Terminal Value

Continuous Digital Innovation with John Rossman

Doug Utberg

Business Growth Authority | Technology Strategy & Resourcing | Cost Optimization Expert | Business Process Architect | Financial Strategist | Founder - Terminal Value Podcast

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I have John Rossman with us today, and we are going to be talking about continuous digital innovation, the Amazon Way. And so obviously enough, this corresponds with the name of a book that John author. But the topic that we really want to be talking about is just how innovation works, particularly in a digital era, because you have to innovate both for the current environment, you have to innovate for the future. And then the other thing that I think is particularly important is you have to figure out how to avoid becoming complacent and stagnant, which is where every company in the history of the world has eventually ended up. Amazon hasn’t gotten there yet. Statistically, it probably will happen at some point, but it hasn’t happened yet. John, welcome the show and introduce yourself a little bit.

Doug, thanks for having me. So, John Rossman, I’m a former Amazon executive, so I helped launch the marketplace business, and I ran enterprise services at the Amazon. I left Amazon in late 2005, working with my clients on digital strategy, digital transformation. Along the way, one of them at the Gates Foundation said, hey, you should write a book because you do a nice job of kind of putting all these little strategies and mechanisms. And so I wrote The Amazon Way about the Amazon leadership principles. I wrote a book called Think Like Amazon 50 and a Half Ideas, become a digital Leader. That’s the full playbook of every mechanism from Amazon. And I wrote a book about the Internet of Things called the Amazon Way on IoT. I think Amazon is the most interesting company of the digital era. And it’s not because of what they do. It’s because of how they do it. And I think those mechanisms, those concepts, those strategies are things we can all learn from. And so I always say, like, hey, this discussion, it isn’t about Amazon. It’s about what you can take from a company like Amazon to both operate better for today as well as think about how to innovate for the future.

Got it. Okay. Well, I share a couple of those Nuggets with us because at least in my observation, because my career. Right. I worked at Intel for almost 18 years. And then I moved in the tech sector. I was in finance there. And then I moved over to Lattice Semiconductor, which is also in the tech sector, much smaller semiconductor company. But there’s a pretty common repeating pattern in a lot of these companies, particularly technology companies. But in a lot of companies, which is where you’ll kind of start out, you’ll have this really fast growth phase. And when things are growing, people will lose track of details and things will become an enormous mess. And then eventually there will be a big scramble to pick it, to try to pick things up. And it may or may not succeed usually doesn’t. And then somebody will get fired because they didn’t manage the transition. Right. Then a new person will get brought in. They’ll try to create immediate results, and so they’ll take shortcuts and eventually there will be another mess, and then they’ll get fired. And then what happens is that growth cycle just kind of stalls out. Now, the thing that’s unique about Amazon is that it doesn’t really seem to have hit that stall out point. Now, inevitably, at some point that is going to happen because it’s just gravity. But I still think that the run that Amazon has gone on. And again, this is to be an Amazon fanboy per se, but just Amazon as an example. The degree with which they’ve been able to scale without hitting that phenomena that just infects so many companies. I think it’s really interesting and it’s really worth studying because of course. Right. I’m not prone to conspiracy theories, but of course, there’s the Jeff Bezos evil Emperor conspiracy theory. I happen to think he’s more of just a hyper, goal oriented kind of guy. And if you press hard enough, you’re going to hack people off.

So that may be the longest question I’ve ever been asked Doug. So you packed a lot in there. So let me try to address several elements along the way. First is kind of the premise that every company does go through this life cycle. And Bezos himself has said every company dies, Amazon will at some point be disrupted. I’m just trying to make it so it’s not in my lifetime. And so I think it really starts with the humbleness and the recognition that

if we don’t continue to figure out how to grow and how to reinvent two slightly different perspectives, there, that inevitability will hit us.

Right? Yeah. So that’s one thing. The second thing is really how to use customers not just as a tactical vehicle of like, hey, we have to satisfy today’s customer with today’s products and services, but being truly curious about the job your customer is trying to get done, like, what’s the real outcome and what sucks about how they have to go about their day to day and figuring out the little ways that you can expand and serve those. Truly, I believe Amazon’s now call it 27 year history has been understanding customers and how do we slowly and incrementally serve them in bigger and broader ways? And that’s both external customers as well as internal customers. So, for example, when I was at Amazon, 90% of the book business was books, music, video, right? Yeah. And we leveraged the business. I launched the marketplace to expand into 14 more categories, and we had the patience to allow customers to figure out like, oh, hey, I go to Amazon for more than just books, music, video. We allowed selection to catch up. So that was authoritative selection. We complemented it with the prime membership and with this cool underlying service called FBA Fulfillment by Amazon. But we gave it patience. And

I think one of the things leaders at big enterprises do is they don’t understand when to have patience on a good idea to just let it catch up, either whether it’s the customer catch up or market.

But the problem with big companies is being a big company and big PNL. And so one of the things you have to do is truly separate out your big cash cow mature ish business lines from your small separate ideas, your bets, right? But what companies do is they line all these things up, they apportion appropriately, and those little things never get the oxygen. They never get the attention from leadership that they need to develop into big businesses. When I was at Amazon in late 2004, we had a difficult holiday period. The website had all sorts of performance issues. At that point, every team manage, acquired, setup, was responsible for their own infrastructure. We came back and was like, this isn’t going to scale. We need to create centralized computing capability. But we said we have to make it self service. Let’s force ourselves to have external customers for this so that we get critical feedback. Until we created the self service infrastructure, we had external customers. And that’s how Amazon developed into AWS. What gave Amazon and a book Internet retail company the permission to completely reinvent the computing industry. Nothing other than our own curiosity, our own tenacity, and our own like, this isn’t going to work for us long term. And so we were willing to do the hard work. Most companies aren’t trying to think through what are the challenges and then generalizing solution to those to serve broader audiences. So the last thing relative to your answer is there’s no one answer to any of this. Right? I would simply boil it down to leadership and culture. And that’s why I think the book I wrote, The Amazon Way, about Amazon’s leadership principles and what you can take from them. I think it starts with that. Because if you can help get a broad based team set on, like, here’s what we believe in. Here’s how we hold each other accountable, here’s how we make decisions, here’s how we orientate ourselves relative to the market, how we make investments, how we think about long term and short term. And it’s not that Amazon’s leadership principles are the right ones for you. It’s that they’ve clearly articulated them. And while they’re not perfect in any way, they try to put them into everyday situations, everyday jobs. Right. They’re not a poster on a wall. And if a company, if a leadership team can really step back and think through, like, how do we think about those topics and how do we create some durable perspectives, tenants, principles, whatever you want to call them, so that we’re all on the same page, you’re going to be a better operator, right? But most leadership teams, they don’t go through that work to really slow down and essentially think about how you’re thinking. Right. Like, that’s what principles do. So those are my answers to a nice, well stated but long question.

Yeah, I was going to say yes to the machine gun question. I think there are a few Nuggets you dropped in there that I’d like to address. One I talked about AWS. The thing, at least, that I think is unique about Amazon. Again, this isn’t meant to be an expose on Amazon tool, using more Amazon as a case study for development of a company, but which is that Amazon was started on the fulfillment business, which the way Amazon operates, it is best case of break even business. Fulfillment is not where you make money because the margins are so slim. However, that fulfillment focus is what brought about Amazon Web Services, which is the primary profit machine of Amazon. But at least that’s what it is. Now, I’m sure you can give us some more inside baseball, but I don’t think that would have come about if there hadn’t been that willingness to adapt, pivot, try, figure things out, fail, and then continue moving forward. Tell me where the holes are in my analysis.

Well, it really was from website scalability, not fulfillment scalability that drove the invention of AWS. But that’s kind of neither here nor there. It was from our own operational needs. And then what we did, the magical thing we did was we said a it has to be self service. So people need to be able to use it without talking to others and be, let’s have external customers to it. Right? Yeah. And that’s really the strategy of what is called a platform company. Right.

You build capabilities that you’ll use as well as others will use.

.And if you think about how did Amazon get into being this multi sited, truly conglomerate business? But it’s a conglomerate business where all of these units actually have synergies together. Right. Like they actually do operate together. It’s because of that repeated pattern of, hey, there’s something that doesn’t work well for us, doesn’t scale. We need more control. Hey, we’ll make it self service. Hey, we’ll have external customers, even their fulfillment operations. They’ve done that same thing. Right. So I mentioned fulfillment by Amazon. Yeah. That is creating a platform strategy. That’s fulfillment as a service. They’ve done that across the board with so many capabilities. And so that willingness, what that takes is I mentioned kind of patience, but patience also equals investment. Right. And so it’s about long-term enterprise value creation versus short-term results and short-termism meaning, like focusing on just delivering this year, this quarter, this week’s results. That’s important. But it can’t be at the cost of long term approaches. So there’s lots of tools and mechanisms to think that through. Right. Like, there’s clearly understanding your PNL and how to drive profitability in today’s business and separating out the investments that we’re making into scaling or future businesses. And being able to tell that story. One of the things Amazon did so well was they read their first shareholder letter holder. They tell you exactly how they’re going to operate and how they’re going to invest long term and please don’t invest in the stock if you don’t believe in these things. They have been such strategic communicators relative internally and externally to the game that they are playing. And that’s how they’ve gotten to be essentially a 500 billion dollar company that’s still growing at over 20% a year. I don’t think any company that size continues to have those types of growth dynamics. And they’re continuing to expand, not just in scaling existing businesses, but planting those seeds for the big dreamy businesses of tomorrow.

Yeah. Well, and I think that one of the things that you just touched on that I’d like to unpack a little more, which I think is probably I know people have a lot of opinions about Jeff Bezos, but I think one of the things that he really contributed to Amazon was the long term focus and the complete unwillingness to sacrifice the long term to meet short term objectives. And he set that expectation with shareholders and really stuck to it because, of course, it’s like you said, there’s the poster on the wall, because like places I work, everybody has corporate values that look a lot but read a lot like Amazon leadership principles, just like everybody else’s values. Everybody else says they’re long term focused. But what it really comes down to is what do you fund? What’s in the budget? Because I always say it’s not what you say, it’s what you fund, because money is what really talks when you’re in the corporate all hands. Okay. Yeah. I really don’t care about anything someone says. I want to know where the money’s going because that’s what tells you what they really care about. And I think that focus is really one of many things that’s enabled Amazon to be so competitive. But one thing I’d like to get your view on is let’s say that we have a listener who is in an executive capacity, but they’re trying to influence a company. Say that’s what you would call more of a, quote, standard company or that state doesn’t have access to as much investor capital. Samsung, Samsung was very fortunate in that. It’s been an investor darling for a long time and has had a capital I’m going to stop you there.

You remember the last 1112 years. What you don’t remember is from 2000 to 2009, when the stock was flat, it was between five and $30. Amazon Coast, Amazon.com, Amazon.org, Bezos, and Team had the same values, the same orientations. That’s really when these things were fired and baked into the DNA. And it’s

when people are doubting you. But you’re looking at your business like I believe in this business, I believe in the long term. And you continue with those values that’s when you’ve really struck something.

Right. Let’s unpack that a little more, because I think to me that

Go back to your initial question. But I just wanted to correct you. When I was at Amazon, we had our first billion dollar quarter in holiday 2002. So today it’s roughly a $500 billion revenue company had our first billion dollar quarter, and we only had a billion dollars in short term assets. Right. Between cash and receivables. Right. So there was nothing confident or solid. You said like, hey, we’ve always been an investor, Darling, and we always had all of this. I was like, that is not true at all. And

they continue to be frugality is one of the leadership principles, and they continue to live that leadership principle today. And that just means invest and spend money like it’s your own money.

And they drive that as an organizational principle. It ties back to being humble. Right. Humble organizations, humble leaders are careful with their resources. And so they don’t think or act like the spoiled rich kid and rich company today. And that’s one of the things that helps keep that culture alive, is they continue to put constraints on the business and constraints force you to innovate. Right. And there’s lots of different types of constraints. Costs and budget is just one of them. But they continue to try to squeeze out as much as they can, and they do not act like a resource rich organization.

That’s fair. And yeah, I am guilty of having a short term hindsight bias because, yes, you’re right. The investor capital has been plentiful in the last ten years, but it was sparse for about a good eight, nine years between the tech wreck and the financial crisis.

So what was your initial question?

Yeah, the initial question, which I think our recent dialogue is a good lead up to the initial question is, let’s say that we’re talking with talking to a listener who’s a leader, let’s say in a mid size company, and they’re trying to figure out, okay, I’m trying to implement some of these Amazon principles to improve my company under intense resource constraints. What do I do? What is my best next step?

There’s 16 leadership principles. You really have to understand the right ones to kind of pull at the right moment.

Leadership principle number three is invent and simplify. I think the most interesting part of that leadership principle isn’t the invent piece, it’s the simplified piece.

And what happens so often in any size of organization, any industry is complexity builds up. Right. And that means work complexity, policy complexity, data complexity, systems complexity, customer experience complexity, cost center complexity. It all gets complex. And that it hides accountability, it hides costs, it hides true profitability, hides true growth opportunities. So figuring out how do you simplify along processes, along organization, along data, along products and services is, I think, a real unlock, especially when you don’t have necessarily that rich. You don’t have a lot of patience. You need fast results, and you need the investments to pay back really quickly. Look at the simplicity across your organization, because

when you start simplifying things, not only will customers be happier, money starts falling to the floor and everything, and so it pays back immediately.

The other thing and one of the leadership principles is leaders.

Pay attention to details and so understanding how to put metrics, instrumentation monitoring into everything that’s going on both the customer experience as well as operations, and then find out where those inefficiencies are.

That is a digital mindset. Right. And everything. Right. How do we use sensors and data and monitoring to drive continuous improvement to the next level? Every organization, that’s why it’s called continuous improvement can take it to the next level. But so many companies, they get complacent even relative to current operational models. None of that is about long term investment, about long term innovation or anything. That’s just about optimizing in today’s business and can really help you pay for future investments. Deliver those results you need today and you build a culture and a capability. It’s like, oh, now I start to get to understand what true accountability means, how to scale a business, how to continuously improve, how to be more obsessive about the true customer experience, and you can build on those things into innovation.

That’s excellent. I really like that. I really like the idea of a focus on simplicity, because I think I’ve had similar observations in the finance and technology piece because I’ve noticed that enterprise data systems I’ve seen are just get horribly complicated. And of course, the reason why the systems get horribly complicated is because the business processes are horribly complicated. And every single deployment I’ve ever seen, the way that it works is it’ll be this weird, goofy, complicated business process. And the management says, okay, make the system match the process. And so you go, okay, well, we’re going to have to dramatically customize it. I don’t care. Just do it. And then what happens is after five or six time and time delays and budget overruns and say, why is this thing so expensive? Why is it taking so long? Why is it so hard to use? Why is it so complicated? It’s because you didn’t simplify in the first place.

That’s right. And you’re not willing to do the hard things of kind of rational. And oftentimes you have to kind of step on people’s feet. Right. You have to say like, hey, we’re not going to do it this way anymore, or we’re going to change our structure. We’re going to change jobs and everything. Right. And it’s when you’re not willing to do the hard things that the market demands, that the business really demands because you’re uncomfortable with that change. That is poor leadership, in its essence, because you are not being a steward for tomorrow’s business.

Yeah, I totally hear you. Okay. Well, let’s see. So I think we’re getting close on time, But I don’t want to cut it short. I think it’s two or three nuggets of wisdom to take home with us and then let us know where people can learn a little more about you, your business, find your book, et cetera.

Sure. So one of the great ideas from Amazon is for every principle you have or kind of tenant belief you have, you have to have mechanisms in order to enact that. Right. So a mechanism is a technique. It’s an action. It’s something you do that actually demonstrates and helps build up one of the habits that Amazon has Is around this habit of writing. So whether it’s writing out what your plan is, what your correction of error is, how you’re going to improve this process or what your future great idea is, Amazon they have this technique of kind of writing future press releases, writing narratives, Writing FAQs, and then teams debate them. They read them, they get clarity about either the situation, what their actions are going to be, or what the future is going to be. And that’s how they communicate so much better and think things through so much better than I’ve seen most organizations do. That’s one of the I think killer habits. I talk about it in the book about writing things out and creating this culture of writing is, I think, one of the nuggets way people can reach me.

Culture writing also means a culture of reading. Because if you write a white paper, because I’ve read this, which is where, of course, I’ve never actually seen it, which is one of the I’m not going to say things on my bucket list, but one of the things I’d be interested to see is a meeting where people, everybody brings in their different white papers on the subject and everybody reads through all of the papers for 30 minutes.

And then you debate it, and then you iterate. And the great thing about this technique is it scales. You can do it as just an individual. You can do it as a team. You can do it as a line of business. You can do it as the entire enterprise. Right. Like, it doesn’t have to be this all in concept from the beginning, and that’s how real change can happen.

Got you.

So I can be reaching LinkedIn John Rossman. My website, Rossmanpartners.com the Amazon way is at Amazon. It’s available in Kindle paperback and audible. And I have a newsletter, a weekly newsletter. It’s free. It’s called the digital leader newsletter. You can find it on substance, so I’m fairly easy to get a hold of.

Outstanding. Outstanding. Well, John, appreciate your time today, And I hope you have a wonderful rest of your day.

Doug, great job. Nice to meet you.

Thank you.

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