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My guest for Episode #242 of the My Favorite Mistake podcast is John Rossman, a leadership and digital transformation expert. John is the author of three books on leadership and business innovation including the best seller The Amazon Way. He is an early Amazon executive who played a key role in launching the Amazon marketplace business in 2002.
His new book will be released on February 24, 2024: Big Bet Leadership: Your Playbook for Winning in the Hyper-Digital Era. You can pre-order it now.
Today, he is a leading keynote speaker on leadership for innovation, transformation and artificial intelligence and has given over 200 keynotes to worldwide audiences. John is an operator and builder whose love is diving into business problems and customer needs designing innovative solutions and business models, and creating durable enterprise value.
He served as senior innovation advisor at T-Mobile and senior technology advisor to the Gates Foundation. John was a managing director at Alvarez and Marsal for twelve years leading several business turn-around situations, serving as interim CIO at a restructuring client, and leading the development of several large clients, including Walmart, Nordstrom, and Microsoft.
John is the founder of Rossman Partners, a leadership development, coaching and advisor solutions company. He is often joined by his Frenchie, Bossman.
In this episode, we delve into the birth of Amazon's Marketplace, a venture that pushed limits and disrupted the e-commerce landscape. Rossman's role in pioneering this platform was marked by strategic risk-taking and innovation, lessons that emerging business leaders can take to heart. From edging out competition with unified checkouts to shaking the norm with new product categories, Rossman's story is a testament to the power of creativity and resilience. Understand his approach to the successful expansion of the Marketplace and discover how to nurture “small and tender” ideas into successful ventures.
Questions and Topics:
- What would you say is your favorite mistake?
- How confident were you that the Amazon Marketplace would work out?
- What was different about the third attempt at Amazon Marketplace that made it successful?
- Can you describe the testing process for Amazon Marketplace?
- How did you evaluate the success of the Marketplace experiment?
- What were the critical risks you identified and tested before launching Amazon Marketplace?
- How did you ensure the customer experience was satisfactory with the Marketplace?
- What mistakes do companies often make when trying to emulate Amazon or other successful models?
- How important is it to understand the difference between hard and high-risk problems in innovation?
- What are some common reasons why innovation programs and transformation projects fail?
- How does the “hyperdigital era” differ from the initial digital era?
- Why is it critical for leaders to become experts in transformation and innovation?
- How do you manage the risks between taking action and the risk of inaction?
- How can companies balance being right a lot with having a bias for action?
- How can companies avoid making the same mistakes repeatedly?
- What is the importance of leadership principles and how should they be developed and tested?
- How do you view the trade-offs between speed and accuracy in decision-making?
- How do you handle criticism or praise for decisions based on their outcomes versus their processes?
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Episode Summary
John Rossman: Leadership and Digital Transformation Expert
John Rossman is a figure who brings a wealth of experience and insight into the realms of leadership and digital transformation. An early Amazon executive, Rossman has made his mark not just with the giant retailer, but also through influential speaking engagements, advisory roles, and authorship. His contributions have earned him recognition as a leading voice in business innovation and strategy.
A Look Back at Amazon Marketplace's Launch
In 2002, the digital commerce landscape underwent a significant transformation with the launch of the Amazon Marketplace. This bold move, spearheaded by John Rossman and the Amazon team, was actually the company's third attempt at pioneering a platform for third-party selling. Despite facing skepticism and previous failures, the perseverance to expand beyond Amazon's initial scope of books, music, and videos led to one of the most successful business models in the e-commerce industry.
The challenge was to augment the variety of categories available to consumers without the need to own extensive inventory or establish relationships with original equipment manufacturers (OEMs) and brands directly. It was an approach that defied the traditional retail model, pushing the boundaries of what was perceived possible at the time.
Disrupting E-commerce Experience
The Amazon Marketplace disrupted e-commerce by enhancing customer experience and simplifying the purchasing process. Early versions, such as Z shops and Amazon Auctions, were plagued by separate checkouts and complicated navigation, leading to customer dissatisfaction. Rossman's team addressed this issue by developing a unified checkout system and tackling a complex data ingestion engineering problem known as ‘Item Authority'. This solution allowed multiple sellers' offers to be listed under a single detail page, enabling shoppers to easily compare prices and options, which was a departure from the norm established by other marketplaces like eBay.
This focus on the customer experience, combined with an emphasis on a robust yet straightforward platform for sellers, laid the groundwork for a marketplace that would eventually scale to host hundreds of thousands of sellers.
Artificial Intelligence, Keynotes, and More
Beyond the Marketplace, John Rossman has continued to influence the field of digital innovation. As a keynote speaker, he has shared insights on leadership, transformation, and artificial intelligence to global audiences, drawing from his rich experience and strategic acumen. His experience has also been sought after in advisory roles with key players such as T-Mobile and the Gates Foundation, further solidifying his expertise in steering businesses through the complexities of the digital era.
As a prolific author, Rossman has penned multiple books offering guidance and reflections on business success. His latest work, “Big Bet Leadership: Your Playbook for Winning in the Hyperdigital Era”, caters to the current demands of leadership in a digitally centric business environment, promising to provide a toolkit for success.
The Impact of Marketplace on Today
The realization of the Amazon Marketplace has left a lasting impact on the e-commerce world. It paved the way for numerous brands and individual sellers to access a vast audience, offering a diverse range of products beyond the quintessential books and media. The collaboration of Marketplace with Amazon Prime and Fulfillment by Amazon (FBA) created a formidable trio that reshaped consumer expectations and retail operations.
Rossman's contribution to the Marketplace's inception and growth stands as a testament to the power of innovation, strategic risk-taking, and a relentless focus on the customer experience. His leadership and forward-thinking approach have been integral in shaping the course of digital commerce and continue to inspire a new generation of entrepreneurs and business leaders.
Analyzing Amazon’s Approach to New Ventures
As John Rossman indicated, the transition from Amazon's previous endeavors in the bid-based platforms like Z shops and Amazon Auctions to the more streamlined Marketplace was a strategic choice informed by the company’s embrace of customer-centric practices. This pivot revealed the organization's agility and ability to learn from past experiences, focusing on consumer demand for a more straightforward, ‘buy it now' option. This reflects a larger approach embedded in Amazon’s culture; that of testing, learning, and iterating.
The successful adaptation and expansion of the Marketplace can largely be attributed to the willingness to start small and scale with care. Rossman’s insights on decision-making process underscore the importance of fostering what he refers to as “small and tender” ideas with diligence and prioritization, rather than sidelining them in favor of larger, more mature business ventures.
Crafting an Operating Model for the Digital Age
In terms of an operating model, Rossman illuminates the differing approaches required for mature businesses versus burgeoning innovations. For the latter, he emphasizes the imperative of speed—quick decision-making, resource allocation, and testing. This approach is distinct from mature businesses where the focus may lean more towards cost optimization or refined efficiencies. Essentially, Rossman suggests that mature businesses and new ventures require entirely different playbooks, despite surface similarities.
Moreover, Rossman’s anecdotes articulate the fine line between what is hard and what is high risk, highlighting the necessity to discern the two in the strategic development process. Amazon’s commitment to tackling complex issues like size and color variations in apparel illustrates their readiness to confront difficult, but not necessarily high-risk, challenges.
The Significance of Principles and Decision-Making
In deepening the understanding of Amazon's ethos, John Rossman has offered valuable commentary on the significance of leadership principles within Amazon's corporate culture. Expanding from the initial 14 leadership principles to now 16, the principles serve as a functional guide rather than just philosophical axioms. While some organizations might consider 16 principles unwieldy, Rossman argues that it’s about the selective application of the most relevant principles in a given context, much as an NFL quarterback chooses plays specific to each game scenario.
Exemplified by Rossman’s suggestion of adding what he termed the ‘golden rule’ principle, his involvement shows active evolution reflecting Amazon's growth and role in the global arena. This leadership principle speaks volumes about Amazon’s self-awareness and the responsibilities that come with its powerful position in the market.
Embracing the ‘Think Big, Bet Small’ Philosophy
In prophesizing the concept from his next book “Big Bet Leadership,” John Rossman sheds light on managing risk in new ventures. The principle of ‘think big, bet small' revolutionizes the traditional approach of risk-taking by advocating for granular, measured commitments that allow for flexible adaptation and evolution. Amazon’s historical portfolio of successes and failures demonstrates the validity of this philosophy, iterating that a few winning bets can compensate for multiple losses if managed effectively.
This methodology is coherent with Rossman’s broader narrative on leadership and transformation in a hyperdigital time. It encapsulates a principle that can empower modern companies to make daring yet calculated moves in the digital transformation landscape, achieving groundbreaking innovation while mitigating substantive risk.
The Evolution of Leadership Principles in Practice
Amazon's application of leadership principles demonstrates more than just a commitment to theoretical values. Their principles guide everyday decisions, helping to maintain consistency and foster better decision-making at every level of the organization. This is something Rossman has emphasized in his insights, illustrating the practical nature of these principles.
The influence of other successful operational models, particularly that of Toyota's lean and flow principles, has not gone unnoticed at Amazon. However, Amazon has had to adapt these concepts to fit into its unique culture and priorities. Rossman warns that organizations need to be cautious in how they integrate these external ideas. A direct copy can overlook the nuanced elements of one's operating environment, while cherry-picking can result in an inconsistent approach. The balance lies in a thoughtful adaptation that aligns with the company's specific goals and culture.
Architecting a Culture for Experimentation and Learning
Leadership principles, as John Rossman suggests, should be given the time to evolve within an organization, something akin to ‘etching them in jello,' allowing for a period of adjustment before setting them in stone. This advice resonates particularly for Amazon, where their executive leadership team exemplifies this experimental approach, ensuring their actions and decisions truly align with their stated principles.
At Amazon, decisions fall into two categories, ‘one-way doors' and ‘two-way doors,' with each demanding a distinct approach. Acquisitions exemplify ‘one-way door' decisions and require rigorous deliberation. On the other hand, ‘two-way door' decisions can be approached with a readiness to experiment since these decisions are easily reversible. This framework encourages a culture of trial and error and fast adaptation, breaking away from the need for unnecessary consensus that typically slows down processes.
Bridging Concepts with Action in a Hyperdigital World
Within the context of what Rossman describes as the “hyperdigital era,” companies must navigate an increasingly complex landscape where technology is a driving force, but not the only factor for success or failure. Amazon's approach to leadership and decision-making is not only about identifying the right technological solutions but also about managing the human elements—culture and communication.
John Rossman hints that the experiences and capabilities built over the past decades are mere precursors to the disruptive changes the future holds. To thrive, companies must become adept at transitioning and innovating—skills that are currently underdeveloped in most traditional operational models.
Learning from Mistakes: A Cycle of Continual Improvement
One of the critical leadership principles at Amazon is the ability to learn from mistakes, thereby avoiding repetition of the same errors. It mirrors the sentiment of both Toyota's guiding philosophy and the tactics employed by the coach of the New England Patriots, Bill Belichick: excellence is achieved through attention to detail and not repeating the same mistake twice. This iterative learning process is paramount to ensuring consistent progress and maintaining a competitive edge.
Furthermore, Rossman's book “Big Bet Leadership” promises to tackle the persistent failure of innovation and transformation initiatives within organizations. By addressing specific points of failure, it aims to arm leaders with both principles and practical tactics to improve the odds of successful transformation in this highly digital and rapidly evolving business landscape.
This systemic approach to innovation and adaptation, rooted in principle-driven leadership and a culture of learning, captures the essence of Amazon's success and offers a template for others looking to excel in an era where digital technology and transformation competency will increasingly determine the winners and the losers.
The Art of Smart Risk-Taking in Business
The theme of risk is central to business, particularly in the hyperdigital era where change is the only constant. The stories from successful leaders and companies show us that the question is not whether to take risks, but how to do so intelligently. Insight from professionals like the professional gambler and author Annie Duke and leaders like Pete Carroll suggests that businesses often struggle to evaluate the processes leading to outcomes, rather than the outcomes themselves. This phenomenon, known as ‘resulting,' has profound implications on business leadership.
Annie Duke's analysis of the infamous Super Bowl decision by Pete Carroll shows a savvy understanding of probabilistic outcomes, proposing that even if a decision does not yield the desired outcome, it does not necessarily mean it was the wrong decision. Therefore, it is crucial for businesses to focus more on the decision-making process and less on the specific result of each decision.
Experiment or Perish: Embracing Innovation
John Rossman's emphasis on the necessity of experimentation underscores the idea that a lack of action can be far more detrimental than the mistakes made in action. Businesses that shy away from experimentation because they lack an efficient and cost-effective approach to testing new ideas will likely fall behind.
In particular, businesses must learn to:
- Experiment Cheaply: Reducing the cost of trials can lower the stakes and encourage more frequent testing of new ideas.
- Experiment Quickly: Agility in experimentation allows businesses to learn and pivot rapidly in response to findings, keeping pace with or even outstripping competitors.
- Foster Innovation: Creating an environment where innovation is encouraged and supported is essential for long-term survival and success.
Overcoming the Fear of Failure
The conversation between Rossman and Mark Graban highlights a critical aspect of leadership: the dilemma between action and inaction. Many companies are paralyzed by the fear of making a mistake. However, it is often the case that businesses suffer more significantly from the opportunities they ignore than from the errors they commit.
Embracing this concept means recognizing that:
- Inaction Is Costly: The risks associated with maintaining the status quo often surpass those related to trying something new.
- Learning Through Failure: When businesses do take risks, the aim should be to extract valuable lessons from any failures, thus continually improving decision-making processes.
- Cultivating a Bias for Action: Companies should create cultures that prioritize action over inaction, understanding that the path to innovation is paved with both successes and failures.
Summary and Moving Forward
Amazon and other dynamic companies teach us that the ethos of smart risk-taking, combined with a deep understanding of the decision-making process, is integral to leadership in today's fast-paced, digital-dominated business landscape. Through fostering a culture that values experimentation and understands the necessity of taking calculated risks, businesses can navigate the uncertainties of the hyperdigital era more confidently.
Finally, leaders looking to thrive in the digital age must internalize the lessons within Rossman's “Big Bet Leadership” philosophy, recognizing that the tightrope walk between action and inaction is where the future of business is balanced. By promoting an ethos of principled experimentation and understanding the nuances between outcomes and processes, advanced companies set the stage for sustained innovation and success.
Automated Transcript (May Contain Mistakes)
Mark Graban:
My guest today is John Rossman. He is a leadership and digital transformation expert. He's the author of three books on leadership and business innovation, including the best selling The Amazon Way. He was an early Amazon executive who played a key role in launching the Amazon Marketplace business in 2002. And his upcoming book, we're going to hear about that again later in the episode.
Mark Graban:
Stay tuned. Is Big Bet leadership. Your playbook for winning in the hyperdigital era. So John will have a special offer. And before I tell you a little bit more about John, thank you for being here.
John Rossman:
How are you? Hey, Mark. Great. I hope I'm not your biggest mistake, having me on this podcast and everything, but great to be here. Thanks for inviting me.
Mark Graban:
I don't share any sort of hypothesis that you would be any sort of mistake. Now, the upcoming book, will that be number four?
John Rossman:
That's number four, yes.
Mark Graban:
So the author of well, you've already authored number four. It is just not published yet, correct?
John Rossman:
That's right. Yeah, it's all done. It's just getting laid out right now. It'll be released February 27. It'll be a real nice, hard copy, Kindle, Audible book and selling through all the major channels.
John Rossman:
Yeah.
Mark Graban:
Well, great. We'll look forward to that. We'll look forward to hearing about your special offer later on. So John is also a leading keynote speaker on leadership for innovation, on transformation and artificial intelligence. He's given over 200 keynotes to worldwide audiences.
Mark Graban:
John has served as Senior Innovation Advisor at T Mobile and a Senior Technology Advisor to the Gates Foundation. John is the founder of Rossman Partners, a leadership development, coaching and advisor solutions company. And it says here in the bio, I don't know if this is true today you are often joined by a Frenchie that's a French bulldog.
John Rossman:
Yeah, that's bossman. Rossman. He's right down there. If you want him to make an appearance, I can get him up here. But yes, he's our mascot.
Mark Graban:
Well, if he makes some noise, that's quite all right. It's good to hear from people's.
John Rossman:
Dogs. He just sleeps all day. It's amazing.
Mark Graban:
I picture him maybe drooling on the floor.
John Rossman:
Not too far from that.
Mark Graban:
Yeah. Well, all right. I know our conversation is not going to lead to sleep or drooling. I think we have a lot to talk about here today. But first things first, as we always do.
Mark Graban:
John, with the different things you've done in your career, I'm really curious. Looking back, what would you say is your favorite mistake?
John Rossman:
Well, I really appreciate the way you frame it as your favorite mistake, not your biggest mistake or anything like that. But my favorite mistake is what people forget about Amazon and the Amazon Marketplace. So I joined Amazon early 2002 to launch the Marketplace business, that's third party selling@amazon.com. What people forget is that there had been two previous attempts at some type of third party selling strategy and platform at amazon, it had failed. And Bezos was getting all sorts of advice, primarily internally and from the board, to not to continue to pursue.
John Rossman:
You know, he always talked, know, being fixed on your strategy, flexible on your tactics. And this was a moment where he really showed, like, he knew we had to solve this problem. And the problem being, how do we rapidly expand categories? 90% of the business at that point was books, music, video. Hard to remember those days.
John Rossman:
Most of it was first party retail. So Amazon purchased the inventory. And what we were trying to do was rapidly expand categories without having all the inventory, not having all the OEM relationships, brand relationships. And so it was a big bet. And people just forget about the bold moves that he had to make to make this happen.
John Rossman:
And after we launched it in fall of 2002, it really took several years for the selection to fill in, for customers to get used to coming to Amazon to purchase more than just books, music video. And when we combine the marketplace with prime and FBA or Fulfillment by Amazon, it was really that trifecta that was never nobody ever put those pieces together like, that was never on the drawing board. Like, oh, well, we'll do these things in sequence. It was just the fact that know, kind of kept at it and everything. And so that's really the story of one of the best business models ever built, which is the marketplace business, and that it wasn't obvious that it was going to win and what it took.
Mark Graban:
To do so in that attempt, in that third attempt for Amazon, your first swing at it, but third attempt for Amazon? I mean, how confident were you that this was going to work out or that Amazon would figure it out? How confident were you that this was not a like, what was different that time?
John Rossman:
Well, because we were solving some of the big problems that we felt were the major inhibitors in the prior, first of all, the prior versions, which was called Z shops, and then auctions. It had a poor customer experience. And that customer experience was highlighted by that. There were separate checkouts, separate pipelines, we call them, for when you were purchasing things from Amazon versus purchasing things from third parties. And so we solved that hard problem.
John Rossman:
And the other hard problem that we solved was ebay was the King marketplace at the time. And if you searched for an item, you could get 20 pages of essentially the same item. And as a customer, you had to do the really hard thing of going through and like, well, is this the same thing? And what's the offer? We did the really hard work, which was reconciling items together, which was a really tricky, data ingestion engineering problem to solve.
John Rossman:
It also put a lot of complexity on our sellers. But what it resulted in was what we called Item Authority, an item one detail page. Now, there could be multiple offers against that detail page, but that was actually a really creative solution. Hard thing to do, took a bunch of investment, but was absolutely critical to the end customer experience. And so we added up kind of, I don't know, call it five to eight critical risks that we thought like, well, these are the things that are going to be different.
John Rossman:
And we brought those risks forward, we tested them out and our theory was right.
Mark Graban:
So tell us more about that testing process. Was some of this testing happening before it really launched? Or was there kind of a soft.
John Rossman:
Launch of sorts and all the above? And sometime testing in the real world and test environments are always one of those tricky things when you have multiple complex end to end systems. Really doing testing, especially with third parties, was really tough. For example, how do you test credit card orders and things like that? Those were novel things that we were trying to solve for in 2002.
John Rossman:
So I would say it was mostly tested pre release. And then a lot of things kind of worked out post release. The things that we were able to test really well pre release was, could we get the choreography, the dance between Amazon and sellers to be both robust enough so that we provided a really good customer experience, but obvious enough so that different types of sellers could actually, in a self service manner, be a seller at Amazon. And it was that delicate balance between a great customer experience very different than ebay. But we knew we wanted to scale to hundreds of thousands of sellers and we weren't going to do it just by adding headcount.
John Rossman:
So we knew we had to create a real self service platform. And so those were the two things that we were largely able to prove out pre launch.
Mark Graban:
And so with Marketplace, I mean, that exists today is this, I'm looking selfishly, I'm going to pull up the page for my book, the Mistakes That Make US. And when you see more buying choices, eight used and new offers, is that.
John Rossman:
Marketplace, those are likely Marketplace sellers. And so my guess is that Amazon is the first party seller for your book. And then you have third parties who have the book and are also making an offer to sell the book.
Mark Graban:
Yeah, and it tells you, I mean, it is a store and it lists some of these stores. And when that started, and again, books, that's the original category. It could be buying food items or electronics or other things that are through Amazon Marketplace. But even from the beginning, everyone set a fixed price compared to auctions that was more of an ebay competitor, if not copycat.
John Rossman:
Yes, ebay has now largely switched to a fixed offer platform, auctions work. What we found out was that auctions work for some types of categories of items, primarily collectibles, where there is not a real firm established market price for something. But for most everyday SKUs, people don't want a bidding process to it. The gamification of it is not why they are there. And so that's why we kind of largely gave up on bidding platforms.
Mark Graban:
Yeah, because who wants to put in a bid and wait five days unless there was the buy it now type option, right? Yeah. What do you remember at the time? What was the approach for evaluating this marketplace experiment? Because it seems like things ended up working out.
Mark Graban:
Were there mistakes that you were all on guard for? Or how long would you give if it had really struggled? I mean, you said it took some time to fill out. How do you know of like, this isn't working, or it's not working yet?
John Rossman:
Well, we were able to test a lot of it just through the value proposition of can we get some major brands to sign up to participate in the initial apparel launch? And so we were able to get some great brands to sign up and participate. So to some degree, that was a test and validation right there. The other thing we had was we had a bunch of data, both internal data and external data. We purposefully launched an apparel because we knew it was a good online buying category.
John Rossman:
Even back in those early days that customers love being able to buy apparel online. We had a ton of customers at Amazon searching for apparel. Even though we didn't offer it, we knew they were searching for it, and we could track some of the other online sellers and marketplaces. So we knew apparel was a good category. The hard thing we had to solve for is always in apparel.
John Rossman:
It's kind of size and color variations makes for a tricky set of catalog data as well as detail page behavior. And so we had to solve for some of those things. Those were hard, but I wouldn't put those as high risk and everything right. Like, you know, you can solve the problem, it just takes some effort doing it. But I really feel like it was just a function of doing it right and then being patient for customers and selections come along and understanding that was part of the wisdom, the leadership that Amazon had.
John Rossman:
Which was sometimes things take a little longer than you'd like, but if you see behavior, you see customer satisfaction, you see things going in the direction that you want, then it's just hold on a little longer and keep tweaking it and the market will fill in. But a lot of companies would have kind of like, hey, this isn't material. In one year, we're moving on. We're not going to keep investing in it. And that's the type of mistake that especially big companies make is they do the exact opposite of what you need to do.
John Rossman:
They take their businesses, their mature businesses and then they have this little tiny incubated thing and they go, well, we're going to prioritize things based on size, right? So all the attention goes to the big business. Well, these little tender things, these things need more attention and more priority, right? Like when you have something small and tender, you treat it with extra special care. But that's not what big companies do.
John Rossman:
They just have a stack rank, P L, priority based mindset. And that is the exact opposite of what you need to do. You need to hold these precious little bets, these little ideas, and make them the priority. And the key aspect of priority means speed. Speed to decisions, speed to resources, speed to testing, speed to everything.
John Rossman:
Versus in your scaled businesses, it's more like, oh, we're trying to optimize for different things, right? Your cost per unit or different types of metrics, completely different playbook. They sound similar, but they're very different.
Mark Graban:
So is the mistake one that we might make as outsiders, amazon thinking that a company like Amazon, smart people, good ideas, that they always get it right the first time and that the rest of us need to do the mean?
John Rossman:
Not at all. Not at all. The list of quote unquote failed investments, those aren't even mistakes. Those are actual failures. At Amazon is long and illustrious and illustrative.
John Rossman:
And what it's illustrative of is that one big winner pays for ten to 100 losers if you do the losers correctly. Right? And this is really the part of the thesis of the next book, big Bet Leadership, which is actually how to control your risk on bets. And the key is to think big, but bet small, not to actually bet big. And so when you can do that, which is like think big, test out ideas, see how it reacts, but keep the actual commitment levels both externally and internally low, then you're able to actually let things succeed or fail or iterate on their own merits and not force it.
John Rossman:
And that allows you to keep at these things. And that's what Amazon has done is in general, they tend not to make big commitments before the few real material risks are proven out.
Mark Graban:
The risks, assumptions, things that need to be replaced with real data, right?
John Rossman:
That's right. Or proof that you can do it. Right. And those things can be technical things. Those things can be cost elements, your operating model elements.
John Rossman:
Those things can be customer receptivity. You really need to understand what are the critical risk points of a new idea or a concept. In our book we tell the story of a digital transformation at a big company. And in the early iteration, the team rationalized doing something that was very hard, which was a new billing system, but it actually isn't high risk. Like billing systems exist, we know we can do it, but they take a lot of effort and everything right.
John Rossman:
And so they spent way too much time, material expense upfront building a billing system for this new product and service. They deferred the real high risk piece, which was, can we get our customer acquisition costs to a level that is maintainable, that leads to a winning business? And so they had so much invested by the time they were able to figure out, oh, we actually can't get our customer acquisition costs to the basis that we need. And that is a really easy mistake to make, is not understanding what is hard versus what is high risk.
Mark Graban:
So we're joined again today, John Rossman, and I want to come back in a little bit and talk about the upcoming book Big Bet Leadership. But I want to ask a couple of things first about The Amazon Way.
John Rossman:
Sure, yeah.
Mark Graban:
And a couple of the concepts there. So it's funny how this worked out. So there's a book from my professional circles. I've got a copy over here, The Toyota Way, that is also 14 points.
John Rossman:
Oh, interesting. 14.
Mark Graban:
The Amazon Way, 14. They're not the same. It'd be interesting to crosswalk those in a table. I haven't looked at the direct comparison. There one of the famed quality gurus who influenced Toyota and people like me, w.
Mark Graban:
Edwards Deming. He famously had his 14 points for management. So how did the number 14 come to be?
John Rossman:
Well, Amazon ruined it. So I've done three editions of The Amazon Way in the last edition, which was published in June 2021, I wrote a recommendation to Amazon the first time I'd ever done kind of anything like that. And the recommendation was, hey, you need to add a new leadership principle. Not replace them, but add a new one. I called it the golden rule.
John Rossman:
And it was basically like, you need to understand your place now. You're no longer the scrappy underdog. You influence economies and communities, and you need to just grow up at times. And shortly after I released the book, two months after I released the book, amazon added two new leadership principles. So they now have 16 leadership principles.
John Rossman:
And I can't prove that my 15th suggested 15th leadership principle influenced that, but we also can't prove that it didn't and stuff. Amazon now has 16 leadership principles. One of the pieces of feedback I get, I work with a number of companies on kind of like leadership and culture and this concept of principles, and they always go like, well, that's just too many. And if you actually look at these, it's not just the title of the leadership principle, it's the paragraph underneath it. Where the real wisdom comes in is you're not intended to use all 16 at once in any given circumstance.
John Rossman:
You have to understand the three or four that maybe come into play, and that's not too many to actually know. Think about an NFL quarterback and how many plays they have to know going into a game. And for each play they actually have to know what every position player on their side of the ball needs to do and everything. Asking somebody to just print out a list and have ten or 15 leadership principles. But when you only have four or five, what tends to happen is they tend to be these really obvious things like treat each other with respect or do the right thing.
John Rossman:
Those are actually they're good, but they're hard to make distinct decisions against. They're hard to really use. They don't tell me what's really different about this place versus every other place. And so when you look at Amazon's leadership principles, they really tell you this is what's expected from how we work together, how we make decisions, how we prioritize. And so while we call them principles, it's kind of down the path of an actual operating guidebook or a playbook and everything right?
John Rossman:
And so they're very practical. They're intended to be used by everybody in everyday decisions and everyday meetings to help make better and consistent oriented decisions.
Mark Graban:
Yeah. And so you talk about how Amazon has become very influential. Toyota is influential. And I know people at Amazon have studied Toyota and trying to think of how to bring Toyota production.
John Rossman:
Certainly, I mean, from a quality and lean and flow basis, everybody builds on the shoulders of everybody. So that's absolutely true.
Mark Graban:
But I see organizations make, I think, two types of mistakes. If they're trying to emulate or copy or learn from Toyota, one is trying to copy them too directly, too literally, and then the other mistakes kind of in the other direction where they want to take the bits and pieces like, well, I like points 312 and 13, but not the rest of them. For better, for worse, then you're making up your own thing. What are your thoughts on.
John Rossman:
I would say my understanding, my guess is things like the Toyota Way are more prone to be like we should be consistent across most companies that are using these. These are engineering related. Amazons are more, from a priority and culture standpoint, what they are. I actually wrote an appendix in the new version of the Amazon Way about building your own leadership principles. And the number one piece of advice I have is don't rush, I suggest etching them in jello.
John Rossman:
Write out what you think your leadership principles should be, live with them for a while. The most important thing is that the ELT, the executive leadership team, actually uses these in the way that they work together. And if after three or four months they go, okay, what's working, what isn't working? What the big mistake is, is that companies rush to say, these are our principles, we've got these right, we're all committed to them and everything. And they actually don't work to test them out or to bake them into the culture.
John Rossman:
And the senior leaders actually don't emulate those leadership principles.
Mark Graban:
So one of the Amazon way principles says number four leaders are right a lot.
John Rossman:
A lot.
Mark Graban:
Is that a reminder? It's an implied not always.
John Rossman:
I think that's a really important pickup, that a lot means a lot. It doesn't mean always, but it also doesn't mean rarely and everything right. So maybe make that at the 80% level. You need to be right a lot. And that leadership principle is also balanced with another leadership principle which is called bias for action.
John Rossman:
And that one reads Speed matters. In business, many decisions and actions are reversible and do not need extensive study. We value calculated risk taking. So what we're saying is you have to both be right a lot and you need to understand what type of decision you're making. And is this one that should be made with speed and there's calculated risk or is this a high stakes decision?
John Rossman:
We need to slow it down. So Amazon actually has a real practical metaphor call it that they use for this. And it's called one way doors versus two way doors. A one way door decision is one that when you make it, you actually can't reverse it. Right?
John Rossman:
So what do you do? Like an acquisition is a good example of a one way door decision. What do you do with a one way door decision? You slow it down, you debate it, you bring it to center. You think about it a lot, right?
John Rossman:
You try to propose alternatives versus a two way door decision. A two way door decision is one that we can make. We can see what's on the other side, we can test and learn and we can come back. Most situations can be broken down into a set of two way door decisions. That's really about experimentation design, right?
John Rossman:
But what most companies and teams are good at is clumping situations together so that it feels like a one way door decision. And then what do they do? They have to bring it to the center, they have to slow it down, they have to shift accountability to others. And they make very diluted, very common decisions versus provocative, fast, experimental led decision making.
Mark Graban:
And it seems like with that approach and being data-driven and other things that are in those points, there's one other thing that jumps out in the description of .4. They don't make the same mistakes over and over and we love to celebrate that here on the podcast.
John Rossman:
Yeah, the goal is to learn from the mistakes. And so while making mistakes is great, if you're repeating them, that means we're not actually learning from them, especially at the senior leadership level. That's just not what you do.
Mark Graban:
And last time I'll bring up Toyota, but there's a quote from the until recently CEO who's now chairman that I use to head up kick off a chapter in the book, said basically, I think it's a pretty direct quote, it's in Toyota's DNA that once a mistake is made, it is not repeated. Now, that's their aspiration. Is it 100% perfectly true? Probably not, but there's an important mindset there.
John Rossman:
Yeah. Bill Belichick, coach of the New England Patriots, he has this I heard this interview with Tony Belwski, one of his hall of Fame linebackers, and he said, Bill does not accept repeat be. You can't make the same mistake twice. And his attention to detail was incredible. And so he would get after everybody about A, doing things the right way at a diesel level, and B, you can't make the same mistake twice.
John Rossman:
Yeah.
Mark Graban:
So, looking ahead to the upcoming book Big Bet Leadership, your playbook for winning in the hyperdigital era again, our guest and authors, John Rossman. The phrase hyperdigital era tell us a little bit more about what makes it, quote, unquote, hyperdigital.
John Rossman:
Well, that is the setup for the preface of the book where I answer that question directly. But the tease I'll give you here is that if you think so, netscape went public August eigth, 1995, and most people use that as kind of the starting gun for the digital era. Right. Our premise is if you think the past 27 years has had a lot of disruption, a lot of change, a lot of new capability, that's really going to be the warm up innings to what the next 30 years is going to be, is that it's the combination of a number of mega forces that are going to create seismic change. And in that seismic change, there's going to be even bigger winners and bigger losers.
John Rossman:
Some of the companies that were the winners in the first digital era will end up being losers in the next digital era. And that just as much as management expertise needs to be in kind of operations. Leaders need to become experts at transformation and innovation, and they're not today, right? Companies are not geared that way. Companies are built to optimize in the status quo, and everything about innovation and transformation goes against those things.
John Rossman:
And so that was our mission with Big Bet Leadership, is to attack the specific failure points of why innovation programs and transformation programs fail and to give both a principle and a tactic to attack that point of failure. It's not a methodology, but it's a specific anecdote to the points of failure, of why all of these big bets have anywhere from a 75 to a 90% failure rate. And it's because we're not good at them.
Mark Graban:
So it sounds like in this era climate, with the challenges that we're going to face with AI and other technologies, is it fair to say that, I don't know, everybody's a tech company now, or everybody needs to be, or does it go beyond that?
John Rossman:
I think the technology is certainly in a persistent and big factor in all of that. And so I think in general, yes, technology will continue to play a bigger and bigger aspect of enabling all the aspects of both the operating model and the customer experience and the derivatives of all the data that we should have from a business. But the technology will actually is always the easiest part out of all this. It's hard, but it's the easiest part out of all of this. Right.
John Rossman:
It's always about the people and the tradition and the expectations and driving change. That's always the hardest part of these. And the communication challenges of making sure that we actually are talking about the same thing.
Mark Graban:
It's funny you mentioned Netflix. Just as a quick aside, it's been almost 30 years. They're in the process of shutting down the original mail order business, heard a.
John Rossman:
Story and people forget about the massive flood they had where they tried to separate the mail order business from the streaming business. I think it was called Quickster and everything, right?
Mark Graban:
Yes, exactly.
John Rossman:
The stock got cut in half and they rolled that back and everything. Right. Interesting mistake. It'd be really interesting to understand how they couldn't test that earlier and everything. But the offer I have for your listeners on Big Bet Leadership is go to bigbetleadership.com when the book releases on February 27.
John Rossman:
If you register, I'll select ten to 15 from this podcast to send you a Kindle version of the book. My only request, and it's a request, is that you write a customer review for the book. But anyway, it'll be a real nice book and the digital version will be great.
Mark Graban:
Yeah. And I hope people will take advantage of that. I'll make sure that there's a link in the show notes. I'll get that from you, John. So that book again, Big Bet Leadership, your playbook for winning in the hyperdigital era.
John Rossman:
Maybe.
Mark Graban:
One last question for you, John, about the book. How do you think through there's different types of failures or mistakes? Action mistakes, the things we did, the inaction mistakes of well, we kept with the status quo or the things that we should have done. How do you think through that risk between taking action and finding out that it's wrong versus the risk of the status quo or not doing something?
John Rossman:
Well, I think in general, because companies don't know how to experiment cheaply and quickly, one of the really poor side effects of that is that they retract, right. They do less experimentation because they don't know how to keep them small. And so I think the biggest point of failure is actually that they are not testing, experimenting, innovating, trying new things enough. So I think over the longer period of time, it will be the mistakes of inaction that really sink them and not the mistakes of action.
Mark Graban:
And that makes sense. But people value different things. You hear, well, bias for action or being action oriented or it seems like it's easier to be either to take credit for or be criticized for the action. I think of art this might. Be dangerous to bring up.
Mark Graban:
Are you a Seahawks fan?
John Rossman:
Sure. Yeah.
Mark Graban:
Well, the famous play call Pete Carroll end of whatever, Super Bowl that was when everyone's saying, you should have handed off to Marshawn Lynch, he took a risk, they threw a pass, it got intercepted. I'm not trying to gloat. I hope that's not too painful to bring up. But that was a risky bet. And if they had handed off to Marshawn Lynch and he had gotten.
John Rossman:
You'Re.
Mark Graban:
Damned if you do, damned if you didn't.
John Rossman:
I'm thinking of a book called she's a Professional Gambler, and she wrote a.
Mark Graban:
Book about Annie Duke.
John Rossman:
Yes. Her first book. She actually breaks down that scenario and shows that what you're doing is called resulting. Right. You're saying the result was wrong, therefore the process of what they did was incorrect.
John Rossman:
And her whole book thesis is you need to separate out resulting from understanding the process and focusing on the process. Right. And so according to her analysis, the call that Pete Carroll made was actually the absolute right probabilistic was it was a rarity of an outcome for it to come out that way. So that was her breakdown relative to that. But yeah, I wish he had handed it off to Marshawns for sure.
Mark Graban:
Either way, you wish they had scored and won the game, which is playing.
John Rossman:
The result either way. So it was a great story.
Mark Graban:
Yeah. Annie Duke thinking in.
John Rossman:
Yeah. Thinking in. Absolutely. Yeah. Yeah.
John Rossman:
Very good book. And that's the major thesis of the book is, don't confuse the results you get with the process that you undertook. And that is one of these common mistakes. Oh, that didn't work out. We'll never do it like that again.
John Rossman:
That's a very common mistake for most operators to make.
Mark Graban:
Well, John, thanks again. We'll finish with one more mention of your book, not Annie Duke's book, Big Bet Leadership your Playbook for Winning in the hyperdigital Era. Look for a link in the show notes to take advantage of the generous offer. John, thank you for doing that. And thank you for being a guest here today.
John Rossman:
Mark, it's been great to get to know you, and thank you for all the work that you do and really appreciate the opportunity.