Working Backwards

Written by Colin Bryar and Bill Carr Chapters Covered 1-7 Long-term interests of share owners are perfectly aligned with the interests of customers

Customer obsession > competitor obsession Willingness to think long term Eagerness to invent Taking professional pride in operational excellence

Working backwards from the desired customer experience

Colin was a tech advisor for Jeff

Bill Physical and digital media group “We need to plant many seeds”

Part One Being Amazonian

Principles and processes that define being amazonian Leadership principles, mechanisms to reinforce Bar raiser Separable single-threaded leadership

Building Blocks

Leadership principles and mechanisms. The development of them, how they’re infused into every day work, their checks and balances, why the confer a significant competitive advantage, how they can be applied in your company.

Underpromise and over deliver to exceed customer expectations They advertised us postal service first-class mail but all shipments were sent by priority mail a far more expensive class of service

Job description for first employee “you must have experience designing and building large and complex (yet maintainable) systems, and you should be able to do so in about one-third the time that most competent people think possible”

“You can work long, hard or smart but at amazon you cant choose two out of three’

1. Customer Obsession. Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.
2. Ownership. Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say, “that’s not my job.”
3. Invent and Simplify. Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here.” As we do new things, we accept that we may be misunderstood for long periods of time.
4. Are Right, A Lot. Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.
5. Learn and Be Curious. Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.
6. Hire and Develop the Best. Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice.
7. Insist on the Highest Standards. Leaders have relentlessly high standards—many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high-quality products, services, and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.
8. Think Big. Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.
9. Bias for Action. Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk-taking.
10. Frugality. Accomplish more with less. Constraints breed resourcefulness, self-sufficiency, and invention. There are no extra points for growing headcount, budget size, or fixed expense.
11. Earn Trust. Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team’s body odor smells of perfume. They benchmark themselves and their teams against the best.
12. Dive Deep. Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdotes differ. No task is beneath them.
13. Have Backbone; Disagree and Commit. Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.
14. Deliver Results. Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.

Mechanisms: reinforcing the leadership principles

Good intentions don’t work. Mechanisms do.

• annual planning process
• S-team goals process
• Amazon compensation plan

annual planning op1 and op2

Autonomous, single-threaded teams Planning begins in summer, 4-8 weeks of intensive planning

S-team creates a set of high-level expectations grow revenue, reduce costs, cash flow Then each group works on more granular operating goals, known as OP1 which sets up its bottom-up proposal

Main components:

• assessment of past performance, including goals achieved, goals missed, and lessons learned
• Key initiatives for the following year
• A detailed income statement
• Requests (and justifications) for resources, which may include things like new hires, marketing spend, equipment, and other fixed assets

A panel then reviews to see if the bottom up plan meets top level goals. It may be asked to rework. OP1 process runs through the fall and is completed before the 4th quarter holiday rush.

OP2 is the adjusted OP1 after holiday results. Metrics are agreed upon and supplied as part of every team’s deliverables. Any changes to OP2 requires formal S-team approval

S-Team Goals

S-team reads and reviews operating plans and select the initiatives and goals from each team that they consider to be the most important called the S-team goals. If your team has 23 goals, they choose 6 of the 23 to become s-team. Try to achieve all 23 but put the 6 above the rest. Specific, measurable, attainable, relevant, and timely (SMART) ‘Add 500 new products in the amazon.fr musical instruments category (100 products each q)’. They are aggressive enough that amazon only expects to hit about 3/4s of them, if they hit all then the bar was set too low.

Amazon Compensation Reinforces Long-Term Thinking

Executive pay is weighted towards equity so performance is determined by company performance. Max salary is small

Longterm stock compensation counters short term goal meeting for incentives

Hiring

Amazon’s unique bar raiser process. The importance of hiring and the steep cost of slapdash hiring processes. The failings of conventional approaches, shown in a fictional example at the “green corp.”

Interviewer can wander off script and ask questions that lack a clear objective And specificity. Unintentional bias, confirmation bias, insufficient clarity

Effects of Personal Bias and Hiring Urgency

Personal bias - basic human instinct to surround yourself with people who are like you.

Average startup spends 990 hours to hire 12 software engineers. 80 hours per hire If you hire too fast without guidance you will change your culture

Hiring at Amazon before the bar raiser

It was clear that the talent level of the new hires were lower than the rest of the software teams.

20 bar raisers were named

The bar raiser solution

Creating a scalable, repeatable, formal process for making successful hiring decisions. They could veto any hire and override the hm

At Microsoft, last interviewer would not be penalized if the role went un-filled so they wouldn’t be influenced by urgency bias.

Every new hire should be better in one important way than the other members of the team.

Job description

HM writes. Needs to be specific and focused

Resume Review

If the selected candidates are off target then the JD probably needs work Too many coordinated between teams and not enough builders and inventors

Phone Screen

HM asks questions. If sure then schedule, if unsure then don’t. Most unsure do not make it through the loop

In-House Interview Loop

5-7 hours. HM constructs the loop. Always includes the HM, recruiter and a bar raiser. No participant more than one level below the candidate position. Don’t have anyone who would be a direct report of the candidate

Behavioral interviewing for accessing leadership principles. Get candidate to provide detailed examples of what they personally contributed to solving hard problems. How they accomplished their goals STAR situation, task, action, result What was the situation, what were you tasked with, what actions did you take, what was the result What was the toughest call on project. And who made it?

Bar Raiser

Bar raiser core, done hundreds normally vp and directors. They identify new bar raisers and train them Not all candidates are approved

Written feedback

Take detailed notes, as close to a verbatim record as possible Specific, detailed and filled with examples from the interview. Written shortly after the interview. Must make a hire or no hire recommendation

Debrief

Bar raiser asks anyone if they want to change their vote now that they have all the data. Create a pass/fail two-column list for leadership principles

Best practice for HM is to listen and speak infrequently.

Don’t do reference checks but they would ask “if given the chance, would you hire this person again?”

After offer is made, a team member should check in at least once a week until they make a decision. They would send a book bomb or coffee or lunch.

Tweaks

2 phone screens for college hires as they were failing too many in loops. Every resume from a female applicant got a phone screen. This was showing that there was an unconscious bias failing them early in the process

Chapter 3 Organizing

How to untangle dependencies so teams can work independently

Anecdote about Jeff asking about who is the single threaded leader for a project. Head vp is meant to be focused on whole group’s performance. They say a pm but they dont have all the skills, authority, and people on their team to get this done

To remain unencumbered by competitions responsibilities, a single person owns a single major initiative and heads up a separable, largely autonomous team to deliver its goals.

Growth multiplied our challenges

97->21 revenue grew 21x to 3.1 billion Spending more time coordinating and less time building As number of engineers increase linearly, number of communication lines increase exponentially

Technical dependencies

Shared code Shared db organizational dependencies asking people

Better coordination was the wrong answer. Needed to eliminate cross team communication

To have amazon be a place where builders build, need to eliminate communication, not encourage it.

View effective communication across groups as a ‘defect.’ Amazon switched to APIs between teams

NPI

New project initiatives for global prioritization Big committee choosing which projects to fund

First solution Two-Pizza Team

Be small - no more than 10 people Be autonomous - no need to coordinate to get work done Be evaluated by a well-defined fitness metric - how many items sold 20%, how many of those items were new 80% Be monitored it real time - on a dashboard next to all other teams scores Be the business owner - design, tech and business results. Counter dev team saying they built what business asked for vs business team saying it was the opposite Be lead by a multi-disciplined leader: deep technical expertise, know how to hire, possess excellent business judgement Be self funding - teams work will pay for itself this is hard

Tearing down monolith

No direct db access. Multi service arch

First autonomous teams

They can move fast but they can move fast in the wrong direction Boundaries of ownership Metrics used to measure progress

How the team would achieve these would not be discussed. Teams would solve this themselves

Challenges

Two pizza teams worked for product development but not legal, hr and others as they did not suffer from tangled dependencies why don’t these others suffer?

Fitness functions sucked

Took forever to get them right and then it was impossible to tell what the trends meant

Multi discipline managers were rare

They did dotted line to product management and engineering directors

Sometimes you need more than 2 pizzas

The biggest predictor of success was whether it had a leader with the appropriate skills, authority and experience to staff and manage a team whose sole focus was to get the job done

Chapter 4 Communicating

Start of amazon meeting is 20 minutes of silence while we read

Narrative structure of a good memo forces better thought and better understanding of what’s more important than what and how things are related

How to write an effective 6 pager

With power point presentations, people remove text to fit guidelines and then the presenter fills it back in verbally

“The cognitive style of PowerPoint pitching out corrupts within”

The narrative document is infinitely portable and scalable, easy to circulate

People read 3 times as fast as the presenter can talk so everyone can absorb info faster.

The act of writing will force the writer to think and synthesize more deeply Consider likely objections, concerns and common misunderstandings

Q: why not distribute beforehand? A: likely not enough time before meeting for everyone to read and we are replacing the presentation time anyways

Here are some sections:

• introduction
• Tenets
• Accomplishments
• Misses
• Proposals for next period
• Headcount
• P&L
• FAQ
• Appendices (supporting data)

Feedback as collaboration

Providing \valuable feedback can bee as difficult as the narrative itself. You are helping to shape an idea Jeff would assume each sentence was wrong until he can prove otherwise. Challenging content of the sentence not the motive of the writer

Final thoughts on narrative

“Here’s our best effort. Tell us where we fell short.” The work product becomes a joint effort of the audience and presenter and become linked in the subsequent success or failure of the initiative

Chapter 5 Working Backwards

Doing the digital media business they did all the business numbers but didnt have mock ups The team said they would have answers to questions about why it would be better than iTunes, where they could read once the project got approved. Jeff wanted details before they started hiring

PRFAQ

Wrote the kindle press release and worked backwards

FAQ has external (customer focused) and internal (focused on your company)

Consumer needs and total addressable market (TAM) Economics and P&L

Go Ahead

Most prfaqs did not turn into products. Leadership is often deciding what not to do rather than what to do.

Even if there’s some price or tech blocker, the TAM might be big and now leadership knows what partnerships or tech to look for to unlock this area

Chapter 6 Metrics

Manage your inputs not your outputs

Companies have little control on output metrics How to select and measure metrics that will enable you to focus on which activities will drive your business in a meaningful and positive direction

WBR weekly business review DMAIC, define, measure, analyze, improve, control

Define

The right choice of metrics will deliver clear, actionable guidance

Before you can improve any system you must understand how the inputs affect the outputs

Amazon tracks selection, price or convenience. Factors amazon can control Output like orders, revenue and profit

The fly wheel input metrics lead to output metrics and back again

You can start at any input which will improve the growth speeed. More sellers means more selection means better customer ex means more traffic means more sellers

Identify the correct, controllable input metrics

Number of detail pages -> number of detail page views -> % of detail page views where the products were in stock -> % of detail page views where the products were in stock and immediately ready for 2 day shipping

How often do you contact your donor base and how often does that frequency affect your funding?

WBRs are iterative with humble beginnings.

Measure

May take some serious software resources to compile, aggregate and display correctly. Do not compromise here. You may find you are flying blind with respect

How will you audit your metrics?

Analyze

Develop a comprehensive understanding of what drives your metrics Separate signals from noise

Correction of errors process. Five whys from Toyota. When you see an anomaly, ask why it happened and iterate with another “why” until you get to the underlying factor. The team must drill down 5 times

Improve

What changes do we need to make to get to 98% Need to have define, measure, analyze working in your wbr first

Control

Dont degrade over time WBR can become exception rather than regular

The wbr metrics at work

Make a deck, data-driven end-to-end view of the business Mostly charts, graphs and data tables. Emerging patterns are a key point of focus. Be prepared to explain variances Show two or more timelines. Eg trailing 6 week and 12 month Don’t browbeat. Mistakes should be a learning experience

Pitfalls disaster meeting

Most senior person should set the ground rules. Limit attendance and number of metrics if needed Create a culture that lets people talk about mistakes without being criticized They feel tremendous responsibility for what they build. They are trying to do the right thing

Pitfall 2 noise obscuring the signal

Variation in data is normal and unavoidable Don’t burn time investigating noise

Part 2 proof of results

Failure and invention takes long term investment, 5-7 years Frugality enables this. Don’t spend on things that don’t lead to a better customer experience Magnitude of failures have to grow in lockstep with the growth of your organization Separate one way and two way door decisions. Don’t make two way door decisions slowly

Chapter 7 Kindle

Can amazon build hardware. To outsource or not to outsource? Jobs showed Jeff iTunes. Jeffs first move was a “who” and “how” not a “what”. Assigned a single threaded leader

why not have digital as part of physical org since it had all the media connections? Jeff felt it would never get enough attention because the physical one was carrying the revenue and profit of the business

Fast follower vs invent. Jeff wanted invent. Because things were moving so fast wouldn’t have enough time to recoup returns on existing service before building another one There is no roadmap for invention

Book Club Discussion

Felt like I was already doing this in my career but more about whole org structure

At snap we were focused on output metrics. number of chats sent

Jason quotes: “The cognitive style of PowerPoint pitching out corrupts within” “Here’s our best effort. Tell us where we fell short.” for review “We need to plant many seeds” Jeffs first move was a “who” and “how” not a “what”. Assigned a single threaded leader

Best way to kill an initiative is to make it someones part time job what would be flexport input metric