Grow Like Amazon To Succeed; Invest Outside Your 'Core'

09 August, 2011

“It’s easier to succeed in the Amazon than on the polar tundra,” Bruce Henderson, famed founder of The Boston Consulting Group, once told me. “In the arctic, resources are few and there aren’t many ways to compete. You are constantly depleting resources in life-or-death struggles with competitors. Contrarily, in the Amazon, there are multiple opportunities to grow and multiple ways to compete, dramatically increasing your chances for success. You don’t have to fight a battle of survival every day; so you can really grow.”

Today, Amazon (.com) is the place to be. As the financial markets droop, fearful about the economy and America’s debt ceiling ‘crisis’, Amazon is achieving its highest valuation ever. While the economy, and most companies, struggle to grow, Amazon is hitting record growth:

Sales are up 50 per cent versus last year! And the result of this impressive sales growth has been a remarkable valuation increase – comparable to Apple! 

  Since 2009, valuation is up 5.5x.

  Over five years, valuation is up 8x.

  Over the last decade, Amazon’s value has risen 15x.

But how did Amazon do this? Not by ‘sticking to its knitting’ or being very careful to manage its ‘core.’ In 2001, Amazon was still largely an online book-seller.

The company’s impressive growth has come by moving far from its ‘core’ into new markets and new businesses – most of them far removed from its expertise. Despite its ‘roots’ and ‘DNA’ being in US books and retailing, the company has pioneered offshore businesses and high-tech products that help customers take advantage of big trends.

Amazon’s earnings release provided insight to its fantastic growth. Almost 50 per cent of its revenues lie outside the USA. Traditional retailers such as Wal-Mart, Target, Kohl’s, Sears, etc. have struggled in foreign markets and blamed poor performance on weak infrastructure and complex legal/tax issues. But where competitors have seen obstacles, Amazon created opportunity to change the way customers buy and changed the industry, using its game-changing technology and capabilities. For its next move, according to Silicon Alley Insider, ‘Amazon is About to Invade India’, a huge retail market in an economy growing at over 7 per cent a year, with rising affluence and spendable income – but almost universally overlooked by most retailers due to weak infrastructure and complex distribution.

Amazon’s remarkable growth has occurred even though its ‘core’ business of books has been declining – rather dramatically – during the last decade. Book readership decline has driven most independents, and large chains such as B. Dalton, and more recently Borders, out of business. But rather than using this as an excuse for weak results, Amazon invested heavily in the trends toward digitisation and mobility to launch the wildly successful Kindle e-Reader. Today, about half of all Amazon book sales are digital, creating growth where most competitors (hell-bent on trying to defend the old business) have dealt with stagnation and decline.

Amazon did this without a background as a technology company, an electronics company or a consumer goods company. Additionally, Amazon invested in Kindle – and is now developing a Tablet – even as these products cannibalised the historically ‘core’ paper-based book sales. And Amazon has pursued these market shifts, even though these new products create a significant threat to Amazon’s largest traditional suppliers – book publishers.

Rather than trying to defend its old core business, Amazon has invested heavily in trends – even when these investments were in areas where Amazon had no history, capability or expertise!

Amazon has now followed the trends into a leading position, delivering profitable Cloud services. Amazon Web Services (AWS) generated $500 million revenue last year, is reportedly up 50 per cent to $750 million this year, and will likely hit $1 billion or more before the next year. In addition to simple data storage, Amazon offers Cloud-based Oracle database services and even ERP (enterprise resource planning) solutions from SAP. In Cloud computing services, Amazon now leads historically dominant IT services companies like Accenture, CSC, HP and Dell. By offering solutions that fulfil the emerging trends, rather than competing head-to-head in traditional service areas, Amazon is growing dramatically and avoiding a gladiator war. And capturing big sales and profits as the marketplace explodes.

Amazon created 5,300 US jobs last quarter. Organic revenue growth was 44 per cent. Cash flow increased 25 per cent. All because the company continued expanding into new markets, not only new retail markets and digital publishing, but also video downloads and television streaming, including making a deal to deliver CBS shows and archive.

Amazon’s willingness to go beyond conventional wisdom has been critical to its success. GeekWire.com gives insight into how Amazon makes these critical resource decisions in ‘Jeff Bezos on Innovation’ (taken from comments at a shareholder meeting on June 7, 2011):

  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, you never get to the point where you really need to bet the   whole company.

  We are planting more seeds…everything we do will not work…I am never concerned about that.

  My mind never lets me get in a place where I think we can’t afford to take these bets.

  A big piece of the story we tell ourselves about who we are, is that we are willing to invent.

If you want to succeed, there are ample lessons at Amazon. Be willing to enter new markets; be willing to experiment and learn; don’t play ‘bet the company’ by waiting too long and be willing to invest in trends – especially when existing competitors (and suppliers) are hesitant.


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Grow Like Amazon To Succeed; Invest Outside Your 'Core'

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