Amazon's Jeff Bezos Makes Failing a Key Part of Winning

By Markets Fool.com

Amazon CEO Jeff Bezos tends to not be much of a talker.

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That attitude spreads to his company, which generally treats any information it's not legally obligated to release as a state secret. Whether it's the amount of Prime members it has, how many Fire Phones it actually sold, or even less-sensitive news, the company prefers to deal in broad strokes rather than specifics.

That, however, does not stop Bezos from the occasional bragging in his annual letter to shareholders. Now, of course, the CEO is not Kanye West claiming, "I know I'm the most influential/That TIME cover was just confirmation/This generation's closest thing to Einstein" on Saint Pablo, but he's still tooting his own horn quite a bit in his latest letter.

"This year, Amazon became the fastest company ever to reach $100 billion in annual sales," he wrote. "Also this year, Amazon Web Services is reaching $10 billion in annual sales ... doing so at a pace even faster than Amazon achieved that milestone."

Boom, drop the mic. The CEO threw down the gauntlet at the top of the letter before breaking down why he thinks he company has succeeded.

Bezos is willing to fail
In some ways, the toughest thing about any creative endeavor is that the line between the biggest successes and the biggest failures can be razor thin.Who Framed Roger Rabbitis a classic, while Cool World from legendary director Ralph Bakshi was a famous disaster, but both were groundbreaking in mixing real-life acting with animation.

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Bezos. Image source: Amazon.

What Roger Rabbit director Robert Zemeckis, another legend, and Bakshi both knew is that pushing boundaries requires a willingness to fail. That's a rare ethos in the corporate world, where every risk gets carefully weighed, and the safe path is usually the road traveled, but it's one that Bezos, who cited a "willingness to fail" in his letter, subscribes to.

"One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins," he wrote. "To invent you have to experiment, and if you know in advance that it's going to work, it's not an experiment."

The CEO explained that while most companies believe in invention, they are not willing to suffer the failures needed to make big leaps forward.

"Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right," he wrote. "Given a 10% chance of a 100 times payoff, you should take that bet every time. But you're still going to be wrong nine times out of ten. We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs."

Business is not baseball
Unlike baseball, where even the best swing can, at most, result in four runs, business has no such cap, which makes each swing potentially much more valuable.

"In business, every once in a while, when you step up to the plate, you can score 1,000 runs.," Bezos wrote. "This long-tailed distribution of returns is why it's important to be bold. Big winners pay for so many experiments."

The CEO noted that the company's Auctions and zShops platforms were both high-profile misses before it launched Marketplace for third-party sellers, which now accounts for "close to 50% of units sold on Amazon." He did not specifically call out out its other failures like Amazon Local, an ill-fated attempt to do a me-too version of Groupon before the market made it clear there may not even be space for Groupon in the daily deals market, let alone a late-to-the-party knockoff.

It's about innovation
Bezos is dead-on with his analysis that swinging for the fences often offers much larger upside than playing it safe for his company. He should also heed his own advice and notice that it's actually being different that works for Amazon. Local failed not because people loved Groupon so much, but because there was nothing unique about Amazon's take on daily deals.

That has not been true with membership programs (Prime), consumer electronics (Kindle, Fire TV, Echo), or cloud services (AWS), where the company has forged a unique path. The same could even be said of how the online retailer sold books back when that's all it did.

Not enough people wanted Amazon's version of Groupon, and almost nobody found its take on a smartphone all that clever. Those failures, however, are merely the outs made on the way to hitting the next home run.

The article Amazon's Jeff Bezos Makes Failing a Key Part of Winning originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. He cannot hit a baseball. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.