Navigating Business Challenges: Lessons from Amazon's Leadership Shift

0:00I thought it would be interesting to talk about. I noticed an article about Andy Jassy who came in and replaced Jeff Bezos at Amazon. And I didn't really realize what was going on at Amazon at the time that he came in. And I thought that there were, as I kind of dug into all the things that he had done, I thought that it would be actually helpful for everybody, particularly in this environment that we're in right now, where a lot of people are telling us that they're experiencing challenges in their business in terms of revenue and profits and valuation and things like that, which are the three pillars of our scalable program.

0:48Hey, everybody. Welcome to another episode of the Business Lunch Podcast with your host, Ryan Dice and myself, Roland Frazier. We are excited to be here with you today. Ryan, how are you doing today? We're just coming back as this is being recorded after the weekend of the 4th of July. Did you have a patriotic hot dog filled? Yeah, I'm great. You what? Did you have a patriotic hot dog and firework filled extravaganza? Man, no fireworks. Fireworks freaked me out. I one time had a friend of mine who we went out to a lake and another buddy of ours bought the, you know, the big mortars. So not like the punk fireworks that you light and they go up, but like the ones that basically have their own launching mechanism.

1:30Yeah. You see little balls go up in the air. Yeah. So we got those. And a buddy of mine, who is normally a very smart, responsible person, we were putting those up and he put them all in upside down. And when you put those mortars in upside down, well, number one, they don't go up, they go down. But down you see is the ground. And so what happened when they exploded, it blew up like the cylinder thing that they were in. And it was a multi-station that blew up all the stuff around us. And so we're standing around these things while mortars or fireworks are going off at our feet. Everybody was okay.

2:05But since then, I've kind of stayed away from fireworks. So none for me. What about you? I didn't. The last time I did fireworks was at our buddy Frank Kern's place. and he happened to find some fireworks in the garage that he didn't know about. And of course, we may or may not have had a cocktail or two and decided that the prudent thing to do would be to light them off. But I can't confirm or deny where we were located, but it may or may not have been something that's permissible under the applicable local statute. Well, there's no way in your neighborhood. I'm surprised you didn't get arrested.

2:40Not in my neighborhood now. I'm not, there's no, there's no, I absolutely will not confirm or deny what neighborhood is taking place in. But so we did decide to go outside, which I thought was very, very responsible. It's good step one. Yeah. Yeah. So we set the thing up, but we were concerned about the possibility that if we set, it was a mortar thing. If we set this thing up and it threw stuff up in the air, it might come down in the surrounding area and in the particular locale that we were located in, which I can't confirm or deny. it is generally possible that that could lead to a raging fire, which would be generally considered bad, right?

3:21And possibly traceable back to the source somehow. So what we decided to do instead was we engineered a sideways launcher to fire the projectiles from a chair that we wedged the thing into and backed up with a plant or something and aimed it at the waterfall of the pool that he had so we could just see multiple shots going across the pool in different colors. And it also didn't work out exactly like we thought it would. I know you're thinking like, holy crap, what could go wrong? That's brilliant and socially responsible. I'm surprised, yeah. So much science was involved. So no, we had a chill.

4:05we use mostly water and not fire this 4th of July. Same. We're in the pool. It's hot. Hot as crap. It's hot. It's really hot there, right? I keep seeing... I mean, the news, I never believe it, but apparently it's quite toasty where you are now. I heard the same thing about where you are. So yeah, the news is a bunch of, you know, doing what they do. I'll tell you what I am happy about, and then we can move off the weather topic, which I'm sure nobody cares about. This is where the comments are like they talked about nothing for the first time it's lunch guys we're talking about freaking business lunch um although if that's your comment for this one you're right um but there's that that hurricane that's on the gulf of mexico that i thought was going to just obliterate my beach house it didn't it turned north um and uh you know unfortunately when my dad lives in the houston area and it's hitting them right now i was chatting with them they're they're okay um you know no flooding but he said we lost defense we lost power but i did something the greatest gift I think I've ever given anyone I got I got my dad um a generator for his house and it has come in handy so many times because they just get really bad storms in the Houston area as well at your place so I don't um I don't because I got one for my dad and holy crap it was expensive and then I found out what it was going to cost for my house because it's bigger and I was like uh you know we're sort of done with hurricane season all that like bad stuff so I'll do it next year.

5:30And then next year became another year and another year and another year. And thankfully we haven't really had need for it since that happened, but I know I'm just tempting fate. So after this, our ours comes on fairly frequently living here in, uh, in the blackout state. Yeah. Yeah. Cool. Well, let's, um, let's, let's, uh, move to some businessy topics since this is business lunch, right? What do you think? I was hoping we could just keep talking about the weather, but yeah, you're probably right. So, um, I, I, uh, I thought it would be interesting to talk about. I was, uh, I noticed, uh, an article about Andy Jassy, who, um, came in and replaced Jeff Bezos at Amazon.

6:12And, um, I didn't really realize what was going on at Amazon at the time that he came in. And I thought that there were, as I, as I kind of dug into all the things that he had done, I thought that it would be actually helpful for everybody, particularly in this environment that we're in right now, where a lot of people are telling us that they're experiencing challenges in their business in terms of revenue and profits and valuation and things like that, which are the three pillars of our scalable program. And so I thought it was really interesting. And one of the investors even said, and they quoted them as, I'd rather have Jassy than Bezos.

6:52And it was one of the top Amazon investors. So I thought that was really interesting. And I'm just looking to see, let's see. So the shareholders were not happy. This was when he came in and he came in, I think around mid or end of 21. And so this was at an investor meeting in 22. And so the shareholders were not happy. Amazon had just become the first company to shed$1 trillion in market value, which is amazing that you can do that and stay in business and was on its way to a$2.7 billion annual loss. And so it talks about how he basically came in. He helped push the company's market cap above$2 trillion for the first time.

7:35And he's been there for three years. So it's kind of a short, like I like it because it's a short amount of time that he's really been there. and he's had some pretty significant wins. So that's kind of where I wanted to start and talk about some of the things that he did and share that with you guys and maybe us riff on it a little bit. So I basically distilled it down into a list of the major things that he did, which I'm scrambling to pull up on my iPad. And the first one was, and it's simple, but it makes sense. It's the power of a fresh perspective. And so he introduced a renewed focus on profitability.

8:22You get these CEOs like, you know, like Mark Zuckerberg saying, what was it? This is the year of efficiency and things like that. So he actually came in with a, with kind of a theme. And so I think people rally around themes. So a return to profitability and operational efficiency is kind of interesting. And it was counter to what had been going on before, which was Bezos growth at all costs, right? Which you can't fault him for. Look what he built. But I thought that was interesting. And so the stock price more than doubled. It's gotten up above$2 trillion. and the action step, like thinking about the, you know, what could people do here?

9:04I was thinking basically coming up with a theme for how are we going to go forward? What's the thing that we're going to rally around? And get obviously buy-in, but buy-in from the employees, the investors, you know, whoever the stakeholders in the business are. And then pick a specific target. like we're going to increase employee engagement by this much or leads by this or revenue or profits or whatever valuation. If you're, you know, if, if you're dealing with that kind of thing, but I think having a, a KPI that you're going to hit around a new theme is kind of an interesting thing just because it's hard when you're being beaten down a little bit to just say, well, we're going to get better with no, you know, like, what are we going to do different?

9:48What are your thoughts on that? Yeah, totally. You know, I love that. It's something we've done, did a talk on this at a Founders Board meeting, I don't know, a year and a half, two years ago now. But it's this idea of a keystone metric. And it's one of the things that we're very clear on. Every single quarter, when we do our quarterly sprint planning, we're going to get clear on what are our North Star metrics. So these are the metrics that we're going to really focus on for this quarter. And those metrics need to align to a particular theme or a rallying cry. And I always like it. Can the theme of rallying cry fit on a T-shirt?

10:23And there have been some quarters where it's been particularly like we had we need to get people particularly inspired. So we actually did print out, you know, T-shirts that were, you know, for that thing. And it might have been like, you know, ring the bell or stack the cash. And it's almost always something around. Do we need to generate more top line sales or more bottom line profitability? Sometimes there's things around, you know, systemized to scale was one. But I do think that it's good to have a more subjective theme or rallying cry that people literally can remember. And if it's alliterative and if it fits on a T-shirt, that's great.

10:57But if it doesn't connect back to a metric that people can measure, then it's probably not going to last. You know, it's just going to be like another, you know, entrepreneurial arts and craft eagle in flight poster. People want to know how they're winning. How do we know we're winning? How do we know? Exactly. Exactly. And so we've got the North Star metrics that are kind of those leading metrics that we want to make sure that we impact. But then we'll also look at like, what's a, if we can, and it's not every quarter that we can come up with, but like, what's a clear keystone metric? This one metric, if we get this one right, we believe it's going to prop up everything else.

11:32And sometimes that's actually a laggy metric. So it might be something like we want to change from quarter to quarter or year to year. Amazon's on a much longer cycle than most of the companies we run are. But yeah, it might be our keystone metric has been distributable profit. So not paper profit, like how much actual cash would we be able to distribute? Do we actually pull from the operating account and move into a separate account for distribution and or reinvestment if we choose to do that? And so there have been times we've done that and we've said, hey, for this particular period, here's how everybody in the team is going to participate in this.

12:08So, but yes, I do think you need both the rallying cry, but you need the aligned metric at the same time. Yeah, I like that. The next thing was embracing frugality. So obviously he said efficiency was one of his things. And there's a lot of there's a lot of inefficiency in a lot of ways. The Japanese even have I think it's called murder or mudra or something like that. Like they have all these different kinds of ways that they identify. And they're very good at, you know, in those companies applying those management styles. And so his action was instituted cost cutting measures, including job cuts, and they eliminated the moonshots program.

12:49So they had a program kind of like Google did of, you know, here's the crazy ideas we're going to have. And there was quite a bit of money spent on those with no particular result. And I will say that when we eliminate things like he's, as Zuckerberg, in a cost-cutting mode, I don't think there's anything wrong with it, but I don't think cost-cutting is the way to go for a long period of time. I think it's more of like a campaign of efficiency and right-sizing our expenses and our development and our R &D, our labor costs and things like that. But that it's far better for companies to make money than it is to save money.

13:33And particularly when the costs that you're cutting are innovation and that can be very dangerous because then that gives your incumbents who are investing and thinking of new things an opportunity to come in and steal market share from you. So you have to be careful. But the benefit here was it was that, the moonshot thing and operational efficiency. And so in their last quarter, they got record quarterly profits of$15.3 billion, which was significantly up from quarter over quarter, year over year. So I think that's interesting. And we have a, I know that one of the things that we have is 63, I think it is, profit maximizers, ways to get more efficient.

14:18We talk about specific audits and things like that. So if you're in your business, are there audits that you could conduct on different costs, on suppliers, on prices, all of that kind of stuff? Identify the expenses that really aren't necessary or essential to make the company go. Go to the suppliers and contractors and everybody that you're dealing with and renegotiate, even if it's just payment terms. Preferably it's rates as well. You know, there's a lot of those suppliers that will be willing to give you concessions to continue to have your business, particularly when times get tough because they don't want to lose the business that you've got.

14:56And I think also look at our either zero-based budgeting or our waterfall budgeting approach where we talk about that as well. And again, thinking about a target here, it would be what's the specific target? I think probably expense reduction is the easiest metric to kind of say, you know, we're going to reduce expenses by 5 % or 10%, which would then correspondingly have a direct percentage increase of X in our profit margin. So that's kind of the category there. What are your thoughts? I think anybody can look smart if they go in and make a bunch of cuts for a quarter or maybe even a year, maybe two, if you're talking about these big companies.

15:40But yeah, I mean, the guy came in and cut 27 ,000 jobs. He basically took Amazon Prime, which was making the same kind of investment in like blockbuster type movies that Netflix was making and then some. And he cut a bunch of those projects. He's like, no, Amazon Prime Video needs to become actually independently profitable. And then, yeah, he went in and killed their innovation lab. I don't, again, I think anybody can look smart. I think that he's been rewarded in the short term. I worry. It reminded me of a lot of things that have gone on at Apple, you know, where it's like, hey, let's go in and cut a lot of the innovation, increase profitability.

16:19And I think we're seeing the results right now at Apple. And you're seeing Apple start to lag behind the competition. I mean, their last big product launch is basically dead on arrival with the Vision Pro, Quest, Oculus, whatever the heck thing that nobody knows what it is anymore. They use for a week or two. And now it's in a box. You've talked about that's where yours is. you see nothing about it. Now they're kind of doubling down on it. Mine is in the upsell case that I bought to keep it in. Oh, there you go. Well, at least they got fully maximized the value of you. They're doubling down on AI finally, but it's basically just in partnership with OpenAI for right now.

16:59It doesn't mean they won't develop their own, but it seems like from an innovation perspective, it'd be hard to make the argument that they have not lagged from where they were before. So I would just look at Amazon and say, you know, is that a problem? And there's a couple of ways to look at this. I think some businesses are defined by their ability to innovate. They're like an innovation first company. Some are not. You know, there's plenty of businesses that really are not about innovation. Yeah, they need to come out with new things, but it's not the core. It's not where the value of the business rests.

17:28I would argue that the value of the business that is Apple rests in their ability to innovate and come out with earth shattering, really awesome products. For Amazon, less so. You know, for Amazon, their big promise is we want to save people money. It's not about having the newest, latest, and greatest products. It's about having the everything store. So to me, this whole thing, when I look at it, you know, talk about how embracing frugality. I think it's funny because if you know the history of Amazon, it's really re-embracing frugality. Amazon was the place that popularized, you know, Jeff Bezos was really big about how, like we don't have desks at Amazon.

18:06We go and buy a door because it already has a hole in it for the locking mechanism where you can put your cords down in and we get some cinder blocks and you get a door and you get some cinder blocks and that's your desk because he wanted to be this vision of frugality. Well, what happened? The dude gets a divorce. He buys a super yacht. He starts dating supermodels. He starts, you know, spending all the money in the world. And of course, his company began to be the embodiment of that. You also had COVID. And so the great resignation. And so every company's are, you know, you've got this e-commerce is to the moon.

18:40Everybody's hiring everybody. And so they're following in suit. So it seems to me this idea of embracing frugality, really, it was just let's get Amazon back to what it was before Bezos had a midlife crisis. And so is that, is it good leadership? Sure. Cause those are tough calls to make. I would worry though, that he cut too deep. And so I, for your business, direct application, when it's every business from time to time, expenses are going to go up. And because most businesses, we know that we have to spend money. We have to, we have to make investments before the cash shows up. So typically your, your expenses are going to be a function of your future projected cashflow, your future project projected sales and revenue.

19:25If those hit, then great. If they don't, then you need to go back and make some cuts, but where you should look to cut. Ideally the place that you cut last is innovation. And the only place that I would cut But more lasterly than that is marketing. Yeah. You know, and so cutting back all the frills and things like that. Yep. Thousand percent. Cutting back on jobs that you no longer need because the growth wasn't there. I get even cutting back on, you know, we want to have the next big breakout Game of Thrones type thing because we're just in a pissing contest with Netflix. I get I don't get, frankly, cutting, killing completely.

20:10the Grand Challenge Moonshot Lab. I could see D investing a little bit, but killing it completely. I don't know. That seems to send a message that Amazon's out of the innovation business. Yeah. I think if you think about it, where do you want to innovate and what's the smart way to innovate? I think if you look at Amazon does have innovations, they had Kindle and they had the in-house device whose name will remain unmentioned so that I don't have to talk to it. And you also had the AI that was very, very early on connected with that. You had innovation in that they said, how can we turn our expenses into profits by converting our servers and things into what turned out to be one of the most profitable?

20:54I haven't looked at the most. The one that Andy Jassy actually ran. That was where Andy Jassy came from, was he ran AWS. Which makes sense, right? So they do have innovation. Prime was a huge innovation, I think, and another giant profit center for them. So it's also the recommendation engine. I mean, there's a lot. And so I agree with you and I would argue that they lost their way in what to focus innovation on. Because when you spend almost a billion dollars on a series that's got, I think, six episodes, that's a vanity project. Yeah. That's another super yacht. Eliminating that. But the company, I don't think, hopefully, bought the super yacht.

21:41Like, company bought. You know, metaphorically speaking, it's a business super yacht. Yes, exactly. So I think that here's the thing. I think that it's always wise to look at your expenses and think about them carefully. But if you are just cutting for cutting's sake, looking at every single nook and cranny that you can get profit and you chop off what is effectively your investment in your future, that's a mistake. How do you identify what that is? That's going to be an independent exercise for each division. But I think looking at the people that you hired ahead of growth to handle the growth where growth didn't come, probably a good idea to trim that.

22:28The vanity projects that we all have, all of us, even if it's a subscription of some stupid thing that we're interested in that we put on the business, those are places that make sense. If you are also making a billion dollar, not good knockoff of a trilogy of movies that happen to be great, you know, then maybe don't do that too. But that's a very narrow set of people that we would be talking to there. But I think that's the thing is that you get accountants and administrators, and I would say that Jassy and Cook are that to Apple and Amazon disrespectively since I got them backwards, but that you also need the innovation.

23:11You need Eves and Steve in there doing the inventive stuff. And you need to be thinking about that. Now, the exception would be, remember, you can always acquire innovation. And so just as Google acquired AdWords and we could go on and on and on with acquisitions, that is a kind of a guaranteed shortcut to innovation is buy those upstarts that are about to eat your lunch before they can. And when you're Amazon or Apple, and actually even for you guys that have small, medium, you know, and upper medium sized businesses, you can acquire for that as well. So I think it's that balance, but clearly there's bloat in every company.

23:52Yeah. And bloat tends to bloatify in the good times. Good times do not make us better. Good times make us fat, lazy, and arrogant. And so sometimes what we need are times like these to force us to lean up and do the things that we know we need to be doing to succeed and to innovate again. I want to make one other quick point on the innovation front, because I think that this is applicable to everybody who's listening. I don't, I really hate the idea of an innovation lab. So when I said, you know, I think it's kind of foolish for, you know, Andy, Andy Jassy to, to shut down the moonshot lab, their grand challenge thing.

24:32I actually don't necessarily disagree with the shutting down of, of that. What I, what I disagree with is just defunding innovation and R and D, but I think if you, I think it should be everybody's job in the company to innovate. And when you set up this separate skunk works, the separate innovation lab, and you say, oh, innovation happens here. What you're essentially doing is giving permission to everybody in the company to, you don't have to innovate anymore, just kind of status quo, maintain status quo. And I think this is such a problem for so many reasons, not the least of which is you want everybody thinking, how do we get better?

25:07Because that's, innovations are going to occur at the edges. Also, you're removing the responsibility and I would argue what should be a mandate for innovation away from the people who are closest to the customer. And innovation should occur from the people who are actually connected to the customer. And when you take innovation away from the frontline people and you give it to a centralized lab and you just say, you know, we're going to put all you people in a room full of whiteboards, go nuts. They don't talk to the customer. They're not hearing the problems. And so they're coming up with ideas that probably look and sound really good and smart on paper.

25:42and they might even spreadsheet well, but they do not pass the customer test. So definitely, and maybe Andy Jassy, when he shut this whole thing down, he took most of that budget and distributed it as an R &D line item to the individual departments. If that's what he did, then great, two thumbs up. Not that he needs my approval. But I would make sure that you're doing that. You don't want to send a message that we're no longer innovating. And you definitely don't want to send a message saying that innovation is not everybody's job. It's just these people over here. Yeah, I think one of the ways that we have talked about before that is really a good way to do that is that you do create a structure for innovation with the teams that you've got through masterminds of the people at the company, through focused, targeted things of, when you have that theme of how can we increase efficiency by X percent, then getting people on board in little mini teams to collaborate cross-departmentally to do that, that's a formalization of the innovation process because otherwise it's just got to kind of percolate up or they hit the good old suggestion box, be it physical or digital.

26:52And that's not going to be nearly as effective or efficient in producing consistent innovation. Whereas if you can just get your people talking, especially cross-departmentally, get sales and marketing talking to manufacturing and R &D and product, that's going to make a big difference. When you've got people who are on the front line with the people who have the white lab coats and get them all together, that's probably going to be the best result. But it's got to be systematized, right? If it's not, then it's just luck when it happens. Yeah. Optimization, innovation, it's a ritual, not a task.

27:26And if you don't ritualize it, if you make it to where, ah, it's just this one-off thing that, oh, look, we innovated. like no no that's that's not gonna work yeah so um the the third thing is the thing that i find probably most troubling and most indicative of what i think will be a challenge for amazon a couple years from now and that is um it's framed positively as engaging with shareholders because bezos had stepped away from all analyst meetings and um uh and jassy basically actively engaged with the analysts in particular. And it was done to provide transparency and address the concerns that investors had, obviously, about profitability, because it was before screw the profit, let's just grow and about stock price, because they had shed a trillion dollars in value.