurturing culture," he wrote.This means consistently developing and nurturing new revenue streams. What started initially as an online bookstore has grown to become The Everything Store, as it was dubbed by the 2013 book of that name, in its assessment of the rise of Bezos and Amazon.
Few better examples of this philosophy exist than Amazon Web Services. Launched to little fanfare in 2006, Amazon Web Services has grown to become by far the largest infrastructure as a service (IaaS) provider in the US, with a market share of 33 percent, according to CNBC.
Comment: What began largely as an internal effort in the early 2000s to build and operate the reliable, cost-effective and scalable data-centers Amazon needed to run its own ecommerce operation. That led to the company building an infrastructure that third-party developers could run their own platforms on.
In 2017, Amazon Web Services posted $17.5 billion in sales, according to Business Insider. That figure makes a compelling case for Bezos’s philosophy of nurturing new businesses underneath the Amazon umbrella.
Lesson 4, 2007: "Missionaries build better products."
In November 2007, Amazon virtually reinvented the wheel. By introducing the Kindle, Amazon changed the way many people consume the printed word. Bezos didn’t take this challenge lightly, saying of books, “Anything that has persisted in roughly the same form and resisted change for 500 years is unlikely to be improved easily.” Suddenly, Amazon had revolutionized the very medium it was initially founded to do: market and sell books. As Bezos wrote, "Missionaries build better products.”
Comment: In order to effect such revolutionary change, Bezos recognized that not only did he need to be a missionary, but he also needed to surround himself with them at Amazon. Given the success of the Kindle, which has sold tens of millions, according to Good e-Reader, it’s hard to argue with this piece of advice.
Lesson 5, 2016: "Day 2 is stasis ... Followed by death."
Hearkening back to his first-ever shareholder letter from 1997, Bezos, in 2016, reminded investors that for Amazon, it is always Day 1. "Day 1" is even the name of the building that Bezos works in at Amazon.
As Bezos stated unequivocally at the outset of his 2016 shareholder letter, “Day 2 is stasis." Stasis, he continued, is "Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Comment: So what does Day 1 mean for a company whose market cap hovers around $1 trillion? More than anything else, it means focusing obsessively on what customers want -- even if they don’t know what that is. Bezos points to the success of the Amazon Prime program, which gives members free two-day shipping on millions of products as well as a host of other benefits.
In April 2018, Bezos revealed that Amazon Prime had over 100 million members worldwide. As he put it, “No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it.” Without Amazon’s focus on customers' needs and wants, it is highly doubtful it would have grown to become the world’s most valuable company, according to Inc.
If you’re lucky enough to have been an Amazon shareholder since 1997, you may find these insights in Jeff Bezos’ annual letters as no surprise. If you’re an entrepreneur, it’s a good idea to take some time out to read each of these letters. They offer an invaluable peek into the mind of arguably the most successful entrepreneur of all time.