On innovation in start-ups

One of the most impressive pieces on innovation I recently read was Jeff Bezos‘ answer to a shareholder question at the last annual meeting. The question was:

Amazon seems to be executing well lately — is the company taking enough risks? Added the shareholder, “If it’s still Amazon’s philosophy to make bold bets, I would expect that maybe some of them wouldn’t work out, but I am just not seeing that. So, my question is where are the losers?”

And Bezos answered:

In a way, that is like the nicest compliment I’ve ever gotten. First of all, I think we have gotten pretty lucky recently. You should anticipate a certain amount of failure. Our two big initiatives, AWS and Kindle — two big, clean-sheet initiatives — have worked out very well. Ninety-plus percent of the innovation at Amazon is incremental and critical and much less risky. We know how to open new product categories. We know how to open new geographies. That doesn’t mean that these things are guaranteed to work, but we have a lot of expertise and a lot of knowledge. We know how to open new fulfillment centers, whether to open one, where to locate it, how big to make it. All of these things based on our operating history are things that we can analyze quantitatively rather than to have to make intuitive judgments.

When you look at something like, go back in time when we started working on Kindle almost seven years ago…. There you just have to place a bet. If you place enough of those bets, and if you place them early enough, none of them are ever betting the company. By the time you are betting the company, it means you haven’t invented for too long.

If you invent frequently and are willing to fail, then you never get to that point where you really need to bet the whole company. AWS also started about six or seven years ago. We are planting more seeds right now, and it is too early to talk about them, but we are going to continue to plant seeds. And I can guarantee you that everything we do will not work. And, I am never concerned about that…. We are stubborn on vision. We are flexible on details…. We don’t give up on things easily. Our third-party seller business is an example of that. It took us three tries to get the third-party seller business to work. We didn’t give up.

There are 3 important take-aways for every start-up in this answer:

  1. Most innovation is incremental and for your start-up to be successful, you need to crank out hundreds of little improvements to your product every week. An efficient a/b testing framework is usually the best basis for this. This is the short-term innovation.
  2. To stay relevant in your market over a few years, you need to place big bets from time to time that redefine your business and / or open up completely new opportunities. This is the mid-term innovation.
  3. To build a really great business that will define a category as Amazon has done with e-commerce, you need to have a very clear vision, be stubborn to achieve that vision and never give up. This is the long-term innovation and the hardest to achieve.

I am a big admirer of how Jeff has built his company – take him as a role model when you think about building your start-up and you will do fine.

 

 

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