Focus on long-term people has a huge competitive advantage



The world’s richest people, such as Jeff Bezos, Bill Gates, and Warren Buffett, are examples of the long-term thinking of getting rich. It is said that on the morning of 2000, Amazon founder Jeff Bezos called Buffett and asked Buffett: “Your investment system is so simple, why are you the second richest person in the world, others don’t do the same thing as you? “Buffett replied: “Because no one wants to get rich slowly.” Bezos suddenly understood that people who care about the long-term have a huge competitive advantage over those who care about the short-term, so they are more determined to pay attention to the long-term and ignore the short-term. idea.

Amazon has subverted the traditional bookstore industry, traditional retailers and computing power markets. Wal-Mart, Carrefour, RT-Mart, Bailian, Dashang, and Commodity City have all gone downhill or been acquired. The traditional computer computing power providers Oracle, IBM, SAP, Hewlett-Packard, DELL and other values ​​have no future. China’s Amazon is not Ali, JD, and Alibaba Cloud has broad prospects.

“Projects that only generate short-term profits are not important. No matter how much money you earn now, projects that generate long-term cash flow are important, no matter how much you lose now.” The company’s valuation under this long-term thinking is not only If the profit is calculated, it can also be calculated according to the free cash flow × multiple. This is the theoretical basis for the unicorn to go to the A-share market. The long-term investors in the A-share market will increase, with high investment, slow returns but good cash flow. The project valuation should be upgraded.

“Looking for long-term investment targets must clearly answer the question “What is the same in the next decade?” For example, the industry’s pursuit of “infinite choice, lowest price, fast delivery” will not change after ten years. Under this cognition Can it be concluded that Shunfeng Holdings and Jingdong Logistics have a future?

If the bank voucher business is regarded as an alternative retailer (the financial products see the income, no distribution is required), then Ant Financial, Weizhong Bank, Jingdong Finance, Lujin Institute, and Oriental Fortune will have a huge impact on the traditional bank voucher business.

Bezos is a remarkable person. He is a continuous, discontinuous and innovative entrepreneur.

He subverted the bookstore.

Before Amazon became a bookstore, the largest bookstore in the United States was Barnes & Noble, which accounted for 8-12% of the market.

When Amazon was only tens of millions of dollars, Barnes & Noble got $200 million to make its own online bookstore, and had its own channels, with its own warehousing and distribution.

However, even in such a situation, it was finally subverted by Amazon.

He subverted the supermarket.

When the subversion of the book category was completed, Amazon began to retail, and the opponent became the king of the retailer, Wal-Mart.

The Wal-Mart family has long been the richest man in the world and is considered invincible, but now that the battle has been completed, Amazon’s market capitalization exceeds the market capitalization of the top 10 retail stores in the United States.

He has subverted the computing power market.

Traditionally, computer computing power is undertaken by companies such as IBM and Hewlett-Packard, but what everyone does not think is that Amazon, as an e-commerce company, does not have a technology gene, and actually enters the cloud computing industry.

Now, Oracle, IBM, SAP, Hewlett-Packard, DELL, etc., among the big names of traditional computing companies in our minds, add up, and the sum is not as good as Amazon.

In March 2017, Bezos surpassed Buffett to become the world’s second richest man; on July 27, 2017, he was worth $90.2 billion, becoming the world’s richest man on the day; on October 28, 2017, he was worth $18.3 billion. World ‘s richest man.

Why is Amazon’s Bezos subverting again and again?

Moreover, not one year, but twenty years, not one thing, but all N things have been done, why?

What is his unique way of thinking?

Today, I will tell you systematically.

Three cornerstone assumptions

The core of Bezos’s thinking: non-consensus

Peter Till said a word in “From 0 to 1”:

Whenever I interview a candidate, I ask this question: On any important issue, do you have different opinions from others? The good answer is this pattern: Most people believe in x, but the truth is the opposite of x.

Similarly, Bezos also expressed a similar approach:

I believe that if you want to innovate, you must be willing to be misunderstood for a long time. You must adopt a non-consensus but correct view to beat your competitors.

This is also the core of my analysis of Bezos’ thinking today: non-consensus.

Does Bezos have different opinions on other important issues? I picked out three cornerstone assumptions. (Extension: What defines the boundary? You define the boundary for the assumption of a system’s foundation. When you break the hypothesis, the boundary of the hypothesis is broken. We call the base point forward.)

Free cash flow

Ability circle: long line thinking

Which is more important for cash and profit?

Let’s look at a phenomenon. Amazon and Ali have achieved $500 billion today. In the third quarter of 2017, Alibaba’s profit was $2.6 billion, and Amazon’s profit was only $256 million.

But in the capital market, Amazon’s PE value (note: the model of mainstream enterprise valuation is PE value, that is, your market value divided by the net profit per share) is as high as 296 times. In other words, the capital market will earn Amazon 300 years later. The money, all for him.

Is Bezos a liar? He told the story to blow the market value to $500 billion?

No.

Because most people value the company’s valuation as a profit × multiple, Bezos has been using the company’s valuation model since 1997:

The value of an enterprise is equal to the sum of the discounted values ​​of the free cash flow that the company can create during the life cycle (long term).

Few people use this valuation method, and I find that Buffett believes this way.

Most people value profits, but Bezos values ​​free cash flow.

Bezos said that the company’s valuation is not based on profit, but on the basis of free cash flow × multiples.

Why is free cash flow?

What is free cash flow? A company can freely allocate money after it meets operating costs and maintenance capital expenditures.

Bezos believes that the digital profit on the financial statements is not the core competence of the company. The core competence of a company is free cash flow. How much money you can pay to invest in the future? This is the core indicator to determine the value of the company. .

Amazon is a classic:

When profits and free cash flow are inconsistent, they do not care about the profits on the financial statements, but put them into the future, namely, Prime, FBA, warehousing and freight, AWS cloud and other major infrastructure construction, and finally completely open the industry. Two, forming a long-term monopoly.

From 2010 to 2013, the annual cloud investment of Amazon’s cloud computing business increased from US$150 million to US$1.5 billion, with a compound annual growth rate of over 200%.

Among our 452 goals, the words “net income”, “gross profit” and “operating profit” did not appear at all.

—— Jeff Bezos “To the Shareholders’ Letter in 2009”

Bezos believes that competitors’ love for profit margins is an opportunity for Amazon. Because opponents will be subject to this, competing with these companies is like “cutting butter with a hot knife.”

Although Amazon’s net profit has remained at around 0 for the 18 years prior to 2014, Amazon’s operating cash flow has been very healthy.

In the history of American companies, the first company that claims to be not concerned about profits, only paying attention to cash flow is the US telecommunications tycoon John Malone, and Bezos is the first company to apply this strategy to e-commerce. Family.

Coincidentally, Netflix, the number one return on investment in the past 10 years, has the same philosophy.

The founder of Netflix said that the more cash a company has, the less innovation it has.

The rules of the game on Wall Street are to focus on short-term profits, and to report to shareholders every quarter, and the terrible thing is that each quarter’s income and profits must be increased, and more terrible, the increase is more than the analyst thinks you Increased proportion.

However, Netflix and Amazon have used long-term thinking to sacrifice profits to gain growth and break the original rules of the game.

This is what Bezos has in mind:

All projects that only generate short-term profits are not important, no matter how much you earn now;

Projects that generate long-term cash flow are important, no matter how much you lose now!

Bezos’s ability circle – long-term thinking

Sticking to long-term cash flow, not short-term profit, what kind of thinking is behind this?

This is Bezos’ ability circle (the boundary of core competence): the strategic ability driven by long-term thinking.

He opposed the theory of competitors, saying:

Regardless of what the competitors are doing, they don’t give you money.

This is also true. If Bezos stares at Ebay all day, he can’t make AWS cloud services;

If Bezos ponders Wal-Mart all day, he can’t make an Echo smart speaker.

Be cautious about choosing your competitors, because in the end it is likely that you will become very similar.

—— Zhang Yuyu

He opposed the stock market theory, saying: If this month’s stock rose 30%, you are not smart 30%; if this month’s stock fell 30%, you are actually not stupid 30%.

Why must we stick to long-term thinking? Bezos’s point of view is this:

If you do everything in the next three years, there are many people who compete with you on the same stage; but if your eyes can be put into the next seven years, then you can compete with you very little, because very Few companies are willing to make such long-term plans.

—— Jeff Bezos (2011)

Customer first

Methodology: Reverse Work Method

Three things in the retail industry

Bezos said:

I am often asked a question: “What changes will happen in the next decade?” But I was rarely asked: “What is the same in the next ten years?”

I think the second question is more important than the first one because you need to build your strategy on the same things.

It is an exciting principle to put all resources in invariant things.

So what is Bezos’s unchanging thing?

In the fast-changing retail industry, there are three very common things:

First, unlimited choice.

Second, the lowest price.

Third, fast delivery.

Bezos said that even in a decade, no customers will jump out and say: “Hey, Bezos, I love you, I love Amazon, but I hope that your price is a little more expensive, I hope your delivery. slower.”

Moreover, Bezos believes that there are two kinds of companies in the world, one is to persuade customers to pay a high profit as much as possible; the other is a company that desperately minimizes prices and gives profits to consumers.

I think both companies are very successful, but we firmly choose to do it later.

How did he do it? Bust Stone described this in “One Net”:

The Amazon AWS business has aggressively cut prices 51 times without a long-term competitor. Bezos said he didn’t want to repeat “Steve Jobs’s mistakes”

— The iPhone is overpriced, making smartphones a target for large-scale competition.

Customer first

Looking at it, what is the core behind the above three ordinary things? Customer Experience.

The most customer-centric company in the world, this is the culture of Amazon.

Almost every company will say this, but only Bezos has raised this sentence to a point more stringent than religious belief and has actually implemented it.

Case: Amazon Member Services (Prime)

In 2005, an Amazon mid-level employee offered to provide users with a two-day delivery service Prime in the form of an annual fee of $99. From the level of logistics at the time, from Wall Street to company executives, this must be crazy. Bezos insisted on sticking to this project.

At that time, the most objectionable person was his CFO. This CFO is very combative and is a comrade of Bezos. But on this project, the CFO said that free shipping is not a pioneering move, just let us have a future balance sheet. One problem at a time. Once there was a meeting, he even let the person who provided the proposal drop his job.

At present, Prime has more than 90 million members worldwide. According to the membership fee of 99 US dollars per person per year, this income is nearly 9 billion US dollars, but so far this project is still a loss, Amazon’s investment in Prime equity far exceeds this figure.

But looking back, the $99 annual fee spurred members to take advantage of Prime’s value and placed more orders. A large number of customers became Amazon fans because of this service.

This is considered to be one of the most cost-effective deals in Amazon’s history.

What method does Bezos use to implement the customer-first principle?

In general, there are two innovative ways to drive:

First, skill-oriented;

Second, the reverse work method.

The skill-oriented representative is Apple, and Jobs said: “I just have the ability, I just can bear the big, I just have aesthetics, I will do something that everyone is willing to buy.”

But Bezos said: “I don’t have the ability of Jobs, not because I have the ability to let consumers buy, but I must start from the consumer point of view, what consumers need, and conversely, I Make something that consumers need.”

In other words, what ability does it exercise?

It is necessary to start from the demand of consumption, to touch the needs of consumers, this is the reverse work method.

Day one

First principle: anti-entropy increase

Which one is more important for Day one and Day two?

Bezos invented two words, Day one and Day two.

Day one: The state of starting a business.

Day two: The status of success.

Which one is more important for Day one and Day two?

If you don’t lie, you will definitely feel that it is Day two. Of course, we do things for fame. I start a business, that is, dreaming of ringing the clock.

But Bezos is very strange. He said that your end point is not important at all. Your starting point is important.

Day one mindset company is the company that is about to start to realize its potential; Day two mindset companies are stagnant companies, they will become less and less important in the market, and then gradually decline. Therefore, the company must remain in the state of Day one forever.

—— Jeff Bezos

To remind myself, Bezos named the building as Day one. Every day I entered the first step of the building, I saw that this was the first day of my Bezos, this is the first day of Amazon.

The entire company has no luxury decoration, and the desk is made up of door panels or made into a door panel.

In fact, what is the essence behind Day one and Day two?

Day one: The dilemma of the innovator (breaking point).

Day two: The incumbent enterprise (limit point) that will enter the innovator’s dilemma.

Your limit point is your stall point.

Almost everyone sees that they want to reach the peak of their lives, but Bezos believes that the day you reach the peak of life is the day you have to be unlucky, so I will always be here.

How to keep the vitality of Day one?

The question that follows is how to maintain the vitality of Day one? Especially in a big organization, what is that grip?

In fact, the trend from Day one to Day two is irreversible like time. What is the power behind this?

The entropy-increasing law, that is, any closed system, continuously consumes energy and releases energy that cannot be recovered. “Entropy” is the energy that is constantly being lost and cannot continue to work.

Moreover, the trend of increasing entropy is irreversible. The trend from order to disorder is irreversible.

In this regard, Wang Dongyue said that any organization will become degenerate, bureaucratic, ineffective, and eventually die as time goes by. The biggest force in the middle is because of the entropy increase of the organization.

Similarly, Drucker believes that there is only one thing that management has to do, that is, how to counter the entropy increase. In this process, the vitality of the enterprise can be increased, rather than silently going to death.

In this regard, Bezos made a clear statement to the shareholder letter in 1998: We must resist the increase in entropy, but most researchers have ignored this sentence.

In fact, anti-entropy thinking is the first principle of Bezos’s management of this huge organization.

How to do it? There are three:

1 Resisting formalism.

As companies grow larger, the most common manifestation is formalism, where you no longer focus on the results, but just ensure that the process is correct.

But Amazon is a big company that hates the process. In fact, the sign that a company is in day two state is that the process limits your operations.

2 small team

Amazon has 240,000 employees, but most of the teams are very small, the most famous is the “two pizza team”, Brad Stone wrote in “One Net”:

The entire company will be reorganized in accordance with the “two pizza team” model. Employees are required to form an independent team of no more than 10 people – especially when working night shifts, the size of the group can be as small as two pizzas.

3 open system

Bezos has a big killer with anti-entropy:

Transforming Amazon’s internal functional services into externally serviced businesses.

When a service is externalized, it will face real competition. It must understand the user’s needs, because Amazon is just an angel user, and finally it becomes a situation like AWS, completely serving the outside world.

Because in the early days, AWS was only used to avoid technocratic, internal use, but later became completely external business services, and the usage even exceeded internal usage.

Case: Third Party Seller Platform (Marketplace)

Amazon only sold its own things at first, but it was later opened to third parties, and Bezos also opened the price tool to all consumers.

This business obviously hurts the interests of Amazon and has been opposed by countless people. For example, if you want to buy a book, you may find the second-hand book is the cheapest, the book seller will be unhappy; others sell things cheaper than Amazon’s own sales, then the business leader is not happy.

Bezos said, what about it? I just want to use the outside to force, I can do my price is the cheapest in the whole game.

summary

Finally, how do you learn Bezos correctly?

We have no way to learn his entrepreneurial story, because that time and space is gone, but his way of thinking can open our borders. Do you have a touch to this taste?

Munger said that the business community has an old adage:

1 Find a simple basic truth.

2 Act very strictly in accordance with this principle.

I hope that you are today, find it, and live forever.

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