Jeff Bezos, Amazon's founder and CEO, explains his philosophy on risk.

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Aug. 1 2011 12:52 PM

"People Will Misunderstand You"

Amazon.com founder and CEO Jeff Bezos explains his philosophy on risk.

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Jeff Bezos. Click image to expand.

At Amazon.com's shareholder meeting this year, an investor asked CEO Jeff Bezos whether the company was taking enough risks: "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?"

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, [Amazon Web Services] 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.

… [G]o 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.

But if you get to a point where you look at it and you say, look, we are continuing [to] invest a lot of money in this, and it's not working and we have a bunch of other good businesses, and this is a hypothetical scenario, and we are going to give up on this. On the day you decide to give up on it, what happens? Your operating margins go up because you stopped investing in something that wasn't working. Is that really such a bad day?

So, my mind never lets me get in a place where I think we can't afford to take these bets, because the bad case never seems that bad to me. And, I think to have that point of view, requires a corporate culture that does a few things. I don't think every company can do that, can take that point of view. A big piece of the story we tell ourselves about who we are, is that we are willing to invent. We are willing to think long-term. We start with the customer and work backwards. And, very importantly, we are willing to be misunderstood for long periods of time.

I believe if you don't have that set of things in your corporate culture, then you can't do large-scale invention. You can do incremental invention, which is critically important for any company. But it is very difficult—if you are not willing to be misunderstood. People will misunderstand you.

Farhad Manjoo is a technology columnist for the New York Times and the author of True Enough.