Every year, investors eagerly await Warren Buffett’s annual shareholders’ letter explaining in his folksy tone the year that was at Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) in all its glory — good and bad. Like the annual gathering in Omaha, the shareholder letter has become a yearly staple for serious investors.
While Bezos’s annual letter isn’t nearly as long, every investor would gain immeasurably by reading all 20 of them dating back to 1997, AMZN’s first year as a public company.
If all CEOs were as thoughtful and insightful in their yearly communication with shareholders as Bezos is, America would be great, not just pretty good.
AMZN Stock Growth
One thousand shares of AMZN stock bought at its IPO price of $18 a share when it went public on May 15, 1997, are worth well over $10 million today, a 37.6% annualized total return.
Not many stocks can boast this kind of performance, but then not many companies have Jeff Bezos at the helm.
While most CEOs are worrying about the next quarter and the quarter after that, Bezos is busy thinking about the right way for employees to disagree with each other.
“Use the phrase ‘disagree and commit.’ This phrase will save a lot of time,” wrote Bezos in Amazon’s 2016 Letter to Shareholders. “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.”
Except for the very first sentence of the 2016 letter, Bezos makes no reference to dollars and cents. A lot of chief executives would use this platform to shout out that Amazon grew free cash flow in fiscal 2016 by 32.4% to $9.7 billion converting 77.7% of its $12.5 billion in annual EBITDA in the process.
Instead, Bezos talked about a true customer obsession.
“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,” wrote Bezos. “But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.”
What is Day 1 vitality? The ability for a company to keep moving forward, never accepting the status quo. Big companies stagnate all the time, and soon, the phrase “We’ve always done it this way” becomes the norm. To protect against that, Bezos operates as if he’s back on Day 1 of Amazon’s existence in 1994.
Bezos goes on to explain why a true customer obsession matters.
“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great,” wrote Bezos. “Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen.”
I know plenty of people who’ve had bad experiences dealing with Amazon, so it’s not as if I’m saying it’s a perfect company, but if you stop being obsessed about the customer, eventually it’s going to come back to bite you in the you-know-where.
You can’t let down your guard because if you do the odds are good, you’ll find your business losing ground to the competition. It’s that simple.
Bottom Line for Amazon
Go back to the 1997 letter to shareholders, and you’ll see the word “customer” mentioned 25 times, six more than in 2016. I guess he’s slowing down with age like the rest of us.
Seriously, though, these are the kind of things owners of AMZN stock should be thankful Jeff Bezos is thinking about instead of any of the numbers in the annual report.
More importantly, Bezos’ job as CEO 20 years into the company’s founding is to be able to get everyone else who is working there to think the same way.
Eventually, he’s not going to be able to run Amazon anymore, and when that happens, it’s important that the transition is a seamless one.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.