Last week on Methods of Prosperity.
Jeff Bezos started Amazon in 1994 after leaving his job at a hedge fund. He had noticed the growth of the internet and wanted to start an online business selling books. He started Amazon out of his garage in Seattle with help from his wife MacKenzie and a few employees. Amazon struggled early on but grew fast. By 1998 Amazon was focusing on putting customers first rather than competition. Jeff Bezos took a long term approach. He was willing to experiment. Experiments included new products and services like AWS and Whole Foods’ acquisition. Bezos’ parents invested $100,000 in Amazon which made them very wealthy later on. Bezos continues to take risks. He focuses on long term decisions rather than short term profits.
The following is Methods of Prosperity newsletter number 27. It was originally deployed December 21, 2023. As of August 29, 2024, original subscribers have received up to issue number 63: Phil Knight.
Part 27: Jeff Bezos (conclusion).
The Mindset of Jeff Bezos
TL;DR
Last week, I didn’t highlight enough the mindset of Jeff Bezos. Despite the high failure rate of startups, Bezos remains optimistic. Embracing his “Day One” philosophy, he contrasts it with the stagnation and decline of “Day Two.” He also questions the use of proxies in business metrics. Jeff warns that over time, companies may misinterpret these metrics. Doing so leads to poor decisions. Bezos advises focusing on enduring customer needs like low prices and fast delivery. Delegate smaller issues. A perfect example is one-click shopping. He distinguishes between reversible (“two-way doors”) and irreversible (“one-way doors”) decisions. He urges careful consideration for the latter. While his success is inspirational, it’s important to recognize survivorship bias. Most entrepreneurs will fail. Next week, we’ll explore the PayPal Mafia.
Key lessons:
Recognize one-way door and two-way door decisions.
Always seek the uncomfortable truth.
Commit to DAY ONE thinking.
Most entrepreneurs will fail.
Beware of proxy bias.
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One thing I failed to emphasize in last week’s newsletter is the mindset of Jeff Bezos. Every startup company is unlikely to work, but Bezos is optimistic. He believes in “Day One” thinking. He says, “Day two is stasis, followed by irrelevance, followed by excruciating painful decline, followed by death. And that’s why it’s always day one.”
Another thing which deserves mention is his skepticism of proxies.
What is proxy bias? It refers to the distortion or inaccuracy introduced in research or data analysis. This occurs when we use a proxy variable instead of the actual variable of interest. It renders misleading conclusions. This is due to the imperfect correlation between the proxy and the true variable.
Jeff Bezos has a skeptical view of proxies. My interpretation of his explanation is the following:
In business, we come up with a metric by which we forget over time that is not the actual thing. Inertia sets in, where somebody a long time ago invented that metric. What if Amazon decides to watch for customer returns per unit sold, as an important metric? Over time, that metric becomes a proxy for customer happiness. The problem is that metric is not customer happiness; it’s a proxy. The person who invented that metric understood the connection. Fast forward five years later. The company management forgets why they were watching that metric in the first place. That’s why large companies tend to manage irrelevant metrics. They don’t understand. The reality is the world may have shifted out from under them.
In the same way, measuring the wrong thing can throw off your decisions. Bezos says, “When the data and the anecdotes disagree, usually the anecdotes are right.” You have to seek truth, even when it’s uncomfortable. That’s why compromise is so erroneous. Compromise becomes a proxy for truth. No one gets what they want.
Speaking of decision making, most of his energy goes into the big things. Those are the things that are not going to change over 10 years. Ten years from now, customers will still want low prices and fast delivery. That’s never going to change. Besides those big things, there are deficiencies which are like paper cuts. Those paper cuts are the small things that Jeff will delegate to a special team. One-click shopping is the outcome of fixing those paper cuts.
With regard to decision making, Jeff Bezos talks about one-way doors and two-way doors. In his metaphor, if you make the wrong decision, going through the two-way door allows you to come back out. You can reverse a two-way door decision. Other decisions are so irreversible, that they are like one-way doors. If you go through a one-way door, you’re not coming back.
“Those decisions have to be made very deliberately, very carefully. If you can think of another way to analyze a [one-way door] decision, you should slow down and do that.”
In conclusion, this week’s newsletter had to be a continuation of Jeff Bezos. He is a living example of evidence that anyone can become a billionaire. It’s helpful to model his mindset. Let me caution you to beware of survivorship bias. That’s a form of selection bias. This occurs where one focuses on existing or successful observations while overlooking failures.
In other words, be aware that most entrepreneurs will fail. Few people have what it takes to be on the same level as Jeff Bezos. The fact that you are reading this means that you might be someone who does have what it takes. You can realize and achieve all the good things that you desire.
Next week we’ll continue to study other individuals. People like you and I. They have demonstrated methods of prosperity. On this theme of legendary tech entrepreneurs, we’ll study the PayPal Mafia. Stay tuned!
I like you,
– Sean Allen Fenn
Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Your feedback is welcome. For more information about the author, please visit seanallenfenn.com/faq.
