Why Jeff Bezos is our greatest living CEO

The Harvard Business Review recently published its list of the 100 Best Performing CEOs.  This list is better than most because it looks at long-term performance of the CEO during his or her time in the job – with many on the list in service more than a decade.

#1 was Steve Jobs.  #2 is Jeff Bezos – making him the greatest living CEO.  It is startling just how well these two CEOs performed.  During Jobs' tenure Apple investors achieved a return of 66.8 times their money.  During Mr. Bezos' tenure shareholders achieved a remarkable 124.3 times return on their money.  In an era when most of us are happy to earn 5-10%/year – which equates to doubling your money about once a decade – these CEOs exceeded expectations 30-60 fold!

Both of these CEOs achieved greatness by transforming an industry.  We all know the Apple story.  From near bankruptcy as the Mac company Mr. Jobs led Apple into the mobile devices business, and created a transformation from Walkmen, Razrs and PCs to iPods, iPhones and iPads – to the detriment of Sony, Motorola, Nokia, Microsoft, HP and Dell. 

The Amazon story is all the more remarkable because it has been written in the far more mundane world of retail – not known for being nearly as fast-changing at tech.

Lest we forget, Amazon started as an on-line seller of books frequently unavailable at your local bookstore.  "What's a local bookstore?" you may now ask, because through continuous upgrading of its capability to build on the advances in internet usage – across machines, browsers, wi-fi and mobile – Amazon drove into bankruptcy such large booksellers as B.Dalton and Borders – leaving Barnes & Noble a mere shell of its former self and on tenous footing.  And the number of small bookshops has dropped dramatically.

But Amazon's industry transformation has gone far beyond bookselling.  Amazon was one of the first, and by most users considered the best, at offering a complete on-line storefront for any retailer who wants to sell goods through Amazon's site.  You can set up your inventory, display products, provide user information, manage a shopping cart and handle check out all through Amazon – with minimal technical skill.  This allowed Amazon to bring vastly more products to customers; and without adding all the inventory or warehousing cost.

As digital uses grew, Amazon moved beyond the slow-paced publishers to launch the Kindle and give us eReaders displacing paper books and periodicals.  But this was just the first salvo in the effort to promote additional on-line buying, as Amazon next launched Kindle Fire which at remarkably low cost gave people a tablet already set up for doing retail shopping at Amazon.

As Amazon launched its book downloads and on-line services, it built its own cloud services business to aid businesses and people in using tablets, and doing more things on-line; which further reinforced the digital retail world in which Amazon dominates.

And make no doubt about it, Kindle Fire – and the use of all other tablets – is the WalMart and other traditional brick-and-mortar retail killer.  Amazon is now a player in all pieces of the transition which is happening in retail, from traditional shopping to on-line. 

Demand for retail space in the USA began declining in 2009 and has not stopped.  Most analysts blamed it on the great recession.  But in retrospect we can now see it was the watershed year for customers to begin looking more, and buying more, on-line.  Now each year growth in on-line retail continues, while demand at traditional stores wanes.

Just look at this last holiday season.  To (hopefully) drive revenue stores were opening on Thanksgiving, and doing 24 and 48 hours of non-stop staffing and promotions to drive sales.  But it was mostly in vain, as traditional retail saw almost no gains.  Despite doing more and more of what they've always done – trying to be better, faster and cheaper – they simply could not change the trend away from shopping on-line and back into the stores.

For the last year the #1 trend in retailing has been "showrooming" where customers stand in a store with a smartphone comparison pricing on-line (most frequently Amazon) to the product on the shelf.  Retailers were forced to match on-line prices, despite their higher overhead, or lose the business.  And now Target has implemented a policy of price-matching Amazon for all of 2013 in hopes of slowing the trend to on-line purchasing.

Circuit City went bankrupt, which saved Best Buy as it picked up their lost business.  But now Best Buy is close to failure.  Same store sales at WalMart have been flat.  JCPenney recruited Apple's retail store wizard as CEO – but he's learned when you have to compete with Amazon life simply sucks.  Nobody in traditional retail has found a way to reverse the on-line shopping trend, which is still dominated by Amazon.

We all can learn from these two CEOs and the companies they built.  First, and foremost, is understand trends and align with them.  If you help people move in the direction they want to go life is easy, and growth can be phenomenal.  Trying to slow, stop or reverse a trend doesn't work, and is expensive. 

Second, don't ask customers what they want, instead give them what they need.  Customers may be on a trend, but they will frame their requests in the old paradigm.  By creating new trend-promoting products and solutions you can capture the customer and avoid head-to-head competition with the "old guard" titans selling the increasingly outdated solutions.  Don't build better brick-and-mortar, make brick-and-mortar obsolete.

So, what's stopping you from growing your business like Apple or Amazon?  What keeps you from being the next Steve Jobs, or Jeff Bezos?  Can you spot trends and provide trend-supporting solutions for customers?  Or are you stymied because you're spending too much time trying to defend and extend your old business in the face of game changing trends.

Grow like (the) Amazon to Succeed – Invest outside your “core”


“It’s easier to succeed in the Amazon than on the polar tundra” Bruce Henderson, famed founder of The Boston Consulting Group, once told me.  “In the arctic resources are few, and there aren’t many ways to compete.  You are constantly depleting resources in life-or-death struggles with competitors.  Contrarily, in the Amazon there are multiple opportunities to grow, and multiple ways to compete, dramatically increasing your chances for success.  You don’t have to fight a battle of survival every day, so you can really grow.”

Today, Amazon(.com) is the place to be.  As the financial markets droop, fearful about the economy and America’s debt ceiling “crisis,” Amazon is achieving its highest valuation ever.  While the economy, and most companies, struggle to grow, Amazon is hitting record growth:

Amazon sales growth July 2011
Source: BusinessInsider.com

Sales are up 50% versus last year! The result of this impressive sales growth has been a remarkable valuation increase – comparable to Apple! 

  • Since 2009, valuation is up 5.5x
  • Over 5 years valuation is up 8x
  • Over the last decade Amazon’s value has risen 15x

How did Amazon do this?  Not by “sticking to its knitting” or being very careful to manage its “core.”  In 2001 Amazon was still largely an on-line book seller.

The company’s impressive growth has come by moving far from its “core” into new markets and new businesses – most far removed from its expertise.  Despite its “roots” and “DNA” being in U.S. books and retailing, the company has pioneered off-shore businesses and high-tech products that help customers take advantage of big trends.

Amazon’s earnings release provided insight to its fantastic growth.  Almost 50% of revenues lie outside the U.S.  Traditional retailers such as WalMart, Target, Kohl’s, Sears, etc. have struggled in foreign markets, and blamed poor performance on weak infrastructure and complex legal/tax issues.  But where competitors have seen obstacles, Amazon created opportunity to change the way customers buy, and change the industry using its game-changing technology and capabilities.  For its next move, according to Silicon Alley Insider, “Amazon is About to Invade India,” a huge retail market, in an economy growing at over 7%/year, with rising affluence and spendable income – but almost universally overlooked by most retailers due to weak infrastructure and complex distribution.

Amazon’s remarkable growth has occurred even though its “core” business of books has been declining – rather dramatically – the last decade.  Book readership declines have driven most independents, and large chains such as B. Dalton and more recently Borders, out of business. But rather than use this as an excuse for weak results, Amazon invested heavily in the trends toward digitization and mobility to launch the wildly successful Kindle e-Reader.  Today about half of all Amazon book sales are digital, creating growth where most competitors (hell-bent on trying to defend the old business) have dealt with stagnation and decline. 

Amazon did this without a background as a technology company, an electronics company, or a consumer goods company.  Additionally, Amazon invested in Kindle – and is now developing a tablet – even as these products cannibalized the historically “core” paper-based book sales.  And Amazon has pursued these market shifts, even though these new products create a significant threat to Amazon’s largest traditional suppliers – book publishers. 

Rather than trying to defend its old core business, Amazon has invested heavily in trends – even when these investments were in areas where Amazon had no history, capability or expertise!

Amazon has now followed the trends into a leading position delivering profitable “cloud” services.  Amazon Web Services (AWS) generated $500M revenue last year, is reportedly up 50% to $750M this year, and will likely hit $1B or more before next year.  In addition to simple data storage Amazon offers cloud-based Oracle database services, and even ERP (enterprise resource planning) solutions from SAP.  In cloud computing services Amazon now leads historically dominant IT services companies like Accenture, CSC, HP and Dell.  By offering solutions that fulfill the emerging trends, rather than competing head-to-head in traditional service areas, Amazon is growing dramatically and avoiding a gladiator war.  And capturing big sales and profits as the marketplace explodes.

Amazon created 5,300 U.S. jobs last quarter.  Organic revenue growth was 44%.  Cash flow increased 25%.  All because the company continued expanding into new markets, including not only new retail markets, and digital publishing, but video downloads and television streaming – including making a deal to deliver CBS shows and archive. 

Amazon’s willingness to go beyond conventional wisdom has been critical to its success.  GeekWire.com gives insight into how Amazon makes these critical resource decisions in “Jeff Bezos on Innovation” (taken from comments at a shareholder meeting June 7, 2011):

  • “you just have to place a bet.  If you place enough of those bets, and if you place them early enough, none of them are ever betting the company”
  • “By the time you are betting the company, it means you haven’t invented for too long”
  • “If you invent frequently and are willing to fail, then you never get to the point where you really need to bet the whole company”
  • “We are planting more seeds…everything we do will not work…I am never concerned about that”
  • “my mind never lets me get in a place where I think we can’t afford to take these bets”
  • “A big piece of the story we tell ourselves about who we are, is that we are willing to invent”

If you want to succeed, there are ample lessons at Amazon.  Be willing to enter new markets, be willing to experiment and learn, don’t play “bet the company” by waiting too long, and be willing to invest in trends – especially when existing competitors (and suppliers) are hesitant.

Winners shift, Losers don’t – Buy Amazon Sell Sears and Walmart


What separates business winners from the losers? A lot of pundits would say you need to be efficient, cost conscious and manage margins.  Others would say you need to be really good (excellent) at something – much better than anyone else.   Unfortunately, that sounds good but in our fast-paced, highly competitive world today those platitudes don’t really create winners.  Success has much more to do with the ability to shift.  And to create shifts.

Think about Amazon.com.  This company was started as an on-line retail channel for books most stores would not stock on their shelves.  But Amazon used the shift to internet acceptance as a way to grow into selling all books, and eventually came to dominate book sales.  Not only have most of the small book stores disappeared, but huge chains like B. Dalton and more recently Borders, were driven to bankruptcy.  Amazon then built on this shift to expand into selling lots more than books, becoming a force for selling all kinds of products.  And even opening itself to become a portal for other on-line retalers by routing customers to their sites, and even taking orders for products shipped from other e-tailers. 

More recently, Amazon has taken advantage of the shift to digitization by launching its Kindle e-reader.  And by making thousands of books available for digital downloading. By acting upon market trends, Amazon has shifted quickly, and has caused shifts in the market where it participates.  And this shifting has been worth a lot to Amazon. Over the last 5 years Amazon’s stock has risen from about $30/share to about $180/share – about a 45%/year compounded rate of return!

Chart forAmazon.com Inc. (AMZN)Chart source: Yahoo Finance

In the middle to late 1990s, as Amazon was just starting to appear on radar screens, it appeared like Sears would be the kind of company that could dominate the internet.  After all Sears was huge!  It was a Dow Jones Industrial Average (DJIA) member that had ample resources to invest in the emerging growth market.  Sears had a history of pioneering markets.  It had once dominated retail with its catalogs, then became a powerhouse in free standing retail stores, then led the movement to shopping malls as an anchor chain, and even used its history in lending to develop what became Discover card, and had once shown its ability to be a financial services company and even an insurer!  Sears had shifted with historical trends, and surely the company would see that it could bring its resources to the shifting retail landscape in order to remain dominant.

Unfortunately, Sears went a different direction, prefering to focus on defending its current business model.  As the chain struggled, it was dropped from the DJIA.  Eventually a financier, Edward Lampert, used his takeover of bankrupt KMart (by buying up their bonds) to take over Sears!  Under his leadership Sears focused hard on being efficient, controlling costs and managing margins.  Extensive financial rigor was applied to Sears to improve the profitability of every line item, dropping poor performers and closing low margin stores.  While this initially excited investors, Sears was unable to compete effectively against other retailers that were lower cost, or had better merchandise or service, and the value has declined from about $190/share to $80; a loss of about 60% (at its recent worst the stock fell to almost 30 – or a decline of 84% peak to trough!)

Chart forSears Holdings Corporation (SHLD)Chart Source:  Yahoo Finance

Meanwhile the world’s #1 retailer, Wal-Mart, has long excelled at being the very best at supply chain management, and low-price leadership in retailing.  Wal-Mart has never varied from its original business model, and in the retail world it is undoubtedly the very best at doing what it does – buy cheap, sell cheap and run a very tight supply chain from purchase to sale.  This excited some investors during the “Great Recession” as customers sought out low prices when fearing about their jobs and future. 

But this strategy has not been able to produce much growth, as stores have begun saturating just about everywhere but the inner top 30 cities.  And it has been completely unsuccessful outside the USA.  As a result, despite its behemoth size, the value of Wal-Mart has really gone nowhere the last 5 years.  While there has been price gyration (from $42 low to $62 high) for long-term investors the stock has really gone nowhere – mired mostly around $50.Chart forWal-Mart Stores Inc. (WMT)Chart Source: Yahoo Finance

Investors in Amazon have clearly fared much better than Sears or Wal-Mart

Chart forWal-Mart Stores Inc. (WMT)Chart Source: Yahoo Finance

Too often business leaders spend too much time thinking about what they do.  They think about costs, margins, the “business model” and execution.  But success really has less to do with those things than understanding trends, and capitlizing on those trends by shifting.  You don’t have to be the lowest cost, or most efficient or even the most passionate.  What works a lot better is to go where the trends are favorable, and give customers solutions that align with the trends. And if you do this early, before anyone else, you’ll have a lot of time to figure out how to make money before competitors try to cut your margins!

Recognize that most “execution” is about preserving what happened in the past.  Trying to do things better, faster and cheaper.  But in a rapidly changing world, new competitors change the basis of competition.  Amazon isn’t a better classical bookseller, or retailer. It’s a company that leveraged trends – market shifts – to take advantage of new technologies and new ways of people shopping.  First for books and then other things.  Later it built on trends toward digitization by augmenting the production of electronic publications, which is destined to change the world of book publishing altogether – and even has impact on the publishing of everything from periodicals to manuals.  Amazon is now creating market shifts, which is changing the fortunes of others.

For investors, employees and suppliers you are better off to be with the company that shifts.  It has the ability to grow with the trends.  And the faster you get out of those companies which are stuck, locked-in to their old business model and practices in an effort to defend historical behaviors, the better off you’ll be.  Despite the P/E multiples, or other claims of “value investing,” to succeed you’re a lot better off with the company that’s finding and building on trends than the ones managing costs.