April 14, 2013 § Leave a comment
I’m re-posting a deeper analysis of Jeff Bezos’s recently published annual shareholder letter along with an additional history and perspective.
Amazon’s story has special meaning for me and this long-term view is a big part of the story. Watching Amazon’s success unfold over the years has been an important business and life lesson for me. I’ve always been a big fan of Jeff B having known him since the early days of Amazon. In 1996, in the very early days of e-commerce, I was at the Internet Shopping Network (ISN) and part of “the big 3” of early e-commerce (Amazon = Book sales; CDNow = Music sales; ISN = Computer Sales. We all used the same “middle man model”; Amazon = Ingram Books; CDNow = Ingram Music; ISN = Ingram Micro. Suffice it to say, I’ve had very real and very deep and detailed operating experience in the e-commerce arena.
First, a bit of a history lesson on e-commerce to complement and add perspective to this long-term view blog post. In the early days of e-commerce (1995-1998; Amazon’s first book sale was July, 2005), the model was to simply get a dump of the big 3 distributors databases/catalogs and to repackage the information into nice looking web pages with pictures, prices, text narrative, and of course a Buy button (with a bunch of other back-end code, operations, EDI Technology.).
That’s was the entirety of e-commerce in those days. It all started with that. Nobody owned their own warehouses. We were simply resellers without any brick and mortar. We bought at wholesale, sold at “retail”, and everything was shipped from the Ingram’s warehouses to the customers of Amazon, CDNow, and ISN. In fact, Amazon didn’t open their first real owned and operated warehouse/distribution center until 1998. It was 100% manual pick/pack – but they owned it. Amazon proceeded to open six more key distribution centers in 1999, the year they really leaned into doing whatever it takes for customer satisfaction and away from having some other firm (Ingram) control your back-end customer experience.
We crossed path’s again in 1997/1998 with Netflix and their brief acquisition offer. And, I got to know Jeff best of all in the 1999-2000 era with WineShopper.com when we were a huge Amazon investment and briefly a tab on Amazon’s home page (Wine). http://cookflix.me/117CFeQ
“It’s All About the Long Term”: the Scott Cook influence
The title of this post is from Jeff’s 1997 original letter but he buried it a bit as “The Headline”. Jeff’s always had a long view mentality, but I believe this was drilled into him and he embraced it fully around the 1996 time frame when Scott Cook began mentoring Jeff. Scott officially became a key board member in Jan, 1997. The long-term view was one of Scott’s key mantra’s and he drilled it into all of us at Intuit in the late 80’s/early 90’s. Scott’s other big mantra from 1993 was to “Wow! the Customer” (inspired by Tom Peters 1994 book he had read and proceeded to hand out to all of us). Scott clearly impressed and/or reinforced the concept of “Wow!” with Jeff and now Jeff is impressing it upon all of us by proving it to us over the last +15 years. Here was Jeff B’s quote on appointing Scott to his board in Jan, 1997 after six months of great mentoring:
“We are delighted and honored to have Scott Cook join the Amazon.com board of directors. No one is better at using technology to serve customers than Scott Cook,” said Jeff Bezos, founder and CEO of Amazon.com. “His experience building the preeminent financial software company in the face of fierce competition will be of great benefit to Amazon.com. ”
More Amazon history, Jeff’s eternal optimism, and his long-term view:
Amazon went public on May 15, 1997 (I have the original S-1 if anyone wants to see it!). This IPO document clearly and highly unusually stated it did not intend to make a profit for the next four to five years. Unusual? Absolutely! For perspective, the bankers wouldn’t take Intuit public in 1993 until we had 9 quarters of consecutive profitability. By 1997, that was down to 4 quarters of profitability. Today’s times have changed, but in that day to go public and to say explicitly you weren’t focused on profits for four to five years was so far “out there” and “long view” that many investors shunned the stock and actively shorted it. After all, it was still 1997, the heady days of 1999 were just barely beginning and certainly investors hadn’t lost their heads yet. There were many good reasons to short Amazon. The analysts weren’t wrong “short term” but Jeff/team simply out executed them and eventually proved them wrong in the “long term”. Read on and you’ll see it took four more years to actually turn their first very small but consecutive profit.
In two quick debt financings in Q4 1999 and in Q1 2000, Amazon borrowed a total of nearly $2 billion in convertible long term debt (10 yr notes at~5-7% interest rate). As a backdrop, Amazon’s total cash & marketable securities as of March 31, 2000 (after this cash/debt raised) was $1.0 Billion and it was burning $300 million of cash in operating activities a quarter.. They had just reported 1999 annual revenues of $1.6 billion and gross profit (after cost of sales) of $300 Million for 1999 and had just borrowed nearly $2 billion by March 31, 2000.
Amazon turned it’s very first quarterly profit in Q4 of 2001 (where it typically still received 40% of annual revenues in classic retailer seasonality) and proceeded to go negative again until its second every quarterly profit in Q4 of 2002.
Amazon was 7 years in and had been a public company for 5 years when in July 2002, a Business Week article wrote, “after seven years and more than $1 billion in losses, Amazon is still a work in process.” In fact, in 2002, Amazon ended up laying off 1,300 employees (15% of its workforce) and closing one of its distribution warehouse centers and bet the house even further with a very risky strategy of lowering prices across the board and offering free shipping (causing analysts to cry “desperate times call for desperate measures” and many proceeded to short the stock even harder convinced of the company’s eventual demise)
By 2003 – the headline in Amazon’s Q4 2003 Financial Statement Release led with the headline:
“AMAZON.COM ANNOUNCES RECORD FREE CASH FLOW FUELED BY LOWER PRICES AND YEAR-ROUND FREE SHIPPING” with a classic Jeff B quote of:
“Our commitment to year-round free shipping and lower prices continues to be a win-win for our customers and Amazon.com,”
said Jeff Bezos, founder and CEO of Amazon.com. “In addition to purchasing thousands of $29 DVD players this holiday season,
customers also bought Tibetan yak cheese, pomegranate molasses and zero carb cheese straws.”
2003 Revenue had just surpassed $5 Billion and Amazon was finally turning an operating income profit of under $300 Million (~5% of sales) and its first ever positive annual net income of a whopping $35 million (< 1 % of sales). Amazon was now 9 years in and 7 years since going public. It also announced it would begin repurchasing up to $500 million of it’s still current $2 billion of long term debt.
- Feb, 2005 – launches Amazon Prime
- by Dec 31, 2006 – 220,000 developers are using AWS (Amazon Web Services; launched in 2002/2003)
- In 2006, launches Amazon Simple Storage Service (S3) and Elastic Cloud Computing (EC2)
Back to Jeff B’s 2013 and Historical Annual Shareholder Letters
I realize many of you may have already seen last week’s news story that prompted this post. Others of you may have skimmed the actual letter itself. In today’s fast paced world, I’m betting many of you may have missed the key points I’ve attempted summarized below. The keys to business success are relatively straightforward and simple; (1) Vision and Passion (2) Customer Obsession and (3) Long Term View. That’s it. Pretty simple and powerful.
Some quick summaries and my personal key take-away’s from the published shareholder letters. I’ve added a few other letter’s along the way and some key metrics as bonus material.
- We will focus relentlessly on our customers. We will “Obsess Over Customers”
- We will continue to make bold (not timid) long term investment decisions vs. short term profitable one’s or short-term Wall St reactions.
- We will measure and learn from both our successes and our failures.
- We are prioritizing growth over profitability in order to achieve scale which is key to our business model
- Our success is dependent on attracting and motivating employees each of whom must think like, and act like, an owner
1997 key metrics: Market cap = $ Revenue = $150 Million Net Income -$28 Million; Debt = $75 Million; Cash Equiv. Balance = $125 Million; # Customers = 1.5 million; # of Items Shipped = < 7 million; # of Employees = 614
- served over 17 million customers in 150 countries
- sales of $1.6 Billion (up from 600M in 1998)
- Book sales fall slightly below 50% by end of 1999. In 1997, they were 100% of sales
- Int’l Sales = 22% or $350 Million
- Worldwide Distribution Capacity (warehouses) grew from 300,000 sq. feet (1 large size Safeway warehouse) to 5 million square feet.
- Year 2000 Goals: 1) Grow and Strengthen Customer Relationships 2) Product and Service Expansion 3) Operational Excellence 4) Int’l Expansion
- Share price down 80% (Ouch!)
- 20 million customers; Sales of $2.6 Billion; Cash Equiv = $1.1 Billion; Debt = $2.1 Billion;
- Avg. Spend per customer = $134
- Big “bold bets” in many investment areas including Living.com and Pets.com both of which shut down in 2000.
- a 2 page
diatribeeducation on free cash flow per share using a hypothetical company and spreadsheets embedded in the letter!
- More on Free Cash Flow Per Share as Amazon’s Key Metric
- $477 Million of Total Free Cash Flow in 2004
- Paid off $600 Million of previous $2.1B in long term debt
2004 key metrics: Market cap = $19 Billion; Revenue = $6.9 Billion (44% Int’l); Net Income = $588 Million (8-9% of revenue); Debt = $1.9 Billion; Cash Equiv. Balance = $1.8 Billion; # of Employees = 9,000
- The Power of Invention; the most powerful and radical invention are those that empower others to unleash their creativity
- Examples = AWS, Fulfillment by Amazon, Kindle Direct Publishing; powerful self-service platforms
- One of first inventions in AWS (the S3 simple storage service) now holds nearly 1 Trillion data objects; 1 billion objects added daily
- S3 avg’s 500,000 transactions per second with peaks of 1 million transactions per second
- KDP (Kindle Direct Publishers) allow authors to keep 70% of the revenue (vs. 17% avg with traditional books)
- Customer-centric view = defining element of our culture
- Internally driven to “wow” customers and invent before we have to
- We don’t react to competition. We react to our customers needs.
- We “Wow Customers” and “Put Customer First”
- We Surprise, Delight, and Earn Customer Trust
“Amazon, as far as I can tell, is a charitable organization being run by elements of the investment
community for the benefit of consumers,” writes one outside observer
Jeff’s response: “…long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business
from those customers, even in new business arenas. Take a long-term view, and the interests of
customers and shareholders align”
“As proud as I am of our progress and our inventions, I know that we will make mistakes along the way – some will be self-inflicted, some will be served up by smart and hard-working competitors. Our passion for pioneering will drive us to explore narrow passages, and, unavoidably, many will turn out to be blind alleys. But – with a bit of good fortune – there will also be a few that open up into broad avenues. I am incredibly lucky to be a part of this large team of outstanding missionaries who value our customers as much as I do and who demonstrate that every day with their hard work.”
2013 key metrics: Market cap = $124 Billion Proj. 2013 Revenue = $75 Billion; Proj. 2013 Net Income = $675 M (~1% of sales); Debt = $4.5 Billion; # of Employees = +88,000
In conclusion, it’s been nearly 18 years since Amazon sold their very first book. Amidst all the early and loud negativity (huge losses, huge debt, layoffs and faltering market value), Jeff was eternally optimistic and the poster boy for the “long term view”. Most importantly, he’s executed “long term” and taught us all valuable lessons along the way. And “It’s Still Day 1!”
Jeff’s original 2013 letter > Amazon2012-1997-Shareholder Letter
amazonshareholderletters1997-2011 < Complete History of Jeff’s Annual Shareholder Letters
April 11, 2013 § 1 Comment
11 Simple Concepts to Become a Better Leader
January 28, 2013
Dave Kerpen (CEO, Likeable Local, NY Times Best-Selling Author & Keynote Speaker)
“When people talk, listen completely. Most people never listen.” – Ernest Hemingway
Listening is the foundation of any good relationship. Great leaders listen to what their customers and prospects want and need, and they listen to the challenges those customers face. They listen to colleagues and are open to new ideas. They listen to shareholders, investors, and competitors. Here’s why the best CEO’s listen more.
“Storytelling is the most powerful way to put ideas into the world today.” -Robert McAfee Brown
After listening, leaders need to tell great stories in order to sell their products, but more important, in order to sell their ideas. Storytelling is what captivates people and drives them to take action. Whether you’re telling a story to one prospect over lunch, a boardroom full of people, or thousands of people through an online video – storytelling wins customers.
“I had no idea that being your authentic self could make me as rich as I’ve become. If I had, I’d have done it a lot earlier.” -Oprah Winfrey
Great leaders are who they say they are, and they have integrity beyond compare. Vulnerability and humility are hallmarks of the authentic leader and create a positive, attractive energy. Customers, employees, and media all want to help an authentic person to succeed. There used to be a divide between one’s public self and private self, but the social internet has blurred that line. Tomorrow’s leaders are transparent about who they are online, merging their personal and professional lives together.
“As a small businessperson, you have no greater leverage than the truth.” -John Whittier
There is nowhere to hide anymore, and businesspeople who attempt to keep secrets will eventually be exposed. Openness and honesty lead to happier staff and customers and colleagues. More important, transparency makes it a lot easier to sleep at night – unworried about what you said to whom, a happier leader is a more productive one.
5. Team Playing
“Individuals play the game, but teams beat the odds.” -SEAL Team Saying
No matter how small your organization, you interact with others every day. Letting others shine, encouraging innovative ideas, practicing humility, and following other rules for working in teams will help you become a more likeable leader. You’ll need a culture of success within your organization, one that includes out-of-the-box thinking.
“Life is 10% what happens to you and 90% how you react to it.” -Charles Swindoll
The best leaders are responsive to their customers, staff, investors, and prospects. Every stakeholder today is a potential viral sparkplug, for better or for worse, and the winning leader is one who recognizes this and insists upon a culture of responsiveness. Whether the communication is email, voice mail, a note or a a tweet, responding shows you care and gives your customers and colleagues a say, allowing them to make a positive impact on the organization.
“When you’re finished changing, you’re finished.” -Ben Franklin
There has never been a faster-changing marketplace than the one we live in today. Leaders must be flexible in managing changing opportunities and challenges and nimble enough to pivot at the right moment. Stubbornness is no longer desirable to most organizations. Instead, humility and the willingness to adapt mark a great leader.
“The only way to do great work is to love the work you do.” -Steve Jobs
Those who love what they do don’t have to work a day in their lives. People who are able to bring passion to their business have a remarkable advantage, as that passion is contagious to customers and colleagues alike. Finding and increasing your passion will absolutely affect your bottom line.
9. Surprise and Delight
“A true leader always keeps an element of surprise up his sleeve, which others cannot grasp but which keeps his public excited and breathless.” -Charles de Gaulle
Most people like surprises in their day-to-day lives. Likeable leaders underpromise and overdeliver, assuring that customers and staff are surprised in a positive way. There are a plethora of ways to surprise without spending extra money – a smile, We all like to be delighted — surprise and delight create incredible word-of-mouth marketing opportunities.
“Less isn’t more; just enough is more.” -Milton Glaser
The world is more complex than ever before, and yet what customers often respond to best is simplicity — in design, form, and function. Taking complex projects, challenges, and ideas and distilling them to their simplest components allows customers, staff, and other stakeholders to better understand and buy into your vision. We humans all crave simplicity, and so today’s leader must be focused and deliver simplicity.
“I would maintain that thanks are the highest form of thought, and that gratitude is happiness doubled by wonder.” -Gilbert Chesterton
Likeable leaders are ever grateful for the people who contribute to their opportunities and success. Being appreciative and saying thank you to mentors, customers, colleagues, and other stakeholders keeps leaders humble, appreciated, and well received. It also makes you feel great! Donor’s Choose studied the value of a hand-written thank-you note, and actually found donors were 38% more likely to give a 2nd time if they got a hand-written note!
The Golden Rule: Above all else, treat others as you’d like to be treated
By showing others the same courtesy you expect from them, you will gain more respect from coworkers, customers, and business partners. Holding others in high regard demonstrates your company’s likeability and motivates others to work with you. This seems so simple, as do so many of these principles — and yet many people, too concerned with making money or getting by, fail to truly adopt these key concepts.
Which of these principles are most important to you — what makes you likeable?
March 19, 2013 § Leave a comment
Glenn Llopis, Contributor
Many people wonder how leaders know how to make the best decisions, often under immense pressure. The process of making these decisions comes from an accumulation of experiences and encounters with a multitude of difference circumstances, personality types and unforeseen failures. More so, the decision making process is an acute understanding of being familiar with the cause and effect of behavioral and circumstantial patterns; knowing the intelligence and interconnection points of the variables involved in these patterns allows a leader to confidently make decisions and project the probability of their desired outcomes. The most successful leaders are instinctual decision makers.
Here are 15 things you must do automatically, every day, to be a successful leader in the workplace:
1. Make Others Feel Safe to Speak-Up
2. Make Decisions
3. Communicate Expectations
4. Challenge People to Think
“If you are not thinking, you’re not learning new things. If you’re not learning, you’re not growing”
5. Be Accountable to Others; Successful leaders allow their colleagues to manage them.
6. Lead by Example
7. Measure & Reward Performance
8. Provide Continuous Feedback
“Successful leaders always provide feedback and they welcome reciprocal feedback by creating trustworthy relationships with their colleagues.”
9. Properly Allocate and Deploy Talent
10. Ask Questions, Seek Counsel
“…on the inside, they have a deep thirst for knowledge and constantly are on the look-out to learn new things because of their commitment to making themselves better through the wisdom of others”
11. Problem Solve; Avoid Procrastination
12. Positive Energy & Attitude
13. Be a Great Teacher
“Successful leaders never stop teaching because they are so self-motivated to learn themselves. They use teaching to keep their colleagues well-informed and knowledgeable through statistics, trends, and other newsworthy items”
14. Invest in Relationships
15. Genuinely Enjoy Responsibilities
Successful leaders love being leaders – not for the sake of power but for the meaningful and purposeful impact they can create. When you have reached a senior level of leadership – it’s about your ability to serve others and this can’t be accomplished unless you genuinely enjoy what you do.
In the end, successful leaders are able to sustain their success because these 15 things ultimately allow them to increase the value of their organization’s value – while at the same time minimize the operating risk profile. They serve as the enablers of talent, culture and results.
March 8, 2013 § 1 Comment
Listen carefully to this video – It’s Easy! Addition/Subtraction – You don’t have to be a genius.
How old is your child? Are they learning coding? When will you start learning?
- Bill Gates – 13 years old when he started
- Mark Zuckerberg (Facebook) was 12 yrs old (6th grad)
- Jack Dorsey (Square) – 8 yrs old
1st Programs They Wrote? – Very easy ones…..
- Tic-Tac-Toe (Bill Gates first program)
- What’s your favorite color (Drew Houston – Dropbox)
- Simply making something fun for myself and my sisters (Mark Zuckerberg/Facebook )
“Coders change the world. They build new, amazing things faster than ever before. Anyone with imagination can learn to write code.“
“Programming is how we talk to the machines that are increasingly woven into our lives. If you aren’t a programmer, you’re like one of the unlettered people of the Middle Ages who were told what to think by the literate priesthood. We had a Renaissance when more people could read and write; we’ll have another one when everyone programs.“
“If you can program a computer, you can achieve your dreams. A computer doesn’t care about your family background, your gender, just that you know how to code. But we’re only teaching it in a small handful of schools, why?“
What’s Wrong With This Picture?
More Perspective and Perspective from Mozilla in this video. Coding, Scouting, and Camping compared….a powerful idea.
February 22, 2013 § 2 Comments
A few weeks ago after a great lunch meeting with some respected colleagues, our conversation turned to “the future of Silicon Valley”, the impending Bubble 2.0, and the worry of our regions sustainability in a modern world where most anything can be replicated most anywhere.
I listened carefully to their points and then disagreed (err…..provided and alternative viewpoint). Ok, I went off a little bit. My good friends know I can get passionate and energetic on certain topics and this was a subject I’ve studied for quite some time.
My friends questioned: What makes Silicon Valley so unique? Can’t it be copied anywhere?
Many of us have heard this question posed over the years. There’s been a consistent answer provided from several extremely respected sources that says “Yes, it can”, but wherever it’s created must contain the same core intellectual, cultural, and economic assets that make this place so unique (the “ecosystem of unique assets argument”).
In a nutshell, the argument always comes down to Silicon Valley having a unique ecosystem of assets driving its success:
- Intellectual Assets: A constant source of highly educated base (Stanford, Berkeley, UCSF, others).
- Cultural Assets: A high appetite for risk and innovation that we find literally in the DNA of generations of California entrepreneurs dating back to the 1848-1855 Gold Rush and the ensuing “Great Railroad Rush” (1863-1873) led by Central Pacific Railroad and the Big Four (Stanford, Crocker, Huntington, and Hopkins).
- Large Financial Assets: Abundant “risk capital” led by a core set of wealthy individuals and Venture Capitalists who are willing to bet 1-2% of a Limited Partners assets on the hopes of turning it into a 10x-100x return.
All three core assets have been cited over and over as the requiremrent to establish a sustainable “Silicon Valley” anywhere else in the world.
I believe a critical fourth requirement should be added to this list: the creation of an OWNERSHIP CULTURE
We know this “ownership argument” when it relates to home ownership as a critical financial underpinning of America’s economy. We witness “ownership culture” every time we walk into our favorite neighborhood family run business. We see true ownership in small teams and very early stage startups.
There’s a powerful and passionate emotion created in the human spirit surrounding owning something meaningful. When people feel connected, they act in a connected way. There’s an above-and-beyond and never-give-up mentality we experience to ensure something we’ve put our blood, sweat, and tears into doesn’t fail. We describe these people typically as entrepreneurs and founders but I believe that’s too limiting. I think of this group of people as simply “owners”. When done correctly, owners can and should be everyone in your company.
We’ve all heard the anecdotal stories of the best business ideas coming many times from the lowest level factory line workers. All that was required was asking “them”, empowering “them”, and recognizing “them” for their impactful ideas. We’ve also heard the corollary of the disconnect between most task workers in companies and the upper management nincompoops (think Dilbert). Well, “They” are “Us”. Great companies create an “all-one-team” culture and recognize and reward everyone as owners of the company.
Startups in Silicon Valley naturally create the “we all own part of this”. Anyone who has been early at such a startup knows the powerful effects this mentality has on getting stuff done and the direct link to a company’s success. Then, many times, somewhere along the success curve, these same companies forget about ownership and instead start focusing on “market value”. They begin protecting too much and degrade to short-term focus.
If this is you or your company, it’s time to get back to those roots and re-implement an ownership culture where everyone “owns a part of this”. It’s easier than you think. You did it early on. Start holding those impromptu or regular Friday afternoon beer and information sharing sessions. Communicate more. Don’t assume everyone is getting the fidelity of information required to be an “owner”. By doing so, you can create (or get back to) that unbelievably powerful connection between the people and the business.
An Ownership Culture is a Trust based culture which in turn creates an efficient decision-making culture. Of course, an effective and efficient decision-making culture requires information sharing with all the owners. All owners need sufficient information in order to make proper daily decisions. And that means more Transparency. Trust + Transparency are the key ingredients to successful ownership.
Ownership means a passionate focus at all levels of constantly improving product quality, stamping out bugs, and satisfying the customer and/or the end-user. The best owners focus on the complete life cycle of the customer experience from first impression, to creating pleasant and unexpected surprises, to passing on the customer to the next generation.
Ownership means “It’s your money” and to spend it like it was your bank account. Making this connection is powerful as every dollar spent as if it were your own money results in tremendous savings that can be funneled back into the company (profit sharing, equity value, bonuses, or simply reinvesting)
Ownership means everyone at all levels is accountable and responsible for their respective activities. The Accounts Payable person coding invoices to specific product lines which enables everyone to “see” where the company’s money is being spent can be just as passionate about her contribution to the overall success of the business. Ownership means committing and connecting everyone’s heads and hearts to sharing in the success of the team. It means being the CEO of whatever your specific role is. (future post coming on this concept).
Oh yeah, and by the way, Ownership is the opposite of entitlement.
Starting with Transparency and Trust, share as much information as possible. Bring your employees in on the decision-making frameworks and ask them for their ideas.. Treat employees as if they are owners and they will likely live up to your expectations. Loyalty will thrive. Value will soar.
p.s. – a new idea?: Total Ownership Statements
I’ve seen the best people-centric company cultures evolve from communicating Total Compensation Statements to Total Comp & Benefits Statements to a Total Rewards Statement. The next logical evolution is to distribute something I’d like to see called “Total Ownership Statements” to all employees – a personal quarterly and annual report connecting it all; the company’s activities and success + each employees activities and success + the employees ownership.
At Mozilla we have semi-regular all hands sessions in which we do our best to share with everyone the current status of our products, projects, industry and market updates, our internal metrics, and our financials. We share our complete board slide deck with all employees shortly after each board meeting. We publish our financials publicly even though we are not a public company (Mozilla is private, non-profit based).
And yet, no matter how much or how often we communicate such information, I get regular employees feedback that our communication is not nearly enough. A consistent question I get from employees in Q&A sessions after each session is “How are we doing,really?” Even at Mozilla, employees are seeking more transparency which inspires more confidence and comfort for them. I believe regular Total Ownership Statements may be the beginning of a better answer.
I started searching on this idea and found a very similar idea – the Employee Annual Report
What is this document? Imagine your shareholder’s annual report, except this one emphasizes the interests of employees.
“Everything starts with the employees,” said Patrick Williams, senior Ragan consultant and author of The Employee Annual Report. “If you’re accountable annually to your shareholders, shouldn’t you be accountable annually to your employees?”
This report is an opportunity to educate employees on the company’s financial goals—to create business literacy among the work force.
February 18, 2013 § Leave a comment
Over two years ago, I was attending one of our quarterly Alliance of CEO’s keynote speeches (I’ve been a Director/Moderator of Group 307 since 2007). The speaker was Bob Johansen and he had just published a new book called Leaders Make the Future: 10 New Leadership Skills For An Uncertain World. One of his premises was the concept of the new VUCA world we are all living in. I began taking furious notes on my notepad. I recently dug out these notes and it’s time to transcribe them here.
Bob argued we are in a time of disruptive leadership change. In a VUCA world—one characterized by Volatility, Uncertainty, Complexity, and Ambiguity—traditional leadership skills won’t be enough.
- V = Volatility. The nature and dynamics of change, and the nature and speed of change forces and change catalysts.
- U = Uncertainty. The lack of predictability, the prospects for surprise, and the sense of awareness and understanding of issues and events.
- C = Complexity. The multiplex of forces, the confounding of issues and the chaos and confusion that surround an organization.
- A = Ambiguity. The haziness of reality, the potential for misreads, and the mixed meanings of conditions; cause-and-effect confusion.
The forward to the book gives a perfect flavor of the read:
Watching the Arab Spring unfold of late in the Middle East reminds us how prescient Bob’s work is in assessing the dynamics of our VUCA World. He foresaw the rising influence of what Howard Rheingold first called “smart-mob organizing,” through which social networks are used creatively and purposely to fuel change— foretelling events that unfolded in Tunisia, Egypt, and across the region. Frantic attempts by failing governments to quash social media interaction highlighted their hostility toward another emerging trend identified by Bob: “quiet transparency.” The complete absence of that trait among many Arab leaders, from Mubarak to Gaddafi, factored crucially into their downfalls. The resulting new and highly uncertain era, not only in the Middle East but around the world, demands yet another skill highlighted by Bob—“ commons creating,” or the ability to develop shared assets, requiring collaborative leadership at all levels of the government, business, and social sectors. John R. Ryan, President and CEO, Center for Creative Leadership
Bob’s own introduction to his 2nd Edition is just as compelling for anyone engaged in this new VUCA world:
We are now in the midst of a threshold decade: our natural, business, organizational, and social systems will reach tipping points of extreme challenge, and some of those systems are likely to break. However, such disruption can spark new opportunities.
Fortunately, virtual leadership tools in the emerging world of cloud computing are making new strategies for smart-mob organizing possible just at the time when it is becoming most necessary to work together in new ways and at great distances. I believe that the more connected we are, the safer, freer, and more powerful we will be. But there will be frightening downsides: the more connected we are, the more dangerous it will become. Leaders will need to make new links and organize people for action— yet also protect against dangerous hyperconnectivity like we see in global financial spasms. It is good news that we are more connected than ever before, but leaders must now learn to lead in ways that make full use of the new connectivity of cloud-served supercomputing— while minimizing its considerable risks.
A forecast is a story from the future that provokes insight in the present. Nobody can predict the future, but you can make forecasts: plausible, internally consistent, and provocative views of what you think could happen. The best forecasts provoke insight and invoke action. This book uses forecasts to provoke insight about leadership.
February 15, 2013 § 17 Comments
I’ve had drafts of this very topic (Trust Can Scale) and (Trust Requires Transparency) in various forms throughout the years (emails, notes, discussions with various Mozilla employees/ execs and industry panel presentations). Last weekend, I woke up and during my normal routine (coffee, scanning Twitter) I stumbled upon another classic @bfeld post that nails the concept better than I’ve ever written or spoken it. Thanks Brad for finally inspiring this post!
Trust Can Absolutely Scale!
Mozilla has been operating this way for years. We don’t know how to do it differently. Yes, Brad, we are now a +700 person company and yes, it absolutely still works!
I’m known inside Mozilla for being emphatic about “Optimizing for efficiency and productivity”. You’ll rarely hear me leading with “optimizing for cost” or with financial requirements. In the rare cases I have tried leading with money/cost only guidelines, it has backfired with unintended results of severe inefficiency (needs another post). We absolutely optimize for self-direction and the ability for every employee to make balanced and quality decisions. And yes, that requires optimizing around Trust!
We trust all Mozillians to treat our resources and our spending as if it were their own money. As Mozilla’s CFO, I have regular proof they do (via verification reporting systems that we’ve built). A shining examples is our self-managed travel system (Egencia) which has had calls over the years to be replaced. When those calls come, I always ask “Why Replace?” and “What Would You Like to Solve For?” The answers, so far, have always led back to Egencia simply working and being the most efficient and productive for most individual travelers. (note: Groups/Event travel are a whole different story)
Trust in these systems doesn’t mean lack of control. Quite the opposite actually. We absolutely “Trust AND Verify”. In Egencia (and many other of our cloud based self-managed systems), we build all the classic controls and signature approval policies inside each system. And like any other more traditional policy, we allow exceptions which are also recorded inside each system (Transparent Exceptions). Then, we let our employees simply use the system to manage their own time, their own travel, their own business needs. A look at most of Mozilla’s systems below. Nearly all are “cloud based” and most have a self-directed component allowing management and finance to get out-of-the-way.
I recently emailed all employees with our latest Mozilla wide Egencia Travel Report for CY 2012 and congratulated everyone on this incredibly successful trust based system. Some of our impressive metrics? (cut/pasted from my email)
- Last Qtr we purchased 750 Airline Tickets
- 93% were issued via self-service online – no agent/human needed.
- Avg Ticket price ~ $930; breaks down as $465 avg domestic; avg $1,125 Int’l
- 28 days Avg Advanced Purchased – Awesome; we are planning trips better!; this used to be bordering on the all critical 14 days.
- Last Qtr we spent over 1500 Nights In A Hotel Room
- Avg. rate of $205 per night.
- We don’t drive nearly as much; Only 1400 car rentals in CY 2012 x $39 per day avg. = $56,000 Total Car rentals in CY 2012; Keep mass transporting!
Which brings me to another key concept inside Mozilla. Trust requires Transparency. Mozilla does transparency very well. Transparency includes building in complete click-through audit trails into all of our systems that easily shows who did what and when. When you have such trusted systems and transparent systems, there’s literally nowhere to hide.
Transparency is the rather simple act of showing your work. Communicating openly what you did and why. Being accountable for your actions and saying “your right, I missed that” or “good catch, let’s fix that”. Transparency means being able to defend your decisions. Transparency is also the most efficient way of inherently teaching as you go. That’s it.
I’d recommend anyone uncomfortable with this transparency concept to get used to it…fast. The younger generations always plant and grow the seeds of cultural change. Our younger generations are beginning to lead more of our most exciting companies and their underlying cultures. This “information everywhere generation” and “digital youth” have grown up with a natural ability to parse amazing amounts of information to get to the core of most issues quickly. They are also naturally collaborative and expect everyone else to share and solve. Since information is virtually free, they compete and differentiate by developing unique solutions from the shared knowledge pools.
Ultimately, Transparency breeds Trust and very powerful Teams.
Trust + Complete Transparency = A Great Culture and Greater Control
This post started with Brad Feld’s recent post – Trust Can Scale – so I’ll end with my favorite part of that post:
A startup obviously needs to add process in order to scale, but if you replace trust with process, you’ll rip the heart right out of your company. When adding processes, ask yourself the following questions:
Does this new process help us go faster?
Does this new process help us be more efficient?
Trust could be one of your most valuable company assets. As a leader, you need to fight like hell to protect it. If you are successful protecting trust, you’ll actually grow much faster and you’ll still have a place where people love working.
Read more of Brad’s post: Trust Can Scale
And another great post on “Process” that recently made its rounds around Mozilla to wide acclaim.
Thoughts? How’s this all working inside your company? Please comment below: