Jeff Bezos's Rules For Making Decisions And Knowing If A Business Is Good

It will soon be two years since the departure of Jeff Bezos from the top of Amazon’s decision making. Although today he is more dedicated to his space flight company, Blue Origin, Bezos left in his letters to the head of the company several ideas about decision making and how he evaluated whether a business is suitable or not.

This is how they made decisions at Amazon in the Bezos era

One of the reasons why Amazon has been able to innovate and grow steadily over the years is its focus on risk and decision making. In his 2015 annual letter to shareholders, Bezos spoke about the importance of taking risks and making bold decisions in business.

In it, Bezos talks in depth about the importance of failure: “Failure and invention are inseparable twins. To get extraordinary returns, you have to be willing to take risks and embrace the chain of failed experiments that you know is going to come your way.”

In his own words:

“The greatest returns often come from betting against conventional wisdom, common sense, or the established. Given a ten percent chance of a 100 times return, you have to take that bet every time. But still, you’re going to being wrong nine times out of ten”

He also made a comparison between business and baseball.“The difference between baseball and business is that in baseball you have a truncated outcome distribution. No matter how well you connect with the ball, the most runs you can make is four (the pitch limit). business, once in a while, when you hit it, you can score 1,000 runs. Big winners pay for so many experiments.”

The analogy may be confusing outside of the world of baseball, but it means that in business there are multiple testing possibilities, and therefore that allows for a factor of experimentation which is good for hitting the nail on the headunlike baseball, where the limit of attempts forces us to adjust and always play it safe.

Type 1 and Type 2 decisions

Once this experimentation phase was over, Bezos also made reference to one of the great problems of the most massive companies: how to continue to maintain innovation being such mammoth giants.

Slowness, risk aversion and lower rate of innovation. Bezos addressed this challenge and how much weight to assign to each decision: because not all decisions are one-way doors.

“Some decisions are momentous and irreversible or almost irreversible: one-way doors, and these decisions must be made methodically, carefully, slowly., with great deliberation and consultation. If you go through and don’t like what you see on the other side, you can’t go back to where you were before. We can call these decisions Type 1. But most decisions are not like that: they are changeable, reversible, they are two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for long. You can reopen the door and come back. Type 2 decisions can and should be made quickly by well-judged individuals or small groups,” he explained in another of his letters.

As organizations grow, there seems to be a tendency to use the Type 1 weight decision-making process in most decisions, including many Type 2 decisions. The end result of this is slowness, unreflective risk aversion, a lack of sufficient experimentation, and consequently diminished invention, according to Bezos.

Your Ultimate Framework for Whether or Not to Jump In

One technique that Bezos uses to make important decisions in his life and in business is what he calls his “regret minimization framework”. In an interview, Bezos explains how looking forward in time and looking back on his life helps him make decisions that minimize regret.

“I wanted to look forward to 80 and say, ‘OK, I’m looking back on my life. I want to minimize the number of regrets I have. And I knew when I was 80, I wouldn’t regret trying this. I was not going to regret trying to participate in this thing called the Internet that I thought was going to be something that would change the world. I knew that if I failed, I would not regret it, “he said.

In a few words, this Bezos rule is summed up in thinking if in many years we will regret not having made a decision. And, if so, carry it out.