What allows Amazon to be so innovative?

This question was asked on Quora. My answer has become one of my most upvoted answers ever. Here it is:

Some key pieces:

  • Visionary leadership: Jeff Bezos built an online retailer before most people knew what the Internet was. He was talking about what he called the “machine-to-machine Web” before the term “web services” was even coined.
  • Customer focus: Amazon is driven by serving customers and creating value for them, not by beating competitors or by winning any piece of some pre-existing market. This helps keep them focused on a consistent strategy and prevents them from wasting resources on me-too or copycat products. Bezos also says that focusing on customers helps keep you from being constrained by your skills.
  • Long-term approach: Amazon explicitly takes a long-term view of its business. The now-famous 1997 letter to shareholders included a section titled “It’s All About the Long Term” in which Bezos wrote: “We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions…. When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.” Elsewhere, Bezos has said that big bets take about seven years to come to fruition. He is willing to be persistent for that long.
  • Entrepreneurial culture: Amazon’s culture attracts and retains entrepreneurial types who want to own a piece of the business and do something innovative. For instance, rather than a functional organization in which engineers report to engineering managers and PMs report to PM managers, Amazon organizes into cross-functional teams that each own a piece of the business. Teams whose performance can be measured by a single key business metric, or “fitness function”, are given a high degree of autonomy as long as their metrics keep improving.
  • “Willing to be misunderstood”: In the Q&A at a recent shareholder meeting, Bezos said: “A big piece of the story we tell ourselves about who we are, is that we are willing to invent. We are willing to think long-term. We start with the customer and work backwards. And, very importantly, we are willing to be misunderstood for long periods of time.”
  • “Still Day One”: Amazon never rests on its laurels, nor do they fall prey to the age-old idea that everything has been invented already. Bezos always has his eye on the future and sees an ever-expanding path ahead. Whenever asked where Amazon is, or where the industry is, or how far any of it has left to go, he replies: “It’s still day one.”

Original answer on Quora