Amazon CEO Jeff Bezos is famous for his drive to take bold bets and experiment on projects that often fail.
That approach has led to many flops within Amazon, like its Fire Phone or hotel-booking site Amazon Destinations. But it's also what made major hits like Amazon Web Services (AWS) or Kindle devices possible.
Bezos reiterated his belief in failure in Amazon's annual shareholder letter published on Tuesday. He writes:
One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it's going to work, it's not an experiment.
Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you're still going to be wrong nine times out of ten.
We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it's important to be bold. Big winners pay for so many experiments.
Bezos cited AWS, Marketplace, and Prime as three main examples that paid off after taking bold bets. Its cloud-computing service, AWS, is already looking to generate almost $10 billion this year, while Marketplace and Prime have helped grow its core e-commerce business to reach $100 billion in annual revenue for the first time this year.
This isn't the first time Bezos has expressed his desire to fail in business. In a previous interview with Business Insider, he said:
I've made billions of dollars of failures at Amazon.com. Literally billions of dollars of failures. You might remember Pets.com or Kosmo.com. It was like getting a root canal with no anesthesia. None of those things are fun. But they also don't matter.
