In September 2018, Amazon’s value crossed the $1 trillion threshold.
CEO Jeff Bezos didn’t take Amazon to the top of the marketplace without mastering the
art of decision-making.
In a 2015 letter to shareholders, he proposed two types of decisions entrepreneurs and executives
regularly face.
A Type 1 decision represents a door you walk through and can’t go back, such as quitting
a well-paying job to focus on your side-hustle full time.
In Amazon’s case, its web services business was a risky gamble that’s worth more than
$190 billion today.
“These decisions must be made methodically, carefully, slowly, with great deliberation
and consultation,” Bezos wrote.
A Type 2 decision represents a reversible choice by an individual or smaller groups,
for example, testing a new product with a group of beta customers or the layout of a
section on the Amazon store.
Ideally, spend up to 10% of your work week on Type 1 decisions.
These are draining and time-consuming, but they demand your attention.
Don’t make Type 1 decisions while feeling angry, hungry, lonely or because you’re
tired of the process.
For example, it’s probably not a good idea to quit your job because you feel despondent
on a Monday morning.
Make Type 2 decisions relatively quickly by batching them, delegating to a team member
or outsourcing to a contractor.
Again, rather than letting emotions overwhelm you, learn what you can about the problem.
You can also triangulate a big decision by consulting other experts with contrasting
views.
Many of your decisions will have unexpected consequences.
Perhaps you create a product customers love only to find you must spend hours fulfilling
orders and providing technical support.
These unexpected consequences often represent Type 2 decisions that you manage through delegating,
outsourcing or reviewing business processes.
“If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences
for that long.
You can reopen the door and go back through.
Type 2 decisions can and should be made quickly by high judgment individuals or small groups,”
Bezos wrote.
For example, a new entrepreneur considering an email service provider will weigh carefully
the costs of this software.
This choice affects their cash flow noticeably, and they will also have to decide on a solution
that’s easy for them to use.
So he or she may spend several hours reading reviews and testing what’s on the market.
A more established entrepreneur might be happy for a team member to recommend several solutions
before selecting one.
Then he or she will evaluate the total cost and consider how long training others to use
this new software takes.
The biggest returns sometimes come from decisions that go against accepted wisdom.
Why would readers want to consume books on a digital device when they can buy a paperback?
Why would an e-commerce store get into the cloud-hosting and services business?
Will people really trust drones to deliver their everyday purchases?
Bezos writes, “Given a 10% chance of a 100-times payoff, you should take that bet every time.”
Amazon has taken many bets over the years.
Some, like the Kindle and its cloud services business, paid off.
Others, like the Amazon Webstore (a Shopify competitor) and Amazon Fire Phone were expensive
flops, with the latter costing the company more than $170 million.
Bezos believes these types of failures are part of the job.
He said: “You’re still going to be wrong nine times
out of ten.
In business, every once in a while, when you step up to the plate, you can score 1,000
runs.
This long-tailed distribution of returns is why it’s important to be bold.
Big winners pay for the many previous experiments.”
After all, entrepreneurs or executives who embrace their choices learn far more than
the people who run away.