‘We’re going to be unprofitable for a long time. And that’s our strategy.’
Jeff Bezos, 199716
Wall Street is inherently short-termist, leaving most public companies focused on maximizing profitability and stock performance from quarter to quarter. Amazon does the exact opposite.
Since day one, Amazon has prioritized growth over profitability, measuring their own success by customer and revenue growth, the degree to which customers purchase from them on a repeat basis, and brand equity. The plan has always been to establish market leadership, which in turn would strengthen Amazon’s economic model. The flywheel concept isn’t designed for overnight success, it’s about building long-lasting relationships with customers.
Not to be overlooked here is the importance of consistency in Amazon’s strategy: its first-ever shareholder letter from 1997 reads as if it was written yesterday. Bezos didn’t predict the future, he created it. Two decades ago, he laid out his vision to focus relentlessly on customers in a bid to create long-term value for both shoppers and shareholders. Don’t forget that in 1997 Amazon was an online bookseller, nothing like the retail goliath it has become today, but nonetheless their strategy was crystallized.
For Amazon’s plan to work, Bezos had to be in it for the long haul. He is now the richest person on the planet, though much of his net worth is tied up in Amazon stock. Having him at the helm for more than two decades has helped to keep Amazon from wavering from the original vision. A thick skin and extraordinary focus were needed to shrug off the critics and quell shareholder fears. At the time of writing in 2018, Amazon has reported annual profits just 13 of its 21 years in existence, and even today profit margins remain lacklustre and erratic, far from the upwards linear movement that the financial markets expect to see. Most retail CEOs would have been fired by now, but Bezos trained his shareholders to be patient.