The Amazon Leadership Principle of Frugality stands out as a guiding philosophy that encourages teams to accomplish more with less. It reflects Amazon’s mindset of seeking efficiency without compromising innovation. This principle is highly relevant in the context of *Big Bets*, where resource constraints often lead to creative problem-solving and breakthrough results. For leaders making Big Bets, embracing frugality not only drives cost-consciousness but fosters an environment where the team is encouraged to rethink their approaches to unlock outsized impact with constrained resources.
Frugality aligns closely with the three key habits of Big Bet leadership: creating clarity, maintaining velocity, and prioritizing risk and value. When leaders prioritize frugality, they are forced to make clearer decisions about what truly matters, eliminating distractions and unnecessary expenses. This focus sharpens the Big Bet vector, allowing teams to move swiftly and effectively while prioritizing resources toward the most impactful areas. The disciplined approach to frugality also reduces risks by ensuring that any financial investments are directed toward initiatives that yield the highest value.
In the hyper-digital era, as outlined in Big Bet Leadership, frugality doesn’t mean sacrificing ambition or cutting corners. Instead, it emphasizes using constraints as a driver of innovation, aligning with Amazon’s broader culture of customer obsession and long-term thinking. For leaders orchestrating Big Bets, adopting frugality as a guiding principle helps manage costs without losing sight of the larger mission of delivering transformative, customer-centric results.
Amazon Leadership Principle number 10 — Frugality
Amazon has always been tremendously deliberate about keeping a cost-conscious (even cheap) culture. Jeff firmly believes that frugality drives innovation. It is one of his favorite forcing functions. As he puts it, “One of the only ways to get out of a tight box is to invent your way out.” Every dollar saved is another opportunity to invest in the business. Eliminating cost structure from the business drives low prices, which drives the virtuous cycle flywheel.
When I was at Amazon, nobody flew first class. Everybody stayed in budget hotels. The company didn’t pay for anybody’s cell phone bill. Most important, this low-cost culture was executed consistently from top to bottom. Jeff drove the same little Honda for years after he founded Amazon. Perhaps most extraordinarily, Jeff’s salary is $81,840, which is only $14,000 more than the average Facebook intern makes.
Just as he did in 1997, Jeff fundamentally believes that Amazon is still in day one, and so he runs it with the cost-minded discipline normally applied to a brand-new start-up. More than anything else, he fears and loathes complacency—especially since the company still operates on razor-thin profit margins, relying on high and growing volume to pay the bills. Keeping costs down is one way of fending off complacency. It also discourages employees from measuring their importance by the amount of money they spend. No extra points are awarded for headcount or budget size. Empire-building by managers is virtually impossible, in part because there’s just no money for it.
The Legend of the Door Desk
From the beginning, Jeff was adamant that Amazon was not going to create offices with big, elaborate desks. He figured all anyone needed was a place to work—and that included senior leadership as well. Early on in the company’s history, someone came up with the idea of hammering legs on to doors to create more desks. Eventually, the “door desk” became Jeff’s symbol for the low-cost, egalitarian culture he was trying to create. In fact, the company still hands out the Door Desk Award, a title given to select employees who have a “well-built idea” that creates significant savings for the company and enables lower prices for customers.
Ironically, the door desk, one of Jeff’s supremely effective symbols for company frugality, later became a symbol of mindless bureaucracy that nearly gave him a conniption fit. I found out about it at an all-hands meeting where Jeff was ranting about bureaucracy. What had set him off? Apparently, someone had shipped door desks to our London office. “You know you’re becoming a bureaucracy when you decide to spend money to ship [expletive] symbols to Europe!” he yelled. I’m fairly certain someone lost their job over that one.
That hasn’t stopped Jeff from searching for opportunities to create fresh symbols of frugality. For example, at the company’s annual shareholders meeting in 2009, Bezos revealed that all the light bulbs had been taken out of the cafeteria vending machines. “Every vending machine has light bulbs in it to make the advertisement more attractive,” Jeff explained. “So, they went around to all of our fulfillment centers and took all the light bulbs out.”3 Amazon estimated that the measure saved tens of thousands a year on electricity. Not a huge sum in itself, but the gesture speaks volumes about the way this multi-billion-dollar company thinks.
No More Free Advil
Like any goal or policy, a good idea can go too far. Frugality can have a downside when it sends a message of not caring to employees or customers. Just visit Glassdoor.com, the website dedicated to employee comments about the companies they work for and read about how many Amazon ex-employees cite the company’s cheapness as the number one reason they jumped ship. Many people have warned that Amazon’s policy of hiring temporary-contract workers could lead to low-quality work and inconsistent productivity and waste resources on extra training.
Amazon has also been criticized for outsourcing its customer chat support to India. In one particular instance, an American customer went so far as to post the transcript of his wildly dysfunctional discussion with an Amazon chat support representative named “Farah,” a woman who clearly had a tenuous relationship with the English language.5While this is hardly an uncommon problem in customer service among many U.S. companies, critics pointed to the unfortunate interaction as a sign that Amazon was growing too big to adhere to its stated principles.
To my mind, the fact that this story made the pages of Business Insider suggests that Amazon is still the gold standard when it comes to high customer service standards. But it also suggests a challenge I’m sure Jeff Bezos is focusing on.
In The Everything Store, Brad Stone writes about how employees are impacted by the emphasis on frugality:
Parking at the company’s offices in South Lake Union costs $220 a month, and Amazon reimburses employees—for $180. Conference room tables are a collection of blond-wood door desks shoved together side by side. The vending machines take credit cards, and food in the company cafeterias is not subsidized. New hires get a backpack with a power adapter, a laptop dock, and orientation materials. When they resign, they’re asked to hand in all that equipment—including the backpack.
Stone goes on to report that, in the late 1990s, a newly installed executive “cut a rare office perk, free Advil, which he viewed as an unnecessary expense.” The move set off “a near insurrection among employees” but was upheld.
All of that said, it’s probably important to note that Amazon has industry-typical health insurance and dental plans, as well as its yearly employee stock grants and matching 401k program. The company pays enough to attract quality talent—but not enough to make people fat and happy or to create the country-club atmosphere Jeff trys to avoid. It’s a delicate balance to strike for both customers and employees.
In 2020, Amazon was no longer the scrappy start-up struggling to survive. As I stay current with many employees at the corporate groups, as I visit the Amazon Spheres building in Seattle, I ask myself, Is frugality still a leadership principle at Amazon? What role does it play? In interviewing employees for this book, here’s what I’ve learned about how frugality influences Amazon today.
The explanation for the Frugality Leadership Principle was recently changed. The prior, long-term explanation was:
“A leader at Amazon tries not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention. No extra points are awarded for headcount or budget size.”
The emphasis on frugality is now less on managing everyday expenses and more as an emphasis on designing and building capabilities and services that scale in efficient manners. Designing to a cost or efficiency is a type of constraint, much like designing to a quality specification or a speed requirement. Amazon emphasizes frugality as a key element tackling problems and operations with cost in mind because pennies per order quickly become billions of dollars when you have scale like Amazon.
But frugality is not just about budget and monetary resourcefulness; it’s about conserving other resources too—especially time. A lot has changed at Amazon since I left. The company is not as frugal on employee expenses, travel, and benefits. A longtime Amazon leader told me that frugality is often evaluated by how a leader uses the one non-replenishable asset: time. Amazon leaders try to apply more of their time at “working in the future.” In a 2018 interview, Bezos stated, “All of our senior executives operate the same way I do. They work in the future. They live in the future.”
Frugality is also a mindset for helping to avoid bureaucracy and non-value added management and activities. Being frugal is a mindset of getting more done faster and with fewer resources. Keeping projects lean, having everyone add value, and contributing in a flexible, multidisciplinary manner helps to get more projects delivered at Amazon than the typical organization. “If you look at the continued pace of innovation in AWS this year, we’ll launch a little over 1,800 significant services and features in 2018 up from 1,400 a year ago. And a thousand the year before that. The pace of innovation is getting faster and faster,” says Jassy. The pace of innovation is improved by staffing lean, enabling decision-makers, breaking organizations into small independent teams, and infusing a “get it done” frugal mentality. [i]
The spirit of frugality and customer obsession is behind the tremendous operational improvement efforts at Amazon. Every algorithm improvement, reduced error, and eliminated warehouse move all add up to a business. Frugality forces innovation to occur in your operations and helps an organization to stay humble. Add a dose of frugality to your organization along with other ingredients to change the tone and tempo.
John Rossman is a writer, strategy advisor, and keynote speaker. Have him inspire and teach your team.
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