Are Bosses Necessary? – The Atlantic

A radical experiment at Zappos may herald the emergence of a new, more democratic kind of organization

Deeply strange reports have been emerging from the Las Vegas headquarters of Zappos, until recently the world’s happiest shoe store. This spring, by order of the CEO, Tony Hsieh, the company abolished managers, eliminated job titles, denounced its own organizational hierarchy, and vested all authority in a 10,000-word constitution that spells out a radical new system of self-governance. Holacracy, it’s called, and it makes all previous moves toward “employee empowerment” look like the mild concessions of an 18th-century monarch. Freed from direct supervision, employees are expected to join various impermanent democratic assemblies called “circles” (headed, but notrun, by a “lead link”), in which they will essentially propose their own job descriptions, ratify the “roles” of others, and decide what projects the group should undertake.

The constitution was written by Brian Robertson, a Philadelphia entrepreneur unaffiliated with Zappos who’d grown disaffected with standard management practices. Hsieh had heard him speak about holacracy at a 2012 conference, and was captivated. “We adopted it wholesale with zero changes,” says John Bunch, who used to be a technical adviser at Zappos but is now title-less. (He is, nevertheless, heading the implementation of holacracy.)

The media has so far reacted with a mix of understandable skepticism and outright derision. “Mr. Hsieh’s hot hand appears to be at risk of going cold,” The New York Times reported in July. Employees at Zappos, the paper said, have met the development “with everything from cautious embrace to outright revulsion.” The tech site Pando was less measured: “Holacracy of Dunces,” a headline snorted that same month.

Holacracy’s implementation at Zappos, still in process, has undoubtedly caused problems (more on those later). But such reports risk missing the larger picture. However fraught it may be, Zappos’s experiment with holacracy is just the latest sign that information technology is allowing the emergence of a new form of organization.

For years, pockets of the U.S. military have been slowly taking decisions out of the hands of high-ranking commanders and entrusting them to teams of soldiers, who (armed with the concept of “commander’s intent”) are told what problems to solve—but not how to solve them. “The organization as a rigidly reductionist mechanical beast is an endangered species,” General Stanley McChrystal writes in his new book, Team of Teams. “The traditional heroic leader may not be far behind.” At the video-game maker Valve, new employees are told not to expect instructions, because even the managing director “isn’t your manager,” says the employee handbook. “You have the power to green-light projects. You have the power to ship products.” And so they do

What’s enabling this shift, argues Thomas Malone, a professor at MIT’s Sloan School of Management, is simple: falling information costs. In his 2004 book,The Future of Work, Malone broke the history of organizations into three stages. In stage one, information is expensive to convey, so most decisions are made face-to-face in necessarily small firms. As communication costs begin to fall, Malone explained to me, we reach stage two, in which “it becomes economically feasible to send information to a single, central place for decisions to be made.” That is, the large, centralized hierarchy becomes possible. Then comes stage three: “As communication costs continue to fall, there comes a time when it’s economically feasible to bring information to all points, so in some sense, everyone can know everything.” In this third stage, the benefits of bigness can persist, but its traditional handmaiden, hierarchy, doesn’t have to. (Indeed, when the volume of information grows large enough, trying to direct its flow upward for evaluation can slow everything down.)

Malone points to the history of government. We lived most of our existence in small, fairly egalitarian bands of hunter-gatherers, until the advent of written language, which arose in tandem with record-keeping, taxation, and the founding of the first kingdoms, around 3000 B.C. Large-scale democracy did not appear until an equally momentous information technology, the printing press, enabled the “reading revolution” of the 18th century.

In business, the transition from bands to kingdoms came courtesy of the telegraph in the mid-19th century. And what it begat—the large, managerial hierarchy; the salaried manager; the modern definition of a job—has endured, with occasional pushes to prune and flatten management, until now, a good two decades after the Internet radically altered the volume, velocity, and direction of information flows. (Doubters, check your inbox.)

Why the lag? A look back at the mid-19th-century transition suggests an answer. After a new information technology appears, the organizational innovation that it allows doesn’t knock at the front door and present itself. People have to invent it. The ones who did last time around aren’t as celebrated as Morse, or before him Gutenberg. But what they arrived at looks obvious only in retrospect.

In 1854 the Board of the New York and Erie Railroad promoted Daniel McCallum, a Scottish-born bridge builder, to general superintendent, hoping he could address the railroad’s mysterious ills. As the railroad grew larger, it was growing not more efficient per mile, as Adam Smith would have predicted, but less so. Had the company hit some sort of natural size limit? No, McCallum concluded. What was breaking down was its stage-one organizational system.

At a small railroad—and all railroads up to then had been small—the superintendent could give every aspect of its business his personal attention, McCallum wrote. “Each employee is familiarly known to him, and all questions in relation to its business are at once presented and acted upon.” But as The Atlantic marveled in an 1858 article featuring McCallum’s ideas, the New York and Erie had to coordinate the movements of some 200 locomotives, 3,000 cars, and 4,700 employees dispersed over hundreds of miles. What was needed, McCallum wrote, was “a system perfect in its details, properly adapted and vigilantly enforced.”

The system he spelled out—in great detail—delineated who had the authority to decide what, and even what words to use in communicating that decision back to their superiors on the telegraph. (“All subordinates should be accountable to, and be directed by their immediate superiors only.”) In the elaborate diagram that McCallum created—widely considered the first modern organizational chart—17 spokes, each representing a different division, radiate from a central hub that is the office of McCallum himself. Thanks to a system of hourly reports, The Atlantic wrote,

“the General Superintendent at his office can at any moment tell within a mile where each car or engine is, what it is doing, the contents of the car, the consignor and consignee, the time at which it arrives and leaves each station, (the actual time, not the time when it should arrive,) and is thus able to correct all errors almost at the moment of commission … The great regulator … is the electric telegraph, which connects all parts of the road, and enables one person to keep, as it were, his eye on the whole road at once.”

The most striking aspect of McCallum’s system comes near the top of his report. For all the rigidities, he admitted, the system was an improvisation—one man’s attempt to bring his organization into better alignment with a rapidly changing environment. It would “require amendment,” he wrote, “and a reasonable time to prove its worth.”

Which sounds a lot like the commentary of Brian Robertson, the entrepreneur who created holacracy. Like McCallum’s, his decision to put pen to paper was not utopian but pragmatic. The idea was born out of his own frustrations as the CEO of Ternary Software, which he founded in 2001. “When I tried to design organizations purely from my own intellect,” Robertson says, “I always got it wrong. I’d design solutions for problems that didn’t exist. Other parts were overdesigned. We’d end up solving problems that would never come up in practice, and then you’d miss the ones you actually needed to solve. You can’t know enough.”

He didn’t start with any radical notions of overturning hierarchy. He just wanted his company to function better. After exhausting the most-obvious solutions—hiring better managers, attempting to nail the perfect org chart—he finally concluded that the problem was the very concept of a rigid org chart. And so, as McCallum had a century and a half before, he wrote out a new set of rules delineating a new system.

Like McCallum’s, it is very, very complicated—too complex to describe fully here, and too complex for the liking of some at Zappos. (The constitution Robertson drafted runs more than twice the length of the Founding Fathers’.) But its basic principles go something like this: Instead of being assigned job descriptions from on high, employees take on mutable roles where they see a need. The hierarchical org chart is replaced by an ever-changing array of circles that can form, merge, or collapse in response to opportunities and threats in the marketplace. Reorganization, in effect, becomes a permanent way of life. The rigid forms invented in the steam age give way to something more organic—a jellyfish, perhaps.

It makes some sense on paper. But in practice? Holacracy’s first laboratory, Ternary, was a tiny company that didn’t survive the Great Recession. And at Zappos, given the choice of embracing holacracy or taking a buyout this past spring, 210 employees, or 14 percent of the company’s workforce, chose the latter. John Bunch notes that holacracy has created a whole set of new problems that have to be addressed. How to evaluate people’s performance is one. (Zappos is working on a system called “badging,” whereby employees earn badges for acquiring new skills.) How to compensate someone who splits her time among three different roles (say, customer care, event planning, and brainstorming a new Zappos product line) is another. The list goes on. How do you stop people from trying to exercise power they no longer have? And how does a system conceived to reduce information overload (“the goal,” says Bunch, “is to find the optimal circle structure where the need for communication between the circles is the least”) not add to it instead, in the form of endless meetings?

But just because solutions don’t yet exist doesn’t mean they won’t be found, says Robertson, who likens holacracy to a computer’s operating system and the solutions to apps. Remember when the App Store first opened? It didn’t have a lot on offer. Bunch told me that it’s too soon for Zappos to begin making amendments to holacracy; the company needs to finish the difficult process of understanding it first. “If someone comes to me super-frustrated, borderline angry,” he says, “that’s actually a really good sign to me, because it means they’re at least trying to understand it.”

The important point is this: To pronounce holacracy unworkable now would be akin to pronouncing democracy unworkable in the midst of the French Revolution. And should holacracy at Zappos fail, which it well may, neither should its principles be pronounced dead. The New York and Erie Railroad was in receivership within a few years of McCallum’s report—but the system he pioneered there became utterly commonplace by century’s end.

With that in mind, it’s not hard to imagine a future in which the only thing strange about what’s going on at Zappos is that it ever seemed strange at all.

3 Reasons Millennials Are Getting Fired – by J.T. O’Donnell

Recently, I wrote this article explaining why Millennials aren’t getting promoted. In response to Millennial readers’ requests for a deeper understanding of how being misperceived can negatively affect their careers, I’m taking it a step further and outlining exactly what’s getting them fired.

Employers are seriously fed up.

To get a sense of how heated this has become, read this article by one irate employerand his prediction of the backlash that will soon ensue from the Millennials’ attitudes toward work.

Additionally, this survey by SmartRecruiter of 28,000 bosses detailing where Millennials are falling short is just one example of the data to support the huge disconnect costing some Millennials their jobs. Here are the key takeaways Millennials need to know.

1. Employers don’t want to be parents.

Growing up, Millennials were coached their entire lives and they unknowingly assumeemployers will coach them too. However, the relationship isn’t the same. An employer pays us to do a job. We are service providers. Expecting extensive training and professional development to do the job doesn’t make financial sense. In many employers’ minds (especially, small to midsized businesses with limited budgets and resources), Millennials should foot the bill to develop themselves and make themselves worth more to the employer.

Tip: Millennials should do their best to proactively seek resources on their own to help them close gaps in skills and knowledge in the workplace. There are plenty ofonline tools and resources to help them put their best professional self forward. Additionally, they should seek out a mentor to privately ask questions and get guidance on how to make the right impression.

2. The anti-work attitude isn’t appreciated (or tolerated).

As explained here, Millennials tend to work only the minimum time expected–and will push for flexibility and a reduced work schedule to create more time for other pursuits. Being demanding about when and how they want to do their job can be viewed as disrespectful. A great way to look at how some employers feel is the way the dysfunctional phone/cable companies work. It’s annoying when they announce they can come out only on a certain day. They can’t tell you what time, and then they say they’ll call the day of and give you a four-hour window when they’ll arrive. While the phone/cable companies have us trapped, employers don’t feel the same about Millennials. They’ll fire the Millennial worker and find someone who can work when they need them to–and without the attitude.

Tip: In the early days and weeks of a new job, Millennials can make up for what they lack in skills by being consistently on time. When an employer sees their commitment to their work, they will earn her trust and respect, resulting in her being comfortable with their taking time off, and even providing them with a more flexible work schedule. When Millennials prove they can deliver on their company’s terms, their company will give them more of what they want.

3. Millennials’ happiness isn’t the employer’s responsibility.

Millennials are pretty vocal about wanting work to be a “fun” place to go. Besides career development, they also desire lots of cool perks and benefits to make their job feel more rewarding. Besides nice work spaces, amenities like gym memberships, healthy meals on-site, in-house parties, etc., are being used in an effort to attract and maintain Millennial workers. Unfortunately, this is backfiring on employers–and that makes them angry. In spite of all the perks to keep them happy, Millennials are getting to these jobs and quickly showing visible signs of disappointment and dissatisfaction within months of joining the company.

Why are Millennials so tough to keep happy?

Part of the problem is how much external motivators were used on Millennials growing up. In the book Punished by Rewards, Alfie Kohn argues that Millennials have an addiction to praise, perks, and other incentives to learn–better known as bribes. Thus, when they get to the job and the newness wear off, they think it’s the company’s job to fix it with more incentives. But, this is where the cycle of bribing has to stop. A company can offer only so much in the form of compensation and benefits. The reality is that Millennials (like all workers) must learn to find intrinsic motivation (internal drive for work), so they can find real satisfaction and success in their careers. Since Millennials haven’t learned this yet, they’re experiencing sadness and confusion in the workplace. Unfortunately, their unhappiness is transparent to employers who have no desire to pay for what they perceive as a bad attitude at work.

Tip: Millennials who feel confused and unhappy in their job should not blame the employer (yet). First, they should seek some career coaching. Many Millennials just need help understanding some of the basic elements for finding an internal motivation for work. They need to know their professional strengths and workplace personas, and the defining skills they’d like to grow so they can build up their specialties and find direction and motivation at the job.

Millennials, don’t get mad, get ahead!

While the rest of their peers continue to be misunderstood, smart Millennials can make some simple changes and set the standard for what an outstanding young professional looks like to employers today. As this article points out, doing so could lead an employer to fast-track a career as an example to other workers. Why not benefit from the opportunity?

7 Interview Questions That Determine Emotional Intelligence – by Carolyn Sun

Determining who you hire for a job plays a big part in forming your company’s culture and ensuring its future success. Selecting informative interview questions can be a key factor in finding the right employees — as well as weeding out the ones that won’t fit. A candidate’s answers can be telling.

While different companies embody various values and cultures, success in the workplace is strongly influenced by a person’s emotional intelligence, a quality that should be a non-negotiable when vetting job candidates, says Mariah DeLeon, vice-president of people at workplace ratings and review site Glassdoor.

Here are seven interview questions that can draw revealing answers from the job candidates you interview — and get you on your way to finding employees with stellar emotional intelligence.

Related: 8 Revealing Interview Questions to Hire Standout Staff

1. Who inspires you and why?

The job candidate’s answer often gives the interviewer a peek into who the interviewee models him or herself after. The response can also highlight the sorts of behavioral patterns the interviewee respects, saysCraig Cincotta, chief of staff and vice-president of communications at online home improvement marketplace Porch, where he’s heavily involved in team expansion and hiring.

2. If you were starting a company tomorrow, what would be its top three values?

Every good relationship starts with trust and aligned values. Insight into a person’s priorities — as well as honesty and integrity — can emerge in the candidate’s answer, explains Robert Alvarez, the CFO of ecommerce platform Bigcommerce.

3. If business priorities change, describe how you would help your team understand and carry out the shifted goals?

Shifting priorities happen in every company, and every job, so look for candidates who are flexible and possess the skills to help carry out change. Hire employees who are self-aware, motivated and display empathy advises DeLeon. “These skills will help employees better work in teams.”

Related: The 5 Must-Ask Interview Questions to Determine if Someone’s a Fit

4. Did you build lasting friendships while working at another job?  

It takes a while for people to build relationships — and being able to do so is a sign of solid emotional intelligence, Alvarez says. “[A lasting friendship] tells you that relationships and caring about people are important to the person.”

5. What skill or expertise do you feel like you’re still missing?

Curiosity and the desire to learn are vital signs that a prospective employee wants to get better at something. “People who struggle with this question are the people who think they already know it all,” warns Alvarez. “These are the people you want to steer away from.”

6. Can you teach me something, as if I’ve never heard of it before? (It can be anything: A skill, a lesson or a puzzle.)

A job candidate’s answer to this question can reveal several qualities:

  • Whether the person is willing to take the time to think before speaking.
  • If the candidate has the technical ability to explain something to a person who is less knowledgeable in the subject.
  • Whether the candidate asks empathetic questions to the person being taught, such as, “Is this making sense?”

7. What are the top three factors you would attribute to your success?

The answer to this question can determine whether a person is selfless or selfish, Alvarez says. “When people talk about their own success, listen to whether someone talks about ‘me-me-me’ or ‘I-I-I.’ Or whether they talk about ‘the team,’ ‘we’ or ‘us.’”

“Look for a team player who brings something positive to the company,” Cincotta shares. “Someone can be the smartest person in the room, but if they are not someone you enjoy working with — because they are more concerned with their own success over that of the company — they won’t be a fit.”

Carolyn Sun

Research Editor
Carolyn Sun is the research editor at Entrepreneur.com.

Why Some Teams Are Smarter Than Others – By Anita Wolley,Thomas W. Malone and Christopher F. Chabris

Psychologists have known for a century that individuals vary in their cognitive ability. But are some groups, like some people, reliably smarter than others?

Working with several colleagues and students, we set out to answer that question. In our first two studies, which we published with Alex Pentland and Nada Hashmi of M.I.T. in 2010 in the journal Science, we grouped 697 volunteer participants into teams of two to five members. Each team worked together to complete a series of short tasks, which were selected to represent the varied kinds of problems that groups are called upon to solve in the real world. One task involved logical analysis, another brainstorming; others emphasized coordination, planning and moral reasoning.

Individual intelligence, as psychologists measure it, is defined by its generality: People with good vocabularies, for instance, also tend to have good math skills, even though we often think of those abilities as distinct. The results of our studies showed that this same kind of general intelligence also exists for teams. On average, the groups that did well on one task did well on the others, too. In other words, some teams were simply smarter than others.

We next tried to define what characteristics distinguished the smarter teams from the rest, and we were a bit surprised by the answers we got. We gave each volunteer an individual I.Q. test, but teams with higher average I.Q.s didn’t score much higher on our collective intelligence tasks than did teams with lower average I.Q.s. Nor did teams with more extroverted people, or teams whose members reported feeling more motivated to contribute to their group’s success.

Instead, the smartest teams were distinguished by three characteristics.

First, their members contributed more equally to the team’s discussions, rather than letting one or two people dominate the group.

Second, their members scored higher on a test called Reading the Mind in the Eyes, which measures how well people can read complex emotional states from images of faces with only the eyes visible.

In a new study that we published with David Engel and Lisa X. Jing of M.I.T. last month in PLoS One, we replicated these earlier findings, but with a twist. We randomly assigned each of 68 teams to complete our collective intelligence test in one of two conditions. Half of the teams worked face to face, like the teams in our earlier studies. The other half worked online, with no ability to see any of their teammates. Online collaboration is on the rise, with tools like Skype, Google Drive and old-fashioned email enabling groups that never meet to execute complex projects. We wanted to see whether groups that worked online would still demonstrate collective intelligence, and whether social ability would matter as much when people communicated purely by typing messages into a browser.

And they did. Online and off, some teams consistently worked smarter than others. More surprisingly, the most important ingredients for a smart team remained constant regardless of its mode of interaction: members who communicated a lot, participated equally and possessed good emotion-reading skills.

This last finding was another surprise. Emotion-reading mattered just as much for the online teams whose members could not see one another as for the teams that worked face to face. What makes teams smart must be not just the ability to read facial expressions, but a more general ability, known as “Theory of Mind,” to consider and keep track of what other people feel, know and believe.

A new science of effective teamwork is vital not only because teams do so many important things in society, but also because so many teams operate over long periods of time, confronting an ever-widening array of tasks and problems that may be much different from the ones they were initially convened to solve. General intelligence, whether in individuals or teams, is especially crucial for explaining who will do best in novel situations or ones that require learning and adaptation to changing circumstances. We hope that understanding what makes groups smart will help organizations and leaders in all fields create and manage teams more effectively.

Guess Who Doesn’t Fit In at Work – by Lauren A. Rivera

 ACROSS cultures and industries, managers strongly prize “cultural fit” — the idea that the best employees are like-minded. One recent survey found that more than 80 percent of employers worldwide named cultural fit as a top hiring priority.

When done carefully, selecting new workers this way can make organizations more productive and profitable. But cultural fit has morphed into a far more nebulous and potentially dangerous concept. It has shifted from systematic analysis of who will thrive in a given workplace to snap judgments by managers about who they’d rather hang out with. In the process, fit has become a catchall used to justify hiring people who are similar to decision makers and rejecting people who are not.

The concept of fit first gained traction in the 1980s. The original idea was that if companies hired individuals whose personalities and values — and not just their skills — meshed with an organization’s strategy, workers would feel more attached to their jobs, work harder and stay longer. For Southwest Airlines, screening job candidates based on their willingness to provide a wacky experience for strangers contributed to the fun environment that enabled the company’s financial success. Likewise, for the investment firmBridgewater Associates, which seeks to distinguish itself through its pursuit of transparency and honesty, screening out potential hires who couldn’t handle criticism made good business sense.

But in many organizations, fit has gone rogue. I saw this firsthand while researching the hiring practices of the country’s top investment banks, management consultancies and law firms. I interviewed 120 decision makers and spent nine months observing the recruiting practices of one firm in particular. The professionals I spoke with, who were charged with reviewing applications and conducting interviews, consistently underscored the importance of cultural fit in hiring. While résumés (and connections) influenced which applicants made it into the interview room, interviewers’ perceptions of fit strongly shaped who walked out with job offers.

Crucially, though, for these gatekeepers, fit was not about a match with organizational values. It was about personal fit. In these time- and team-intensive jobs, professionals at all levels of seniority reported wanting to hire people with whom they enjoyed hanging out and could foresee developing close relationships with. Fit was different from the ability to get along with clients. Fundamentally, it was about interviewers’ personal enjoyment and fun. Many, like one manager at a consulting firm, believed that “when it’s done right, work is play.”

To judge fit, interviewers commonly relied on chemistry. “The best way I could describe it,” one member of a law firm’s hiring committee told me, “is like if you were on a date. You kind of know when there’s a match.” Many used the “airport test.” As a managing director at an investment bank put it, “Would I want to be stuck in an airport in Minneapolis in a snowstorm with them?”

Selecting new employees based on personal similarities is by no means unique to banking, consulting or law; it has become a common feature of American corporate culture. Employers routinely ask job applicants about their hobbies and what they like to do for fun, while a complementary self-help industry informs white-collar job seekers that chemistry, not qualifications, will win them an offer.

Although diversity in many industries has increased in recent decades, progress in the corporate realm has been slower than expected. Selection based on personal fit can keep demographic and cultural diversity low. In the elite firms I studied, the types of shared experiences associated with fit typically required large investments of time and money.

Class-biased definitions of fit are one reason investment banks, management consulting firms and law firms are dominated by people from the highest socioeconomic backgrounds. Also, whether the industry is finance, high-tech or fashion, a good fit in most American corporations still tends to be stereotypically masculine. Consequently, fit can exclude high-performing candidates — female or male — who are more stereotypically feminine.

Some may wonder, “Don’t similar people work better together?” Yes and no. For jobs involving complex decisions and creativity, more diverse teams outperform less diverse ones. Too much similarity can lead to teams that are overconfident, ignore vital information and make poor (or even unethical) decisions.

Perhaps most important, it is easy to mistake rapport for skill. Just as they erroneously believe that they can accurately tell when someone is lying, people tend to be overly confident in their ability to spot talent. Unstructured interviews, which are the most popular hiring tools for American managers and the primary way they judge fit, are notoriouslypoor predictors of job performance.

Fit can work, but personal similarity is not the key. Organizations that use cultural fit for competitive advantage tend to favor concrete tools like surveys and structured interviews that systematically test behaviors associated with increased performance and employee retention. For managers who want to use cultural fit in a more productive way, I have several suggestions.

First, communicate a clear and consistent idea of what the organization’s culture is (and is not) to potential employees. Second, make sure the definition of cultural fit is closely aligned with business goals. Ideally, fit should be based on data-driven analysis of what types of values, traits and behaviors actually predict on-the-job success. Third, create formal procedures like checklists for measuring fit, so that assessment is not left up to the eyes (and extracurriculars) of the beholder.

Finally, consider putting concrete limits on how much fit can sway hiring. Many organizations tell interviewers what to look for but provide little guidance about how to weigh these different qualities. Left to their own devices, interviewers often define merit in their own image.

Wanting to work with people like ourselves is not new. In the past, employers overtly restricted job opportunities based on sex, race and religion, which is now illegal. But cultural fit has become a new form of discrimination that keeps demographic and cultural diversity down, all in the name of employee enjoyment and fun.

The Numbers in Jeff Bezos’s Head – by Daniel McGinn

On a Friday afternoon in 2004, Amazon manager Vijay Ravindran received an unusual invitation—to a Saturday morning meeting with Jeff Bezos at the boathouse adjoining the CEO’s lakefront home. When the attendees arrived, Bezos told them he’d received an employee suggestion that Amazon supplement its existing shipping policy—free shipping on orders over $25—with a new offer. Customers would pay an annual fee for free shipping on most products, regardless of order size. “Jeff was extremely energetic—he felt this was an opportunity to build something that was going to be very important,” Ravindran recalls. Hence the urgent weekend meeting at the lake.

The proposal sparked hushed concerns and consternation. Amazon’s finance team worried that waiving shipping charges would gut margins. “There were people who thought it was an extremely bad idea—the spreadsheets uniformly painted pictures of losses,” Ravindran says. Bezos ignored the objections, convinced that the offer would spur more orders. That intuition proved correct just weeks later, when the program, Prime, launched. Customers who’d previously made a few purchases a year were suddenly ordering multiple times a month. “Instead of looking to protect the current business, Jeff saw the upside,” says Ravindran, now chief digital officer at Graham Holdings. “It was the most impressive display of business leadership I’ve seen in my career.” Today tens of millions of customers pay $99 a year for Prime, which generates more than $1 billion in membership fees and incalculable incremental sales.

He’s invented a new philosophy for running a business. Even as Amazon grows, he’s reinvesting to make it even bigger.

Disregard for orthodox approaches is not unusual for Bezos. Amazon’s culture famously forbids the use of PowerPoint, for instance. But the frequency with which he rejects spreadsheet-driven decision making has probably played a larger role in Amazon’s growth. With 132,000 employees and $75 billion in annual revenue, Amazon is a 20-year-old corporation that routinely posts losses. (Its operating loss may top $800 million in the third quarter.) Unlike Apple, which boasts precisely how many iPhones it’s selling, Amazon steadfastly refuses to give Wall Street basic data, such as how many Kindles it has sold—an opaqueness that even Bezos fans say hurts the stock price. Like every CEO, Bezos talks about managing for the long term—but he walks the talk, shrugging off investor concerns even as Amazon’s stock dropped from a high of $407 in January 2014 to $307 in August. Over the long haul, however, there’s no disputing his ability to generate shareholder returns: The company’s stock performance since its 1997 initial public offering has been so strong that its share price could have dropped to $250, and Bezos would still rank as HBR’s best-performing CEO.

He and his team have achieved that feat by sticking steadfastly—even boringly—to a few key principles (outlined in his 1997 shareholder letter, which he still sends to investors every year). Instead of focusing on competitors or technology shifts, they continually invest in getting a little bit better. In their core retail business, they grind out incremental improvements in delivery speed and product offerings while chipping away at prices. As Amazon continues to move into completely new industries—it’s now a serious player in cloud computing, online video, e-readers, and other devices—some see a company that’s pioneering a new model. “In some ways he’s invented a new philosophy for running a business,” says Brad Stone, author of The Everything Store, a best-selling Bezos biography. “Even as Amazon grows, he’s focused on reinvesting to make it even bigger—and because that means it shows no profits, he avoids paying dividends or corporate taxes.”

While Amazon is younger than Walmart or Apple, its creation story is becoming equally familiar. After graduating from Princeton with a computer science degree in 1986, Bezos spent eight years on Wall Street. In 1994 he and his wife, MacKenzie—a Princeton grad and his former coworker—left New York for Seattle, setting up shop in their garage. Jeff and a few employees began building a website that would sell books. Amazon went live in July 1995 and, in its first month, sold books to customers in 50 states and in 45 countries. It quickly expanded into CDs and other goods.

His willingness to go through the valley of death and come out the other side makes Wall Street give him the benefit of the doubt.

While consumers gravitated to Amazon, some investors remained skeptical. Henry Blodget, then a Merrill Lynch analyst, recalls an investor conference in the late 1990s at which Bezos patiently explained why Amazon allowed customers to return huge flat-screen TVs for a full refund with no questions asked—a costly policy meant to drive customer satisfaction. “Almost no one understood the potential for the company, its business model, and its stock,” says Blodget, who rose to fame for his seemingly outlandish 1998 prediction that Amazon shares, which were trading around $200, would hit $400—which they did, three weeks later. (Blodget now runs Business Insider, a website in which Bezos is an investor.)

Today Amazon is so successful that people often assume it has enjoyed a linear rise—like a dominant sports team cruising, as expected, to the championship. But for several years, Wall Street questioned Amazon’s viability. “At analyst conferences during the early 2000s, I saw fund managers openly laughing at him,” recalls Marc Andreessen, the entrepreneur-turned-venture-capitalist. “They’d say, ‘That guy is nuts, and that company is going to go bankrupt.’ That’s one of the things I really admire about him, and it’s what I talk to our founders about. It’s very easy to say you want to be Jeff Bezos today. It’s a lot harder to be Jeff Bezos during that ‘valley of death’ period. It was his willingness to go through that valley and to come out the other side that makes Wall Street give him the benefit of the doubt. A lot of people would have given up, but he didn’t. That’s what I admire most about his story.”

The other big misconception: that Bezos doesn’t care about profitability. By all accounts Amazon’s mature businesses (such as online retail) are profitable; it’s his deep investments in new businesses that create accounting losses, which he regards as a false measure of performance. “He’s really focused on cash flow and what kind of return on invested capital is being created,” says Warren Jenson, Amazon’s chief financial officer from 1999 to 2002. Bill Miller, a fund manager at Legg Mason who has held shares in Amazon since it went public, says Bezos shows deep understanding of the point Clay Christensen made in his recent HBR article “The Capitalist’s Dilemma,” which argued that most managers focus on the wrong financial metrics. “Jeff really takes theory seriously—he started out wanting to be a theoretical physicist,” Miller says. “In terms of financial theory, he’s trying to get away from the behavioral problems that afflict other companies” that try to maximize the wrong numbers. Other Bezos watchers go even further: At a time when many large companies (most notably Apple) are hoarding idle cash, shouldn’t we be lauding Amazon’s ability to continually find entirely new industries to reinvest and innovate in, rather than criticizing the losses driven by those outlays?

Bezos is unperturbed by criticisms of his financial management. He says he’s always been transparent about Amazon’s focus on long-term cash flow (instead of net profit). “As far as investors go, our job is to be superclear about our approach, and then investors get to self-select,” he says. He insists Amazon discloses far more data about its business than is legally required and is silent only about numbers that could help competitors.

Some criticism goes beyond his financial theories, however. Like Walmart, Amazon has been condemned for upending the economics of industries in ways that destroy competitors and vaporize jobs. Since 2007, when its Kindle ignited the e-book business, Amazon has been at war with publishers for using its leverage to price e-books at discount levels. Over the past two years the company has drawn fire for its treatment of distribution-center workers and the hyperaggressive steps taken to weaken rival e-commerce players such as Zappos and Diapers.com. (It eventually acquired both.) Bezos’s personal management style, which by some reports can be abusive and demeaning, has also been reproached. But Stone believes Bezos has mellowed with age. “In fairness, a lot of the examples in the book of him behaving that way are older ones, and I think he’s gotten better over time,” Stone says.

Even critics admit that Bezos has an unusually ambitious imagination—one likely to have an impact far beyond online retailing. He founded Blue Origin, a company experimenting with space travel, and last year purchased the Washington Post, where he spends one day a month in hopes of finding a viable financial model for journalism. And at Amazon, his strategy of making bold moves into adjacent industries could become a model for other managers. Scott Cook, the Intuit founder and former Amazon director, compares Amazon to companies such as P&G (which invented brand management) and Toyota (which invented lean manufacturing). “I think Amazon is one of those—what they’re doing is inventing better ways for companies to operate,” Cook says.

That spirit could continue for some time. Bezos is 50—about the same age Bill Gates was when he retired from Microsoft to pursue philanthropy at the Gates Foundation, whose offices are visible from the roof deck at Amazon’s headquarters. But Bezos seems unlikely to make that kind of transition. “I’ve never gotten any vibe off of him that he wants to do anything else,” says Andreessen. “He’s monomaniacally focused on Amazon. My sense is he’s going to be running it another 30 years—and shareholders will be lucky if he does.”

Jeff Bezos in His Own Words

In early August Amazon’s founder and CEO spoke with HBR’s Adi Ignatius and Daniel McGinn at the company’s Seattle headquarters. Here are edited excerpts from that conversation:

HBR: How do you balance the long term versus the short term when thinking about innovation?

Bezos: I bet 70% of the invention we do focuses on slightly improving a process. That incremental invention is a huge part of what makes Amazon tick. There’s a second kind of invention, which is more clean-sheet and larger scale—things like the Kindle or Amazon Web Services. We have a culture that supports the risk taking and time frames required for that.

Your stock has taken some hits this year. Does that affect the way you manage?

Amazon’s stock has always been somewhat volatile. Even though we have significant revenues, we invest in so many new initiatives that in some ways we’re still a start-up. Volatility is part and parcel of being a start-up.

You say you focus on customers, not competitors. But how do you react to Google’s teaming up with Barnes & Noble to offer same-day delivery?

You can’t insulate yourself from competition by being customer-obsessed. But if that obsession leads to invention on behalf of customers, it helps you stay ahead.

You’re now making your own big investments in same-day delivery. How do you know customers want it?

In our retail business, there are three big ideas: Low prices, vast selection, and fast, reliable delivery. We continually work on all three. We don’t know what technologies might be invented or who our competitors will be, so it’s hard to build strategies around those uncertainties. But I do know that 10 years from now, nobody is going to say, “I love Amazon, but I wish the prices were a little higher.” It’s the same thing with fast delivery.

Has the backlash over your dispute with Hachette about e-book pricing surprised you?

The publishing industry changes very slowly. The paperback, which was developed before World War II, was the last radical invention before the e-book. All the arguments that the literary establishment made against paperbacks—they’re devaluing books, publishers are not going to be able to invest in literature—are being made about e-books, too. Today we know the arguments about paperbacks were wrong, and they’re equally wrong about e-books. It will take a while for the incumbents to come to terms with e-books, but we’re determined to get e-books to be less expensive.

What other CEOs do you admire?

I’m a huge fan of Jamie Dimon, Jeff Immelt, and Bob Iger. They all have deep keels. They have conviction around certain business ideas. Warren Buffett is another one. They can’t be blown around, and I think that’s pretty rare.