How Amazon Grew its Profit by 1200% in 12months (And How To Adapt It For Your Business).
In my opinion, there is a difference between building a business and building an empire, while the former is good the latter is way better.
To build an empire you must operate from a totally different mindset with borderless thinking and exponential results. In other words, you are operating from a mental state of abundance where lack doesn’t exist.
In this state Venture Capitalist, the banks and Wall Street are all over you like butter on bread…they just fall in love with you.
And in this post, I want to show you what building an empire looks like and why you should adopt this methodology in your strategy regardless of your size, number of employees and even revenue.
You see exponential growth demands exponential thinking, and exponential thinking requires a paradigm shift.
It is the cornerstone culture of any organization looking to maintain long term relevance and dominate their space and it requires a careful selection of mental titans who can implement it.
Today, I’m going to gift you the seed of exponential thinking that will make you see your business a whole lot better than you see it now.
Now, while I’m a big fan of Nigerian startups, I want to zoom out a bit and show you what the big dogs are really doing…
When I mean the big dogs, I’m referring to the likes of Amazon, Apple, Google, Microsoft and the rest of the gang and how you can legally steal and adapt their strategy (however it will only work for you if you think exponential).
For a moment, I want to share with you the profitability of these empires particularly before they hit a trillion dollars.
So let’s dive in…
In 2018, Apple became the first US Company to hit the trillion-dollar mark right after declaring its Q3 earnings of $53.3 billion surpassing its projections by $1 billion.
Above is a snapshot of its Q3 Report released by Apple (I could rant about it but I’ll hold my peace so this post doesn’t get too lengthy)
Now, regardless of whether you’re a business-minded person or not you’ll agree with me that making projections for a quarter is one thing, hitting the projected mark is another thing, but, surpassing it not just by a few million dollars (while that is good though), but by a billion dollars is a whole new different ball game entirely.
It’s a HOMERUN.
You’ve got to be doing something right (which we’ll talk about as we go on).
The next runner on the trillion-dollar track is none other than Jeff Bezos’ Amazon. Amazon made its trillion-dollar debut later in 2018 right after reporting a $2.5billion profit in Q2 of 2018, a huge 1200% leap from a $197 million the previous year of which about of it from its ad sales.
Above is a snapshot of the 5-year financial report released by Amazon. Notice the exponential growth.
If you 2X your business in 12months you’re a rockstar, but not Amazon they 12X their revenue and that’s legendary.
Microsoft isn’t late to the trillion-dollar party as they get their 13-digit membership card in April 2019 after reporting revenue of $30.6 billion and a net income of $8.8 billion which is a 14% and 19% bump from the previous year.
Above is a snapshot of Microsoft’s financial report and below is a breakdown of their revenue.
Last but not least is Google’s parent company Alphabet, which hit the trillion-dollar mark in January 2020. After declaring a Q4 revenue for 2019 of $46billion, a 17% increase from Q4 of 2018.
Above is a snapshot of its Q4 report released by Google, and below is the breakdown of each revenue stream
With the fantastic 4 already in the trillion-dollar playground, it’s only a matter of time before Facebook joins the party.
However, Apple is the first US company to hit the trillion-dollar mark but globally second to Petrochina which hit the mark in 2007 and let’s not forget Saudi Aramco which is the first company to hit the $2 trillion-dollar mark late last year.
Profit is more than just a couple of numbers in rows and columns, it’s an attitude.
An attitude to win.
Having laid this background, let’s get to the crux of this conversation.
Your strategy is only as good as the results it produces.
It’s easy to know how successful a business will be by just studying their strategy, and having studied several strategies I often see that successful companies have multi-layered strategies that overlap with each other at different times.
The real sophisticated businesses deploy strategies with so many moving parts that it’s really hard to demystify except you understand the concept of the lifetime value of a customer.
But, I must say that the most profitable strategy is built around very simple concepts that you could easily gloss over.
But not these Fortune 500 empires, they have mastered the art.
Take this for instance; what is there to learn a local shepherd that has built a fence around his herd to protect them?
A Gold mine and I’ll show you in a bit.
The above diagram is what I coined as the Venn Diagram of Customer Loyalty and Profitability, it clearly shows in the different kinds of customers in the marketplace and where you can easily profit from. So the big brands always try to come up with solutions that poach at the competitor’s customer base and vice versa (which we’ll talk about in a future post).
Thus the need for a “fence” is necessary to keep the customers grazing only on your side of the field.
Now, if you’re going to build an empire you must learn to follow the money, in other words, you must know what are people spending money on now, and what will they be willing to spend money on tomorrow.
Don’t forget that Jeff Bezos was a former Wall Street Hedge fund executive so he knows a thing or two about protecting investments and building imaginary fences around assets.
Now, It’s a no-brainer knowing what people are spending money on today, but knowing what they willing to spend on tomorrow borders on being almost psychic.
Unless you understand human behaviour like Amazon, Apple, Google, and the likes clearly have you’ll know you can actually bring water from a stone (figuratively speaking).
First let’s talk about the customer, after all, they are the reason why you are in business in the first place.
Today’s consumer is more empowered, more demanding, more curious and more impatient and they expect brands to know what they want before they even know it.
So more than ever before consumers are addicted to convenience and this behavior is Amazon’s secret weapon and it has built an imaginary fence around their customers through a suite of easy to access products and services that make it totally unreasonable to try another brand outside of theirs on a related product.
To explain it scientifically, let’s talk about dopamine, the driving force behind all of this.
According to healthline.com:
Dopamine is a neurotransmitter made in the brain. Basically, it acts as a chemical messenger between neurons.
Dopamine is released when your brain is expecting a reward.
When you come to associate a certain activity with pleasure, mere anticipation may be enough to raise dopamine levels. It could be a certain food, sex, shopping, or just about anything else that you enjoy.
For example, suppose your “go-to” comfort food is homemade double chocolate chip cookies. Your brain may increase dopamine when you smell them baking or see them come out of the oven. When you eat them, the flood of dopamine acts to reinforce this craving and focus on satisfying it in the future.
It’s a cycle of motivation, reward, and reinforcement.
Amazon leverages the dopamine effect.
This is the simple reason why Amazon invests heavily in creating solutions that align with the default program of any human being, because they know the more convenient it is for a consumer to access and use a product the more hooked they become on that product.
Addiction is the rule of the game.
And if you’re going to build an empire you’re somehow going to have to come to terms with the dopamine effect.
Facebook uses it. Apple uses it. Microsoft uses it. Google uses it.
Now that we’ve established that fact I’ll drop a few of Amazon’s products and let’s see if they live up to my philosophy of follow the money and clever use of addiction in their strategy.
Nothing sums this up better than John Rockefeller’s words; “I’d rather have 1% of 100 people’s effort than try to have 100% of my own effort.”
The global e-commerce market size in 2019 was about $3.53 trillion and is expected to reach $6.54 trillion in 2022 and Amazon has a foothold about 13.7% of the global e-commerce market trailing Alibaba and about 50% of the US e-commerce sales which translates to $258.22 billion.
It is vivid Amazon definitely can’t have 100% of the US e-commerce market but it can have a piece of the pie in other sectors where people are already spending money.
I stumbled upon the image below and thought to chip it in here. Take a look at these industries amazon is playing in.
- The Logistics Industry has an estimated $8 -$12 trillion global market size with the US alone accounting for about $2 trillion. With Amazon shipping about 3.3 billion parcels in 2017 (and these numbers are set to increase), with Postal service handling 33%, UPS handling 27%, FedEx handling 12% and Amazon taking care of the remaining 28%. It is evident that Amazon launching its own logistics division will definitely cut costs and increase revenue for them in no time.
- The global fintech market was valued at $127.66 billion in 2018 and is expected to reach $309.98 billion by 2022 and Amazon is definitely not going to be left behind. It launched Amazon Pay in 2007 and today over 33million people in 170 countries have used Amazon Pay to make a purchase.
- The cloud storage industry is estimated at $21.17 billion in 2015 and is expected to hit $97.41 billion by 2022. For Q4 of 2018, Amazon generated $7.43billion from Amazon Web Service.
- The gaming industry was valued at $116 billion in 2017 with a 10.7% growth from 2016, with mobile gaming at $50.4 billion. And since Amazon purchase of Twitch in 2014 for about $970 million, the company raked in $177.9 billion in 2017 and $56.6billion in Q3 2018.
- Let’s not forget Zappos and Whole Foods that Amazon acquired for $940 million (stocks and cash deal) and $13.7 billion respectively.
I could go on and on about the different industries that Amazon wants a part of to hedge its revenue stream but it’s clear that they are all billion-dollar industries and Amazon wants a sweet piece of it.
However, what’s really interesting is how each of these companies collectively forms an invisible fence around every customer Amazon has and increases the transactional value of a customer.
In addition to that Amazon has minimized all pain points on their customer’s journey making it extremely easy to do business with them using solutions Amazon Prime, Amazon Dash, Amazon Smart Shelf, Amazon Dash wand, Amazon Echo, Amazon Go, Amazon hubs, Amazon keys.
To see how this adds up take a look at Amazon’s growth in the last 5 years:
To summarize it, if your strategy does not deal with consumer behavior it is really hard to say if it is going to be sustainable.
Here are a few key lessons to takeaways:
- Follow the Money:
Since inception, Amazon has always been about following the money. As at the time Amazon started back in 1994 there was already a massive global demand for literature and all Jeff was creating an online platform to tap into that market.
Stop trying to reinvent the wheel and just follow the money trail to what customers are already spending on.
2. Anticipate Trends:
When Jeff launched Amazon back in 1994 as an online bookstore there was barely any other company playing in the space at that time but he came across a stat that said web usage would grow at 2300% per year and took the leap of faith and it paid off for him.
Use data to influence and anticipate opportunities.
3. Make It Easy to Access and Use your Product/ Service:
If there is anything Amazon is known for its convenience, and they have succeeded in building their empire around providing a more convenient way for customers to interact with their solutions.
Build a customer-centric empire that reduces or eliminates all hiccups a customer might face.
4. Build an Imaginary Fence around your Customers:
You’ll rarely find a successful empire without an imaginary fence around their customers to keep them constantly engaged with their products. Amazon Prime members have hit over 101 million subscribers and they have been solely responsible for a huge chunk of Amazon’s repeat business as compared to non-prime members.
Don’t leave your customers to graze on their own, build an imaginary fence that increases the value of the customer.
In conclusion, all of this is possible and if you really want in on the action schedule a consultation session with us.