In my last email (“What’s next for America?”) I used the mottos of American presidential candidates as examples of how we can choose to root ourselves in the fear of the unknown or use our energy to hope for a better future, even though it’s the more difficult and scary choice.
At the end of the email I asked:
Nidhi and I spent December 31st walking through a redwood forest, exchanging answer for answer to this question. I’m hopeful for a lot this year – but most of all that we’ll be able to be close to one another again, completely free of worry.
One of the main storylines of 2020 in America has been that of the rich getting richer and the poor getting poorer. While many Americans lost their jobs, Tech companies thrived: AirBnB, DoorDash, and Zoom (to name just a few) went public while Facebook, Google, and Amazon grew their own profits by close to 30%, 60%, and 200% respectively.
The startup I work at (Applied Intuition) was no exception, either – despite the pandemic we were able to raise $125M in funding on a $1.25B valuation, and I was fortunate enough to also receive an annual pay raise.
The sheer magnitude of Bezos’ wealth is impossible to grok, but you should absolutely scroll through this visualization to help put it into perspective (you’ll need to view it on your computer):
This tremendous growth for Amazon and Bezos (and other big players in Tech) defied the intensified scrutiny around these companies and the capital-W Wealthy white men behind them. In July 2020 the US Congress held a tech antitrust hearing (the first of its kind since a similar hearing in the late 1990’s for Microsoft) where Jeff Bezos, Tim Cook, Mark Zuckerburg, and Sundar Pichai each did their best to argue why their company is not a monopoly.
(Side note: antitrust issues came into focus at Google towards the end of my time there as an employee, though at the time it was still only coming from Europe. Google’s defense has essentially been: “competition is a click away” – read Ben Stratechery’s analysis and opinion on the domestic case if you’re interested in learning more.)
At the hearing, Bezos delivered a 4,500 word treatise as his response to the two existential questions raised by the American government and public:
Spoiler alert: Bezos believes the answer to both of these questions should be a resounding Yes.
The rationale of his defense lies within two key concepts:
Bezos and his speech writers began his testimony by reminding Americans that nothing about Amazon’s success was ever guaranteed or obvious, starting with the idea itself:
> “The concept for Amazon came to me in 1994. The idea of building an online bookstore with millions of titles—something that simply couldn’t exist in the physical world—was exciting to me…it took more than 50 meetings for me to raise $1 million from investors, and over the course of all those meetings, the most common question was, “What’s the internet?”
Amazon’s origin story so perfectly aligns with the American Dream and, more specifically, America’s favorite archetype of the “Genius” (the incomparably gifted, individual mind whose single idea rockets them to greatness, versus the Eastern archetype of the “Hard Worker”), that Bezos was compelled to point out that Amazon did not succeed simply because of his prescient notion and perseverance to secure funding:
> “Amazon’s success was anything but preordained…from our founding through the end of 2001, our business had cumulative losses of nearly $3 billion, and we did not have a profitable quarter until the fourth quarter of that year….at the pinnacle of the internet bubble our stock price peaked at $116, and then after the bubble burst our stock went down to $6. Experts and pundits thought we were going out of business. It took a lot of smart people with a willingness to take a risk with me, and a willingness to stick to our convictions, for Amazon to survive and ultimately to succeed.”
Twenty years after being asked “what’s the internet?” Bezos has essentially built the answer to the question itself: Amazon Web Services serves 40% of all web traffic (when we watch Netflix, we’re making Amazon money) and was responsible for over half of Amazon’s operational income in Q3 of this year. Amazon is trading at ~$3,300 after generating $96 billion in Q3 of 2020 alone.
As Bezos says:
> “Outsized returns come from betting against conventional wisdom, but conventional wisdom is usually right.”
In other words, Bezos sees his wealth and the size of Amazon as the result of a highly improbable, twenty-seven year long domino topple of gritty imagination, shrewd execution, and lucky breaks.
To these points I largely agree. I joined Applied just over two years ago as the 14th employee while it was still in its Series A stage, so I’ve had a front row seat to the alchemy of transforming business survival into business success.
While I can’t yet share specific examples of the right decisions we’ve made or our lucky breaks (though some day!), I can personally attest to how thin the tightrope to success is and how much hands-on work it takes to shape new realities. I know that just because we’ve been able to raise a Series A, B, and C, it doesn’t mean we’ll be able to raise a D or E.
Running a successful business requires you to make the right decisions – on hiring, organizational changes, product and feature prioritization, strategy shifts – an inordinately high percentage of the time, at the right time.
But even if you were somehow able to make the right decision 100% of the time at the right time, it still wouldn’t be enough to guarantee you success.
Any number of external factors can end an otherwise healthy company: changes in market conditions, competitors, consumer behavior, a pandemic…Even Tesla was apparently one month away from bankruptcy before escaping to become the world’s most valuable auto manufacturer earlier this year.
All of this to say there is probably only one timeline in which Amazon is as successful as it is today. We just happen to be living in it.
A couple of years ago I found myself sitting next to one of Jeff Bezos’ reports at dinner (in a quintessential Silicon Valley experience I’ve also walked a block behind Tim Cook) who shared with me one of my all-time favorite “insider” anecdotes:
In order to be able to deliver items within 2 days, Amazon’s algorithms pre-emptively ship items to distribution centers that are closer to customers who are deemed likely to buy these items based on signals like search terms and items viewed. If a bunch of people in Pennsylvania are viewing school supplies, Amazon is already sending packs of Bic pens to the East Coast. Like any effective system at scale, this approach works 99.9% of the time.
But not every time.
One of Amazon’s sellers was listing a very heavy, $3,000 polar bear lawn statue for sale. Because it was the only item of its kind and was rarely viewed, Amazon’s algorithm registered any single view as a very powerful signal that the customer was likely to buy it.
As a result, Amazon was flying this very heavy, $3,000 polar bear lawn statue all around America any time anyone clicked on the link (until this abnormality was detected).
Being able to order almost anything you can imagine and have it appear at your doorsteps two days later is only possible at scale – it’s the reason I’ve been a Prime member for almost 10 years.
Amazon’s scale also enables it to increase the total addressable market of small businesses, subsidize career growth opportunities, provide jobs across America, etc. etc.:
> “I love garage entrepreneurs—I was one. But, just like the world needs small companies, it also needs large ones. There are things small companies simply can’t do. I don’t care how good an entrepreneur you are, you’re not going to build an all-fiber Boeing 787 in your garage. Our scale allows us to make a meaningful impact on important societal issues…”
But there’s an ugly side to Amazon’s scale that carries far more harmful ramifications than a polar bear flying first class around the country:
Bezos closes his speech before Congress with an invitation:
> “I believe Amazon should be scrutinized. We should scrutinize all large institutions, whether they’re companies, government agencies, or non-profits. Our responsibility is to make sure we pass such scrutiny with flying colors.”
Given the examples above, I think it’s fair to say that Amazon has not passed scrutiny with flying colors.
Although these issues are in many ways inherently linked to operating at scale and – at least in the case of ensuring the safety of what Amazon sells on its platform – very complex to solve, these realities don’t absolve Bezos of the responsibility of taking tangible steps to implement solutions and be held accountable by measurable results (just as he is for Amazon’s revenue).
Here we are 1,500 words in and all I’ve done is say “business is hard!” and “scale is big!” (but you also got a fun polar bear anecdote, so I won’t apologize). Let’s return to the two questions that began this email:
Whether or not our societies should have economic systems that make billionaires a possibility or if Amazon and its fellow tech behemoths are monopolies, I hope that you and I would agree – even if we’re not experts on how to accomplish it – that the wealth gap should not be gaping as it is today and that it probably will not close without those at the top changing the way things work for people at the bottom.
Of course I have opinions on how I’d answer these two questions myself, but I’m not an economist (the extent of my economic studies was a voluntary two week session my senior year of high school that for some reason involved a powerpoint template with a sunset background), ultra rich CEO, or US government official.
What fascinates me about these questions of business and wealth is that, at the most basic level, we have an objective way of measuring the success and value of a company: the money it can make.
As such, profitability is the north star of every company – the pursuit of which drives every core decision the company makes, whether sacrificial in the short term or strategic for the long term.
So when I read Bezos’ statement in the midst of the pandemic I wasn’t thinking about businesses – experienced Valleyist readers know what’s coming next – I was thinking about church.
Specifically in the context of this Bezos statement:
>“Just like the world needs small companies, it also needs large ones.”
Like tech companies, the American church is another institution under increased scrutiny because of COVID-19.
As I wrote back in April, the pandemic is also causing the American church to face an existential question:
>“what is church if it can’t be a large, in-person gathering?”
Although there are ways to measure the “success” of a church (which I’ll dive into in the next issue), I don’t think they’re as clear as financial earnings.
Gaining customers is universally a good thing for Amazon: more customers means more money, more money means more success. But the same is not true for church: more people joining does not automatically equate to a more successful church, nor is it a direct indication of the church offering a “good product” or the best “customer experience.”
So what are the “Unique Benefits of Scale” of Amazon-sized churches, especially in a post-COVID world?
Should Amazon-sized churches exist at all?
I end each newsletter with a question that’s been placed on my heart after writing. If the question resonates, please reply with your reflections! Anonymized excerpts appear at the top of the next email.