Customer Obsession

At Malpani Ventures, we love to read. This is because we know how much we do not know and that there are far brighter minds around than ourselves. And what is more productive than learning from the success and failures of others?

Every year, for the past two decades, Jeff Bezos has been writing an open letter to Amazon’s shareholders. These letters, much like Berkshire boss Warren Buffets letters, have become an unparalleled source of insight into the world’s brightest minds. From Bezos’ letters, we understand his views on efficiency, customer experience, retention, crisis management, and much more.

Today, we share 5 key lessons from Jeff Bezos’ Annual Letters to Shareholders

1. Stay terrified of your customers

“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us — right up until the second that someone else offers them a better service.”

The lesson- Put customer success first

The moment companies put customers-first, the entire game changes. More effort spent on creating and developing a relationship, less effort on finding new customers & retaining older ones. It becomes a virtuous cycle – a happy customer brings two.

2. Bring shareholders who align with your values

“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.”

The lesson- Thing long term

The moment you start thinking short term, or monthly revenues, you start doing injustice to your long term vision. Short term distracts the long term. Everything that Amazon is today – market leadership, promise of fulfilment, customer growth, retention, comes from keeping short term in the backseat and focusing on the long term vision. And for that, you need to align yourself with the right names on your cap table.

3. Work backwards from customer needs to know what to build next

“’Working backwards’ from customer needs can be contrasted with a ‘skills-forward’ approach where existing skills and competencies are used to drive business opportunities. The skills-forward approach says, ‘We are really good at X. What else can we do with X?’ That’s a useful and rewarding business approach. However, if used exclusively, the company employing it will never be driven to develop fresh skills.”

The lesson- Think what the customer wants to buy, not what you want to sell

It’s a good thing to keep selling more of what you do best. It’s playing to your strengths. But does the customer want it? If not, then you might have to force-feed, employ sleazy tactics and spend to incentivize the customer to buy. Instead, have you thought WHY does the milkshake bring all the boys to the yard? Why are you still busy selling lemonade?

4. Build high standards into company culture

“How do you stay ahead of ever-rising customer expectations? There’s no single way to do it — it’s a combination of many things. But high standards (widely deployed and at all levels of detail) are certainly a big part of it. We’ve had some successes over the years in our quest to meet the high expectations of customers. We’ve also had billions of dollars’ worth of failures along the way. With those experiences as backdrop, I’d like to share with you the essentials of what we’ve learned (so far) about high standards inside an organization.”

The lesson- Make high standards the norm, not the exception

Great companies are built on high standards. The moment you make high standards an exception, you are signalling that you are not competitive enough. The moment high standards become a norm, you start incentivizing people to level up. And there is massive value in levelling up!

5. Measure your company by your free cash flow

“Why focus on cash flows? Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows, more than any other single variable, seem to do the best job of explaining a company’s stock price over the long term.”

The lesson- Cash is king

It is hard to prioritize free cash flow in a young startup. However, that should not keep founders from aspiring to be cash positive. Cash burn comes at the cost of dilution. Free cash flow comes with the ability to avoid dilution. Build a sustainable business that can run on its own, and you will have investors lining up to throw cash at you!

It is these lessons that enabled Amazon to create the massive value. It’s on founders to choose, obsession over these lessons or obsession over the valuation?

Spread the love

Leave a Reply

Your email address will not be published. Required fields are marked *