Leaving a chair empty at Amazon, and the Rule of 72

Two of the most important, seemingly unrelated, lessons I've learned in recent memory, from two great mentors, were both heuristics; one a reminder about being a voice for those who have none, and the other a reminder about the power of growth: 1) Keep a chair empty to remind us of the customer who cannot be there, and 2) Estimating growth with the Rule of 72

NOTE/DISCLAIMER: the opinions I share in this article are my own, and not those of my employers. Please take them with the necessary grain of salt, as my (possibly, or probably, incorrect) interpretation. As always your mileage may vary.

Two of the most important, seemingly unrelated, lessons that I've learned in recent memory, from two great mentors, were both heuristics; one a reminder about being a voice for those who have none, and the other a reminder about the power of growth. Here I share an excerpt from Chapter 6 of my book in progress, "Interview Poker."

In part 3 of my book, I go over some of the most interesting and helpful aspects of the technology cultures that I've encountered over the years of working at places like Microsoft, Apple, Amazon, and Google, with the goal of helping interview candidates figure out which culture is right for them, or even how to get the most out of your time there, whether you have a full offer or even a short internship.

As S.J. once reminded us, "your time is limited, so don't waste it living someone else's life." Understanding where you can make the most impact, or how you can make the most of the chance you're given, is therefore of paramount importance in your career.

In this excerpt from Chapter 6 on Amazon, I share two important lessons, in no particular order, that made an impact on me from my time there. I hope that one of these lessons will inspire you along the way in the growth of your business, or help you navigate the changing waters of your career.

----------------

"..In many business schools, they teach quite a powerful heuristic that can help you understand the effect of exponential growth (as in compound interest). If you understand how to solve for logarithms or even know the principal or compound interest formula, you could simply compute this directly with most calculators, without the aide of a heuristic. However, in the course of business, you will often be faced with scenarios where you need to make a decision quickly, and you’ll need a mental model to help internalize the implications, also quickly, maybe in the course of a conversation, where you don’t have time to work out the math exactly. This is where “the rule of 72” comes in.

The rule of 72 lets you figure out at a given yearly compound interest rate (or for any period), how many years it will take to double your investment/principal. Let’s take the stock market for instance. Since its inception over 100 years ago or so, just following a major index like the Dow would give you average returns of let’s say 9% year over year--the real number is closer to 10-11% if you start counting around 1926, but we’ll use 9% because it’s easier to divide. Also, this is not to claim that you’ll get that return every year—some years you might get 15%, some years you might lose 15%, for instance--but that the average might be around 9%.

To determine how many years before it doubles, roughly, divide 72 by the interest rate, and that will get you pretty close to the real number. In this example, 72/9=8 which means at 9% you will double your money roughly every 8 years. In practice, at this return, if you are not doubling your money every decade, on average, you might not be investing it wisely (to use a term from economics, you're leaving "cash on the table"). Of course, perhaps you are not a 100-year centenarian long-term investor, so you, like myself, can be forgiven for not hitting that kind of average return.

Mitosis at Amazon

At Amazon, I was amazed at how quickly new teams would seem to form. The problem we described above is one where growth is compounding. Many teams that I encountered at Amazon seemed to split off and form other, smaller teams, which then grew and would become larger. Presumably those teams generated some positive amount of revenue, which adds to Amazon's yearly revenue growth. This is happening at some rate. We could use the “rule of 72” to help understand quickly how fast.

If the number of new teams forming each year happened at a reasonable rate of 5% (e.g. out of 100 teams or so, 5 new teams would appear each year) and if each team added some proportional amount to their revenue (hypothetically speaking), then Amazon’s revenue, just through internal, organic growth via this hypothetical mitosis, by the rule of 72, would cause their revenue to double every 14 to 15 years, assuming they use no other mechanisms of growth.

In practice, Amazon’s business had enjoyed stellar growth at a much higher rate than this (at one point, it was growing revenues 20% to 30% year over year). And presumably this 20-30% growth was not merely a product of team mitosis, as existing teams more than likely grew on their own as well, and of course Amazon's flywheel that factors in lowering costs, increased selection, innovation, etc, on their own, is a stellar growth mechanism worth mentioning all on its own. Of course, I mention all of this to provide a mental model and a hypothetical toy model to apply it to, and also to offer some possible reasons for understanding hyper growth, particularly in the case of Amazon, for instance.

AAPL vs AMZN and the race to $1 trillion

While I was at Apple, having just came from Amazon, I was trying to explain to some co-workers why Amazon, who as I recall was less than half the size of our business at the time, was a company to really watch out for, and that they would soon be a position to potentially challenge or even pass Apple in both revenue and market cap, even at the equally stellar rate of growth that Apple was experiencing. Using the rule of 72, at 20% growth, Amazon would double in size in only 3 to 4 years, and, as time would tell, 3 to 4 years after that point, when Apple became the first $1 trillion company by market cap, around 5 weeks later, sure enough, Amazon became the second to pass $1 trillion.

Their growth has slowed down quite a bit since then (one can’t grow at this rate forever), meanwhile Apple is well past the $2 trillion mark, but it teaches an important lesson about exponential growth. The rule of 72, when applied repeatedly, gives us a rough estimate for figuring out this kind of growth in our heads, with the goal of explaining to others the sort of potential, or even threat, of growth an opportunity, or challenger, can represent, as we navigate the frequent decisions and rough assertions being made "in the moment" everyday in our careers, based on our limited information and where said information is costly to acquire. People tend to think in linear growth after all, e.g. one step at a time. But growth in this manner is exponential, and if we aren't careful then it can fool us into either missing something or believing something that isn't true.

Finally, as others have illustrated many times before in a rather similar example about adopting a framework of non-linear thinking, try the following thought exercise. Try taking one step, then two steps, then four, then eight and keep doubling your steps like that each time.

..I would recommend doing this in your head, by the way, unless you want to find yourself on quite the long evening walk..

After around 30 rounds of this doubling, if you had a big enough ladder and held your breath long enough--please excuse my non-scientific, punny analogy in this instance--then you would find yourself more than 1 billion feet away from the earth at this point, and climbing off your hypothetical ladder somewhere on the moon.

Amazon itself, somewhere along the way, seems to have gone on this step doubling journey in its growth, and has of course shot itself onto this hypothetical moon. And if you ask them about it, on this journey anyways, they'll tell you they're still in day 1.."

And so I'll leave you with one final, much smaller excerpt from Chapter 6, a reminder in empathy, and a quick lesson on remembering to give a voice to those important people in your life or business who cannot be in the room with you at the moment.

"..Be sure to leave a chair empty

In many of the meetings that I attended, it was fairly customary to leave a chair empty to remind ourselves of the customer who could not be in the room to defend their perspective or point of view (e.g. about decisions happening in that room about the product/service/company which will impact the customer).

Most decisions we make in business impact the company or the customer in some way, so it’s important to remind ourselves daily of the customer, sometimes through simple acts like leaving a chair empty for them, even with the knowledge that they'll never be able to come sit down in it.."

ASIDE: Never come late to a meeting and sit in the customer's empty chair, thereby squashing the missing customer who could not be there, or the beers are on you.."

Unpublished work. ? Copyright 2020 Joseph Johnson Jr.