How to Lead Like Fortune 500 Founders/CEOs

jeff bezos_amazon

Jeff Bezos—Amazon, 1961

In the early 1990s, while working as a computer analyst with a New York investment house, Jeff Bezos saw that the internet was growing at a rate of 2300 per cent per year, and thought that people would one day buy things over the internet.

The best options seemed to be books and CDs – an online retailer could offer a wider range of products than a bricks-and-mortar store could stock, and they were easy to ship. He decided that book publishers were less formidable competitors than the music industry, where six major labels dominated the industry. When he told his boss then that he wanted to leave and start the new business, his boss said, ‘That sounds like a good idea, but it would be an even better idea for someone who didn’t already have a good job.’ Nevertheless, Bezos, with his wife’s support, left his job to follow his dream.

Most early internet start-ups disdained the idea of profit: the plan was to get big fast and turn a profit later; many burned off their investment capital at an alarming rate without being able to show investors a clear route to a return on their money. When the dot-com bubble burst in 2001, Amazon, unlike many, survived. In the last quarter of that year, it turned a profit of $5 million on sales of $1 billion – not a large profit, but a profit nonetheless. Bezos had proved that online retail was a viable proposition.

The ideas

Bezos wrote the program for Amazon – named after the world’s largest river – and launched the site in July 1995. The new company’s 10–30 per cent discount on books generated orders from day one. He and a handful or workers ordered the titles from distributors and shipped them out. On day three, Jerry Yang, co-founder of Yahoo, emailed to say that he would like to feature Amazon on their What’s Cool page. By the end of the week, the company had over $12,000 in orders; the small team struggled to keep up. By October, the company had its first 100-order day; within a year, it had its first 100-order hour.

Bezos introduced one-click ordering (which he patented) and shocked the book trade by allowing customers to post their own reviews – even negative reviews.

As Amazon grew on its way to becoming the world’s largest online retailer, Bezos introduced other products – CDs, DVDs, music downloads, computer software, video games and, later, electronics – before developing its full range of retail offerings, which, according to a Forbes 2012 article, has now passed 20 million items.

Amazon under Bezos is driven by metrics: the company uses around 500 measurable goals to monitor its performance, 80 per cent of which are customer-oriented. Bezos focuses on customer service, poring over customer complaints and comments and making changes to accommodate them. Some management meetings still use an empty chair to symbolise the customer – ‘the most important person in the room.’

Bezos has the classic retail low-cost, low-margin mentality. Luxuries and perks at Amazon are few and salaries are relatively low: senior executives are rewarded with restricted stock. Bezos’s own salary is around $80,000; his founder’s shares are worth around $19 billion.

Bezos is wedded to competition, allowing the site to compete, in effect, with itself. The introduction of Amazon Marketplace allowed other retailers and individuals to sell new and used items alongside Amazon’s offers, undercutting Amazon’s price. When the company bought the online shoe retailer Zappos, Amazon’s own shoe site was, and remains, a direct competitor. In 2002, Bezos launched Amazon Web Services, offering other companies the use of what many would consider to be the company’s core competitive advantage – its computer software expertise, infrastructure and server capacity.

In 2007, Amazon launched its first consumer product, the Kindle e-reader. In 2011 the company launched Kindle Fire, a tablet computer.

It was in 2007 that Amazon started to deliver on its promise to long-term investors: sales increased by nearly 40 per cent to almost $15 billion and profits more than doubled to $476 million. Bezos keeps his belief in the importance of the long term. ‘We are comfortable planting seeds and waiting for them to grow into trees,’ he told Forbes magazine in 2010.

Bezos innovates constantly. ‘We innovate by starting with the customer and working backwards,’ Bezos told Fortune. He argues that this focus on the customer, rather than on the competition, gives Amazon the edge. ‘When they’re in the shower in the morning, they’re thinking about how they’re going to get ahead of one of their top competitors. Here, in the shower we’re thinking about how we are going to invent something on behalf of a customer.’

In practice

  • Refine and innovate constantly
  • Focus on the consumer; listen to feedback
  • Encourage competition, even if it means having to work harder
  • Think long-term

 Herb Kelleher

Herb Kelleher—Southwest Airlines, 1931–

Herb Kelleher was the legal counsel for a small aircraft charter business in Texas when the owner set out his idea for a new low-cost airline operating between the state’s three key cities. Over drinks in a bar, the owner sketched out his vision for Southwest Airlines’ first destinations on a paper napkin. Kelleher was convinced. He put in $10,000 of his own money and set about raising venture capital. He was to spend the next five years fighting legal actions brought by competitive airlines. A party-loving, gregarious man, Kelleher later accepted the role of chairman, and then of president and CEO; he did so, he said, because he loved the company and the people who worked for it. For Kelleher, the people came first. ‘The business of business is people, people, and people!’ he said. ‘Of course, you have to be interested in and like people; otherwise, why would they be interested in or like you or follow you?’

The ideas

After Southwest Airlines’ legal fight for survival, its competitors started a fierce price war, and Southwest sold one of its four planes rather than having to lay off any of its 70 employees. By 1973, Southwest was turning a profit. Kelleher never laid off any staff, even during severe downturns in the industry, but Southwest stayed in profit for every year of Kelleher’s leadership – the only major U.S. airline to do so.

The airline’s business plan – which has since been copied by budget airlines around the world – was based on short flights and a rapid turnaround of planes on the ground, leading to more flights per day. Costs were tightly controlled; seats were allocated on a first-come first-served basis. The airline dispensed with meals, offering only drinks and peanuts (which were offered free of charge, because Kelleher thought that taking payment was more bother than it was worth). The aim, wrote Kelleher, was ‘to provide more service for less money rather than less service for less money.’

In his early years as chairman, as he told Fortune magazine in 2001, ‘I sort of served a three-year apprenticeship. That was a very enjoyable period for me. You’d go over to maintenance and talk over how the planes were running. You’d talk to the flight attendants and get involved in such discussions as what their uniforms ought to be.’

Kelleher’s business philosophy was unusual, but simple. As he wrote in a 1998 article quoted in the Journal of Leadership Studies, ‘Years ago, business gurus used to apply the business school conundrum to me: “Who comes first? Your shareholders, your employees, or your customers?” I said, “Well, that’s easy,” but my response was heresy at that time. I said employees come first and if employees are treated right, they treat the outside world right, the outside world uses the company’s product again, and that makes the shareholders happy.’

Kelleher put decision-making as close to the customer as possible: if regular customers arrived as a flight was about to leave, it was the local team’s decision whether to hold up the flight to take them on.

Kelleher’s outgoing personality and sense of humour began to rub off; Southwest became known for its zany attitude. Flight attendants sang safety instructions and told jokes. Any opportunity for a celebration was seized on. Employees were encouraged to spend a day in somebody else’s role, to experience work from their perspective. Kelleher himself would join the baggage-handlers in moving luggage or the flight attendants in handing out drinks and nuts.

During Kelleher’s time as CEO, from 1978 to 2001, Southwest grew from a $270 million company with 2,100 employees and 14 U.S. destinations to a $5.7 billion company with 30,000 employees and 57 U.S. destinations.

In practice

  • Fight vested interests that try to stop you from trading
  • Put employees first; have a genuine interest in their well-being
  • Let your personality impact on the organisation
  • Get decision-making close to the customer
  • Talk to colleagues; understand how they experience their roles
  • Get people to swap roles

 WholeFoodsMackeyjpg

John Mackey—Whole Foods Market, 1953–

In the 1970s, John Mackey joined a vegetarian collective in Austin, Texas, and later opened a store that would lead to the Whole Foods Market health-food supermarket chain.

According to his philosophy of ‘conscious capitalism,’ companies should decide on their higher purpose – why they exist and what they are trying to accomplish. The higher purpose may be as simple as offering a service or benefit to others, advancing human knowledge, or creating beauty and excellence.

Mackey believed at first that his company’s higher purpose lay in delivering excellence. ‘I actually thought we were in some variant of service – that it was really about fulfilling the good,’ Mackey told Harvard Business Review. ‘The team members consistently told me I was wrong, that we had a different purpose. It was this more heroic purpose [of trying to change the world].’

The ideas

Mackey studied at Trinity College in San Antonio and the University of Texas, Austin. He drifted between the two, studying only the courses that interested him – especially philosophy and religion – and never acquired a degree. He joined a vegetarian collective in Austin because he hoped he would ‘meet a lot of interesting women,’ and became the food buyer for the collective.

In 1980, Mackey and his girlfriend teamed up with the two owners of the Clarksville Natural Grocery store to open a 10,500-square-foot store called Whole Foods Market – one of only a handful of health-food supermarkets in the U.S. at the time, and an immediate success. New stores were opened in Houston, Dallas, New Orleans and then on the West Coast, in Palo Alto.

In the 1990s, the company fuelled rapid growth by acquiring other health-food chains around the country. In 2001, the company opened its first store in Manhattan, New York, followed by stores in Canada and the United Kingdom. In 2005, Whole Foods Market entered the Fortune 500 list of top U.S. public corporations; in 2011, revenues were $9 billion; and as of July 2012, the chain had 331 stores.

Whole Foods Market aims to offer a range of healthier, more environmentally sustainable and more animal-friendly products. The company labels its meat products to show the animal welfare practices of its suppliers, and is committed to selling sustainable seafood. As Mackey told the Harvard Business Review, ‘You’re either committed to sustainability or you’re not … Sometimes that means you do things that might hurt you in the short term but will underscore your integrity as an organisation.’

Mackey argues that when an organisation’s higher purpose is fully understood, a harmony of interests exists in the actions of every involved party: Whole Foods Market wants staff to be well-informed and happy in their work, because this makes for loyal customers; customers would not be happy if the chain offered products that violated its principles, so the company must find suppliers whose products result from sustainable and low-impact farming practices offering high standards of animal welfare; this improves the environment, from which society at large benefits. Each partner enters into these contracts willingly because they benefit in both the short and the long term.

Whole Foods Market employees are given a high degree of autonomy in choosing, within the company’s overarching guidelines, what their own store should stock. Stores are divided into teams, which are rewarded by profitability; teams meet regularly to reach consensus on decisions; profit and reward statements are available for all to see. Even hiring decisions are made by consensus: new recruits join a team and, after a trial period, a vote decides whether the new member stays with the team; a two-thirds majority is needed.

The company’s adherence to its core principles is the best guarantee of financial success and shareholder value. ‘I actually don’t think trying to maximise profits is a very good long-term strategy for a business,’ Mackey told Harvard Business Review. ‘It doesn’t inspire the people who work for you. It doesn’t lead to that higher creativity.’

In practice

  • Anticipate consumer movements
  • Scale up a successful model
  • Devolve decision-making ; give more autonomy to those closest to the customer
  • Decide on your organisations’ ‘higher purpose,’ which should define your relationships with customers and suppliers

 

Estee Lauder

Estée Lauder—Estée Lauder, 1906–2004

Estée Lauder was born Josephine Esther Mentzer in the Queens borough of New York City. Her uncle John Schotz had founded a small laboratory producing a range of health and beauty products. Lauder developed a fascination for the process of manufacturing skin creams and beauty aids, and discovered a natural talent for marketing.

It took Lauder several decades of hard graft to develop a significant cosmetics company. Its first significant breakthrough came in 1953, with the launch of a strongly scented product called Youth Dew, which could be used as a perfume or bath oil. Lauder positioned the product as an affordable indulgence at a time when perfumes were seen as luxury purchases or expensive gifts. She honed her promotional skills in the early years of her business, when advertising was unaffordable, and pioneered the use of free samples offered in-store, via direct mail or charity giveaways, and as ‘gift with purchase.’

The ideas

Lauder’s parents were Hungarian immigrants to New York City. Her father is reported to have been ‘prosperous’ in Hungary, but not quite as aristocratic as he was later implied to be. He worked in New York as a tailor, and then ran a hardware store.

Lauder’s mother’s brother, John Schotz, a chemist, arrived in New York from Hungary in 1900 and set up a makeshift laboratory in the family stables (in the days when the horse was still the main form of transport), producing beauty aids such as Six-in-One Cold Cream and Dr Schotz Viennese Cream, as well as less glamorous products such as suppositories, a poultry-lice killer and an embalming fluid. Lauder acquired a fascination both for beauty creams and for the process of manufacture. She dreamed of becoming a scientist and sold Schotz’s products to friends and acquaintances.

In 1930, she married Joseph Lauder; they had a son in 1933. Lauder continued to work on making and selling new products: ‘I cooked for my family and during every possible spare moment cooked up little pots of creams for faces.’ The couple divorced in 1939, but were to remarry three years later.

Lauder became a lifelong friend of Arnold van Ameringen, one of the founders of International Flavors and Fragrances. According to the New York Times, Ameringen helped Lauder’s fledgling company with financial aid and, possibly, with the formula for fragrances, though there was no formal link between the two companies. When she and Joseph remarried, Joseph took on the management of the venture’s finances, while Lauder focused on marketing.

They sold their products via concessions in beauty salons in New York and the surrounding area, and in 1948 made a major breakthrough when Lauder persuaded the prestigious Manhattan department store Saks of Fifth Avenue to give them counter space. Lauder deployed her own considerable personal sales skills – applying creams to potential customers, giving away samples and offering ‘makeovers’ – and trained store staff in her methods. Other department stores around the United States began to stock Lauder’s products.

The launch of Youth Dew in 1953 boosted earnings ‘from a sales volume of no more than $400 a week to around $5,000,’ according Lauder’s New York Times obituary. By 1958, the company’s annual sales were round $800,000.

In 1967, Lauder led the radical move into male skin-care and grooming with the launch of the Aramis range. In 1968, the allergy-tested Clinique range was introduced.

Lauder’s company was privately owned until 1995, when its initial public offering valued the company at $5 billion. In the year before her death, her company employed over 20,000 people in 130 countries around the world and had an estimated value of $10 billion. ‘The pursuit of beauty is honourable’ said Lauder and, perhaps most memorably, ‘Time is not on your side, but I am.’

In practice

  • Develop new products and market them; explore every route to market
  • Use sales promotion: free sampling, gifts with purchase, demonstrations
  • Develop a ‘luxury’ item at an affordable price
  • Continue to innovate and create new markets

WaltDisneyAndMickeyMouse

Walt Disney—The Walt Disney Co, 1901–1966

Walter Elias ‘Walt’ Disney needed a new character. As an early pioneer in the art of animation, he had achieved some success with a series of short films called the Alice Comedies – which featured a mixture of live action and animation – and a series of cartoons called Oswald the Lucky Rabbit. But Disney had ill-advisedly signed the rights to the Oswald character over to Universal Pictures, and his distributor cut the Disney Studio out of the second series. Disney lost his main source of income and all but one of his illustrators.

What Disney did have were some sketches of a mouse that he had kept as a pet at an earlier studio. His loyal colleague Ubbe Iwerks turned these into a new character called Mickey Mouse. The first two Mickey Mouse shorts were silent, like all of Disney’s films to date, and they failed to find a distributor.

Then Disney struck a deal with film executive Pat Powers, who offered Disney a distribution deal for a new Mickey Mouse cartoon, with sound, made using Powers’s own Cinephone system. Disney himself provided the voice of Mickey Mouse and much of the character’s personality. The new short, Steamboat Willy (1928), was a sensation; by the 1930s, Mickey Mouse was a household name.

The ideas

Returning from service with the Red Cross in the First World War, the artistically inclined Walt Disney found work in an art studio, creating advertisements for newspapers and magazines, and to be shown as ‘still’ advertisements in the new movie theatres. There he met a cartoonist called Ubbe Iwerks; the two young men tried but failed to establish themselves as Iwerks-Disney Commercial Artists, and then found employment with the Kansas City Film Ad Company. In 1922, Disney and a colleague left the advertising company to form Laugh-O-Gram Films, making short cartoons that were shown in theatres around Kansas City. Disney hired more illustrators, including his friend Iwerks, but the company later went bankrupt and was closed down.

Disney and Iwerks eventually achieved lasting success with Mickey Mouse. By 1932, the Mickey Mouse Club – a fan club to promote Mickey and other Disney products – had more members than the Boy Scouts and Girl Scouts of America.

Disney introduced a new, music-based Mickey Mouse series called Silly Symphonies. He began to streamline production, using lower-paid assistants to do some of the more routine illustration work. He produced his first colour cartoon (Flowers and Trees) in 1932, using Technicolor. His studio developed a multiplane camera capable of filming up to seven layers of artwork moving past the camera, creating an illusion of depth.

Disney raised a loan from the Bank of America to undertake what was widely derided as ‘Disney’s Folly’ – a feature-length animated Technicolor film. Snow White and the Seven Dwarves was released in 1937, and against all expectations, took $4.2 million in the U.S. and Canada alone.

With the proceeds, Disney was able to build a new studio in Burbank, California. He then went on to make what are now regarded as classic animated feature films: Pinocchio (1940), Fantasia (1940), Dumbo (1941), Bambi (1942).

As TV established itself, Disney teamed up with Coca-Cola to make a special programme, An Hour in Wonderland, for the NBC television network. In 1954, the studio launched a TV series, Disneyland, with the ABC network, which went on, under various names, to become the longest-running weekly primetime series on American television.

One of the conditions of Disney’s deal with ABC was an investment in his latest project, Disneyland, which opened in Anaheim, California, in 1955. The theme park came to deliver one-third of the company’s revenues.

In practice

  • If you are involved in new technology, become a pioneer
  • Expect failures and set-backs; be prepared to walk away from bad deals
  • Follow your vision: ignore sceptics
  • Keep up to date: adapt your technology to new business models
  • Fully explore your brand promise (Disney sells ‘fantasy,’ not ‘cartoon films’)

Bibliography: Gifford, Jonathan. 100 Great Business Leaders: Of the World’s Most Admired Companies (2014). Published by Marshall Cavendish International (Asia) Pte Ltd.