John Rossman, an executive at Amazon in the early 2000s, has written The Amazon Way, about the 14 leadership principles that drive the retailer, including obsessing over the customer, hiring and developing the best, and practicing frugality.
The relatively brief book, which was published through Amazon’s self-publishing platform, discusses how these rules can benefit any company – should it be brave enough to put them into effect. “None of the 14 principles mentions the need for a healthy work-life balance,” the author notes.
Rossman, now a managing director at Alvarez & Marsal, a consulting firm in Seattle, recounts a meeting with Jeff Bezos when the Amazon founder gazed toward Microsoft’s campus and said, “I don’t want this place to become a country club”. Bezos added that if Amazon became like Microsoft, “we would die”.
Twenty years after it was founded, Amazon seems at little risk of becoming complacent. But Rossman is alert to the flip side of the issue: how do you become the biggest company in the world – something that is clearly Amazon’s goal, whether it be measured in revenue or market capitalisation – without being so aggressive that it creates regulatory or public relations problems?
Following are excerpts from two conversations with Rossman. They have been edited for clarity.
Q What is your take on Amazon's long-running effort to get Hachette, the fourth-biggest publisher, to lower its ebook margins? Why is winning this battle so very important for Amazon?
A The deal that Amazon gets from Hachette will set a benchmark for other deals with publishers. When you're in a scenario like this, you're really careful with the first deal because it will implicate all the additional partners and vendors you're going to negotiate with.
Also, look at the incredible capital investment spree that Amazon is on. It’s under a lot of pressure to create more margin in areas that are already at maturity. They are looking for every dollar they can to feed into their other businesses. And then they have their long-term goal of taking out the middleman, allowing the content producers to put their work directly into the customer’s hands.
Q Amazon has issued several statements, but in general is trying to remain quiet about this dispute.
A There has been a long history of topics and investments and initiatives that Amazon has been comfortable either not explaining or taking some negative press on. One of Jeff's great quotes is, "You have to be willing to be misunderstood for a long period of time".
Q What are the potential pitfalls in Amazon's Hachette strategy?
A Sometimes in these negotiations, you have to be careful in squeezing so much out of your vendor that they don't have a viable business.
Q In general, Amazon has a reputation of being very tough with competitors as well as suppliers.
A Amazon has a willingness to aggressively compete on margin. It is able to have a race to the bottom that most other companies don't want to have.
Q That's one of the ways in which this is a company unlike any other.
A They operate without the kind of constraints that hold down so many other companies. The mandate of the organisation, to explore and invent, gives them a good shot at coming up with new things. The business that Amazon is in today, the things they do to delight their customers, will change. In 10 years, they will be in new businesses.
Q You mention that the philosophy is that every new hire in Amazon should say in five years that "I'm glad I got hired when I did, because I wouldn't get hired now". And that the kiss of death there is being known as a "solid guy".
A There are tension and demands that go far beyond other employers. Amazon believes in internal competition. It's very Darwinian. They believe in small teams versus bureaucratic control. But if you want to build things and launch products, you can. If you want to have a simple job, one where you don't look for improvements, it's going to torture you.
Q The message of your book is that other companies can learn from Amazon – they can be faster, smarter, more aggressive. But can Amazon be too Amazon? What are the risks in following these principles?
A They have always seen themselves as a scrappy start-up, where you have to eke out every per cent of margin and there is a lose-win proposition in every negotiation. They are going to have to adjust their MO and get savvier from a PR standpoint. All of this is within their reach but it's not going to be easy.
Q Competitors and other foes are waiting for it to stumble. What could prompt a significant setback?
A Customer trust is at the centre of everything they do, so if there were a major data breach that would be worrisome. Then there is the issue of keeping employees hungry and avoiding bureaucracy. Amazon employees are paid relatively little. All the upside is in the stock. If the stock is flat to negative for a long period of time, that is going to make it a challenge to retain top talent. Amazon is also getting to a size where it is starting to see the attention of unions and regulators.
Q Another way Amazon is different is that they actually encourage people to quit.
A Some companies say, "We need to decrease employee turnover" but Amazon is very comfortable with it. They don't want you to settle in, to slow down. Bringing in new employees that have to create new value in order to get compensated is what regenerates the company.
Q Sooner or later, even the fastest-growing company tops out.
A The concern I would have for Amazon is that revenue growth has dropped from close to 50 per cent annually to less than half that. I think in the short term they are looking at how to accelerate the growth percentages in their core retail business.
© The New York Times 2014
