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What startups can learn from Amazon

Amazon is a remarkable company. When the site first went live in 1995, it wasn't the only online bookstore. So how did Amazon grow so quickly to become the largest online retailer? And what lessons can startups learn from Amazon's approach to business and product development?

Do things that don't scale

Amazon - like every other business out there - started small. In the early days it was selling something like 6 books a day but managed to see a rush of orders after being featured on Yahoo.

Nowadays, Amazon uses an extraordinarily advanced order fulfilment system - Kiva robots that automatically fetch a package and deliver it to the Amazon employee to ship. But in 1995 when the orders started flowing in, their order fulfilment system involved Jeff Bezos and his few employees on their knees on a concrete floor in a warehouse packing books into boxes until 3 in the morning.

Paul Graham wrote an essay about how they often advise Y Combinator's startups to do things that don't scale. In it, he mentions that founders often think "this can't be how the big, famous startups got started" - but it's interesting to see how even a company the size of Amazon came from surprisingly humble beginnings.

Don't prematurely optimize

Of course, Amazon significantly improved their system for shipping packages over time, but they didn't make those changes until they'd started receiving a high volume of orders. If your startup is building something, you may find it's tempting to spend time creating a perfect system - but optimizing a process too early can cost you time that could be better spent on getting your product launched.

Take any advantage where you can

In the book The Everything Store, which tells the story of the early days of Amazon, there's a story about how their small size was a hindrance to book distributors, and an innovative approach to how they got around it.

Distributors were geared up for larger retailers and so they had a minimum order of 10 books. Amazon's sales figures at the time were tiny and so they didn't need 10 books for each order, but they found a loophole: you didn't have to receive 10 books, you just had to order 10 books. So whenever there was one book that they needed to get, they'd order that book and 9 copies of an obscure book about lichens that was permanently out of stock. They'd always receive the one book they really wanted, and a note that said "Sorry, but we're out of the lichen book".

Focus on customer happiness

Ever since Amazon launched, one of their main goals has been to focus on customer satisfaction. They added product reviews to the site very early on, and included both positive and negative reviews. This was at a time when many companies were tempted to only show positive reviews for products they were selling, and many people suggested they remove the negative reviews entirely. But Bezos said that their point of view was that they would sell more if they helped people make purchasing decisions.

There's a quote from Bezos in a 1997 interview, only 2 years after Amazon's site had gone live, that gives some insight into how they thought about customers.

Attention is the scarce commodity of the late 20th century - the way that we did it was by doing something new and innovative, for the first time that actually has real value for the customer.

If you do that, newspapers will write about what you're doing, customers will tell other customers, you'll get a huge word of mouth fan-out and that can really drive and accelerate businesses.

From their earliest days, they've always had an unrelenting focus on providing value to the customer. And that's still true today - they're constantly making improvements to their customer service, with improvements like Sunday deliveries.

Work backwards

Amazon have an interesting approach to product development: they write the press release first.

There are two main ways to develop products - the first is focused on your resources - you build what you can with what you have, and then hope that there are customers out there for you once it's ready.

The second is to focus on the customer, and build something that solves a problem they have - even if you don't necessarily have all the resources to build it yet.

At Amazon, they call it working backwards. It forces them to focus on the customer, and makes them answer the hard questions like "who will use this?", "why would they be interested?" and "is this really solving a problem?".

Amazon favours the second approach because it means they're always focused on building something that people want.

Listen to your customers

Amazon have a tendency to obsess over the products they create and the service they provide, and this dates back to the early days of Amazon. Bezos once had an email from an elderly customer who said she enjoyed shopping there, but had to wait for her nephew to open the packages for her because of the way they were designed. From that one email, Bezos had the packaging redesigned to be easier to open. There's no direct benefit to Amazon's bottom-line from making that change, but Bezos thought it was worth it to improve the experience for their customers.

Make the most of everything you create

Jason Fried from Basecamp once wrote a post about how to sell your by-products, with examples that included the lumber industry selling by-products like sawdust and shredded wood, and arguing that in the software industry by-products like knowledge and systems can also be sold. It's something that Basecamp did by selling their books REWORK and REMOTE, and by open sourcing Ruby on Rails.

This is something that Amazon seem to have perfected. Amazon doesn't just make money from selling and shipping physical products. Amazon created their own vast, powerful hosting network in order to power their websites, and so they also turned that into a product - EC2 is now a remarkably popular service, and customers include NASA, Netflix and the CIA.

Amazon also had a lot of expertise in building fast, accurate and useful search - and so they turned that into a product too, called Amazon CloudSearch.

Now, some analysts are predicting Amazon Web Services to be worth $50 billion in 2015.

If you're working at a startup - think about everything that you're creating, and whether there are by-products that other people might find useful.

Remember: you don't have to be anywhere near the size of Amazon to benefit from some of their tactics.

Published March, 2014

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