Why People With Money Make Terrible Decisions (Pt. 2)

☝️ Part 1 of this topic dealt with understanding profit centers. Check that out HERE.

I've never wanted to work for Amazon. When you work as a software engineer, you're going to be asked to work for Amazon on a regular basis - during the pandemic I received 45 emails from Amazon and Amazon-adjacent companies (Audible and AWS) to come work for them. My friends who have worked there give me mixed reviews but largely confirm reports of a not-so-pleasant corporate culture, which hasn't exactly made me rush to apply.

Amazon has been called a "bruising workplace"(Source: NYT) and having a "work culture based on fear" (Source: BRM). However, credit where credit is due: Amazon is one of the most financially successful companies in the world. They do many things well, but I want to drill down to look at their attitudes towards cost centers.

The history of Amazon is pretty fascinating. While it started by selling books and then quickly expanded to pretty much everything under the sun, its biggest projects became so large by cracking the code of cost centers. We know what profit centers are. Put simply, profit centers are those divisions that add to the bottom line, while cost centers are those divisions that subtract from the bottom line.

However, cost centers come in two types: static and potential. These terms come from physics, where the field of mechanics studies objects at rest and in motion. Objects at rest are static, and certain static objects have potential energy, or the ability to transfer this energy into other forms. The classic example is a rock on the top of cliff. It may be static now, but if acted on by the proper force, it may convert its potential energy and fall quickly to the ground.

Static cost centers are those that can never be profit centers - at best they'll break even, usually they have value by preventing losses in various forms. The classic example of a static cost center is Human Resources. HR is rarely part of a company's differentiating value proposition, but it serves a critical purpose in supporting other areas of the company. In the event of abuse or workplace disputes, HR can also save the company a significant amount of money and its reputation.

Potential cost centers are those can be profit centers, if pushed in the right direction. The best example of this is Amazon's crown jewel, Amazon Web Services. AWS is the leading cloud platform out there, powering nearly a third of the Internet and racking up over $90 billion in revenue in 2023. As an e-commerce company, Amazon required large amount of servers to handle the busy holiday season, but it was unused the rest of the year, simply costing money. Pushed by Amazon's leadership principles of frugality and invention, Amazon realized they could effectively lease out their server space to other companies for most of the year - and make money from doing it.

Amazon has used the same principle for a bunch of its divisions. For example, there are so many packages shipped through Amazon that it needed to build out its own fleet of delivery vehicles and shipping services. However, rather than let it simply serve Amazon alone, it's made those shipping services available to other companies - for a fee, of course.

Other companies do this, too. Walmart does the same thing that Amazon does by leasing out its logistics and supply chain infrastructure to other companies. The Washington Post (owned by Jeff Bezos, btw), licenses its internal content management system to other newspapers, keeping it afloat in the shrinking newspaper industry.

This attitude towards cost centers is fundamentally an application of self-improvement techniques to business . We're often too lazy to work on our weaknesses. We prefer to hone our strengths, because that's the thing that makes us "unique"; that's our comparative advantage. But when we shore up our weaknesses, it lets our comparative advantages really shine.

For example: imagine an inventor CEO, someone just starting a business to sell a product they've invented that's 10 times better than the competition. Perhaps this person is not very good at managing the practicalities of the business. How successful their business is largely dependent on hiring and finding a COO to manage the intricacies of the business well, not on further improving their product to be 100 times better than the competition.

The problem with this approach is that once we become successful, we may not continually ask these questions of ourselves. One reason certain people and certain companies are successful is that they are continually asking themselves, "How can I improve my weaknesses?" Or more likely, they have people around them, whether personal mentors and coaches in the case of an individual or a board of directors, that ask those questions of them.

Finding those people who are highly knowledgable and bring a lot to the table but aren't trying to impress someone is difficult, but low ego, high value people are critical for any sustained success. Those are the people who can help not only organizations with finding areas of growth, but also help individuals grow, too.

Learn to make decisions that feel good.