Working Backwards: Insights, Stories, and Secrets from Inside Amazon
von Colin Bryar
A two-pizza team will: Be small. No more than ten people. Be autonomous. They should have no need to coordinate with other teams to get their work done. With the new service-based software architecture in place, any team could simply refer to the published application programming interfaces (APIs) for other teams. (More on this new software architecture to follow.) Be evaluated by a well-defined “fitness function.” This is the sum of a weighted series of metrics. Example: a team that is in charge of adding selection in a product category might be evaluated on: a) how many new distinct items were added for the period (50 percent weighting) b) how many units of those new distinct items were sold (30 percent weighting) c) how many page views those distinct items received (20 percent weighting) Be monitored in real time. A team’s real-time score on its fitness function would be displayed on a dashboard next to all the other two-pizza teams’ scores. Be the business owner. The team will own and be responsible for all aspects of its area of focus, including design, technology, and business results. This paradigm shift eliminates the all-too-often heard excuses such as, “We built what the business folks asked us to, they just asked for the wrong product,” or “If the tech team had actually delivered what we asked for and did it on time, we would have hit our numbers.” Be led by a multidisciplined top-flight leader. The leader must have deep technical expertise, know how to hire world-class software engineers and product managers, and possess excellent business judgment. Be self-funding. The team’s work will pay for itself. Be approved in advance by the S-Team. The S-Team must approve the formation of every two-pizza team. Even if our assumptions were correct, the program would take years to pay off; not a single person in the leadership team other than Jeff was pushing for Prime to launch in 2004; it was the holiday season, which meant we were already really busy! This very nearly became one of those scenarios when a company takes the seductive but ultimately wrong path of staying the course, making a serious error of omission as a result. The “institutional no” is a big reason why Amazon could have made an error of omission in this case. Jeff and other Amazon leaders often talk about the “institutional no” and its counterpart, the “institutional yes.” The institutional no refers to the tendency for well-meaning people within large organizations to say no to new ideas. The errors caused by the institutional no are typically errors of omission, that is, something a company doesn’t do versus something it does. Staying the current course offers managers comfort and certainty—even if the price of that short-term certainty is instability and value destruction later on.
Consumer Needs and Total Addressable Market (TAM) How many consumers have this need or problem? How big is the need? For how many consumers is this problem big enough that they are willing to spend money to do something about it? If so, how much money would they be willing to spend? How many of these consumers have the characteristics/capabilities/constraints necessary to make use of the product?
This required a major investment in development resources, systems architecture planning, and great care to ensure that the monolith continued to stand until its last surviving function had been replaced by a service. The rolling regeneration of the way we built and deployed technology was a bold move, an expensive investment that stretched over several years of intensive and delicate work.
what we called “the big red button” on their control screen. Once that button was clicked, two things happened: the “Add to Cart” and “1-Click” buttons would disappear from the product page so no customers could buy that product, and the category manager would immediately be notified that purchasing for one of their products had been disabled until they could investigate and fix the issue.
Option one would be the skills-forward path—that is, using the existing skills and assets of the company to drive business opportunities. Leaders at most companies would likely be praised for choosing this path. The danger is that while they stand atop this local optimum, someone else will figure out how to scale a higher peak they couldn’t see at the time due to risk aversion.
the use of written narratives instead of slide decks to ensure that deep understanding of complex issues drives well-informed decisions; a relentless focus on input metrics to ensure that teams work on activities that propel the business. And finally there is the product development process that gives this book its name: working backwards from the desired customer experience.
"A two-pizza team will: Be small. No more than ten people. Be autonomous. They should have no need to coordinate with other teams to get their work done. With the new service-based software architecture in place, any team could simply refer to the published application programming interfaces (APIs) for other teams. (More on this new software architecture to follow.) Be evaluated by a well-defined “fitness function.” This is the sum of a weighted series of metrics. Example: a team that is in charge of adding selection in a product category might be evaluated on: a) how many new distinct items were added for the period (50 percent weighting) b) how many units of those new distinct items were sold (30 percent weighting) c) how many page views those distinct items received (20 percent weighting) Be monitored in real time. A team’s real-time score on its fitness function would be displayed on a dashboard next to all the other two-pizza teams’ scores. Be the business owner. The team will own and be responsible for all aspects of its area of focus, including design, technology, and business results. This paradigm shift eliminates the all-too-often heard excuses such as, “We built what the business folks asked us to, they just asked for the wrong product,” or “If the tech team had actually delivered what we asked for and did it on time, we would have hit our numbers.” Be led by a multidisciplined top-flight leader. The leader must have deep technical expertise, know how to hire world-class software engineers and product managers, and possess excellent business judgment. Be self-funding. The team’s work will pay for itself. Be approved in advance by the S-Team. The S-Team must approve the formation of every two-pizza team."
"Even if our assumptions were correct, the program would take years to pay off; not a single person in the leadership team other than Jeff was pushing for Prime to launch in 2004; it was the holiday season, which meant we were already really busy! This very nearly became one of those scenarios when a company takes the seductive but ultimately wrong path of staying the course, making a serious error of omission as a result. The “institutional no” is a big reason why Amazon could have made an error of omission in this case. Jeff and other Amazon leaders often talk about the “institutional no” and its counterpart, the “institutional yes.” The institutional no refers to the tendency for well-meaning people within large organizations to say no to new ideas. The errors caused by the institutional no are typically errors of omission, that is, something a company doesn’t do versus something it does. Staying the current course offers managers comfort and certainty—even if the price of that short-term certainty is instability and value destruction later on."
"We also got pushback from some retailers. At the time, Walmart and Best Buy sold the most TVs to consumers, but Amazon’s retail business was a growing threat to them. Starting in 2007, they had employed a number of tactics to slow us down, such as declining to carry Amazon gift cards in their stores. Now their buyers warned some of the electronics manufacturers that any devices loaded with Amazon Video On Demand would not make it to their shelves. Walmart and Best Buy were such dominant players in the sale of electronic devices that many manufacturers wouldn’t work with us. When we convinced Sony to add Amazon’s streaming service to their Bravia TVs and Blu-ray players in September 2008, the logjam started to break. But it would take another four long years for us to convince the PlayStation team to play along with Amazon so we could finally tap into the 20 million–strong PlayStation user base."
"In 2010, we held a series of meetings with Jeff to discuss ideas and options for moving us toward the lucrative ends of the value chain. It was clear that consumers loved the all-you-can-eat, fee-based subscription model of Netflix, but we learned that Netflix was probably pouring between $30 and $40 million annually into licensing deals. While today, $40 million does not seem like a lot of money for Amazon to invest, believe me, this was not the case at the much smaller and leaner Amazon of 2010. That number shocked us. It seemed like a crazy big commitment. Not to Jeff. In one meeting he said something like, “In case it isn’t clear enough, I want to see the plan for how we are going to make a similar investment to get going in subscription video.” Jeff also made it clear that we should explore other big, digital-media ideas, including the creation of hardware devices."
"In retrospect, it is easy to see the mistakes. We had rushed Unbox out the door before it was ready. In the weeks leading up to launch, rumors had been swirling around Hollywood and in the press that Apple was close to launching a digital video service. We didn’t want to come in second to Apple so we were in a frenzy to ship Unbox and ship it fast. This was directly antithetical to the notion of focusing on the customer, not the competitor. We had conducted an internal employee-only beta test, but we failed to use the results as an opportunity to slow down, carefully review the customer feedback, and take the time needed to make real changes to improve the quality of the customer experience. We were just focused on shipping. We had prioritized speed, press coverage, and competitor obsession over the customer experience. We had been decidedly un-Amazonian."
"One spring 2004 walking-the-store email that Jeff wrote ended up making a direct contribution to the Prime conversation, though we didn’t know it at the time. It addressed an issue that was seemingly nontechnical in nature: making too much profit on an item. Jeff browsed our electronics and jewelry stores. The prices for flat-screen TVs and precious jewelry ran into the hundreds and sometimes thousands of dollars. We had little pricing flexibility on many of these items due to supplier relationships. Since we couldn’t offer lower prices, Jeff felt we should do the next best thing: offer free next-day shipping. We made quite a bit of gross profit from those items, compared to the gross profit from a $15 book or video, so we could afford to offer free expedited shipping for the same all-in price."
"One of the metrics we initially chose for selection was the number of new detail pages created, on the assumption that more pages meant better selection. Once we identified this metric, it had an immediate effect on the actions of the retail teams. They became excessively focused on adding new detail pages—each team added tens, hundreds, even thousands of items to their categories that had not previously been available on Amazon. For some items, the teams had to establish relationships with new manufacturers and would often buy inventory that had to be housed in the fulfillment centers. We soon saw that an increase in the number of detail pages, while seeming to improve selection, did not produce a rise in sales, the output metric."
- →Successful narratives will connect the dots for the reader and thus create a persuasive argument, rather than presenting a disconnected stream of bullet points and graphics that leave the audience to do all the work. Writing persuasively requires and enforces clarity of thought that’s even more vital when multiple teams collaborate on an idea.
- →Some groups at Amazon go around the room, ask for high-level feedback, then pore over the document line by line. Other groups ask a single individual to give all their feedback on the entire document, then ask the next person in the audience to do the same. Just pick a method that works for you—there’s no single correct approach.
- →In retrospect, it seems obvious that the Netflix launch was a significant threat, because streaming plus subscription would prove to be the magic combination in the digital video business. And they were smart and savvy about how they launched it by including the streaming titles as free/included for DVD subscribers.
- →“We need to plant many seeds,” he would say, “because we don’t know which one of those seeds will grow into a mighty oak.” It was an apt analogy. The oak is one of the sturdiest and longest-living trees in the forest. Each tree produces thousands of acorns for every one tree that eventually rises to the sky.
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