Why you should “Fail Fast”
💡JC's Newsletter #76
Dear friends,
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In JC’s Newsletter, I share the articles, documentaries and books that I enjoyed the most in the last week, including a must-read.
Let’s talk about this together on LinkedIn or on Twitter. Enjoy!
💡Must-read
👉Dan Rose on why you should “Fail Fast” (Dan Rose)
I learned an important lesson in business when I launched a new retail category early in my career at Amazon: Fail Fast!
I spent 18 months shipping a product that should have taken a few months, delaying the opportunity to learn and adjust to our initial failure.
Two weeks after joining the retail team, I was in a meeting presenting our pro forma P&L for our computer store launch. I was forecasting inventory turns and gross margins. It was exciting to be thrown into the deep end. I felt like I was at a start-up inside of a start-up.
Our store was predicated on a deal w/ HP that had been part of their earlier bid to win our datacenter biz. Amzn had driven a hard bargain, and when HP couldn't go any lower on server prices they offered to pay us $10M to be our anchor tenant in a new computer store.
HP's consumer business was getting disrupted by Dell who had invented configurable on-line ordering + on-demand manufacturing. HP thought they could fight back by leveraging retail distribution. They would plug their yet-to-be-developed configuration engine into our front-end.
As head of merchandising, I was responsible for executing this HP deal. But integrating their configuration engine proved harder than we thought. This was new ground for them, and for us. Months into the project we were already delayed, HP admitted they were in over their heads.
Integrations are always harder than we think. Sometimes, it seems scary but you need to build the things yourselves.
The HP integration was hard, but at least I didn't have to predict inventory. I wanted to carry other brands in the store, but everyone told me PCs were like bananas: if you don't sell them right away they go rotten quickly. So I signed a drop-ship agreement with Ingram Micro.
My deal with Ingram Micro was Amazon's first experiment with drop-shipping. We built the plumbing that would eventually power this model for many product lines. But it was complicated and took a lot of time to build. Now I was managing 2 complex technical integrations in parallel
We finally launched the store in 2002, a year late. Perhaps predictably, it was a failure. If you wanted to configure a computer online, it was much easier to go to Dell. And it turned out Ingram Micro didn't have a lot of inventory to choose from - they didn't want the risk!
How to quickly test MVPs whatever the size of the problem?
Fortunately our svp of retail had come from Apple and insisted we carry Macs. I had traveled to Cupertino to meet Tim Cook who agreed to make us an authorized Mac retailer. I even pitched him on paying us a coop fee for being a launch partner, and he threw us a small bone.
So we had an HP configuration tool which barely worked. We had drop-ship from Ingram Micro with virtually no selection. And we had Macs. In our first year of business, 80% of our sales were Macs. And on a revenue plan of $100M, we did $10M. But no excess inventory :-)
In our first annual review with Bezos, he said "the problem with your computer store is there aren't any computers in it." He approved a new plan to start carrying more inventory, and slowly we started to grow. We leaned into Macs and became one of Apple's largest retailers.
My failure wasn't missing our plan by 90%, it was spending over a year on complex integrations before knowing if we had a winning approach. I thought we didn't have a choice - HP owed us $10M, I didn't want to lose money on stale inventory, etc. But those are just excuses.
It is very hard to get away from details or deals, even if they become meaningless. We should push ourselves to always take a stepback.
One of Amazon's great strengths is its willingness to try new things and tolerate failure. Over time the company developed more velocity with its experiments.
🏯 Building a company
In addition to selected articles, I share one of Alan's leadership principles every week - the same one that I share internally every Wednesday.
👉Alaners are smartly frugal
We spend money when it allows us to be more efficient. And we hate wasting money where there is little upside for us. That also applies to time. Frugality with time is one of the drivers behind our no-meeting policy. 8 people spending an hour in a room costs almost a person’s day of work!
This does not mean that you should never spend your time, on the contrary! It is sometimes important to do so . And to distinguish the right time from the wrong time is to be smartly frugal.
👉How to seek advice from a busy person (Kaufman)
This is not a very good way to seek advice from a busy person: “I’m thinking about doing [action]. What do you think?”
The question doesn’t provide context and requires too much effort to answer.
Here’s a better approach: “I'm trying to A, and I'm having trouble. So far, I've tried B with result C, and D with result E. Now I'm stuck. Any guidance?” It’s precise, provides background, and shows that you’ve been trying hard to solve the problem yourself.
“If you want useful answers, learn to ask better questions”
👉Stripe and Lyft Speed Up Equity Payouts to First Year (The Information)
Lyft and Stripe have changed their compensation packages so employees vest their entire stock awards in one year, doing away with a long-standing Silicon Valley custom of requiring staff to stick around for four years before they have their full compensation in hand
Since the faster vesting schedules often go hand-in-hand with smaller equity grants each year, they can also save money for companies whose valuations are rapidly rising.
In the last few years, major tech companies like Facebook and Google have done away with the one-year cliff while sticking with requirements that employees work four years before they can cash in all of their equity awards.
In mid-2020, Snap replaced its four-year vesting schedule with an accelerated three-year schedule
Each time employees negotiate their equity award for the next year, it resets at the then-current share price.
👉 Free! Why $0.00 Is the Future of Business (Wired)
From the consumer's perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral
The winners made their stuff free first.
In any package of products and services, from banking to mobile calling plans, the price of each individual component is often determined by psychology, not cost.
Calypso distributes masters of its CDs and CD liner art to street vendor networks in towns it plans to tour, with full agreement that the vendors will copy the CDs, sell them, and keep all the money. That's OK, because selling discs isn't Calypso's main source of income. The band is really in the performance business.
The vendors generate literal street cred in each town Calypso visits, and its omnipresence in the urban soundscape means that it gets huge crowds to its rave/dj/concert events.
🗞In the news
📱Technology
👉Facebook F8 Refresh (Stratechery)
At one point Facebook highlighted a survey suggesting that 75% of people want to be able to message a business, and that 64% prefer it to an email or a call
Messaging capabilities would be driven by publicly available APIs.
👉 Amazon’s Cash flows (Behind the Balance sheet)
For Amazon, this is even higher than earnings because of the capital intensity of the business and the low profitability currently, although margins have reached 5.9% (5.2%).
Stock-based compensation – Amazon charged $9.2bn last year for stock based comp.
But a net 5m shares have been issued in the year.
👉Amazon's profits, AWS and advertising (Benedict Evans)
The sales keep going up, and it takes a larger and larger share of US retail every year (7-8% in 2019), but it never seems to make any money
This idea itself is a little out of date. Amazon’s profitability appears to have shot up in the last couple of years - the US business is also now generating substantial operating profit.
Amazon is now a bundle
First, Amazon is not one business - it’s many different businesses, at different stages of maturity and profitability. Some of those businesses are established and highly profitable and others are new and in a startup loss making phase.
Amazon hasn’t raised money directly from investors since the IPO in 1997
Amazon’s own ecommerce, which is only 40% of actual sales on the site, increasingly looks like a low-margin anchor to support both Marketplace and now ads.
🏥 Healthcare
👉 Amazon now sells COVID-19 auto-test (Fierce)
The kit can be purchased without a prescription by anyone 18 years and older, retails for $39.99 and can be delivered in one day in some areas.
Each comes with a nose swab and collection tube, as well as a specimen bag and a prepaid shipping label to ship the sample back to one of Amazon’s labs around the country.
To use the kit, each test-taker must register on Amazon’s diagnostics portal, AmazonDx.com, using an Amazon account. Once registered, users can purchase a COVID test, watch a video demonstrating how to use the kit and, once they’ve sent their sample to the lab, access their test results.
Validated by FDA, only available in the US for now
💚 Alan
👉Scale-Up Europe — The Roadmap (VivaTech)
It was the moment to talk about the roadmap of the beautiful Scale-Up Europe initiative. Great talk!
👉 🇫🇷Konbini Speech episode (Facebook)
Our knowledge manager, Anna Gombin spoke about Alan’s company culture in a Konbini episode of “Speech”.
🔨 A Useful tool
👉Screenshots are now a child game with Teampaper Snap 🧒
Screenshots on Mac are easy, now it will be super easy. You will now easily modify your screenshot, highlight, blur, indicate with an arrow and more… in a few seconds! A lot of Alaners use this tool every day.
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Let’s talk about this together on LinkedIn or on Twitter. Have a good week!