Decoding the Entrepreneurial Secrets behind Amazon’s Success Streak
In the latest release by Forbes magazine, it’s no surprise to find that Amazon’s CEO, Jeff Bezos, leads the pack of the world’s moguls. Interestingly, he is the first person to go past the $100 billion mark. What caused the hike? Simple, Amazon’s ever-surging stock price.
Bezos first founded Amazon in 1994 as an online bookstore. Currently, they sell anything and everything under the sun. At present, Amazon is focused on the growth of its digital assistant Alexa that is embedded in its Echo line of internet-connected speakers.
It is estimated that about 44% of all online sales are being conducted on Amazon. Incredibly, about one in three adults in the U.S. are Amazon Prime members. It is also projected that 95% of Amazon Prime subscribers are quite satisfied with the service and are more than likely to renew their benefits. Last year alone, the company had an income of $5.6 billion.
So, what exactly drives the continued upsurge in Amazon’s fortunes? The footprint may lie in its design. Through its CEO, Amazon famously quips that its key drivers to success lie in its mantras: ‘Customer Obsession’ and ‘Invent & Simplify’.
It’s only fair to draw up comparisons between how Amazon operates with another tech giants like say, Apple. Through the years, the great products that Apple has launched have enthralled us all. They are primed to focus on maximum profit for quality products.
Interestingly enough, Amazon seems to be intent on registering a marginal profit. Jeff Bezos is perhaps a genius for the way he has managed to structure Amazon into taking the world by storm. By refusing to show his cards early, he lets the world ponder on what the next move will be and before you know it, he goes for the kill. The objective is to not make a mammoth profit too early.
At Amazon, they think in terms of the future and the long-term benefit of everything. At present, Amazon has taken the acquisition of successful startups and well-established businesses under its wing. The latest being a smart doorbell called Doorbot that premiered on Shark Tank. Amazon has acquired the business called Ring for more than $1 billion.
It’s quite an investment really given the fact that the Shark Tank entrepreneurs overlooked the idea. The technology functions as a kind of caller I.D. for the home since it is able to take videos of every person who rings on the doorbell. The product is set to revolutionize home security and is now on sale on Amazon. As it’s always the case with most businesses, it’s a risky investment. We’re however certain the folks at Amazon know what they’re doing.
Flying Under the Radar
What makes Amazon standout from the other cash-kings lies in its potential for growth. Secondly, Jeff Bezos acts smart by ensuring to constantly put Amazon’s profits into infrastructure build-outs. They are well-liked by Wall Street for this reason only. For all its success, Apple has never really been able to match the unprecedented iPhone impact on the market. Not every other product they’ve looked to has been able to achieve similar feats as their flagship product.
On the other hand, Amazon has been flying under the radar. It does not seek to achieve success in the here and now. For them, it’s always about what the future holds. For every quarter, Amazon seems to rake in little profit. Weird enough, they are able to bring in more than enough money that they can use.
Amazon receives most of its payments through credit card. Since Amazon started operating as an online bookseller, they didn’t spend most of its revenues paying out distributors and publishers for about 90 days. This has allowed Amazon to achieve something known as a negative operating cycle, a desirable trait in the business world.
By holding onto cash made for a period, Amazon grew. As it did, it made sure to continually bank and in the process, turned its inventory about 30-40 times annually. The cash flow characteristic of a business is quite important in the valuation of companies. Even if these two companies work with the same operating margin, what would really make one company stand out would be its cash flow characteristic!
Jeff Bezos is a genius in more ways than one in the way he’s built Amazon from the ground up. He’s constantly seeking to innovate. In a letter to shareholders a few months back, he quipped that he’s most afraid of irrelevance and the painful decline that follows.
Given the fact that Amazon is not the most irrelevant company out there, that he would even voice his concerns about this matter, perhaps exposes his business acumen. Surely, it’s something that we can all source some inspiration from.
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