Working Backwards

Key Takeaways

1. Establish and spell out leadership principles (see Amazon’s fourteen leadership principles). Enforce these principles through mechanisms. Three mechanisms extensively used at Amazon: annual planning process, S-Team goals process, and compensation plan.
2. Create Single Threaded Leadership to drive autonomy and accountability. See Single Threaded Leadership
3. Communicate using longform narratives instead of powerpoint. Two extensively used narrative styles are the Six-Pager and the PR/FAQ. Meetings start with a silent read of the document, followed by discussion and debate. See Communication.
4. Depict your flywheel. Understand how inputs translate into outputs, which in turn affect inputs. Focus on defining, measuring, and analyzing controllable input metrics. Weekly metrics review is the most important operational meeting. See metrics

In addition, the book provides a good historical narrative on the creation of the Kindle, Prime, and AWS.

Amazon’s Leadership Principles

1. Customer obsession. Start with the customer and work backwards. Work vigorously to earn and keep customer trust. Keep an eye on the competition but obsess over customers.
2. Ownership. Think long term and don’t sacrifice long-term value for short-term results. Act on behalf of the entire company. Nothing is “not my job.”
3. Invent and Simplify. Expect and require innovation and invention from teams and find ways to simplify. Look for new ideas everywhere and don’t limit by “not invented here.”
4. Be Right, A Lot. Leaders are right a lot. They have strong judgement and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.
5. Learn and Be Curious. Leaders are never done learning and seek to improve themselves. They are curious about new possibilities.
6. Hire and Develop the Best. Raise the performance bar with every hire. Recognize exceptional talent and be willing to move them anywhere in the organization. Leaders develop leaders and take the coaching role seriously.
7. Insist on High Standards. Have relentlessly high standards. Continuously raise the bar and drive the teams to deliver high-quality products, services, and processes. Ensure that defects do not get sent down the line and fixed things stay fixed.
8. Think Big. Create and communicate a bold direction that inspires results. Think differently and look around corners to fulfill customers.
9. Bias for Action. Speed matters. Take calculated risks. Reversible decisions do not need extensive study.
10. Frugality. Accomplish more with less. Constraints breed resourcefulness, self-sufficiency, and innovation.
11. Earn Trust. Listen attentively, speak candidly, and treat others respectfully. Be vocally self-critical, even when doing so is awkward or embarrasing.
12. Dive Deep. Operate at all levels, stay connected to the details, audit frequently, and be skeptical when metrics and anecdotes differ. No task is beneath them.
13. Disagree and Commit. Respectfully challenge decisions when you disagree. Have conviction and be tenacious. Do not compromise for the sake of social cohesion. Once a decision is made, commit fully.
14. Deliver results. Focus on the key inputs and deliver results with the right quality and in a timely fashion. Never settle.

Mechanisms

Mechanisms bring leadership principles to life. Three key mechanisms are the annual plan, S-Team goals, and compensation philosophy.

Annual plan (Operating Plan 1, OP1) is a detailed plan that includes an assessment of past performance, key initiatives for the following year, a detailed income statement, and requests for resources (headcount, marketing budget, equipment budget, and other fixed assets.)

S-Team goals (there are lots) are detailed list of input-metric focused goals. They are aggressive and leaders are expected to hit 75% of them.

Compensation is heavily biased toward the long term, on purpose. Rewarding short-term goals at the expense of long term value creation, or rewarding the achievement of localized departmental milestones at the expense of company impact, are considered anti-patterns for compensation.

Single Threaded Leadership

The best way to fail at inventing something is by making it somebody’s part-time job.

Started with 2-pizza teams, evolved into single threaded leadership. 2-pizza teams were a good idea – small, autonomous teams, that were evaluated by a “fitness function” (weighted average of a number of metrics). However, in practice, they turned out to not be the best solution for all problems (some products needed more investment, lots of arguments over the fitness function, hard to find great 2-pizza team leaders.)

2-pizza teams evolved into Single Threaded Leadership, where a particular person was given autonomy and ownership to build and grow chunks of the Amazon business.

Communication

No slides. Amazon wants narrative documents. Two key docs:

1. Six pager. Used to describe and review any idea, process, or business. No particular template; intended to go into detail about the idea being discussed.
2. PR/FAQ. Key to “Working Backwards” Press Release shows customer centricity and brings out potential problems up front. Internal FAQ goes into detail around expected questions e.g. What is the TAM? How much will it cost?

PR/FAQ structure

PR structure

1. Heading
2. Subheading
3. Summary paragraph
4. Problem paragraph
5. Solution paragraph
6. Quotes and Getting Started

FAQ is less structured

1. TAM
2. Economics and P&L

Metrics

Metric focus is on managing inputs because the CEO or other leaders rarely have complete control over their output metric (e.g. share price).

Weekly Business Review is a weekly meeting to go over all the metrics in detail. Presented as a detailed deck, comprising mostly of charts, graphs, and data tables. Review emerging patterns. Plots of graphs against comparable previous times (week-over-week or month-over-month or year-over-year).

During the review, the focus is on variances and not on business-as-usual. Business owners are responsible for understanding and explaining variances.

Metrics Lifecycle

1. Select and define the metrics to measure.
2. Understand the flywheel. How do input metrics lead to output metrics and back again.
3. Identify the correct, controllable input metrics. This step sounds simple but can be very tricky. A mistake here will result in the wrong outcome.
4. Measure.
5. Analyze: develop a comprehensive understanding of what drives the metrics. Use the 5-Whys method to understand what is going on.
6. Improve. Once the previous steps are fulfilled, you can improve upon your metrics.