With 5 Short Words, Jeff Bezos Just Shared a Brutal Truth Most People Never Learn

Jeff Bezos released his final shareholder letter as CEO of Amazon Thursday. The letter runs more than 5,600 words, covering Bezos’s vision for the future and his defense of Amazon’s history.

If you want to capture the most important point however, it’s just five short words, starting roughly 5 percent of the way through.

This is where Bezos shares a simple, brutal truth that so many people never learn, before using the remainder of the letter to make his case that Amazon actually lives up to this ideal.

The five words? “Create more than you consume.”

Here’s the context:
If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.

What makes this such a profound and yet difficult statement?

Well, step into any business school in the world, and you’ll quickly overhear people talking about “value creation” and “value capture.”
They seem like fairly easy terms, almost self-defining, but they’re in constant conflict.

The tension arises because stakeholders don’t all have the same interests, and because value creation — as Bezos says, both in business and in life — is best measured over the very long term.

But the less value a company creates at any given time, the more pressure there can be to capture whatever value does exist. Let’s illustrate by turning this phrase into a question, and applying it to any business, or any person that you meet:

Does this business create more than it consumes?
Does this person create more than he or she consumes?
And let’s be fair and turn it on ourselves:
Do I create more than I consume, in my relationships, in my professional life, and the business I’m running?

It becomes a very efficient way to start thinking about whether this is a person you want to spend time with or a business you want to be involved with — or, vice-versa, whether it’s likely to be rewarding or toxic for other people to spend time or do business with you.

Of course, it’s one thing to assert that you’ve created value; it’s another to back it up. Over the rest of the letter, Bezos makes his case for pretty much the whole array of stakeholders.

I don’t think I’ve ever seen another CEO attempt to break down his company’s status within the world so quantifiably. Among the stakeholders:

Individual shareholders
Bezos is worth almost $200 billion as a result of starting and building Amazon, and he asserts quickly that 7/8 of the company’s total ownership, “representing $1.4 trillion of wealth creation,” is held by other people, such as:
“pension funds, universities, and 401(k)s, and they’re Mary and Larry, who sent me this note out of the blue just as I was sitting down to write this shareholder letter.”

(The note is a nice touch; it’s from a couple who say they bought two shares of Amazon when it first went public and sold them only recently when their son wanted to buy a house.)

Last year, Amazon had net income of $21.3 billion, so that’s his figure for shareholder value.

Employees

This has been the focus on Amazon of late — how it treats its employees, in light of union votes (unsuccessful) and bad publicity over bathroom breaks and workplace safety.

Bezos addresses those last two points elsewhere, but also writes that in 2020, “employees earned $80 billion, plus another $11 billion to include benefits and various payroll taxes, for a total of $91 billion.”

Third-party sellers

Another constant source of public tension, but Bezos says that at the end of the day, third-party sellers made “between $25 billion and $39 billion” in profits as a result of selling on Amazon last year. “To be conservative here, I’ll go with $25 billion.”

Customers

I found this last analysis interesting, as Bezos calculates an argument for the amount of time saved by making online purchases using Amazon, as opposed to cost savings (or, especially, avoiding sales tax, for many customers), and tries to put a dollar value on it.

He comes up with 75 hours per year, multiplies it by $10 an hour (whose time isn’t worth that?), and subtracts the cost of a Prime membership to come up with $630 per Prime member. With 200 million members, he calculates the value creation (and capture, actually) at $126 billion.

Add it all up, and Bezos suggests that each year, Amazon creates $301 billion for these four big classes of stakeholders.

Is there room for criticism? Always. Are competitors and supply chains part of the list of stakeholders, for example? Where do they fit in this analysis?
But as a coherent argument to try to back up his assertion that Amazon lives up to those five short words — create more than you consume — I think it’s a fitting valedictory.

Check out the full article on Inc.com, click here!