How Bezos thinks - All his mental models and frameworks

In 1994 Amazon was just an idea in someone’s head, that of Jeff Bezos. Today it's a trillion dollar behemoth. But that’s not the interesting bit. What's fascinating is how Bezos thinks and evaluates everything.

Usually, this process is opaque and we don't get to see or understand it in real time. Often CEOs write books post retirement. But Bezos has been writing a chapter every year — his shareholder letters.

They are a masterclass in all aspects of business and leadership. Each letter is a clear exposition of some core ideas. They are some of the densest in wisdom and worthy of close study. There are also additional clues in Amazon's leadership principles.

In this article I have tried to capture all of his thinking frameworks and mental models in one place.

My intent is not to replicate but to capture his core philosophy on everything from failure and decision making to life itself. It's divided into two parts.

In part 1, I delve into why we should even bother. In part II, I capture all the models by theme. Only the titles are mine; everything else is Bezos’ own words. I gave it an overarching context by giving them titles.

Part I-Why bother?

Why bother reading the letters? How are they different from reading any other business bestseller? Here’s why I think they are unique and should be required reading.

Luck and failure feature prominently

There are not many CEOs who will openly admit that there is a good chance of failure in what they are attempting let alone mention luck anywhere.

But in his writings you see both luck and failure featured prominently. As a result what you get is a highly original philosophy that accounts for both at every step. This is rare in the business world.

It's refreshingly different from either wishful thinking or playing the know-it-all in hindsight. And neither is he gambling or flirting with failure. He clearly accounts for it in his strategy and plays the game accordingly.

No benefit of hindsight

It’s easy to look at Amazon and forget that back in 1997 when Bezos wrote his first shareholder letter there was no guarantee of things working out.

His letters don’t suffer from hindsight bias as is typical of the business book genre. He was writing the playbook as he was playing the game rather than back-fitting his model to what worked.

They are a rare opportunity to understand the philosophy of someone who didn’t necessarily know that it was in fact going to work out. At the same time, he had a well-articulated philosophy right from the beginning.

Many business books suffer from survivorship bias, especially ones written by successful CEOs post retirement. Bezos’ shareholder letters don’t have that myopia. And this makes for some fascinating reading.

His decision making models

Decision making frameworks are one too many and few are practical. Even fewer have a proven record. Invariably, they make it more complicated than necessary.

Any framework’s potency and utility hinges on the following:

Ease of use. How often, and how likely are you to use it?
Applicability. Is it widely applicable?
Clarity. Does the framework clarify, or does it muddle your situation?

Most specialized approaches to decision making don't do these basics well. You shouldn’t have to go learn 20 new mental models in biology in order to become a better decision maker. At least not for someone who does not work at a hedge fund.

They suffer from diminishing returns on time invested. But Bezos’ models are the exception.

What is striking is their simplicity. You can take any of his frameworks and apply it to your own situation. They are equally applicable to a billion dollar company or a scrappy startup.

A philosophical framework, not formulas

Most business books promises formulas. Here's what worked, do x to get y, and so on.

Very rarely you get someone who is writing before they actually knew whether it’s going to work out or not. Equally rare is someone who articulates a clear philosophy and sticks with it for 25+ years.

He focusses on frameworks rather than prescriptive techniques. Frameworks tend to be infinitely more robust and useful than prescriptive formulas.

Let’s jump in.

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Part II. How Bezos Thinks - All His Mental Models and Frameworks

You can skip to a specific theme using the links below.

Failure and Luck
Decision Making Frameworks
Strategy
People and Culture
Financial Measures
Life

On Failure and Luck

Scaling failure

As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures.

Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.

Experimental vs Operational failures

I always point out that there are two different kinds of failure.

There’s experimental failure—that’s the kind of failure you should be happy with.

And there’s operational failure. We’ve built hundreds of fulfillment centers at Amazon over the years, and we know how to do that. If we build a new fulfillment center and it’s a disaster, that’s just bad execution. That’s not good failure.

But when we are developing a new product or service or experimenting in some way, and it doesn’t work, that’s okay. That’s great failure. And you need to distinguish between those two types of failure and really be seeking invention and innovation.

To sustain it you need the right people; you need innovative people. Innovative people will flee an organization if they can’t make decisions and take risks. You might recruit them initially, but they won’t stay long. Builders like to build.

A lot of this stuff is very simple, really. It’s just hard to do. And the other thing about competition is that you do not want to play on a level playing field. This is why you need innovation.

Winning in Baseball vs in Business

Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a one hundred times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten.

We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution.

When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate you can score one thousand runs.

This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.

AWS, Marketplace, and Prime are all examples of bold bets at Amazon that worked, and we’re fortunate to have those three big pillars.

We’ve made mistakes, doozies like the Fire Phone and many other things that just didn’t work out. I won’t list all of our failed experiments, but the big winners pay for thousands of failed experiments.

Wandering vs Efficiency

Sometimes (often actually) in business, you do know where you’re going, and when you do, you can be efficient. Put in place a plan and execute.

In contrast, wandering in business is not efficient—but it’s also not random. It’s guided—by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it’s worth being a little messy and tangential to find our way there. Wandering is an essential counterbalance to efficiency. You need to employ both. The outsized discoveries—the “nonlinear” ones—are highly likely to require wandering.

The biggest needle movers will be things that customers don’t know to ask for. We must invent on their behalf. We have to tap into our own inner imagination about what’s possible.

AWS itself—as a whole—is an example. No one asked for AWS. No one. Turns out the world was in fact ready and hungry for an offering like AWS but didn’t know it. We had a hunch, followed our curiosity, took the necessary financial risks, and began building—reworking, experimenting, and iterating countless times as we proceeded.

Failure

Most large organizations embrace the idea of invention but are not willing to suffer the string of failed experiments necessary to get there.

In addition to good luck and great people, we have been able to succeed as a company only because we have continued to take big risks. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Outsized returns come from betting against conventional wisdom, but conventional wisdom is usually right.

A lot of observers characterized Amazon Web Services as a risky distraction when we started. “What does selling compute and storage have to do with selling books?” they wondered. No one asked for AWS. It turned out the world was ready and hungry for cloud computing but didn’t know it yet.

We were right about AWS, but the truth is we’ve also taken plenty of risks that didn’t pan out. In fact, Amazon has made billions of dollars of failures. Failure inevitably comes along with invention and risk-taking, which is why we try to make Amazon the best place in the world to fail.

Builder’s mentality

From very early on in Amazon’s life, we knew we wanted to create a culture of builders—people who are curious, explorers. They like to invent. Even when they’re experts, they are “fresh” with a beginner’s mind. They see the way we do things as just the way we do things now.

A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again. They know the path to success is anything but straight.

Mistakes

We won’t always choose right, and we won’t always succeed. But we will be choosy, and we will work hard and patiently.

We will have to make many conscious and deliberate choices, some of which will be bold and unconventional. Hopefully, some will turn out to be winners. Certainly, some will turn out to be mistakes.

As proud as I am of our progress and our inventions, I know that we will make mistakes along the way—some will be self-inflicted, some will be served up by smart and hard-working competitors.

Our passion for pioneering will drive us to explore narrow passages, and, unavoidably, many will turn out to be blind alleys. But—with a bit of good fortune—there will also be a few that open up into broad avenues.

We’ve made mistakes, doozies like the Fire Phone and many other things that just didn’t work out. I won’t list all of our failed experiments, but the big winners pay for thousands of failed experiments.

Bold Bets

A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time—with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.

Well, I’m pleased to report that Amazon hasn’t been monogamous in this regard. After two decades of risk taking and teamwork, and with generous helpings of good fortune all along the way, we are now happily wed to what I believe are three such life partners: Marketplace, Prime, and AWS.

Each of these offerings was a bold bet at first, and sensible people worried (often!) that they could not work. But at this point, it’s become pretty clear how special they are and how lucky we are to have them.

The role of luck

Referring to AWS:

And then a business miracle that never happens happened—the greatest piece of business luck in the history of business, so far as I know. We faced no like-minded competition for seven years. It’s unbelievable.

When you pioneer, if you’re lucky, you get a two-year head start. Nobody gets a seven-year head start, and so that was unbelievable.

Luck plays an outsized role in every endeavor, and I can assure you we’ve had a bountiful supply.

We could not foresee with certainty what those programs would eventually look like, let alone whether they would succeed, but they were pushed forward with intuition and heart, and nourished with optimism.

While we have a tremendous amount of work to do and there can be no guarantees, we have a plan to get there, it’s our top priority, and every person in this company is committed to helping with that goal.

Decision Making Frameworks

Intuition and instinct

We have some very specific ideas about what we want to do, but I believe in the power of wandering.

All my best decisions in business and in life have been made with heart, intuition, and guts, not analysis.

When you can make a decision with analysis, you should do so, but it turns out in life that your most important decisions are always made with instinct, intuition, taste, and heart.

You have to use heart and intuition. There has to be risk taking. You have to have instinct. All the good decisions have to be made that way. You do it with a group. You do it with great humility because, by the way, getting it wrong isn’t that bad.

Type 1 vs Type 2 decisions

We want to be a large company that’s also an invention machine. We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness, and risk-acceptance mentality normally associated with entrepreneurial start-ups.

There are some subtle traps that even high-performing large organizations can fall into as a matter of course, and we’ll have to learn as an institution how to guard against them.

One common pitfall for large organizations—one that hurts speed and inventiveness—is “one-size-fits-all” decision making.

Some decisions are consequential and irreversible or nearly irreversible—one-way doors—and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions.

But most decisions aren’t like that—they are changeable, reversible—they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.

As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions.

The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We’ll have to figure out how to fight that tendency.

Decision Quality and Velocity

Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions.

Easy for start-ups and very challenging for large organizations. Speed matters in business.

First, never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong?

Second, most decisions should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.

Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this, but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.”

Fourth, recognize true misalignment issues early and escalate them immediately. Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion, no number of meetings will resolve that deep misalignment.

Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision. “You’ve worn me down” is an awful decision-making process. It’s slow and de-energizing. Go for quick escalation instead—it’s better.

We can have the scope and capabilities of a large company and the spirit and heart of a small one. But we have to choose it.

[Y]ou can drive great people away—for example, by making the speed of decision making really slow. Why would great people stay in an organization where they can’t get things done? They look around after a while, and they’re, like, “Look, I love the mission, but I can’t get my job done because our speed of decision making is too slow.” So large companies like Amazon need to worry about that.

Math-based vs Judgement-based decisions

Many of the important decisions we make at Amazon.com can be made with data. There is a right answer or a wrong answer, a better answer or a worse answer, and math tells us which is which. These are our favorite kinds of decisions. [These] decisions require us to make some assumptions and judgments, but in such decisions, judgment and opinion come into play only as junior partners. The heavy lifting is done by the math.

However, not all of our important decisions can be made in this enviable, math-based way. Sometimes we have little or no historical data to guide us and proactive experimentation is impossible, impractical, or tantamount to a decision to proceed. Though data, analysis, and math play a role, the prime ingredient in these decisions is judgment.

Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated.

Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy—it would also significantly limit innovation and long-term value creation.

The allure of math-based decisions

“The Structure of ‘Unstructured’ Decision Processes” is a fascinating 1976 paper by Henry Mintzberg, Duru Raisinghani, and Andre Theoret. They look at how institutions make strategic, “unstructured” decisions as opposed to more quantifiable “operating” decisions.

Among other gems you will find in the paper is this:

“Excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently.”

They are not debating the importance of rigorous and quantitative analysis, but only noting that it gets a lopsided amount of study and attention, probably because of the very fact that it is more quantifiable.

The whole paper is available at www.amazon.com/ir/mintzberg.

Minimizing regret as a framework

When I’m eighty and reflecting back, I want to have minimized the number of regrets that I have in my life.

And most of our regrets are acts of omission—the things we didn’t try, the paths untraveled. Those are the things that haunt us.

And I decided that if I didn’t at least give it my best shot, I was going to regret not trying to participate in this thing called the internet that I thought was going to be a big deal.

I always project myself forward to age eighty, but as I get older, I’m starting to do ninety—so I know that when I’m ninety, it’s going to be one of the things I’m most proud of.

Living in the future and fewer decisions

As a senior executive, what do you really get paid to do? You get paid to make a small number of high-quality decisions. Your job is not to make thousands of decisions every day.

When Amazon was a hundred people, it was a different story, but Amazon’s not a start-up company, and all of our senior executives operate the same way I do. They work in the future. They live in the future.

None of the people who report to me should really be focused on the current quarter. When I have a good quarterly conference call with Wall Street, people will stop me and say, “Congratulations on your quarter,” and I say, “Thank you,” but what I’m really thinking is that quarter was baked three years ago.

You need to be thinking two or three years in advance, and if you are, then why do I need to make a hundred decisions today? If I make, like, three good decisions a day, that’s enough, and they should just be as high quality as I can make them. Warren Buffet says he’s good if he makes three good decisions a year, and I really believe that.

Why vs Why Not

When something seems like an opportunity—it seems like you have the skills, and maybe some kind of advantage, and you think it’s a big area—you will always get asked the question, ‘Why? Why do that?'

But ‘Why not?’ is an equally valid question. And there may be good reasons why not—maybe you don’t have the capital resources, or parts of your current business require so much focus at this key juncture that it would be irresponsible. In that case, if somebody asked, ‘Why not?’ you would say, ‘Here’s why not …’ But that question doesn’t get asked.

On Strategy

Skills forward vs Working backward

“Working backward” 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. Eventually the existing skills will become outmoded.

Working backward from customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward-feeling those first steps might be.

Listen to customers, but don’t just listen to customers—also invent on their behalf.

A Heavier Company

[W]e constantly remind ourselves of an important point—as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings—“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

We don’t celebrate a 10 percent increase in the stock price like we celebrate excellent customer experience. We aren’t 10 percent smarter when that happens and conversely aren’t 10 percent dumber when the stock goes the other way.

We want to be weighed, and we’re always working to build a heavier company.

On Long Term thinking

We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.

Because of our emphasis on the long term, we may make decisions and weigh trade-offs differently than some companies.

Long-term thinking is both a requirement and an outcome of true ownership. Owners are different from tenants.

We emphasized our long-term views in our 1997 letter to shareholders, our first as a public company, because that approach really does drive making many concrete, non-abstract decisions.

Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate. It supports the failure and iteration required for invention, and it frees us to pioneer in unexplored spaces.

Seek instant gratification—or the elusive promise of it—and chances are you’ll find a crowd there ahead of you.

On Competition

Zero-sum games are unbelievably rare. Sporting events are zero-sum games. Two teams enter an arena. One’s going to win; one’s going to lose. Elections are zero-sum games. One candidate is going to win; one candidate is going to lose.

In business, however, several competitors can do well. That’s very normal.

The most important thing for doing well against competition—in business and also, I think, with military adversaries—is to be both robust and nimble. And it is scale.

So it’s great to be in the US military because you’re big. Scale is a gigantic advantage because it gives you robustness. You can take a punch. But it’s also good if you can dodge a punch. And that’s the nimbleness. And as you get bigger, you grow more robust.

The most important factor for nimbleness is decision- making speed. The second-most important factor is being willing to be experimental. You have to be willing to take risks. You have to be willing to fail, and people don’t like failure.

When it comes to competition, being one of the best is not good enough. Do you really want to plan for a future in which you might have to fight with somebody who is just as good as you are? I wouldn’t.

Bold rather than timid

We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.

You can count on us to combine a strong quantitative and analytical culture with a willingness to make bold decisions. As we do so, we’ll start with the customer and work backward. In our judgment, that is the best way to create shareholder value.

On Innovation and Gatekeepers

Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empower others to unleash their creativity—to pursue their dreams.

With AWS, FBA, and KDP, we are creating powerful self-service platforms that allow thousands of people to boldly experiment and accomplish things that would otherwise be impossible or impractical.

I am emphasizing the self-service nature of these platforms because it’s important for a reason I think is somewhat nonobvious: even well-meaning gatekeepers slow innovation.

When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say, “That will never work!”

And guess what—many of those improbable ideas do work, and society is the beneficiary of that diversity.

Customer obsession as a business model

There are many ways to center a business. You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.

Customer Obsession vs Competitor Obsession

The core of the company is customer obsession as opposed to competitor obsession.

The advantage of being customer focused is that customers are always dissatisfied. They always want more, and so they pull you along. Whereas if you’re competitor obsessed, if you’re a leader, you can look around and you see everybody running behind you, maybe you slow down a little.

Many companies describe themselves as customer-focused, but few walk the walk. Most big technology companies are competitor focused. They see what others are doing, and then work to fast follow. In contrast, 90 to 95 percent of what we build in AWS is driven by what customers tell us they want.

[O]ur energy at Amazon comes from the desire to impress customers rather than the zeal to best competitors.

We do work to pay attention to competitors and be inspired by them, but it is a fact that the customer-centric way is at this point a defining element of our culture.

On brand

We hold as axiomatic that customers are perceptive and smart, and that brand image follows reality and not the other way around.

On being afraid of 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.

On being internally driven

One advantage—perhaps a somewhat subtle one—of a customer-driven focus is that it aids a certain type of proactivity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to.

These investments are motivated by customer focus rather than by reaction to competition. We think this approach earns more trust with customers and drives rapid improvements in customer experience—importantly—even in those areas where we are already the leader.

The danger of processes becoming proxies

As companies get larger and more complex, there’s a tendency to manage to proxies. This comes in many shapes and sizes, and it’s dangerous, subtle, and very Day 2.

A common example is process as proxy. Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations. The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right.

The process is not the thing. It’s always worth asking, do we own the process or does the process own us?

On embracing external trends

The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them and you have a tailwind.

These big trends are not that hard to spot (they get talked and written about a lot), but they can be strangely hard for large organizations to embrace.

On patience, discipline, and nurturing

At Amazon’s current scale, planting seeds that will grow into meaningful new businesses takes some discipline, a bit of patience, and a nurturing culture.

Like any company, we have a corporate culture formed not only by our intentions but also as a result of our history. For Amazon, that history is fairly fresh and, fortunately, it includes several examples of tiny seeds growing into big trees.

The culture demands that these new businesses be high potential and that they be innovative and differentiated, but it does not demand that they be large on the day that they are born.

In our experience, if a new business enjoys runaway success, it can only begin to be meaningful to the overall company economics in something like three to seven years.

Strategy around stable things

I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one.

I almost never get the question: ‘What’s not going to change in the next 10 years?’

And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time.

People and Culture

Missionaries vs Mercenaries

When I meet with the entrepreneur who founded the company, I’m always trying to figure out one thing first and foremost: Is this person a missionary or a mercenary?

The mercenaries are trying to flip their stock. The missionaries love their product or their service and love their customers, and they’re trying to build a great service.

By the way, the great paradox here is that it’s usually the missionaries who make more money, and you can tell really quickly just by talking to people.

You want people to stay for the mission. You don’t want mercenaries at your company. You want missionaries.

Missionaries care about the mission. It’s actually not very complicated. And you can confuse people with free massages. Like, “Oh, I don’t really like the mission here, but I love the free massages.”

How do you hire great people and keep them from leaving? By giving them, first of all, a great mission—something that has real purpose, that has meaning.

People want meaning in their lives. And this is a giant advantage that the US military has because its people have a real mission. They have meaning. And that is huge. And so that’s a big recruiting advantage.

Working hard, long, and smart

Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com’s success.

It’s not easy to work here (when I interview people I tell them, “You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three”), but we are working to build something important, something that matters to our customers, something that we can all tell our grandchildren about. Such things aren’t meant to be easy.

3 Critical Questions when Hiring

During our hiring meetings, we ask people to consider three questions before making a decision:

1. Will you admire this person?
2. Will this person raise the average level of effectiveness of the group they’re entering?
3. Along what dimension might this person be a superstar.

On Setting High Standards

[T]he four elements of high standards as we see it:

they are teachable, they are domain specific, you must recognize them, and you must explicitly coach realistic scope. For us, these work at all levels of detail. Everything from writing memos to whole new, clean-sheet business initiatives.

I did a deeper dive on this particular aspect of his thinking. You can find it here.

On durability of corporate cultures

[F]or better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it—not creating it.

It is created slowly over time by the people and by events—by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove.

The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another.

On trust

The way you earn trust, the way you develop a reputation is by doing hard things well over and over and over. The reason, for example, that the US military, in all polls, has such high credibility and reputation is because, over and over again, decade after decade, it has done hard things well.

It really is that simple. It’s also that complicated. It’s not easy to do hard things well, but that’s how you earn trust. And trust, of course, is an overloaded word. It means so many different things.

It’s integrity, but it’s also competence. It’s doing what you said you were going to do—and delivering. And so we deliver billions of packages every year; we say we’re going to do that, and then we actually do it.

And it’s also taking controversial stances. People like it when you say, “No, we’re not going to do it that way. I know you want us to do it that way, but we’re not going to.”And even if they disagree, they might say, “We kind of respect that, though. They know who they are.”

It is also helpful to have clarity. If we are clear that we are going to do this and we aren’t going to do that, then people can opt in or opt out. They can say, “Well, if that’s Amazon’s position or Blue Origin’s position or AWS’s position on something, then I don’t want to be part of that.” And that’s okay.

We live in a big democracy with lots of opinions, and I want to live in that world. I want to live in a place where people can disagree. What I want, too, is to live in a place where people can disagree and still work together. I don’t want to lose that. People are entitled to their opinions, but it is the job of a senior leadership team to say no.

Financial Measures

On Controllable Inputs vs Financial Goals

Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs.

To be clear, we take these financial outputs seriously, but we believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.

For 2010, we have 452 detailed goals with owners, deliverables, and targeted completion dates. A review of our current goals reveals some interesting statistics:

• 360 of the 452 goals will have a direct impact on customer experience.

• The word revenue is used eight times and free cash flow is used only four times.

• In the 452 goals, the terms net income, gross profit or margin, and operating profit are not used once.

The ultimate financial measure

Our ultimate financial measure, and the one we most want to drive over the long-term, is free cash flow per share.

Why not focus first and foremost, as many do, on earnings, earnings per share or earnings growth? The simple answer is that earnings don’t directly translate into cash flows, and shares are worth only the present value of their future cash flows, not the present value of their future earnings.

Cash flow statements often don’t receive as much attention as they deserve. Discerning investors don’t stop with the income statement.

On Life

Creation vs consumption

If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with.

Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.

On writing as the first step

You know the business plan won’t survive its first encounters with reality. But the discipline of writing the plan forces you to think through some of the issues and to get sort of mentally comfortable in the space.

Then you start to understand, if you push on this knob, this will move over here and so on. So, that’s the first step.

Being yourself is not free

Differentiation is survival and the universe wants you to be typical.

In what ways does the world pull at you in an attempt to make you normal? How much work does it take to maintain your distinctiveness? To keep alive the thing or things that make you special?

But, at the same time, it’s also true that things would often be easier – take less energy – if we were a little more normal.

This phenomenon happens at all scale levels. Democracies are not normal. Tyranny is the historical norm. If we stopped doing all of the continuous hard work that is needed to maintain our distinctiveness in that regard, we would quickly come into equilibrium with tyranny.

We all know that distinctiveness – originality – is valuable. We are all taught to “be yourself.” What I’m really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness.

The world wants you to be typical – in a thousand ways, it pulls at you. Don’t let it happen.

You have to pay a price for your distinctiveness, and it’s worth it. The fairy tale version of “be yourself” is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading.

Being yourself is worth it, but don’t expect it to be easy or free. You’ll have to put energy into it continuously.

The world will always try to make [you] more typical – to bring us into equilibrium with our environment. It will take continuous effort, but we can and must be better than that.

Output measures vs wealth

It's something people are naturally curious about, but I have never sought the title of “world’s richest man.” I was fine being the second-wealthiest person in the world. I would much rather be known as inventor Jeff Bezos or entrepreneur Jeff Bezos or father Jeff Bezos. Those kinds of things are much more meaningful to me, and it’s an output measure.

On problems and resourcefulness

The whole point of moving things forward is that you run into problems, failures, things that don’t work. You need to back up and try again. Each one of those times when you have a setback, you get back up and try again. You’re using resourcefulness; you’re using self-reliance; you’re trying to invent your way out of a box.

We have tons of examples at Amazon where we’ve had to do this. We’ve failed so many times—I think of this as a great place to fail. We’re good at it. We’ve had so much practice.

My wife, much to her credit, has this great saying: “I would much rather have a kid with nine fingers than a resourceless kid,” which is a great attitude about life.

The fallacy of work life balance

I don’t even like the phrase “work-life balance.” I think it’s misleading. I like the phrase “work-life harmony". I know if I am energized at work, happy at work, feeling like I’m adding value, part of a team, whatever energizes you, that makes me better at home. It makes me a better husband, a better father.

Likewise, if I’m happy at home, it makes me a better employee, a better boss. There may be crunch periods when it’s about the number of hours in a week. But that’s not the real thing.

Usually it’s about whether you have energy. Is your work depriving you of energy, or is your work generating energy for you?

It’s a flywheel, a circle, not a balance. That’s why that metaphor is so dangerous, because it implies there’s a strict trade-off.

You could be out of work, have all the time in the world for your family, but be really depressed and demoralized about your work situation, and your family wouldn’t want to be anywhere near you. They would wish you would take a vacation from them.

We are our choices

Cleverness is a gift; kindness is a choice. Gifts are easy—they’re given, after all. Choices can be hard.

You can seduce yourself with your gifts if you’re not careful, and if you do, it’ll probably be to the detriment of your choices. How will you use these gifts? And will you take pride in your gifts or pride in your choices?

How will you use your gifts? What choices will you make?

Will inertia be your guide, or will you follow your passions?

Will you follow dogma, or will you be original?

Will you choose a life of ease, or a life of service and adventure?

Will you wilt under criticism, or will you follow your convictions?

Will you bluff it out when you’re wrong, or will you apologize?

Will you guard your heart against rejection, or will you act when you fall in love?

Will you guard your heart against rejection, or will you act when you fall in love?

Will you play it safe, or will you be a little bit swashbuckling?

When it’s tough, will you give up, or will you be relentless?

Will you be a cynic, or will you be a builder?

Will you be clever at the expense of others, or will you be kind?

I will hazard a prediction. When you are eighty years old and, in a quiet moment of reflection, narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made.

In the end, we are our choices. Build yourself a great story.

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