Notes: Jeff Bezos

Notes

“We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.
Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies.”
It’s All About the Long Term.
- Play in fields that are growing
- Focus relentessly on cusotmers.
- Give more weight to long term decisions.
- Make bold decisions that provide sufficient prob. of gaining market leadership.
- Plan for some of your bold decisions not playing out, but the ones that do shold cover the cost.
- Choose maximizing FCF over GAAP metrics.
- Share your strategic thought process (as mush as competition allows) to ensure you are getting feedback and making long-term leadership investments.
- Keep lean, enforce a cost-concious culture.
- Balance focus on growth with emphasis on long-term profitability and capital management. Also ok to pick one for a perticular period and see-saw.
- Hire the best and pay in equity.
Bring on shareholders who align with your values

Stay terrified of your customers
If you’re expending effort trying to follow your rivals’ every move, you’re losing the big picture. Ex. using PE to attact investments but loosing in the end (ex. fast food industry).
Questions as your hire
- Will you admire this person?
- Will this person raise the average level of effectiveness of ht group they’re entering?
- Along what dimention might this person be a superstar?

$2B in annulized sales
- $0.22B in inventory
- $0.318B in fixed assets
- $0.062B in operating cash over 5 years
“I have one hundred shares of Amazon. What do I own?”
Growth in the both the number of our customers and the strength of the relationship we have with each of them and growing our relationships with partners.
Build on top of infrastructure that’s improving on it’s own

Real estate doesn’t obey moore’s law
Focusing on free cash flow or otherwise giving your business some form of cash moat (whether through outside equity, debt stakes, or tight operations) will help ride out difficult times when customers aren’t buying and/or financing has dried up.
If you’re able to maintain composure while others fall, you have the opportunity to come out ahead and capture a much bigger market share.

Measure your company by your free cash flow. FCF more than any other single variable, seem to do the best job of explaining a company’s stock over the long term.
Communication is a critical (and often undervalued) way to highlight progress. Sticking to traditional templates (SEC filings, press releases) don’t usually allow for much space for subtleties which are critical here. (Think about the quetsion: I own x number of shares of Amazon, what do I own?)

Build your business on your fixed costs
Companies driven by technology have an incredible advantage because much of their value hinges on fixed costs.
If you want to provide the best possible customer experience and the lowest possible prices in your industry, it’s only possible if you can make more of your customers expenses fixed.

Long term thinking is both a requirement and an outcome of ownership.
If you want to build a successful company for the long term, build a company of owners.
With the mentality of a service provider, you will seek short-term gains and sacrifice future growth.
With the mentality of an owner, you will always act in the best interests of your customers and your team. In the end, the work you do acting as an owner will coincide with the interests of your shareholders.

Though some may find it counterintuitive, a company can actually impair shareholder value in certain circumstances by growing earnings. This happens when the capital investments required for growth exceed the present value of the cash flow derived from those investments.
Amazon.com’s financial focus is on long-term growth in free cash flow per share.
Amazon.com’s free cash flow is driven primarily by increasing operating profit dollars and efficiently managing both working capital and capital expenditures. We work to increase operating profit by focusing on improving all aspects of the customer experience to grow sales and by maintaining a lean cost structure.

Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated. Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy — it would also significantly limit innovation and long-term value creation.
Some decisions can be made with data, but many of the important business decisions can only be made with judgment.
Many opportunities with fantastic upside won’t make sense in the short-term — to identify these, you have to think about what makes the most sense for your customers.
Failure should help build judgement that you can use in long term value.
The Structure of ‘Unstructured’ Decision Process: This is a 1976 paper by Henry Mintzberg et al. where they look at how institutions make “unstructured” decisions as opposed to “operating” decisions.

3 things required to start a new business, all of which require 10x improvement:
- Future Incremental Free Cash Flows
- A need that is under-served
- You have an advantage to do it better