CHAPTER TWO
“Sunshine, do you remember the four unifying principles of George Eastman?”
“I remember one was, ‘Keep the price of the product low so the customer will find more uses for it,’ and another one was, ‘Listen to what the customer tells you.'”
“Jeff Bezos brought those ideas into sharp focus when he said, ‘When things get complicated, we simplify by saying ‘what’s best for the customer?’ And then we take it as an article of faith that if we do that, it’ll work out in the long term.’”
“He actually said ‘an article of faith?’ Those are his words, not yours?”
“His words. Not mine.”
“That blows my mind a little.”
“Sunshine, every company begins with the customer in mind, but then management begins thinking in terms of divisions and departments and before you know what’s happening the company is spending a lot of energy managing internal struggles and battles because the divisions have been given conflicting goals.”
“And unifying principles solve all that?”
“They do if everyone in the company has those principles baked into every action they take.”
“My company has a mission statement.”
“‘We want to provide a pleasant working environment for our employees, deliver exceptional service to our customers, make a fair and honest profit and deliver a healthy return-on-investment to our investors.'”
“Oh! You’ve read it!”
“No, that’s just what they all say.”
“Ouch.”
“I wasn’t trying to hurt you, Sunshine.”
“So how are unifying principles different than mission statements?”
“A mission statement is propaganda. Unifying principles are an operating system.”
“Look at you, Poobah. ‘An operating system.’ You used a contemporary metaphor.”
The old man smiled. “Sunshine, if you truly make the customer the center and the beginning of every initiative, you can hardwire that mentality into your company culture. Mission statements and slogans don’t change what people believe, because most people aren’t listening to what you say. They’re watching to see what you do.”
After a silence, the younger man spoke. “I Googled ‘unifying principles, Amazon,’ and ‘unifying principles, Jeff Bezos,’ and neither search came back with anything that looks like what you’re saying.”
“Jeff Bezos doesn’t refer to his deepest beliefs as ‘unifying principles,’ that’s just what I call them. But if you listen to what Jeff is always saying and watch what Jeff is always doing, it’s easy to see that Amazon.com was built on four stone pillars.”
The young man spoke quietly, “To change a person’s actions, you must first change their beliefs.”
The old man said, “These are the four stone pillars of Amazon.
ONE. Customer Centricity.
TWO. Continuous Optimization.
THREE. Culture of Innovation.
FOUR. Corporate Agility.
These are the essence of the Amazon brand.”
“But Amazon isn’t a brand, Poobah. It’s a distribution channel.”
“Amazon is most certainly a brand.”
“I think we may have two different ideas about branding.”
“Google what Bezos has to say about it.”
The young man spoke a few seconds later, “Bezos says, ‘Your brand is what other people say about you when you’re not in the room.’”
“A brand isn’t what you say about yourself, Sunshine. Your brand is built on your actions. Your performance. And the performance of your products.”
“It’s easy to wow the customer when you don’t have to make a profit. Amazon has never made a profit, Poobah.”
“That’s a popular myth but it’s not true. Amazon became profitable in the 4th quarter of 2001 when they reported a net income of $5 million. In 2003, net revenue grew to $5.26 billion and they had a $35 million net profit. In 2015 they became the fastest company to ever reach $100 billion in annual sales and they also happened to generate $8 billion in free cash flow after all the bills were paid and all the investments were made. Fifty percent of all e-commerce went through Amazon that year and the percentage is going up.”
“Why do you know so much about Amazon’s finances?”
“I bought my Amazon stock back when it was $10 a share after falling from its previous price of more than $100.”
“How did you know it was the right thing to do?”
“When short-term thinkers start selling their stocks in companies with long-term vision, that’s when your Poobah buys stock.”
“Why does everyone say Amazon isn’t profitable?”
“Because TLB’s always have to justify their short-term thinking.”
“TLB’s?”
“Twitchy Little Bastards. Marshmallow eaters.”
The younger man’s face exploded into a smile. He looked down and shook his head. “You’re nuts, Poobah.”
“Always have been.”
“I can see that you’re dying to tell me about the marshmallow eaters, so go ahead. We’ve got time.”
The old man raised an eyebrow. “I’m not dying to tell you anything. If you want to know, you’re going to have to say, ‘Please, kind Sir, tell me about the marshmallow eaters.'”
“Please, kind Sir, tell me about the marshmallow eaters.”
“It’s good to see you smile, Sunshine.”
“Marshmallow eaters.”
“Back in the late 1960s, a couple of psychologists at Stanford conducted an experiment on a bunch of 4 and 5 year-old kids.”
“They experimented on kids?”
“About 600 of them.”
“They couldn’t get away with that today.”
“It was harmless. They took each kid into a room and put a marshmallow on the table beside them and said, ‘You can eat this marshmallow if you want, but if it’s still here when I come back, I’ll give you a second marshmallow and then you’ll have two marshmallows to eat.”
“They were testing the kid’s patience.”
“The experiment was supposed to be about instant gratification versus deferred gratification.”
“So how did it turn out?”
“Most of the kids ate the marshmallow.”
“How long was it before the adult came back with the second marshmallow?”
“About 15 minutes.”
“I’m not sure what I would have done.”
“You’re not a marshmallow eater, Sunshine. You’ve just been trying to make a bunch of marshmallow eaters happy.”
“I’m not sure I see the point of the story.”
“That’s because it’s not over.”
“Please, kind Sir, finish the story about the marshmallow eaters.”
“So they had the names of all these kids and video footage of each one sitting next to a marshmallow until the kid finally gave in and ate it. But that’s not the interesting part.”
“Please, kind Sir, tell me the interesting part.”
“Several years later, they decided to track these kids down to see how each of them turned out.”
“And?”
“The longer the kid was able to wait before eating the marshmallow, the higher they scored on the SAT in high school.”
“You’re making that up.”
“I promise you I’m not. They also had lower levels of substance abuse, lower likelihood of obesity, better responses to stress, better social skills and higher scores in a wide range of behaviors that psychologists call ‘executive function.'”
“The ant looks to the future but the grasshopper doesn’t. That’s why the grasshopper dies in the winter.”
“I’m surprised you’re familiar with that story.”
“Why?”
“I didn’t think anyone told it any more.”
“It was a bedtime story when I was little.”
“Your mom?”
“Yeah.”
The old man smiled. “Did I tell you there was one kid who waited the whole fifteen minutes and never ate the marshmallow?”
“Just one kid?”
“Mark Zuckerberg.”
“You made that up, right?”
“Only the part about Zuckerberg. The rest is completely true. You were asking me why people claim Amazon isn’t profitable. Have you figured it out yet?”
“Let’s see. It sounds like you’re saying people trash-talk Bezos and claim Amazon isn’t profitable because they’re ‘Twitchy Little Bastard Marshmallow-Eating Grasshoppers’ who have no stomach for delayed gratification.”
“Forget the TLB’s, Sunshine. They’re mosquitoes.”
“Mosquitoes are hard to ignore.”
Warren Buffet ignored mosquitoes. So did Steve Jobs, Mark Zuckerberg, Howard Schultz, Julius Rosenwald. Jeff Bezos plowed Amazon’s profits into R & D because he was unwilling to make Kodak’s mistake.”
“So if Jeff Bezos had been CEO of Kodak, we’d all be carrying cell phones filled with Kodak technology right now?”
“Badda-bing, badda-bang…”
“Badda-boom. I think you might be right.”
“Kodak was a technology innovator for nearly 100 years before they began to think of themselves as a camera film company. ”
“Just how much does Bezos spend on R & D?”
“I remember one year – I think it was 2013 – when Bezos was pouring money into Amazon Web Services and refining the Kindle and expanding his robotics in the warehouses and investigating deliveries by drone, he spent nearly as much on R & D as Google and Apple combined.”
“You can’t mean that.”
“I do mean that. Bezos spent $15.4 billion. Google spent $9.8 and Apple spent $6.6.”
“They were the 3 big spenders?”
“More or less. IBM spent $9.7 billion. Alibaba spent $8.9. Lilly Pharmaceuticals spent $4.7. FaceBook spent $3.7. I can’t remember more than that.”
“I’m blown away that you can remember all those numbers. I never thought of you as a numbers guy.”
“I pay attention to the numbers that matter.”
“You’re saying R & D numbers matter?”
“I’m saying innovation matters. Experiments matter. Thinking ahead matters. Companies who think ahead and experiment are the ones who innovate. These are the brands that continue to impress us.
“I’m beginning to see why you say a brand is built on actions more than words.”
“Again, that’s why I call you Sunshine.”
“Do you believe that any tech company can brand like Amazon?”
“It has nothing to do with tech. Even a lemonade stand can brand like Amazon. If you don’t eat the marshmallow, you can build anything you want on those four pillars.”
What were they again? I’m going to write them down.
The old man smiled. “Customer Centricity. Continuous Optimization. Culture of Innovation. Corporate Agility.”
“Give me the deep dive on those.”
“Happy to, Sunshine.”
© 2017, Roy H. Williams - www.mondaymorningmemo.com
Jeffrey and Bryan Eisenberg - buyerlegends.com