Many managers say they look for "founder-led companies." Of course, Amazon (NASDAQ:AMZN) no longer falls in that category, given that Jeff Bezos has turned over the reins to Andy Jassey. However, one firm thinks the Jassey-led firm continues to follow a "founder’s mindset."
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The difficulties of describing a founder’s mindset
In their first-quarter letter to investors, which was obtained by Hedge Fund Alpha, the team at Zeno Equity Partners weighed in on the founder’s mindset, a critical pillar of their investment strategy. Although they said it’s challenging to describe this trait, they added that they know it when they see it.
Referencing Amazon’s 2024 letter to shareholders, the Zeno Equity team said it "exudes" the founder’s mindset from the eight pages signed by CEO Andy Jassey.
They’ve owned shares of Amazon for many years, and it’s the only mega-cap technology stock they hold. Although the Zeno Equity team said Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META) are "remarkable businesses with loads of market power and high incremental returns," they haven’t found any of them to exhibit the specific set of behaviors they describe as the founder’s mindset.
How Amazon is different from other mega-cap tech
In 2017, one of the team addressed the others in an email sharing a thesis for why Amazon differed from those other mega-cap tech companies. They noted that Amazon came from a far more difficult low-margin, low-return business and has gathered a massive buyer base to which it adds "incredible value."
‘Everyone who experiences Amazon loves it and saves money from using it, both consumers and businesses," the email added. "Which other of these companies can claim that?"
The email also opined that Jeff Bezos seemed like a much "stronger" founder than Mark Zuckerberg, Larry Page or Sergey Brin, even suggesting that Amazon could end up buying Facebook.
"I think ultimately, all these guys will prosper and eat the cake of the old-generation incumbents or provide the tools for the long tail to do that," the person said. "But Amazon seems to be one that stands taller."
What is a founder’s mindset?
Eight years after that email, the Zeno Equity team feels it still largely rings true - even though some of the predictions didn’t turn out to be true. Although they didn’t know Amazon well at that time, they could see specific traits that "resonated deeply" with them in terms of how the company approached business.
The Zeno Equity team feels that the recent letter from Jassey reveals those traits very effectively.
In a separate letter about the "discontinuities of capitalism," they described the founder’s mindset as an "obsession with enhancing long-term value, even if at the expense of short-term profits and margins."
The Zeno Equity team noted that Amazon has repeatedly shown that it won’t push for "profit maximization" over the short term, especially if it comes at customers’ expense. That practice enabled the online retailer to keep unearthing new capital deployment opportunities - with very high incremental returns. The Zeno Equity team believes that behavior makes Amazon unique among its peers.
A customer-centric company
Returning to Amazon’s recent letter, they shared some quotes that they believe clearly show that the company fits their definition of a founder’s mindset.
First, the Zeno Equity team highlighted Amazon’s focus on customer value. Jassey stated that their goal is to become "Earth’s most customer-centric company, making customers’ lives better and easier every day."
The company measures itself in terms of customer and revenue growth, the degree of repeat customers, and brand strength. Jassey stated that Amazon has always been obsessively focused on customers, prioritizing them over everything else.
The company began offering free shipping on orders over $99 long before it became inexpensive to do so. The company slashed that level to $49 and then $25 in a matter of months, decimating its shipping revenue and margins in the process but removing a major pain point with online shopping.
Since it began in 2006, Amazon Web Services has slashed prices at least 151 times, even cannibalizing its own profitable book business with the Kindle because it was thought that digital reading was easier, cheaper and more instant. Amazon has always shown both good and bad reviews, while other large e-commerce companies just displayed positive comments or no reviews at all.
Why shareholders should care
Questioning why this customer-centric view is relevant to shareholders, the Zeno Equity team explained that consistently giving up short-term gains in exchange for long-term loyalty and trust is not only very difficult to do but also an investment with a deferred return that comes in the form of rising future free cash flow or insurance against "future competitive assault."
They also said it transforms scale into an asset rather than a liability because it can be used to slash prices even more, providing additional value to customers with greater benefits for the long term.
Founder-like management
The Zeno Equity team also appreciates Amazon’s leadership, Jassey’s letter stated that the best leaders want to hear the views of others and don’t "wilt or bristle" when others challenge them. Instead, he describes such leaders as "intrigued," saying they change their minds when they receive compelling new information.
The Amazon letter also said leaders "have conviction and are tenacious," not compromising for the sale of "social cohesion." They commit wholly to decisions.
The Zeno Equity team noted that the business environment today changes all the time. A plan that seemed exceptional yesterday can become a sunk cost tomorrow if leaders cling to it due to hubris, anchoring, career risk or other biases. They said decisiveness provides momentum and destroys the paralysis that results from endless debate of every option.
On the other hand, humility invites a wide range of viewpoints while protecting against group think and making it acceptable for employees to point out potential problems before it’s too late. The Zeno Equity team believes this combination of decisiveness and humility enables firms to transform "risks into optionality."
Collaboration at Amazon
Jassey’s letter also noted that innovative breakthroughs can be achieved through a variety of different paths. In some cases, "a lone genius" develops an excellent idea, having it executed by others. However, the Zeno Equity team said that’s not how they usually operate.
Instead, innovation at Amazon is very collaborative, beginning with just a seed and then taken to the next step by multiple "smart, mission-driven people." The Zeno Equity team noted that innovation can’t really be scheduled by booking an hour to invent something like Amazon Prime. They added that those innovations stemmed from someone asking why they couldn’t change what’s possible for customers.
The Zeno Equity team recalled that Jassey launched Amazon Web Services via a six-page memo, being allocated engineers and data access to run it as a startup inside Amazon. At the time, the $115 billion run-rate revenue business could not be foreseen, given Amazon’s roots as an online bookseller.
"In our experience, companies with Founders Mindset often give you positive rather than negative surprises," the Zeno Equity team wrote. "Collaboration and frequently questioning the status quo fosters such optionality, creating value for the long term."
Clever risk taking
Taking risks is also a key part of high-performing leaders. Jassey’s letter stated that they constantly feel "that there are closing windows all around us." As a result, he said you have to be willing to take risks and clever enough to spot bets that are worth the time, resources and effort. Further, Jassey said if you have builders who are inventive and ambitious and have high standards, they aren’t used to failing.
"They suspect external (and maybe internal) ridicule awaits them if they try something very different that doesn’t work out," the Amazon letter stated. "So people often play it safe. But you can’t achieve something extraordinary for customers by playing ‘not to lose.’"
Of course, growing companies typically layer on more and more levels of management, stretching out the approval chain and filling calendars with group meetings of little consequence. The Zeno Equity team noted that such companies slow down as bureaucracy becomes entrenched, leading to missed opportunities and frustrated talent.
However, they added that the companies that will survive must not only be strong but also the "most adaptable." Thus, the Zeno Equity team feels that a founder’s mindset dumps bureaucracy while driving speed and risk taking, which builds resiliency in the businesses they want to invest in over the long term.
Seeking owners
Finally, Amazon wants to hire owners. Jassey noted that a key strength of Amazon54 over the first three decades was that it hired "really smart, motivated, inventive, ambitious people who have been great owners." As a result, Amazon team members are always considering what they would do if they were handling their own money or if they had started the company.
Owners not only feel accountable but care much about the quality and effectiveness of their property, viewing the company’s mission as their own.
The Zeno Equity team frequently describes the founder’s mindset as "a management team who thinks and acts like long-term owners." These teams invest in things that last for decades, although they might "suppress accounting numbers for the next earnings call."
Owners inside a big company
They stake their reputation and often, their sanity, on improving everything, triggering a strong feedback loop. The Zeno Equity team noted that when your name is on a project or team, every expense is compared to long-term value, each complaint "feels personal," and every "inefficient process becomes a thorn that needs to be solved."
"Owners turn a company from a collection of job descriptions into an adaptive system that compounds knowledge," they added. "Importantly, it also aligns the people running the company with the owners of its equity - exactly the characteristics that separate those that create value for decades from those that live from quarter to quarter."
The Zeno Equity team noted that Amazon may one day face a conspiracy against it by the world, but with its current culture, they believe its probabilities of success remain in their favor as shareholders.
