Jeff Bezos' philosophy for Amazon is that it's always 'Day 1' - here's what that means and why it works

• Ram Charan is the author of 27 books, including The New York Times bestseller "Execution." He is a world-renowned advisor to CEOs, business unit managers, and boards of directors. He earned his MBA and doctorate degrees from Harvard Business School, where he graduated with high distinction and taught as a faculty member. He has worked with leaders from companies like Bank of America, Verizon, Coca-Cola, 3M, GE, Merck, Amgen, Novartis, Aditya Birla Group, and Tata Group.
• Julia Yang is a trusted advisor to entrepreneurs, founders, CEOs, and executives. She was previously a consultant at McKinsey and a private equity investor at Bain Capital and earned her MBA from Harvard Business School. She serves on the faculty of the joint MIT-Tsinghua MBA program.
• The following is an excerpt from their book, "The Amazon Management System: The Ultimate Digital Business Engine That Creates Extraordinary Value for Both Customers and Shareholders."
• In it, they write that Jeff Bezos' approach to Amazon is operating like it's always day one. That means fighting off stasis and always working within the vitality of a startup.
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Almost 80% of the Dow Jones 30 have disappeared over the last several decades. Others, like Sears, have either gone bankrupt or are in serious decline. Why? Because they failed to adapt to a shifting climate and instead stuck to outdated business models. From the very beginning, Jeff Bezos was determined not to repeat the mistakes of these companies, so he implemented a mindset that kept Amazon on a continuous cycle of experimentation, innovation, iteration, and even failure (remember the Fire Phone and Askville?). Bezos calls this mindset "Day 1" and it has become the company's mantra for longevity.

If you read through all the shareholder letters that Bezos meticulously wrote over the past 22 years (1997-2018), the phrase "Day 1" appeared an amazing 22 times, with striking consistency. For the past 10 years, every shareholder letter has ended with the same line:

"As always, I attach a copy of our original 1997 letter. Our approach remains the same, and it's still Day 1." (2009-2015, with a one-word deviation in 2014)

"As always, I attach a copy of our original 1997 letter. It remains Day 1." (2016-2018)

If you go to Amazon headquarters, you will find a building named "Day 1" where Bezos's office is located. When he moved buildings, he took the name with him. The plate reads: "There's so much stuff that has yet to be invented. There's so much new that's going to happen." Why is Day 1 so important to Bezos? Why has he felt such a strong urge to constantly remind everyone that it's still Day 1?

Why Day 1?

Normally, in the beginning, the organization will still function with speed, nimbleness, and a risk-acceptance mentality, but as the business grows bigger, complexity starts increasing, and layers begin creeping in, the once-nimble startups inevitably fall into the trap of so called "large organizations" characterized by slowness, rigidity, and risk aversion.

Bezos graduated from Princeton University in 1986 with degrees in electrical engineering and computer science and initially intended to study physics. That's why he borrowed the term "entropy," an indicator of a system's disorder. In thermodynamics, entropy is a measure of the unavailable energy in a closed thermodynamic system that is also usually considered to be a measure of the system's disorder. The second law of thermodynamics states that for a thermodynamically defined process to actually occur, the sum of the entropies of the participating bodies must increase. In short, in the world of physics, the total entropy, or disorder, of the universe is continually increasing. In the world of business, the inevitable path of any organization, if left unattended, will lead to decrease in efficiency and vitality, and increase in complexity and rigidity. This is the law of "entropy increase." In a way, it is a depressing law because it states that, no matter how great a company is now, without deliberate vigilance and institutional determination to fight entropy, it will fall into mediocrity. Bezos's goal is to defy the law of entropy increase at Amazon: "We want to fight entropy. The bar has to continuously go up."

Day 2 is not an option

Bezos's evocative and sticky model of "Day 1 vs. Day 2" has proved to be an immediate and useful way. This simple phrase captured Bezos's aspiration for Amazon to grow aggressively in scale and scope while preserving the entrepreneurial vitality of a startup and building on the numerous advantages of a large company at the same time.

To defy the law of entropy increase is, by default, never easy. Bezos was fully aware of the challenge. As he noted, "There are some subtle traps that even high-performing large organizations can fall into as a matter of course, and we'll have to learn as an institution how to guard against them." Every day is a new day, every day the world changes, and we must look for the change, create the change, and adapt to change. It's a lesson to every manager and leader. It's the meaning behind Forever Day 1.

So what does Day 2 look like in Bezos's mind? "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 Bezos, someone who wanted to win so badly during childhood that he would cry publicly over the loss of a football game, Day 2 is never an option.

Excerpted from "The Amazon Management System: The Ultimate Digital Business Engine That Creates Extraordinary Value for Both Customers and Shareholders" by Ram Charan and Julia Yang with permission from Idea Press.