Posts Tagged: Amazon.com

3 lessons from a customer-obsessed company

Last week, I attended a fascinating talk about Customer Obsession given by Kim Rachmeler at version one’s portfolio company, Frontdesk. Kim spent 10 years at Amazon.com, where she served as VP of Worldwide Customer Service, CIO International, among several other critical roles.

While it’s no secret that Amazon.com is a customer-centric company, Kim shared a few interesting insights into the role of customer service at Amazon. In particular, I took away three key points:

1. Empower customer service to do whatever is best for the customer:

Customer service is a company’s direct link to the customer, yet in many organizations, customer service is positioned as a “reactive” department – just there to field queries and complaints. At Amazon.com, customer service has the ability to take a product out of catalogue if they see it doesn’t meet customer expectations. The merchandising manager then needs to fix the product before it can be returned to the catalogue.

2. Focus on a simple measure of customer service quality:

Amazon.com includes the question “Was this answer helpful?” at the end of every email that gets sent out. This question focuses the entire team on a single, one-dimensional metric. And the simplicity of the question means that more customers are likely to answer, providing feedback from more customers than trying to get responses from a lengthy survey.

3. Drive customer service into the whole company:

At AbeBooks, we had everybody work in customer service from time to time and Amazon.com has a similar policy (although given the sheer size of Amazon, they need to limit the program to just managers). Having everyone wear the customer service hat accomplishes two things: 1) Participants get reconnected to customers and actual customer needs and 2) Managers view customer service as an important source of knowledge about customers.

In a customer obsessed organization, customer service isn’t viewed as a cost center or simply measured on a P&L report. Customers are valuable assets, and each interaction is an opportunity to improve not only that relationship, but improve your product, processes, and company mission.

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When to sell your company

Few decisions can be as life-changing for founders as deciding when to sell a business. Companies get sold for a whole host of reasons: founders break up; money runs out; shareholders force a sale. And in many cases, the financial upside of a sale is just too seducing for the entrepreneurs, particularly for first-time founders.

When making such a major decision, you’ll undoubtedly need to weigh many factors and most likely, some competing interests. However, I think the most compelling reason to sell is when the founders run out of ideas for how to grow the company further.

Speaking from personal experience, this was the driving force behind our decision to sell AbeBooks (a marketplace for used, rare, and hard-to-find books) to Amazon back in 2008.

At the time, AbeBooks was still a nicely growing and highly profitable business, but we didn’t know how we could turn it into a billion dollar company. At the same time, the business could provide a lot of strategic value for many players in the book business, namely Amazon. So we decided to sell.

Looking back, there were several factors limiting our ability to grow, including:

  • Geographical markets: We had internationalized to five non-English speaking countries in Europe, but felt that conquering Asia was too risky an endeavor for a relatively small company (our platform revenues were in the hundreds of millions of dollars).
  • Vertical markets: Expanding from books to other media verticals seemed unrealistic, considering both the music and movie verticals had a rapidly shrinking share of physical goods.
  • Market expansion: AbeBooks specialized in the long tail (used, rare, hard-to-find books). We saw only modest success when we tried to complete our offering by expanding into new books. Amazon’s brand recognition is just too strong among book buyers to allow competition.
  • Acquisitions: We had acquired companies both upstream (Bookfinder, a major price comparison engine that sent up a large amount of traffic to us) and downstream (Fillz, a channel manager software that helped our sellers sell on other marketplaces).

Most importantly, we felt that we had optimized our business model to extract as much value out of the marketplace as we could. In short, we were struggling to think of ways to grow the company beyond modest increments.

For some founders, external factors and financial pressures may be too strong to avoid selling. But if you have a choice, don’t think about selling your company until you run out of ideas for how to grow it. Hopefully, that time will be far down the road.

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4 ways to compete in Amazon’s shadow

If it has a UPC code, Amazon will beat you.  Thanks to a bigger inventory, low prices, convenient return policy, trusty user reviews, and services like Amazon Prime, Amazon is the world’s largest retailer and doesn’t seem to be moving from that position any time soon.

But even in the shadow of Amazon, there are several opportunities for entrepreneurs to make a dent in e-commerce. Here are four ways:

1. Unique product line:

As I recently wrote in TechCrunch, a new generation of web-only brands are bringing their products directly to consumers without the bloat of the traditional retail value chain. Together vertically integrated retailers like Warby ParkerIndochinoStella DotChloe & IsabelFrank & OakEverlaneBonobos and J Hilburn will generate over a billion dollars in revenue in 2012.

By creating their own unique brand and offering products that can’t be found elsewhere, these retailers don’t have to worry about competing head-to-head with Amazon and Amazon prices.

2. Curated shopping experiences:

Like Google, Amazon offers an efficient platform for searching for a specific item. In a GigaOM article, Michael Schreck described Amazon’s platform: “One click and you’re out. Amazon’s anti-shopping model reflects the characteristics of the very people that built it — engineers — who quite frankly are not your typical power shoppers.”

With the rise of the iPad and retina display, there’s a real opportunity for e-commerce companies to build a visually engaging, glossy digital shopping experience that is more like window shopping than typing a product into a search engine and getting a bunch of product results back. Curated shopping experiences like Fab.com encourage consumers to sit back, browse and discover entirely new items – the very things they can’t do on Amazon.

3. “Second season” discounts:

Flash sale sites have become one of the fastest growing segments in e-commerce. Companies like GiltZulily, and One Kings Lane offer steep discounts on products for a limited time, promoting them via urgent emails. Most of the products failed to sell in brick-and-mortar stores the previous season. For shoppers, these sites feel more like a designer’s sample sale – they offer an insider’s price on designer goods if you’re there at the right time and are ready to act fast.

This is a rather mature segment with many verticals already being taken by strong players that are generating several hundreds of millions of dollars in sales. With access to unique inventory being the key success factor, newcomers in this space might face a tough time against those incumbents and their strong purchasing relationships with brands.

4. Marketplaces

Online marketplaces connect buyers and sellers of often unique products, filling a niche that speaks to a particular audience. For example, Etsy offers a channel for aspiring designers and crafters to get distribution. Threadflip offers a more personal version of eBay focused on buying and selling secondhand designer fashion goods. And tindie connects buyers and sellers of DIY electronics. While the chicken-and-egg problem of supply and demand makes marketplaces hard to build, they can scale very quickly once a network effect starts to develop. Due to network effects, marketplaces also create important barriers to entry.

In summary: while Amazon won’t be unseated any time soon and you can’t expect to compete on price, there are billion dollar opportunities waiting in discovery, curation, marketplaces, and vertical integration.

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On innovation in start-ups

One of the most impressive pieces on innovation I recently read was Jeff Bezos‘ answer to a shareholder question at the last annual meeting. The question was:

Amazon seems to be executing well lately — is the company taking enough risks? Added the shareholder, “If it’s still Amazon’s philosophy to make bold bets, I would expect that maybe some of them wouldn’t work out, but I am just not seeing that. So, my question is where are the losers?”

And Bezos answered:

In a way, that is like the nicest compliment I’ve ever gotten. First of all, I think we have gotten pretty lucky recently. You should anticipate a certain amount of failure. Our two big initiatives, AWS and Kindle — two big, clean-sheet initiatives — have worked out very well. Ninety-plus percent of the innovation at Amazon is incremental and critical and much less risky. We know how to open new product categories. We know how to open new geographies. That doesn’t mean that these things are guaranteed to work, but we have a lot of expertise and a lot of knowledge. We know how to open new fulfillment centers, whether to open one, where to locate it, how big to make it. All of these things based on our operating history are things that we can analyze quantitatively rather than to have to make intuitive judgments.

When you look at something like, go back in time when we started working on Kindle almost seven years ago…. There 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, then you never get to that point where you really need to bet the whole company. AWS also started about six or seven years ago. We are planting more seeds right now, and it is too early to talk about them, but we are going to continue to plant seeds. And I can guarantee you that everything we do will not work. And, I am never concerned about that…. We are stubborn on vision. We are flexible on details…. We don’t give up on things easily. Our third-party seller business is an example of that. It took us three tries to get the third-party seller business to work. We didn’t give up.

There are 3 important take-aways for every start-up in this answer:

  1. Most innovation is incremental and for your start-up to be successful, you need to crank out hundreds of little improvements to your product every week. An efficient a/b testing framework is usually the best basis for this. This is the short-term innovation.
  2. To stay relevant in your market over a few years, you need to place big bets from time to time that redefine your business and / or open up completely new opportunities. This is the mid-term innovation.
  3. To build a really great business that will define a category as Amazon has done with e-commerce, you need to have a very clear vision, be stubborn to achieve that vision and never give up. This is the long-term innovation and the hardest to achieve.

I am a big admirer of how Jeff has built his company – take him as a role model when you think about building your start-up and you will do fine.

 

 

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Amazon’s new Vancouver office is great news

Yesterday’s news that Amazon is opening an engineering office in Vancouver is a really good one for the city. While development offices can never replace having “real” anchor companies in a community, they can help attract and train talented developers that at some stage leave the company and start new companies. It is this typical cycle that has long fueled innovation in Silicon Valley – and the Google engineering office in New York City has shown what impact an engineering office of a large web company can make for a community. So let’s hope that Amazon will quickly expand their operations in Vancouver and BC (my former company AbeBooksnow an Amazon subsidiary – still has their 100+ people HQ in Victoria) and that many other web companies will follow suit – Facebook? Google? Twitter? Continuously ranking as one of the most livable cities in the world Vancouver should be one of the top locations for North-American tech companies to build a presence in.

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