One of my pastimes is reading books about the history of companies. Four or five years ago, I read The Everything Store, which is a book about the founding and history up to that point of Amazon. No history of great companies can be told without understanding the individuals that drove the company forward. Jeff Bezos is now the wealthiest man in the world (Pre-Divorce) and was the force behind Amazon’s start, navigating the tech wreck of 2000, where Amazon stock dropped 90% and their rise from the ashes to become the new everything store.
Now, most small businesses will not become Amazon. There are a few key learnings that you can take from Jeff Bezos to make your business more sustainable.
- Have a Vision for Today and the Future – Just like having a cash reserve is the foundation of any financial planning, having a vision of what you want your company to look like today and in the future is the key to any entrepreneurial success. Bezos and Amazon have always been relentless in their focus on the vision. It has changed overtime, so re-evaluation is important, but Bezos has always had an overarching theme to everything Amazon has done. I think this is something that most small businesses really struggle with, I know I have at times. Understanding why you are in business and the value you bring is very hard to articulate. It takes time and usually you need help to truly flesh it out. My recommendation is to work with a coach or consultant because they can truly take an objective view of your small business.
- Reinvest Back into Your Business – When I think of Amazon, this is main thing that truly separates them from other Fortune 500 companies. Amazon has a history of forgoing the short-term profits in order to invest in key growth areas and new technologies for future growth and capture of market share. Amazon started out as a book store, now look at its reach. This is due to years of reinvestment back into the business. Most entrepreneurs and owners do not take this approach. What they tend to do is use the business to fund their lifestyle. So, every year end, these small business owners strip out all the cash leftover and leave nothing in the business for emergencies or opportunities. One way to shift gears and go from being a “lifestyle” business to a true enterprise, is for owners to know how much they need to make out of the business to maintain their lifestyle and save for the future. If that number is less than total comp from the previous year, then that is your reinvestment bucket. For example, let’s say that your business made a profit of $1 million. As an owner you determine that your gross income needs for your family is $500K. The remaining $500K is your new bucket to reinvest in products, services, people and efficiencies via process.
- Don’t be afraid of competition – Amazon has a long history of taking on much bigger and firmly established companies. Off the top of my head I can think of Borders, Barnes and Noble, Toys R Us, Walmart, Target and Sears in the beginning. Now they take on companies like Apple, Google and Facebook. Bezos and Amazon started with a small niche, online book retailer, and was able to leverage it into something significantly different. Amazon was threatened by all these competitors and resisted those threats and acquisition talks. In my experience, as an advisor who works with lots of businesses, most owners are afraid to compete with larger or more experienced competitors in their industry. Instead of looking for ways to reach the competition’s customers, they tend to avoid or focus on other areas of the business. This can be especially true with service businesses. Most businesses don’t know their “value add” to their customers. As a result, they cannot articulate why a customer should work with them. This limits growth and new business because you are now only using referrals as a method for customer acquisition. Don’t get me wrong, referrals are a building block for new business but in order to establish a brand and achieve exponential growth, knowing your value is very important.
So here are a few ideas on how a small business can take lessons from the success of Amazon. Every day I see owners struggle with these issues or more. My next few blogs will discuss some of the other key building blocks for how owners can more effectively manage their personal and business finances.