Jeff Bezos, founder and CEO of Amazon, is a fascinating figure. And he recently published a letter to shareholders regarding the company’s 2015 performance. (It’s on this page, click on the link “2015 Letter to Shareholders”.)
And Bezos is surprising candid and he talks about the successes of the company and also its failings. But most interesting is his approach to taking a gamble on an idea.
He considers the three great successes of the company recently to be Amazon Prime, Amazon Web Services and the Amazon 3p Marketplace but recognises they were gambles. He says in the letter:
“One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 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 1,000 runs.”