Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewmore pearls of wisdom from jeff bezos
There is much to learn from Jeff Bezos. Set aside his political views and his personality, and focus on the many business principles he has employed over the years. They can serve every executive (and person) well over time; they are not tech-specific; they deal with general management principles that have withstood the test of time and performance.
Last month The Motley Fool published principles Bezos shared over the years through his shareholder letters. We have learned so much from the Sage of Omaha, Warren Buffet; there is also much to learn from Mr. Bezos.
1997: We’re focused on the long-term
It takes guts to defy Wall Street, especially when you’re out to build an unproven business model. But Bezos made no bones about it from the start. “Because of our emphasis on the long term, we may make decisions and weight trade-offs differently than some companies… We will continue to make investment decisions in light of long-term market leadership … rather than short-term … Wall Street reactions”.
This managerial courage is something that can serve us all. It has downsides to be sure, but it also helps you attract the right shareholders and employees. People who want to partner with you because of your vision and long-term plans, rather than those butterflies who will land on your flower for a short while only to fly off to the next one.
1998: Here’s how you hire right
Bezos had the insight all those years ago to realize how critical it is to hire the right people. He asked the hiring staff to consider three questions before making a decision:
• Will you admire this person?
• Will this person raise the average (AB highlight) level of effectiveness of the group they’re entering?
• Along what dimensions might this person be a superstar?
No behavioral interview guideline can sidestep these questions!
2000: We’re learning from our mistakes
Every bank CCO I know has shared how detailed the documented lessons from the Great Recession are, how much learning has been derived. And yet we all see the same mistakes being made before our very eyes. Here’s Bezos’ “take” on one major mistake:
“In retrospect, we significantly underestimated how much time would be available to enter these categories and underestimated how difficult it would be for single-category e-commerce companies to achieve the scale necessary to succeed”.
In later years he referred again to this oversimplification of challenges. We need to remember our mistakes as we grow and embrace rather than deny them. It’s expensive tuition we’ve paid…
2001: Here’s why we’ve started cutting prices
Bezos is in a vastly different business than ours, but his “loop” principle – the self-reinforcing cycle that is central to the business model – applies everywhere.
“Focus on cost improvement makes it possible for us to afford to lower prices (AB: Read “rates” for us bankers), which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it’s good for shareholders.”
This isn’t everyone’s business model, but it is a sound principle: understand your value proposition and feed it with the right improvements (e.g. cost reduction, better advice, more staff per 1000 customers etc.) to yield better-than-market growth, and then do it all over again.
2002: We can lower prices and still have good customer service
A low-cost producer doesn’t necessarily offer poor service. Bezos realized early-on that, if a brick-and-mortar wants outstanding service, it needs to spend more money on hiring and bells and whistles. Not so with e-commerce.
“One of our most exciting peculiarities is poorly understood. People see that we’re determined to offer both world-leading customer experience and the lowest possible prices, but to some this dual goal seems paradoxical if not downright quixotic”.
I daresay it seems paradoxical to many bankers I know. My perspective aligns with the Amazon model insofar as it accepts that the customer defines the desired experience, and digitization can leverage the human contact to yield customer delight much more cost- and experience- effectively than other tools. The two are not contradictory but mutually reinforcing and supportive.
2003: Let’s revisit what long-term thinking looks like.
One of Bezos’ great insights is about the difference between owners and renters.
“Owners are different from tenants. I know of a couple who rented out their house, and the family who moved in nailed their Christmas tree to the hardwood floors instead of using a tree stand … No owner would b
E so short-sighted. Similarly, many investors are effectively short-term tenants, turning their portfolios so quickly they are really just renting the stocks that they temporarily own”.
Your shareholders are no different. If you use your long-term vision as the cornerstone to a consistent strategic plan and initiatives, you’ll likely attract a more stable shareholder base. Similarly, you can attract rate-surfing customers who really rent your bank to put their money in or borrow from you, but they aren’t really your customers. They certainly do not identify themselves as such. On the other hand, someone who has a deep relationship with you feels differently about the bank. They are an owner, not a tenant. They do not to be replaced too often, and their goals are often better aligned with your own.
A bank has impact on who owns their stock and who their customer base is. If you’re in for the long haul, work on attracting the right partners for that objective.
2005: Data is good, but long-term judgment is better.
It is hard to believe that Bezos isn’t a totally data-driven person, but he really isn’t. He believes in striking an appropriate balance as to when to rely on data and when to ignore it and focus on the variables that data can’t measure.
“We can estimate what a price reduction will do this week and this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on your business over five or ten years or more. Our judgment is that … this creates a virtuous cycle that leads over the long-term to a much larger dollar amount of free cash flow”.
What a brilliant insight! When I became an Amazon customer, I regularly compared their prices against Wal-Mart’s and Walgreens. Amazon won every time, plus their delivery timing and reliability were superior. So I stuck with Amazon, got addicted and I’m now Prime for life. We’d love for all our customers to be like me.
One opportunity we have to realize that goal is to show a consistent pricing point in the marketplace so our customers will know what to expect from us. Are we a discount player? High deposit payer? A fair player? Each one of these pricing points will attract a different customer base, and is associated with different customer profitability and loyalty behaviors. The key is to make the market positioning decision and stick with it consistently – just like Bezos did.
2006: How to decide to go after a new opportunity?
Since the entry of FinTechs into our space, so many of us are asking the question: who should I partner with? Is a Fintech partnership right for me at all? What’s the best path to success?
Bezos looks at three things in new opportunities:
• The business can generate an acceptable ROE
• The business is scalable and can become meaningful in the overall contact of our company
• The business targets an underserved niche and we can bring strong customer-facing differentiation to the marketplace
Every bank I know addresses the first bullet in great detail. Very few talk about future materiality (the second bullet), and hardly any address the third – differentiation at the customer level. ALL are critical to make meaningful investments in new businesses.
2007: Can we really replace a 500-year old invention (the book)
Bezos described the mindset used to design the Kindle:
“We identified what we believe is the book’s most important feature. It disappears. When you read a book, you don’t notice the paper and the ink and the glue and the stitching. All of that dissolves, and what remains is the author’s world”.
You might read this and dismiss the point as irrelevant to our business. And yet, we still call our transaction account the checking account, while the check itself is irrelevant to most customers. We offer free check orders as a benefit to that mis-named account, a benefit that does not represent value to many as well. You see where I’m going with this…
2008: We should always focus on customers vs. our unique skills.
Bezos believes that if a company focuses on honing its strengths instead of the marketplace, eventually the skills will become outmoded. “Working backwards from customer needs often demands that we acquire new competences and exercise new muscles”.
A perfect example of that is the emergence and growth of positions such as Chief Digital Banking Officer and Customer Experience Departments in many progressive banks. We often can’t reengineer ourselves to optimize the customer experience, but we can mask that weakness by constantly focusing on and honing the customer experience.
2009: How to set goals?
Amazon sets lots of goals, and almost none of them has to do with financial outcomes.
“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 … Focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.”
Review your own goals; if 50% or more are financial, your scorecard is not balanced… Working on leading indicators, I believe, is the ultimate key to success.
2011: Eliminating gate-keepers helps the world … and us.
“Even well-meaning gatekeepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there is no expert gatekeeper ready to say “that will never work!”.
We are not in the innovation business, I’m told. Even if I accept that, it seems that the gatekeeping process most banks have developed to manage innovation and process (PMOs perhaps?) do such an effective job that, inadvertently, stifles innovation and the free flow of ideas.
2012: Be customer-focused, not competition-focused
“One advantage … 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 to customers before we have to. We invent before we have to”.
I can hear you saying: “This is Amazon; they are big enough to chart their own destiny”. You’re right. At the same time, we can borrow this principle and apply it whenever possible – before we have to. Isn’t that the definition of customer delight?
2013: The role of failure
I have written about this numerous times, and it can’t be repeated too often.
“Failure comes part and parcel with invention (AB: and with process improvement, product introduction etc.). It’s not optional. We understand that and believe in failing early and iterating until we get it right. When this process works, it means that our failures are relatively small in size … and when we hit on something that is really working for customers, we double-down on it with hopes it turns into an even bigger success”.
Add the words “getting it 80% right” and you’re ready to embark upon creative process improvement initiatives to do things better, faster, cheaper – and pass the benefits to your customers.
2015: Two-way doors vs. one-way doors
Some decisions are irreversible, and need to be handled differently than most decisions, which are reversible. It’s a universal law in every facet of life.
“Some decisions are consequential and irreversible or nearly irreversible – one way doors – and these decisions must be made methodically, carefully, slowly. …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. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal decision you don’t have to live with the consequences that long. You can reopen the door and walk back through.”
2017: No sugarcoating
“To achieve high standards … you need to form and proactively communicate realistic beliefs about how hard something is going to be”.
The great Dick Kovacevich used to say, “If it were easy everyone would be doing it”. As our companies face significant challenges – acquisition integration, branch closures, modernization – we should acknowledge the difficulty and the high demands placed on our teams, and face those with excitement and mutual support rather than trepidation. It’s not easy being the best – but the right teams are up to the task!