Today’s issue is the second of what will be a 23-part series covering each of Jeff Bezos’ annual shareholder letters from 1997 to 2019. In each issue, I plan to pull out the most important information that may have contributed to Amazon becoming one of the largest companies in the world today. 

Focus in 1998: Customer and Hiring.

In our previous issue, we dove into Jeff Bezos’ inaugural 1997 shareholder letter. Similar to the format of his first letter, Bezos breaks out the 1998 letter into a recap of the year, a core message, and goals for the following year. 

Entering its second year as a public company, the world’s largest bookstore received attention from analysts who were predicting a business that could have 10% operating margins. Amazon also had an op-ed piece by the Washington Post that scrutinized Bezos’ vision of creating a "personalized" shopping experience for each individual, referring to the small-town merchant experiences of 100 years ago.  

Instead of such news, Bezos’ core message of the 1998 letter revolves around two themes: customers and hiring.

Growth in 1998.

In the 1997 letter, Bezos outlined the importance of market leadership as the foundation to Amazon’s success. He further elaborated on how customer growth, revenue growth, and repeat customers were the key metrics for measuring market leadership.

YoY Market Leadership Metrics in 1998:

• Revenue growth of 313% from $148m to $610m
• Customer account growth of 300%+ from 1.5m to 6.2m 
• Repeat customers grew to 64%+ in Q4 ’98 from 58%+ in Q4 ’97

Notable Product Launches:

• Launched Amazon’s music store and became the leading online music retailer in its first full quarter. 
• Launched Amazon.com Auctions. 
• Expanded into U.K. and Germany. Amazon.co.uk and Amazon.de became leading online booksellers in Q4 ’98

Bezos’ Limitations on Forecasts.

CEOs providing guidance for the future is common practice for many public companies. However, when it comes to Bezos, one can’t help but wonder if he shared with investors a vision of Amazon one day becoming one of the largest companies in the world. 

“We predict the next 3½ years will be even more exciting. We are working to build a place where tens of millions of customers can come to find and discover anything they might want to buy online."

If Bezos had such a vision, he did not share it. Maybe it was to temper investor expectations or a shortcoming of his imagination that humanizes this visionary. In his book "Stumbling on Happiness," Dan Gilbert, a Professor of Psychology at Harvard, notes how human imagination for the future is more likely to be anchored to the past and present. 

Bezos does briefly mention near the end of the letter that he believes the overall e-commerce opportunity will be enormous. However, it's far removed from painting a picture of a business that would dominate all manner of e-commerce categories in the decades to come. 

Not only had Bezos not considered the 2020 reality of billions of customers on Amazon but he would also be blindsided by the dot-com crash of 2000 and 9/11 with his "next 3½ years will be even more exciting" forecast. They were indeed "exciting" but I don’t think Bezos had such events in mind. 

This doesn’t mean Bezos brought Amazon to its current position with pure luck. Not at all. Rather, I think it’s a strong reminder that even great companies and leaders cannot accurately describe to its shareholders how impactful their company could become long term.

What it means to be customer-centric. 

It may not come as a surprise that Bezos attributed the progress in 1998 to Amazon’s relentless focus on the customer. Bezos did not mention anything about "global domination" in regards to Amazon’s e-commerce prowess, but he does share one specific vision: 

“We intend to build the world’s most customer-centric company.”

Practically speaking, it means being convenient, having low prices, and lots of options. But all of that can be copied. What I find unique and telling is the almost Machiavellian way he wants his employees to think about focusing on the customer.

“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us – right up until the second that someone else offers them a better service."

Though it seems rather "intense," it’s such a specific and distinct stance that might not only bring forth the right shareholders but the right talent to Amazon as well. 

Hiring Pioneers. 

Most shareholder letters only focus on the operations, growth, and financials related to the business. Quite rightly so, as shareholders refer to such metrics as indicators of progress and attempt to use them to forecast a vision of their reality. 

It might be the stage that Amazon was in and/or Bezos’ unique CEO mindset, but he devotes a material part of the letter to the importance of hiring the right people for Amazon’s culture. Having grown the company from 600 to 2,100 employees, it may have been a necessity.

“We love to be pioneers, it’s in the DNA of the company, and it’s a good thing, too, because we’ll need that pioneering spirit to succeed."

Turns out, there are three questions that are used to determine if Amazon has found the right candidate. That is if the candidates weren’t scared away with the terrifying level of customer-centricity the company demands. 

Three questions before making a hiring decision:

• Will you admire this person?
• Will this person raise the average level of effectiveness of the group they’re entering?
• Along what dimension might this person be a superstar?

Bezos expands on each question briefly but I found his litmus test for the second question to be quite poignant. He tells people to try and imagine the company five years out and they should strive to reach the point of thinking how glad they are to have been hired when they did because the standards have become so high in this future. It’s a simple and powerful mental model. 

Given the rapid rate of hiring, such simple models might have been required, but even if leaders have no intention of becoming a global juggernaut, these three questions may be a valuable set of tools for building out their own team of pioneers and innovators.