A regret minimization framework is a business heuristic that enables you to make a decision, by projecting yourself in the future, at an old age, and visualize whether the regrets of missing an opportunity would hunt you down, vs. having taken the opportunity and failed. In short, if taking action and failing feels much better than regretting it, in the long run, that is when you’re ready to go!
Understanding the regret minimization framework
While no explicit connection has ever been made, there are clear similarities between Bezos’ framework and aspects of game theory.
Game theory is the study of how individuals and groups make decisions in situations where their choices depend on the choices of others. In a game situation on which the theory is based, the best course of action (or optimal outcome) for one player is always contingent on the course of action implemented by another player.
In business, the game in most cases is a competition for economic gain. Many are often forced to decide between retiring an existing product or developing a new one, while others need to develop new marketing strategies or undertake acquisitions.
Note also that the game businesses play may be internal or external. Some focus on external players such as competitors and market forces, while other businesses set internal objectives and strive to become better versions of themselves.
Whether the focus is internal or external, it is important to remember that most businesses are locked in a game with competitors where the “prize” is new customers, the best talent, or other important resources.
Bezos and game theory
By projecting himself into the future with probing questions, Bezos in essence runs hypothetical simulations in his mind that we may call games. In other words, he wants to determine how certain decisions may play out in the future so he can then select the option with the most optimal perceived outcome.
This is similar to how game theorists try to anticipate the decisions of other players and determine the best outcome based on their particular identity, preferences, or strategy. However, instead of other players, Bezos may have considered the strategies of customers, partners, competitors, and other key stakeholders.
Bezos chose to sell books because they are commodity products with millions of different titles, low unit prices, and high margins. But if we assess the decision using game theory, he sold books because he believed that no other competitor possessed Amazon’s winning strategy of selection, convenience, and price.
Short-term gains and long-term success
The regret minimization framework also encourages people to think beyond short-term gains and losses and focus on the long-term consequences of their decisions.
This is also important in game theory since strategic decision-making sometimes involves a trade-off between short-term and long-term consequences. For example, some players make decisions that sacrifice long-term success in favor of immediate gains. Others are content to do the opposite, to sacrifice immediate gains in favor of long-term success.
In most cases, long-term success equates to winning the game.
Bezos’ framework inspires the individual to avoid short-term thinking and its potential consequences. Instead, it is better to focus on the bigger picture – even if it is a case of one step forward, two steps back.
Before starting Amazon, Bezos had a well-paid job at investment firm D.E. Shaw & Co. He became an SVP in under four years and was tasked with researching new ways to profit from the emerging internet. In all likelihood, a man with Bezos’ intelligence and acumen would have become a managing director at the company had he stuck around longer.
History will show that Bezos walked away from his six-figure salary at D.E. Shaw for the chance to profit from the internet himself. Like the game player, he was willing to sacrifice short-term gain for long-term success to emerge victorious.
Bezos later remarked that he believed Amazon only had a 30% chance of success. But in an interview with Time magazine and in keeping with his philosophy, he was sanguine about the seemingly unfavorable odds: “That’s actually a very liberating expectation, expecting to fail.”
Let’s delve deeper into Bezos’ core philosophy below.
The Regret Minimization Framework Explained By Jeff Bezos
The regret minimization framework has been made popular by Jeff Bezos.
Indeed, in many interviews over the years he has highlighted over and over again, how this framework helped him make a decision (that of leaving Wall Street) which, with hindsight was an incredibly successful one.
How did he get to the decision? In a “60 Minutes” interview from 1997, Jeff Bezos explained:
I want to have lived my life in such a way that when I’m 80 years old I’ve minimized the number of regrets that I have
Thus, when the journalist highlighted that was not a “Carpe Diem” moment (a moment driven by instinct rather than reason), Jeff Bezos stressed:
I don’t go in for Carpe Diem, I go in for regret minimization framework!
As Jeff Bezos further explained in another interview, as he recounted the whole story:
I went to my boss and said to him you know I’m going to go do this crazy thing and I’m going to start this this company selling books online and this is something that I’d already been talking to him about in a sort of more general context.
And he continued:
But then he said “let’s go on a walk” and we went on a two-hour walk in Central Park in New York City. And the conclusion of that was this he said “you know this actually sounds like a really good idea to me but it sounds like it would be a better idea for somebody who didn’t already have a good job.”
Thus, Jeff Bezos’ boss tried to persuade him. Yet, as Bezos recounted:
And he convinced me to think about it for 48 hours before making a final decision.
And so I went away and was trying to find the right framework in which to make that kind of big decision.
And you know I already talked to my wife about this, and she was very supportive.
And said, “look, you know you can count me on 100% for whatever you want to do.”
However, as Bezos pointed out, this was not the “implicit deal” they had as they got together:
True she had married this kind of you know, fairly stable guy in a stable career path. And now he wanted to go do this crazy thing but she was 100% supportive. So it really was a decision that I had to make for myself.
In that process, the idea came:
And the framework I found which made the decision incredibly easy was what I called – which only a nerd would call – a regret minimization framework. So I wanted to project myself forward to age 80 and say okay now I’m looking back on my life I want to have minimized the number of regrets I have.
How did he know?
And you know what I knew that when I was 80 I was not going to regret having tried this. I was not going to regret having wanted trying to participate in this thing called the Internet. That I thought was going to be a really big deal.
I knew that if I failed I wouldn’t regret that. But I knew the one thing I might regret is not ever having tried and I knew that that would hunted me every day. And so when I thought about it that way, it was an incredibly easy decision. And I think that’s a very good. It’s if you can project yourself out to age 80 and think what will I think.
At that time it gets you away from some of the daily pieces of confusion. I left this Wall Street firm in the middle of the year when you do that you walk away from your annual bonus. And that’s the kind of thing then the short-term can confuse you, but if you think about the long-term then you can really make good life decisions that you won’t regret later.
This short vs. long-term decision-making model would actually become the basis for the whole of Amazon’s philosophy.
As the company listed back in 1997, within its shareholders’ letter, in a paragraph entitled “It’s All About the Long Term,“ Jeff Bezos explained:
We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.
Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.
To be sure, after almost 25 years, in 2021, Jeff Bezos passed the baton to Andy Jassy, the company’s CEO; he highlighted in October 2021:
We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter—and you can see that during every phase of this pandemic.
Let’s break down the regret minimization framework so that you can use it too!
Breaking down the Regret Minimization Framework
Let’s now break down the main thinking phases through which a decision can be made within the regret minimization framework.
We can do that through five steps, which we summarized as “PRIOR” from the Latin “precede” as the framework that precedes the final decision.
Project
The first step is about projecting yourself in the final years of your life.
Jeff Bezos talks about “80 years” as this is the age when you think back on your life and when all the regrets come hunting you.
Reflect
Once you’re visualizing and projecting your older self.
Start reflecting, “what if I hadn’t taken that opportunity.”
You will notice two feelings: regret for not taking it and anxiety/excitement in thinking, “what if I fail.”
At this stage, the “what if I fail” is the short-term consequence, balanced out with “how much would I regret.”
While Jeff Bezos recounts this framework as “rational” in reality, you got to feel what’s right at that moment. Thus, internalize.
Internalize
If your body and mind both tell you that regretting it would be much worse than trying and failing, you’re almost ready to go!
Observe
Is the older self happy with this decision? If so, move on.
React
Once the process above has been completed, you got to act!
The three tenets of the “Bezos Mindset.”
The “Bezos Mindset” starts with the regret minimization framework, which leads to action.
It moves along three tenets of the core of Amazon’s strategy for the over two decades in which Jeff Bezos has led Amazon to become one of the most successful companies in the world.
Those comprise:
Day 1 Mindset.
The Flywheel.
And Customer Obsession.
“Day One Mindset”
In the letter to shareholders for 2016, Jeff Bezos addressed an important topic. Something he had been thinking quite profoundly in the last two decades.
That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.
“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.
I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?
Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.
Day 1 mindset is always having a fresh mindset capable of continuous innovation and breakthrough.
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.
The flywheel has been a turning point for digital business models, and it has created a new paradigm.
Indeed, to build a platform business model, you want to make sure to create – over time – momentum by doing unscalable things in the short term (like Amazon building its own inventory) to scale in the long run and create moats around it.
The flywheel, combined with the understanding that moats for digital businesses are built around network effects, has been one of the main lessons for digital business models, and Amazon has led the way!
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur of a small or large organization to understand the pitfalls to avoid running a successful company!
Customer obsession is, on the one hand, a continuous innovation approach made of fast execution, iteration, and experimentation.
And on the other hand, a combination of discovery, where new products and lines of business are built through entrepreneurial intuition.
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services, Amazon AWS, Subscription Services, Advertising revenues and Physical Stores.
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking about quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
The cash conversion cycle (CCC) is a metric that shows how long it takes for an organization to convert its resources into cash. In short, this metric shows how many days it takes to sell an item, get paid, and pay suppliers. When the CCC is negative, it means a company is generating short-term liquidity.
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
Amazon AWS follows a platform business model, that gains traction by tapping into network effects. Born as an infrastructure built on top of Amazon’s infrastructure, AWS has become a company offering cloud services to thousands of clients from the enterprise level, to startups. And its marketplace enables companies to connect to other service providers to build integrated solutions for their organizations.
Amazon’s organizational culture is characterized by four key ingredients: pride in operational excellence, an obsession with customers, long-term thinking, and an eagerness to invent.
The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
Customer obsession goes beyond quantitative and qualitative data about customers, and it moves around customers’ feedback to gather valuable insights. Those insights start by the entrepreneur’s wandering process, driven by hunch, gut, intuition, curiosity, and a builder mindset. The product discovery moves around a building, reworking, experimenting, and iterating loop.
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.
The growth hackingcanvas is a tool and framework to have a set of processes that allow you to ask the right questions to generate growth ideas, consistently.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
