Want to invest in management teams like Amazon’s? Here’s what to look for | Smart Change: Personal Finances

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A company’s leadership is certainly one of the most important factors in its success. Decisions made by C-suite executives have literally million, if not billion, dollar implications for the business.

And without a doubt, Amazonit is (NASDAQ: AMZN) leadership over the years has been one of the best in business.

If you want to find companies with Amazon-like management teams, consider these three qualities that have driven the company’s dominance.

Image source: Getty Images.

1. A culture of experimentation

Recently, I dove into the history of Amazon and discovered how important optionality has been to the company’s success. This option comes from a culture of experimentation.

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In a 2014 interview, founder Jeff Bezos once said, “What really matters is that companies that don’t keep experimenting, companies that don’t accept failure, eventually end up in a hopeless position where the only thing they can do is make a Hail Mary bet at the very end of their corporate existence.”

The emphasis on trial-and-error innovation is well documented in Bezos’ numerous shareholder letters. While many companies claim to prioritize innovation, Bezos acknowledged that true innovation meant there would be big failures.

One of Amazon’s biggest failures was the Fire Phone. The company invested over $170 million in the product in 2014, and it completely sniffled, selling just 35,000 units in the first month after launch.

In the 2019 shareholder letter, Bezos explained why he was okay with massive failures like this, saying, “This kind of large-scale risk-taking is part of the service we, as a big company, can provide our customers and society. news for shareholders is that one big winning bet can more than cover the cost of many losers.”

Without embracing the potential flops, Amazon probably would never have produced some of its best products and services, like Echo or Amazon Web Services.

You can get an idea of ​​the importance a management team places on experimentation and innovation by listening to earnings calls or reading shareholder letters.

2. Customer Obsession

Amazon’s management team uses a strategy they call “working backwards.” Instead of starting with competing products or those with the highest margins, they simply ask themselves, “What does the customer want? then work backwards from there to design exceptional products and services.

This obsession with the customer has driven decades of big decision-making by the management team. And Bezos has long credited it as the biggest reason for Amazon’s success, saying, “The #1 thing that has made us successful by far is obsessive-compulsive focus on the customer as opposed to obsessing over the competitor.”

Ultimately, customers drive revenue, and companies that focus intensely on customer service have a knack for winning in the long run.

3. Ambitious and publicly announced objectives

Excellent companies are very often led by management teams with ambitious goals. Amazon’s first slogan was “the world’s largest bookstore”. Although Barnes & Noble took umbrage and sued the company in 1997, the slogan represented the grandeur of Bezos’ vision for the company.

It could have used a simple slogan like “the first online bookstore”, but it publicly declared its global ambition even in the early days of the business.

Amazon’s mission statement today is “to be Earth’s most customer-centric company”, and it has a corporate vision statement “to be Earth’s best employer and the safest place to work,” in response to harsh criticism of brutal working conditions at its fulfillment centers.

Notice the global theme in the corporate goals. This ambition is key to achieving even a fraction of Amazon’s growth and dominance.

Another public company with an eccentric (and often polarizing) CEO who has declared very ambitious goals is the electric vehicle manufacturer You’re hereled by Elon Musk.

The company’s mission is “to advance the global transition to sustainable energy”. With the recent expansion of its “gigafactories” in China and Europe and its industry-leading deliveries, Tesla appears to be achieving this lofty goal.

Studying Amazon makes you a better investor

Identifying the next Amazon is no easy task as it is clearly a generational endeavor. But studying this e-commerce juggernaut provides a treasure trove of insights into qualities shared by other great companies.

When analyzing companies, look for leadership teams that embrace experimentation (and failure), have a deep customer focus, and are public about their ambitious goals for the future.

Incorporating these qualities into your management analysis can lead you to discover the next stock that will beat the market.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Mark Blank holds positions at Tesla. The Motley Fool holds positions and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.

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