Ep269: Steve Anderson – Make Successful Failures Like Amazon and Protect the Downside

Andrew Stotz 00:03
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community we know that the winning investing you must take risk but to win big, you've got to reduce it. This episode is sponsored by a Stotz Academy which offers online courses to help investors better manage their stock portfolios, aspiring professionals to learn how to value any company in the world, business leaders to make their companies financially world class and even beginners to implement a simple lifetime investment plan. Go to my worst investment ever.com slash Academy to get free access to my short course. six ways to lose your money and six strategies to win where I share the six lessons I've learned from all of these podcasts interviews. Well, fellow risk takers. This is your worst podcast host Andrew Stotz and I'm here with featured guests, Steve Anderson. Steve, are you ready to rock?

Steve Anderson 01:00
I am. Let's rock and roll.

Andrew Stotz 01:02
All right, I'm going to introduce you to the audience. And I must say I woke up at 4am this morning, I was so excited for this interview.

Steve Anderson 01:10
So I'm glad to be here. Thanks for having me.

Andrew Stotz 01:12
I've been preparing and gone through so many things. But I'm going to introduce you to the audience. Steve Anderson is an expert in strategic risk and business growth. Drawing on decades of experience in the insurance industry. He wrote the Bezos letters, 14 principles to grow your business like Amazon, which has become a Wall Street Journal USA Today, an international bestseller with hundreds of thousands of followers. Steve has been handpicked by LinkedIn as one of the most influential thought leaders. And ladies and gentlemen, go to LinkedIn right now and type in Steve Anderson and follow him. He's got a lot of great content and a lot of interesting things to say. So see, take a minute and filling further tidbits about your life.

Steve Anderson 02:00
Well, I'm currently just outside Nashville, Tennessee, where I've lived for the last 20 years. And one of my favorite hobbies is cooking. And it's a hobby my wife completely supports. So that's the benefit.

Andrew Stotz 02:16
You know, when my parents retired, it seemed like my mom kind of retired from cooking. And she turned it over to my dad. And then he got really interested in it. So I can remember being home in North Carolina with mom and dad. And dad would be cooking all kinds of great fun stuff, which he didn't do when he was working. Yep, exactly a little more time to plan and prep. So yeah. And I understand that the environment in Nashville is pretty vibrant these days with the startup community and business community. Tell me just a little bit about Nashville for those people. Keep in mind that a lot of my listeners also in an Asia. Right. So Nashville, you may have heard of his music city. So certainly country music and there's actually a whole lot more than just country here. But country. Music is actually the third biggest industry in Nashville. The second biggest is publishing. So number of large book publishers are here. And the number one industry is healthcare. So several of the large in the US healthcare systems are headquartered here. It's a great environment, low taxes, lots of businesses moving in, and it is vibrant, in and creative. Which is kind of fun, you know. So I, you know, write a lot if you're in a creative arena. It's just a great environment to do that in. Hmm. And I have a little story about Nashville. I've been in Nashville one time. I was passing through Nashville. It was 1982. And I was 17 years old. And I was on a Greyhound bus. And I was on a one way ticket given to me by my mom and dad. I was moving from Akron, Ohio to Baton Rouge, Louisiana, passing through Nashville, that my parents had arranged for me to go to a drug rehab in Baton Rouge General Hospital. And they told me if you can't get sober from this rehab, you can live in Baton Rouge, Louisiana. That was my one way ticket. And it stopped in Nashville. And you know, it just, you know, a little overnight stop and think and then onwards. And luckily, from that day of arriving in Baton Rouge, Louisiana until today, I have remained sober. So

Steve Anderson 04:33
congratulations, say in Baton Rouge, you didn't have to stay in Baton Rouge is probably a good thing. I it's a good town, but it's certainly hot and humid most of the time.

Andrew Stotz 04:42
Exactly. And then I ended up in Bangkok, which is quite similar in weather. Now, I just want to spend a little bit of time talking about your book because I just think it's so fascinating. And the first thing is just, if you could just tell the audience a little bit about why or how you got started in even Coming up with this idea. I mean, you know, one of the reasons why I asked that is because people would look at that. How could you write a book summarizing other people's writing? I mean, how could that be interesting?

Steve Anderson 05:10
Yeah, exactly. So, you know, in the insurance industry, I've spent really the last 20 plus years, working with technology and new emerging technologies and how to apply it. And one of the things that I realized a few years ago is the biggest risk a business faces today is actually not taking enough risk. And certainly, with technology growing, as fast as it is, businesses just don't have the time they used to, to spend a year or two years or three years just kind of figuring out okay, what is this new thing? And how do we take advantage of it? Or, or do we just ignore it? And so I started examining companies who did it well, and who didn't do it well, right. So we've got our blockbusters and blackberries, and, and Sears. Now, I mean, we got a whole list of companies that haven't made that transition well, and also looked at companies that had and Amazon certainly stood out as a company that has been able to continue to invent. And, again, this is a Jeff Bezos phrase, invent on behalf of the customer. And they continue to do that it gets really all odds. It's a unique organization. In that I came across the shareholder letters basis, they went public in 1997, he wrote his first letter that was released in April of 1998. And kind of had read one or two letters, and then was really impressed with how much he gave away, I call it hidden in plain sight, his keys to growing Amazon. And so then I sat down over a several days and read every letter that we're 20 at the time, straight through as a full narrative and realize, wow, there's something here. And literally, the first thing I did was create a, what I, you know, giveaway lead magnet white paper, just a one page summary of each of the letters and some key points and things like that. And my wife is in the book publishing business. So had a little bit of an in there, showed it to her, and the founder of the publishing company, she works for now. And they both came back almost immediately and said, this is a book. And so that started about a 18 month journey of figuring out what that looks like, which culminated in the publishing of what you have the basis letters. So.

Andrew Stotz 07:31
And that's kind of one of the most interesting things about how any project or book starts in this case, is that you're looking for your own interest, you know, you're thinking, what can I learn from this, and then all of a sudden, you realize, hey, I've got something I can bring to the world? Well, let's get to let's bring it to the world. I know a lot of the people listening to this podcast are going to go download it on Audible or as a paperback or hardback on Amazon or other places that it's listed. They can also go to your website, I believe,

Steve Anderson 08:03
correct. That is the basis letters. com.

Andrew Stotz 08:06
Great. Yep. So any of those places, they can also go, you can go to the show notes. If you miss that. And in the show notes, just click on the link, and it will take you there. But let's go through, you know, one or two of these, you know, of the 14 principles. And I identified a few that I thought were kind of interesting. One was obsess over customers, and other ones apply long term thinking. And then the other one was about measure what matters, but question what's measured? And those are some that stood out to me. But I'm curious also about from a perspective of risk management, which is really what we're talking about today. Right? What stands out to you?

Steve Anderson 08:46
Well, you know, that's always a hard question to answer. It's like asking me, what should my grandchildren do I love best, right? So they're 14 for a reason. And we've grouped them or categorized them into four cycles. So test, build, accelerate, and scale. And depending on where a business is, again, it could be a startup business, it could be a business, a business, it's been around a number of times they're in these cycles and and actually, I believe they're always going through these cycles. So new product starts with testing. I would say some that resonate with people are encouraged successful failure, you know, so again, don't normally hear successful and failure in the same phrase, right? So what does that mean? But let's talk a little bit about the one who picked out so in the build is obsessed over customers. And that is a core tenet at Amazon. And again, back to that phrase we invent on behalf of the customer. So everything you see that Amazon they just released last week, a bunch of new hardware stuff, all of that started at some point. I don't know how long ago with What do we think customers would like? And what problem can we solve for customers? And how do we go about doing that? Right? So it's really obsess over customers. And, you know, their really core mission statement is we want to be the world's most customer centric company. That's what's in their, you know, security filings, you know, and really mindset and that, that mindset is incorporated in everything they do.

Andrew Stotz 10:33
To stop you there and just ask this question. There's, there's listeners out there that are going check. We've got that in our mission statement, obsessor customer, but that's not what they're doing.

Steve Anderson 10:44
actually I would say, you know, what they probably have is, we focus on customers, we have a great customer experience, we those kinds of words. obsessive is a very different kind of word, and has a very different connotation than, you know, I almost, there's probably on one hand, I could count the other companies that I know that really, truly obsess over customers. So I think it's a very different mindset than what normally is you say absolutely accurately, a business owner would say, well, we do that. And do you do it to the point that you're obsessive? Right. And that has some negative connotations?

Andrew Stotz 11:32
Yeah. You know, guys incest.

Steve Anderson 11:35
Yep. Yeah. And that actually, is I core question for some of the negative you hear about Amazon, how they treat their employees and fulfillment centers and other things, is that they are so focused on the customer that everything has to be focused on that. Right. So anyway, interest. Yeah. And again, I know, we don't have a lot of time. So I could go into a lot more depth there. But it is a core tenet. And I think, don't assume you've got that checked off.

Andrew Stotz 12:06
Got it. I remember when I left America was 1992. And I was living in Los Angeles at the time. And the company that was known for obsessing about the customers was Nordstrom.

Steve Anderson 12:19
Yeah, exactly. That would be an example. Yep. And I think still today, that would be a good example. Yeah. So you'll also, I think, picked out apply long term thinking that's also in the build cycle. And, you know, I think one of the issues is here, at least in the States, is that quarterly profit quarterly reporting, we've got to show, you know, movement every quarter. And Bezos basically said in that very first 1997 letter is we are going to invest for the long term, we are not going to worry about quarterly earnings, quarterly profits, and they didn't, it was probably, you know, I can't remember what year now I, probably 10 years before Amazon showed a profit, because they were reinvesting everything into logistics and fulfillment center. So fast delivery was a core tenant, getting more people on the platform, so they had more negotiating power to lower prices. And then in early 2000 2001, they did something crazy. They allowed their competitors to come on their platform is now called Amazon Marketplace. And, and literally sell right next to Amazon stuff. Why? Because Bezos said, if it's better for the customer, if they have better selection, a lower price, and we can get that's better for the customer. And ultimately, that will be better for Amazon and our shareholders.

Andrew Stotz 13:55
It's such a great example of how the obsess on the customer leads you to maybe counterintuitive decisions. Yes. But if you're looking at that customer who's frustrated that they have to jump from here to there to there to get the different products that they want. Yep, you got it.

Steve Anderson 14:13
Yeah, exactly. And two quick kind of practical examples of that long term thinking. One is, Bezos is funded and is building on his ranch in Texas. A 10,000 year clock. So the second is once every year, the once a millennia, the eye, you know, the minute moves I mean, a 10,000 year clock It's crazy. Right? But for him, it is an example of what it means to think long term. Hmm. And again, back in that 97 letter, he said, we, you know, people ask about working at Amazon, and he said there, you know, it's hard to work here. Hmm. But we are building something we can tell our grandchildren about. So again, he's thinking multi generational, so that the 10,000 year clock I think, is a fascinating, you know, and you could kind of dismiss it as just some rich guys pet project. But there's more there, I think, yeah, the second is Blue Origin, his face company. So we started that in 2,001st, five years, never talked about it, self funded, he, he funds it. And again, he believes in and, again, you have to cut me off here, because I have so many stories. He was the valedictorian of his high school class. And in his valedictorian speech, he said, we need to move manufacturing and people into space, and make the earth a national park, that you come visit. Right. So he and Blue Origin is the, again, long term thinking piece of how do we do that? Well, how you do that, as you lower the cost of getting to space. So reusability, and all of those kinds of things. And, and he's thinking, multigenerational. So again, as long term thinking is a big key.

Andrew Stotz 16:24
There's a few things about this that I have to to comment about. The first thing is that, you know, he, I believe he was an analyst prior to being a watch business, an entrepreneur, and I was an analyst for 20 years. And one of the things I always say to CEOs when I meet them, they said, What would be your advice, you know, a newly listed company, I'd say I said, never follow analysts. Analysts, analysts are not business people. They're not entrepreneurs in most cases. And all they're really looking for something short term. And so as a CEO, stake, stake your claim, make, take your, you know, get your point of where you want to go, and don't be thrown about. The second thing about this long term thinking is in one of the courses I teach, which is called the valuation masterclass, I teach about valuation. And I tried to separate the idea of value from profit. And it's hard to do, because we always think profit profit, and that's what it's all about. But that's not what it's all about. In fact, when we value a company, as Amazon's a great example, 10 years of losses, were they not creating value, they were creating value. So value can be created, even while a company is losing money. And that is a great lesson to separate value from profit. And the last point about long term thinking is it for the young people out there? If you want to build a competitive advantage, it's easy. Everybody is distracted, and they're focusing on the short term, right, just pick long term goals, and a long term focus, and you will have a competitive advantage. That's my last part of that.

Steve Anderson 18:11
There was an Was there one more, and I don't know how

Andrew Stotz 18:13
to talking about the measuring

Steve Anderson 18:14
Oh, the measure. So yeah, the scale, right. So kinda you test, build, accelerate, and now scale. It's measure what matters. Question was measured and trust your gut. And basis has a very interesting view on data one. Amazon is absolutely data driven. They measure everything. And literally every employee has access to that information. Right. And, and I believe it was the 2006 letter, he actually published his email address, and said, You know, one, if, if we're doing a good job, let us let us know, you know, here's my address, I will get it to the team, to let them know that you appreciate the work that they're doing on your behalf. But what also happened was people started complaining, right, this didn't work. I didn't get this on time. In fact, I just loved last week, two weeks ago, I ordered something and got the wrong thing. unusual, but you know, filled out a form, told, you know, got the wrong item. Here's the item I thought I was going to get and got it shipped I got that new item and was able to return the other one without a problem. But what basis then did is he used to do it himself. He doesn't anymore as a team. But people still send emails to that address. And if there is a couple, you know, it doesn't even have to be 100. If there are a few emails that are highlighting a delivery problem or something else, that email get forwarded to the head of that department, group, product line, whatever with a single Go character. A question mark. Hmm. And nobody at Amazon wants to get a question mark email from Bezos. Because basically what it says is you drop everything and figure out where the problem is and fix the root cause of the problem. Hmm. Probably the best example of this is here in the US, they were going to, they had a competition, right between cities of a second major headquarters. They gathered all kinds of data and had massive amounts. But he said at the end of the day, that is a gut decision. You know, what? You take all that data, you take it in, it's important. You question, you know, is this measuring the right thing? And then you've got to make a judgement, right? So you trust your gut on making that decision? Wow. So it's, you know, again, today, people talk about data driven, and AI and machine learning, and right, all those kinds of things. And you need to trust your gut, which I think is just an interesting dichotomy, or viewpoint of the importance of data. And

Andrew Stotz 21:08
yeah, yeah, and I think my lesson in my life is that I learned a lot from Dr. W. Edwards, Deming, was the idea that, you know, first thing when you see data, that's strange, he always said, you know, it's probably an error, right and investigate, you know, what it is, and so, but the idea of, you know, a very famous statistician, telling us telling me, which he told me in some of the classes that I attended, he said, basically, that the most important things are immeasurable. And like that, that just kind of blew my mind. So it's that combination of data. And trust your gut is pretty fair, trust your gut. That's why I'm pretty excited to get on to it. So I'm gonna just go straight into the question, are you ready? I am, it is time, it is time to share your worst investment ever. And since no one ever goes into their worst investment, thinking it will be. Tell us a bit about the circumstances leading up to it, and then tell us your story.

Steve Anderson 22:14
So about 2007, my wife and I, I inherited from my my sister who passed away from breast cancer, you know, pretty good amount of money from from her, and was trying to be very smart, right about investing in diversifying and, you know, went to an investment advisor, and, you know, all, I think, tried to do all those things, right. And, you know, we all know, kind of what happened a year or two laters. And, you know, loss of money. And one of the things that we were doing is we were going to have a literally a major renovation to our house. So we live in a historic home, and we're going to add this big addition onto the back and had plans drawn and working with architects and right, all of that kind of stuff. And, you know, so when that downturn started, you know, I pretty, you know, it took a little while, but we basically pulled the plug on doing that, because that would have taken that would have drain pretty much all of our resources at that point. You know, so part of the worst investment and, again, I have thought back, how do you mitigate this, but we diversified into Rietz, Rei, you know, real, real estate, some of that real estate investment trust, and Class A office buildings? Well, again, we all know, with the recession, you know, what happened to that marketplace, and, again, lost, eventually got some money back. But it's very illiquid, and, you know, really didn't, didn't, didn't perform well. So, kind of looking back going, Okay, what would I have changed? What would I have done? I think in that situation, I'm not sure I would have changed anything. I felt like I did some things right, and still got, you know, pretty significant losses there, as we go forward. So, you know, for me, and again, part of my, you know, insurance and risk management and, you know, how do you go about trying to predict what nobody was predicting at that point, you know, the 2006 2007. Right. That was that was, that was hard, you know, so worst investment? Probably, was it? You know, my fault? You know, again, maybe, maybe not, it could have been just the circumstances that, that were around there, but, and

Andrew Stotz 24:55
can you tell us a little bit about like, when did you get out of it, or when did you capitulated Don't say okay, now I've got a or some people tell me, well, it's 15 years later, and I'm still holding that.

25:07
Yeah.

Steve Anderson 25:11
So in turn, so in terms of the huge project that was fairly quick, I realized, you know, this, this is not looking good. And I went into protection mode, pretty much at that point going, you know, what, we can't spend this money, right, this is not a wise thing to do, as we're looking forward and protecting as much as we can, you know, so so what I could and and again, it's still working with, you know, what's the right timing to get out of a market or into it, or some things like that. But yeah, I move pretty quickly. And some of that, as I mentioned, was long term anyway, that's what it was designed to do. But and couldn't get out of that quickly. But yeah, we were, and I tried to think when, but I bet it was. Probably 2009. Okay, when we were making all those decisions.

Andrew Stotz 26:08
Yep. So all right, so let's, let's try to summarize the lessons that you learn.

Steve Anderson 26:18
I think one of the things that I would do differently, is, think more about protecting the downside. Mm hmm. Right. So meaning, you know, for me, and again, I go back to Amazon to in terms, they do that a lot in terms of how they move forward and make decisions and approve projects and all those kinds of things. But, you know, for me, it's something always can happen outside your control. So think about, okay, what am I going to do, if I would do probably more of that kind of talking and thinking and planning? And? It certainly now, you know, I'm older, more protection of assets than growth of assets. And, and, and so really examining, you know, what that might look like, as you move forward? Got

Andrew Stotz 27:18
it. So maybe I'll summarize what I took away from it. And let me know if I missed anything. Okay. So this actually comes to a book that I wrote called How to start building your wealth investing in the stock market. And also, it's an online course that I teach. And the first thing that I try to teach is long term thinking, you know, and what I say is that if, let's say my average student is 30 years old, and they tell me that they want to retire when they're 60, well, there's 30 years right there. But that doesn't mean you're going to stop investing, you could live to be 90, and therefore, that's another 30 years. So we've got a 60 year investment horizon. And once you start to put things into decades, it starts to change the mentality. So that's the first thing is that a lot of times we get caught up in the short term. The second part of this is very few people ever talk about shortfall risk. If some of us, people say to me, oh, I'm low risk, I just put my money in the bank. No, that's high risk.

Steve Anderson 28:22
That's how I react because you're not earning anything correct. So that

Andrew Stotz 28:25
you run the risk that at the time of retirement, that you don't have the $5 million that you needed to live off of, or whatever that amount was, because the 1 million you accumulated over the years, never grew. And so shortfall risk is a huge risk. And the price of it is awful. I always tell the story about how mine, my mom and dad, they lived in retirement for 22 years in a happy, comfortable retirement, my dad was not a super high flying high paid and mom mom was a housewife. But when mom came to Thailand to live with me, I could have the conversation to say you've got enough money to support yourself for the rest of your life. You don't need to worry about money. And what I learned from that, you know is that shortfall risk could have been, it could have been a much more tougher conversation. So always remember long term and shortfall. Now the next thing is about reeds. People ask me, Andrew, why is it that you don't you don't recommend that people buy reads? Well, because when I look at investing for the long term, I look at the stock market. You know, ultimately investing in companies is where you really get the game. You've got a CEO, you got a management team that are working hard to do that. Now, in the stock market. We also have real estate companies. And we also have reeds listed there. So if you're buying some sort of ETF you already own reads in the stock market in most cases. Now. The other thing about it is that Think about your real estate allocation, your home, you're already exposed to real estate. So if you go out and do reads you just doubling up exposure in a lot of different ways. And so I say to keep it simple focus on stocks, and bonds, some people say just cash, but just that point of focusing on the things that are really, really going to make money over a long period of time. And the last thing is lump sum is one of the biggest challenges when my students come through my course. And they say, Okay, my parents just gave me $300,000. And right, what do I do? I love what you just taught me, I'm going to dump it in the market right now. And that's when you say, Whoa, whoa, whoa, if you just dump it in the market, you've run the risk of putting it in too high, and therefore, the dollar cost averaging concept is one of the best. So those are some of my takeaways, anything you'd add?

Steve Anderson 30:51
No, I think that's a good summary. Yeah. So where were you? Where were you? You know, 10 years ago? Exactly what

Andrew Stotz 30:58
I'm trying to reach the market. Um, so I have, I only wish that my book had, I think I have about 120 reviews on Amazon. And I wish I could get to your level and what I can see. And for the audience out there, you know, you've got fantastic reviews, your rankings for the book is fantastic. So it's my only wish to come halfway as you've

Steve Anderson 31:24
well. Yep. And again, that's a process to just keep working at it. I keep working at it.

Andrew Stotz 31:29
Exactly. So based upon what you've learned from this story, and what you continue to learn, what one action would you recommend our listeners take to avoid suffering the same fate?

Steve Anderson 31:44
do a better job than I did a protecting the downside? Got it. Yep.

Andrew Stotz 31:51
And protecting the downside is key. And I think for the listeners out there, you're going to learn more about that when you go through the book. All right, last question. What's your number one goal for the next 12 months?

Steve Anderson 32:04
Well, my goal with the book, really was to speak more, you know, keynotes and things like that, obviously, in March of this year, that kind of shut down, I was fortunate to be getting more and more of that. So my goal into next year is, the way I phrase it right now is to keep the book alive, right? Keep the buzz talking about it. And that that kind of stuff that I am hoping will leave to live in person events. And interesting Lee Andrew, we've sold foreign rights to 17 countries. So it's being published, it's already available in Korean, Japan, trying to take the other Asian countries, several Asian courts, China, actually China, and it's, it's, I always have to be careful here, but it's tight. It's so complex, Chinese and Taiwan, and actually simple Chinese in China. And actually, that is just getting ready to come out in China. So I, you know, I we were hoping that Asia would be an interesting market to talk about. So that that's my goal is just I would like to get on stage with more,

Andrew Stotz 33:16
I think that you should be speaking to the CFA Institute. And I can introduce you to some people there. But I just did a webinar last night about how to give a great presentation. And it was very well attended. But the point is, that's full of fund managers and analysts that need to hear the lessons of this book. So afterwards, let's talk about that.

Steve Anderson 33:35
All right, that'd be great. Thank you.

Andrew Stotz 33:36
So listeners, there you have it, another story of loss to keep you winning. Remember to go to my worst investment ever.com slash Academy to get free access to my short course six ways to lose your money and six strategies to win. As we conclude, Steve, I want to thank you for coming on the show. My pleasure.

Steve Anderson 33:59
Yeah. enjoyed the conversation.

Andrew Stotz 34:00
Yeah. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Steve Anderson 34:13
I just you know, I want to go back to obsess over customers. If you're a business owner, it really think about that more, because you probably don't right now, and you should. So keep it going.

Andrew Stotz 34:26
What a challenge to all of us listeners. I appreciate that very much. And that's a wrap on another great story to help us create, grow and most importantly protect our well fellow risk takers. This is your worst podcast host Andrew Stotz saying. I'll see you on the upside.