How Jeff Bezos Makes Decisions

How Jeff Bezos Makes Decisions

by Dan McGinn  |   1:00 PM October 18, 2013

Over the last 19 years, Amazon.com has revolutionized the way we shop—and for much of that time, journalist Brad Stone has been watching closely. This week Stone, a senior writer at Bloomberg Businessweek, published The Everything Store: Jeff Bezos and the Age of Amazon. I talked with Stone about the evolution of Bezos as a decision-maker. Some excerpts from our conversation:

In the course of your reporting, what did you observe about Bezos’s decision-making style?

Two factors come to mind. The first is an observation made by Rick Dalzell, his right hand guy. He says that Jeff does two things better than anyone else. One is that he tries to find the best truth at the time. That may sound obvious, but Rick says that while a lot of people know what the truth is, they don’t engage their thinking about how the truth may change. Second, Rick says that Jeff refuses to accept the conventional wisdom about the way things are typically done. He thinks about reinventing everything—even small things. Two weeks ago, for instance, Amazon introduced the new Kindle Fire tablets. Ordinarily when tech companies do this, they hold a big press conference. Instead, Jeff brought about two dozen reporters in to see him in small groups. He did all the product demos himself. Everyone left feeling like they had a special session with this dynamic CEO, and Amazon received great press coverage. It’s a small example of how he tries to reinvent how things are done.Your book describes Bezos berating and belittling employees, and overruling a lot of their decisions even if he has less information than they do. Why does he behave that way?

It’s partly because he demands such excellence out of everyone around him, and he’s always the smartest guy in the room. He’s always pushing people to rise to his level. He really wants people to think big—that’s a frequent phrase around Amazon. When people aren’t exhibiting that We’re-going-to-conquer-the-world mentality, he gets frustrated. But in fairness, a lot of the examples in the book of him behaving that way are older ones, and I think he’s gotten better over time. He has modulated this behavior.

You spoke with an educational researcher who spent time with Bezos when he was 12 years old and attending a gifted-and-talented school. Do you think growing up as the smartest kid in school led Bezos to be overconfident in his decision-making skills?

Well, his confidence does backfire sometimes, and Amazon has made mistakes. In the 1990s, he was convinced the Internet was going to change everything, and he raced ahead without hesitation. He borrowed billions to expand, and it came back to bite him: He thought the runway was longer than it was, and he spent five years [being punished by investors] for that. So there are times when he can be too optimistic. That’s why he bought The Washington Post — he’s optimistic he can create these new businesses on the Internet [even as] the old incumbents are going away. He tends to march ahead without the least hesitation.

You describe Bezos as surrounded by a group of high-level “Jeff-Bots” who mimic his behavior and sayings. When it comes to decision-making, do they serve as Yes Men or can they push back?

The term Jeff-Bot does connote a bit of mimicry, but it’s also about loyalty. Jeff’s leadership style is infectious. The people who do the best at Amazon are the people who absorb his principles. I don’t think the Jeff-Bots are Yes Men—they just have internalized the way Jeff thinks. Amazon is fairly decentralized, and some of these executives run their own businesses and make their own decisions. A great example is Andy Jassy, who was the first official “shadow” at Amazon. For two years, his job was to follow Bezos around as his chief of staff, attending every meeting with him. Andy became an accomplished executive—now he runs Amazon Web Services, which is an incredible business.

Bezos shows a remarkable ability to disregard Wall Street when making decisions. How is he able to do this when so many CEOs can’t?

This wasn’t always the case—really, it’s the payoff for being right. In the late 1990s the Street trusted Bezos, then for five years it didn’t [after he’d grown Amazon too quickly]. But during this time Amazon called its shots predictably and consistently. Bezos ended up basically recruiting a base of shareholders who trusted him and believed his story—people like Bill Miller of Legg Mason. They saw him operating the company with discipline, and they recognized that Amazon was a profitable business but that there were phases where they’d be investing in a new capability [that would hurt profits]. So it’s the credibility of the founder that made the difference. Once you’ve proven that you have the right mix of visionary insight and operating capabilities, Wall Street lets you get away with a lot. There aren’t that many other CEOs who have that credibility. Although she’s not a founder, I think Marissa Mayer has some of it at Yahoo. Larry Page definitely has it, although he wasn’t Google’s CEO the whole time.

Amazon uses some unique decision-making tools: Instead of PowerPoint, meetings begin with everyone reading a six-page memo outlining the issue to be discussed. They have an elaborate system to decide whether to promote people. Would these tools work well at other companies?

Probably not. They’re so highly tuned to the ways that Jeff Bezos processes information. In the book I write that the entire company is really a scaffolding built around Jeff’s brain. It’s set up as if there’s a series of chess boards positioned so that Jeff can play all these games at the same time in a highly efficient manner. Groupon, which has a lot of ex-Amazon people, tried some of these techniques, and it’s a tough sell. Starting a meeting with 20 minutes of silence so everyone can read a memo just isn’t the way most businesses operate, and it’s hard to adjust to that.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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