Bezos is a big fan of failure.
It's because he believes failed experiments are a necessary evil to creating successful inventions. He says failure and inventions are "inseparable twins."
"To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there," Bezos wrote in Amazon's most recent annual shareholder letter.
Indeed, Amazon has shut down countless failed projects over the past two decades. That includes its hotel booking site Amazon Destinations...
...its auctions site, Amazon Auctions...
...and its first smartphone, Fire Phone.
Bezos says none of those failed experiments are fun. "I've made billions of dollars of failures at Amazon.com," Bezos once said, joking that failure often feels like "a root canal with no anesthesia."
He says nine times out of ten, you're going to fail. But every once in while, you'll hit a home run that in business terms is more like 1,000 runs. "Given a ten percent chance of a 100 times payoff, you should take that bet every time," Bezos says.
In fact, Bezos says some of Amazon's largest businesses, including Amazon Web Services, Marketplace, and Prime, are a result of making bold bets. AWS, for example, is expected to hit $10 billion in revenue this year.
It's why Bezos isn't fazed by the massive failure of the Fire Phone, which cost the company hundreds of millions of dollars. "If you think that's a big failure, we're working on much bigger failures right now. And I am not kidding. And some of them are going to make the Fire Phone look like a tiny little blip," he says.
And as the company grows, the size of the mistakes has to grow as well, Bezos said. "If it doesn't, you're not going to be inventing at scale that can actually move the needle."
Because the moment you stop taking big, bold bets, you'll stop creating new opportunities. "If you decide that you're going to do only the things you know are going to work, you're going to leave a lot of opportunity on the table," Bezos once said.
That also means you'll have to grow a thick skin and be willing to be misunderstood for a long time. "Invention requires a long-term willingness to be misunderstood...if you really have conviction that they're not right then you need to have that long term willingness to be misunderstood," Bezos says.
It's one reason why Bezos likes to hire people who have failed before. For example, Bezos hired former executives of Webvan, the failed online grocery delivery service from the first dot-com era, to launch Amazon's own grocery delivery service, Amazon Fresh.
But equally important is knowing when to pull out if things are not working, Bezos says.
Because pulling the plug on such experiments is actually good in some ways. "On the day you decide to give up on it, what happens? Your operating margins go up because you stopped investing in something that wasn’t working. Is that really such a bad day?" Bezos says.
This tolerance for failure is deeply ingrained in Amazon's culture. It's a point Bezos has made every year since the very first Amazon shareholder letter in 1997. "We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures."
And almost every Amazon shareholder letter since then has contained the words "invent" or "fail." To emphasize this point, Bezos once wrote, "Failure comes part and parcel with invention. It’s not optional. We understand that and believe in failing early and iterating until we get it right."
Bezos' thinking continues to be a big part of Amazon's culture. Perhaps he summed it up best in Amazon's most recent annual shareholder letter: "I believe we are the best place in the world to fail (we have plenty of practice!)"
