AmazonStartup general interest

Delighting customers is the surest way to build long term value

By April 16, 2013 One Comment

Jeff Bezos’ latest letter to the Amazon shareholders is a timely reminder that keeping customers happy is the best way to build a sustainable business. He opens the letter by contrasting the approaches of focusing on competitors and focusing on customers:

As regular readers of this letter will know, our energy at Amazon comes from the desire to impress customers rather than the zeal to best competitors. We don’t take a view on which of these approaches is more likely to maximize business success. There are pros and cons to both and many examples of highly successful competitor-focused companies. We do work to pay attention to competitors and be inspired by them, but it is a fact that the customer-centric way is at this point a defining element of our culture.

One advantage – perhaps a somewhat subtle one – 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 for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition. We think this approach earns more trust with customers and drives rapid improvements in customer experience – importantly – even in those areas where we are already the leader.

It is tempting for companies to focus on staying ahead of their competitors, especially as they grow larger, but that way you can only ever be just a little better than they are. That opens you up to being leapfrogged be competitors that suddenly launch a great new idea or simply decide to increase their investment, and can open up entire industries to disruption from new players who have spotted new trends in customer demand, or radically new ways to satisfy existing demand.

Companies that continually seek innovations that will delight their customers are less exposed because so long at they are doing a good job there will be less white space between what they are delivering and what their customers want. These companies will have longer lives because they leave less opportunity for their competitors to exploit.

Bezos finishes his letter with a comment on the tension between constantly delighting the company and building shareholder value:

Our heavy investments in Prime, AWS, Kindle, digital media, and customer experience in general strike some as too generous, shareholder indifferent, or even at odds with being a for-profit company. “Amazon, as far as I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers,” writes one outside observer. But I don’t think so. To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast-moving as the one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.

As I write this, our recent stock performance has been positive, but we constantly remind ourselves of an important point – as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings – “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company.

I like that analogy a lot. It’s best for companies to focus on becoming heavy and not get distracted by the voting machine. Use it to your advantage when you can, certainly, but don’t confuse votes with value.