This week Jeff Bezos (founder of Amazon.com) released his letter to shareholders on the importance of relevance and it was (as you would expect the master of PR that he is) totally in stride with the current retail Zeitgeist. It seems to us that this past month not a day goes by where you don’t hear about the ‘death of traditional’ retail in some way or another. Whether that’s from The Atlantic (‘The Great Retail Apocalypse of 2017′) or The New York Times (‘Is American Retail at it’s Tipping Point’). Just type ‘retail death’ into Google trends and there’s spike in search activity for the past month (See below).

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So now back to Jeff. In amongst this chaos of store closures, and traditional retailers trying to resuscitate themselves (just see this article on Walmart), there’s the category killer or should we say retail killer of 2017 – Amazon. What’s interesting is it seems that Bezos is painfully aware that the current fate being experienced by the likes of Payless Shoes, Kmart, JC Penney etc is something that may eventually hit Amazon.
He called this fate ‘Day 2’.
“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death… To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come. I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organisation?”
And with one fell swoop it seems that Bezos is asking the very question that retail as a whole is asking itself. How do we keep that Day 1 magic alive even as we mature?
Asked in another way – how do we maintain our success and avoid our own ‘painful decline’?
I admire Bezos for admitting that this maybe the fate of Amazon (something most retailers are way to scared or pre-occupied to even acknowledge), and even more so for thinking through what he sees as the answer to staying Day 1.
Here’s his guide to avoiding Day 2 ( FYI I’ve put the full investor letter below).
  1. ‘Customer Obsession’ – As businesses mature they can become process obsessed, competitors obsessed or even gross margin obsessed. The key to staying Day 1 is an obsessive customer focus. That doesn’t mean paying lip service to knowing your customers by running a focus group or survey to see what they think of you –  but truly designing for them and their dissatisfactions with the current status quo. Bezos sounds so much like Jobs and Ford before him when he says: ‘No customer ever asked Amazon to create the Prime membership program, but it turns out they wanted it’. That’s the point, this is not about asking the customer what they want.
  2. Resist Proxies  – We’ve all seen this, as business gets bigger it develops proxies and process to handle the sheer volume of decision to be made. Sometimes, at it’s very worst, the process dissuades innovation, customer obsession and change because it says to the company ‘but this is the way it’s done’.  Bezos calls proxies – very day 2. “Good process serves you so you can serve customers, but if you’re not watchful, the process can become the thing…The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right”. Frightening! This can go to the point of using process to defend a bad outcome (we’ve all been there or seen someone justify a bad decision by saying ‘but I followed the process’). The sign of a day 2 company – you don’t own the process, the process owns you.  This extends all the way to customer research (back to point 1) – surveys, net promoter scores etc become proxies that aren’t actually enlightening to the company. They don’t show that you understand your customer. Great Day 1 businesses develop an intuition for their customer – ‘they study and understand many anecdotes rather than the averages you’ll find on a survey…a remarkable customer experience starts with heart, intuition, curiosity, play, guts and taste; you don’t find any of that in a survey’.
  3. Embrace External Trends – Straight up, if you don’t know what’s happening outside your business (or you write off a trend as something that will never take off) you’re probably Day 2. Particularly if you aren’t representative of your customer, you shouldn’t be making this call. “If you won’t or can’t embrace a powerful trend quickly. If you fight them, you’re fighting the future”. I think that’s all there is to say on this point.
  4. High Velocity Decision Making - The signature of a Day 2 company is making a high quality decision but way too slowly. They overthink everything – wait for consensus or for all the answers…and then they decide. The problem with this is that speed matters. Sometimes it matters more than the quality of the decision. So how do you improve speed?  “Many decisions are reversible, two ways…and most decisions can be made with about 70% of the information. If you wait for 90%, you’re probably being slow”. Also don’t be afraid to disagree and commit. “If you have conviction on a particular direction, even though there’s no consensus, it’s helpful to say “Look I know we disagree on this but will you gamble with me on it? Disagree and commit?”. Finally, know when the issue is misalignment – if a team is not aligned no amount of discussion ‘no number of meetings will resolve’ this. A question to the reader from Bezos “have you settled only for decision quality or are you mindful of decision velocity too?”
So there’s the Bezos guide to staying Day 1.
Extremely focused, distilled thinking that at the heart of it is a question of company culture and leadership. His letter talks to the success of business being based on it’s culture, not it’s strategy..there is nothing in the letter that talks about strategy rather it’s a lesson in his business philosophy. I think this is the big mistake we will see with traditional retail trying to claw it’s way back to relevance. They will focus on strategy to try and out-amazon, amazon without adjusting their culture (leadership, people and processes) to support it. This will only spell failure.
After all: culture eats strategy for breakfast.
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