What Amazon Knows About Scaling (That You Don’t) with John Rossman

Why playing small is the riskiest move

00:00Bill Gallagher: Have you ever had a week when you're completely slammed, but somehow nothing actually moved? Is this one of those weeks? That's not really a time problem. It's a busyness habit problem. My new book, Busy Is Broken, Do Less, Scale More, is all about growing by doing less, not more. Read or listen to a sample chapter over at busyisbroken.com. That's busyisbroken.com. It's also on Amazon and other booksellers.

00:32Bill Gallagher: We're talking about the value of big bets. What is the opportunity of big bets? When is placing a big bet less risky than playing small? That's our conversation today. We've got a former Amazon insider today, John Rossman, talking about the process, the mindset, all the things that have gone into growing parts of Amazon's business over the years, the importance of big bets.

01:04Bill Gallagher: Hey everybody, I'm Bill Gallagher, Scaling Coach and host of this groovy Scaling Up Business Podcast. Our show comes to you every week. More than 600 episodes now, wherever you're getting it right now. So just turn on your notifications, that kind of thing. And if you want to come do a workshop, get a little real time interaction with me, you go to scalingcoach.com. And that is where we have, of course, all the episodes there and we have tool downloads and you can sign up for a newsletter. But the main reason to go to scalingcoach.com is to come join me in a workshop and actually get started scaling up, stop hesitating, but start applying the ideas.

01:43Bill Gallagher: All right. So our guest today is John Rossman. John joins us from Washington State. He's an early Amazon executive who launched their Amazon Marketplace and then worked on digital transformation stuff at other companies like T-Mobile and so on. He's also written four books all related to that experience and leadership and big bets and that kind of thing. And he's spoken all around the world on growing your business and leadership and so on. Welcome to the show, John.

02:15John Rossman: Bill, great to be here. Thanks for the intro.

02:23Bill Gallagher: It's great to have you here. So, you've said that the worst thing that a leader could do is play a small game, is win a little. Talk about that moment at Amazon when you realized betting bigger was the safer move.

02:39John Rossman: Well, I mean, let's rewind the clock a little bit, right? So it's 2002. Amazon stock is someplace between $5 and $12. We were being referred to as amazon.conned, amazon.toast, and my favorite, amazon.org, because we obviously didn't know how to make money. We had tried two prior versions of a category expansion, third party selling approaches, right? We had tried Amazon auctions. We had tried something called Z shops. As Bezos said, unfortunately nobody came. And all of the pressure, external pressure, board pressure, internal executive pressure was, "Hey, stick to your knitting, let's play the game that we know how to do. We're going to kind of seed the categories over to eBay, kind of beyond books, music, video." And Bezos was like, "I've got a deep keel on this. I have a firm belief in it. I'm fixed on strategy, flexible on tactics." And so we tried another tactic. We created a small pirate ship of, ironically, Amazon needed an internal disruption team, right? Even back then. And we launched the marketplace business in the fall of 2002. And that was, I think, really a demonstration in a moment that you have to have a grand vision, work back to the steps to experiment in order to get there, but you have to do things faster and cheaper than companies of size typically go on to. And in a lot of ways, that formula of thinking big, working backwards, designing the experiments and leading in a way that creates clarity, maintains velocity and accelerates risk and value. That's the story of Big Bet leadership right there. And so really I've had just a really fun career of kind of taking that mindset and all the operating principles of Amazon, helping other companies kind of both operate well and create an innovation culture to keep their business fresh and growing.

Launching Amazon Marketplace with 35 sellers

05:08Bill Gallagher: We're going to get into more. Like Amazon Marketplace is obviously a massive, massive thing now, right? It wasn't at one point. Tell us a little bit of the story of what it was like, how you actually got started with it, how you tested it, how it evolved. I'd love a little insight. Like I've coached companies past $70 million in sales in Amazon Marketplace where there's communities, there's programs, there's endless things around Amazon Marketplace today, but it wasn't always like that. Take us back.

05:43John Rossman: I mean, there's a beginning for everything, right? So the beginning was in late 2001, I was an executive at a failing.com technology, integration technology company. Had a former colleague of mine, I'd been a partner at Arthur Andersen. A finance colleague of mine called me and was like, "John, we're kind of thinking about something. I think you should come talk to us about it." So I did over 23 interviews over three months at Amazon. It was really a consulting assignment, right? Like we were figuring out like, what is the real play here and what do we need to do early versus what's the stuff that we can defer to later. So I started at Amazon in early 2002. We launched the marketplace that holiday, we launched it in late October with just 35 sellers all in the apparel category. And some of the lessons are about discerning what is your value proposition to your customer and to, in our case, sellers was going to be and how are you going to differentiate from the current winning proposition in the marketplace, which was eBay? And what we settled on was a pretty simple statement that we needed a customer to be able to trust buying from a third party seller as much as they trusted buying from Amazon, first party retailer. It's a pretty simple sentence. It's very differentiated than eBay was at the time. But once we kind of have that locked in, then we could build accordingly both technically as well as operationally and from a contractual standpoint and all of that. And really the story of the Amazon marketplace was kind of putting that in play, having patience and adding two additional major big bets that weren't even on our drawing board at the time, right? Those were Amazon Prime and FBA, Fulfillment by Amazon, that launched in 2005. And it was really the combination of those letting customers get used to coming to Amazon for more than books, music and video that built this legendary business.

08:08Bill Gallagher: It's a really fascinating thing. I remember having the first partnership I had with Amazon was in the nineties and I wanted to sell books and I had a book based, content based website with services and community and things like that. And I'm like, I really want to sell books, but I don't really want to be in the fulfillment business. So I contacted Amazon and they're like, "Well, we could do an EDI thing with you. And if you just pass us a file like this, we'll ship the book." And so rather than go into, because I knew something about EDI systems, I'm like, we're not doing that. Our thing's pretty simple. I'm going to just write a thing to write the file that I want. And like, we wrote the file and passed, and that was actually a pretty easy thing with Amazon. Years later, we did another…

08:55John Rossman: What's interesting about that is that's a really early rendition of FBA, right, fulfillment by Amazon. That's very early embryonic version of FBA.

09:11Bill Gallagher: Well, it was, yeah, it was like a precursor because I was going to pass the, I want to sell the book. It's actually Amazon selling the book.

09:21John Rossman: Okay, so you weren't the seller of record, interesting.

09:23Bill Gallagher: No, no, no. We were selling like an affiliate. So we wanted to be able to recommend a variety of books. And then anytime we recommended a book, we want to let people click and buy it. That's associates.

09:34John Rossman: program, right?

09:35Bill Gallagher: Actually, no, wait, that's no, it wasn't affiliate because we were sending a thing. So we must have been actually doing, yeah, we must have been taking the money, right? If we were passing the EDI record because you were passing the order, you processed the credit card. You were the seller of record. Yeah, that's interesting. It's been a long time. Yeah, it has been. But that was like '97 or something, '96, '97. Those are early days.

10:07Bill Gallagher: Later with another company, Amazon, I forget if Amazon came to, I think they came to us and they said, listen, we want to feature your product. We're going to buy your product. We're going to promote your product. We want you to do certain things like set up your catalog or whatever. And so we did all that and I really regretted that because one, they were just bastards, I want to say. Like, I don't have a better word in this moment, but in the negotiation, right? Like working on the contract, it was just like, this is it, take it or leave it, we're gonna do, it's gonna be fine. And so we went through a lot of development and work to set up whatever the integration was for the catalog, that kind of thing, and technically speaking to our inventory in this, a different company. And then there was like very little sales. Like, it wasn't worth the effort. Like, why did we go through and do all that? They're not actually gonna promote it. And then they're like, well, you could sort of do your own thing and run it yourself. And they were pointing more at that point to doing something like FBA versus being like…

11:10John Rossman: There was a lot of experimentation still going on at Amazon, but especially in those early days. You know, the web was rapidly moving and changing so quickly, how customers shopped, what they would do, what they wouldn't do, what the technology would support. And then, how would Amazon actually make a business out of it? So yes, there were a lot of experiments and no doubt a lot of people helped pay for those experiments.

Scaling is just a series of experiments

11:43Bill Gallagher: Well, I always contrasted, so later I did a thing with QVC. The culture of negotiating between those two companies was really strikingly different.

11:56John Rossman: Yeah. How successful is QVC been over the past 20 years, Bill?

12:01Bill Gallagher: Well…

12:02John Rossman: Not the same. Yeah. Not the same. Yeah. So, you know, retail is a win-lose negotiating proposition always, you know, in everything, right? And so no doubt Amazon is a sharp, difficult negotiator in everything, but they're the type of player like Draymond Green. You hate to play against him, but you want him on your team all the time and everything, right? And so it's a similar way. It is exceptional. Create a marketplace, and then there's players in the marketplace, and they hate it, and they love it, and they love-hate it, right? Yeah. In my book, Think Like Amazon, 50 and a Half Ideas to Become a Digital Leader, I outlined some of these tactics, you know, about, you know, what partnership really means. And what it really means is that Amazon is interested in this category and they want to run some experiments and what they want to do is learn with you, but that doesn't take off the table or preclude them doing anything in the future. We called that launch and learn at Amazon. There was a name for that strategy called launch and learn. And so there was a lot of launch and learn going on.

13:21Bill Gallagher: You know what, it's interesting to me. So having worked with some companies who sell on Amazon and coaching and who've had various degrees of success building their businesses with Amazon, I'm fascinated by they're so afraid. Like, well, we don't wanna upset Amazon. And I always remind them, yeah, they're not gonna be worried about upsetting you.

13:49John Rossman: I've gotten asked. I've done a ton of kind of due diligence for brands or retailers, and they want to lean into their marketplace business and they show how glorious it is and the rates, you know, and all that. And I've always seen it as like, man, that's the major risk in your business, having an overdependence upon somebody else. But that's a proven business risk. Anytime you allow somebody else to be between you and your customer, you have architected in a fundamental risk constraint dependency in your business. And so I think it's an important lesson to learn in business, which is A, you never want to become over-concentrated with one relationship, especially if that relationship is between you and your customer.

14:45Bill Gallagher: Yeah, you know, and that's the thing I think with marketplace sellers all the time, right? I'm like, you got to find a way to create a backlink to them. You got to encourage them to register, to sign up, to get your thing. You got to, you can't contractually…

15:01John Rossman: You run it more as a customer acquisition channel and strategy versus trying to optimize on, you know, order profitability, then you can approach it in a much more strategic way. But if all you're trying to do is just like juice it for today's profitability, then you're setting yourself up for a risk and a dependency that no doubt, if you were in the same position, you would absolutely do the things that Amazon does.

15:34Bill Gallagher: You know, it's interesting. I don't know what the slogan is exactly, but I passed one of the Amazon trucks yesterday driving home and it said something like, We'll save you the trip. And I thought, oh, I kind of love that because that is a major reason that I use Amazon to order something virtually every day. Yeah.

15:54John Rossman: They do a nice job on those delivery vans. I've seen one that says everything including the kitchen sink. And so yeah, they do a nice job. You know, that Amazon delivery network is an example of Amazon looking at, they had a vendor relationship that was out of whack. They had a dependency on UPS and FedEx. There was a, I think it was holiday 2012 where a bunch of bad weather, a bunch of customers got disappointed and Amazon was like, no more. We are gonna build alternatives to the vast majority of our volume going through UPS and FedEx. They tried a bunch of things. FedEx historically, you know, kind of underplayed that Amazon would be able to build a delivery network. Again, they tried two or three things, but that Amazon delivery network, which is done by third party independent contractors, is a brilliant example of identifying a critical wicked problem in your business and then figuring out a way, probably multiple different attempts at how do you solve for that wicked problem? And that is the underpinnings of big bet leadership, which is designed to help solve a wicked problem in your business. Not a trivial problem, not an obvious problem, but how do you put many of these techniques from Amazon, like the memo writing and the, you know, customer obsession and the metrics and the testing? How do you actually put that in place for a major opportunity or strategy you have? A big bet, the big is actually the size of the ambition. The bet recognizes that there's inherent risks and dependencies to it. And the whole goal is how to flush out those major things early before you actually commit large to this initiative in order to achieve success? And that's the systematic habit that big bet legends like Jeff Bezos do, which is they think big, but they don't actually bet the farm.

18:15Bill Gallagher: So there's a really great point. And I've seen this again and again with the companies that I've done any ongoing work, even people who come to just a workshop with me or whatever, or some of our longer term private coaching clients, and they're like, how we placed a big bet on this one. And it didn't turn out. We lost $80,000 on this, like whatever. And you know, a small company that can be a meaningful amount.

18:44Bill Gallagher: I'm like, okay, so what did you test before you placed this big bet? Nothing. Like, so it's great to have an idea for something and then whatever, but if you don't test before you commit whatever amount of money, like $80,000 in a company like Amazon's trivial, but $80,000 if you're running a $5 million business is a significant bet. Right? So do you test in any way the assumptions of your bet?

Stay in the problem-solving headspace longer

19:13John Rossman: So Amazon's famous for kind of its narrative writing culture and technique. Right? They call it working backwards. You write things, you debate them. Is the cheapest and best way to test things out because you will think much clearer. You'll create this essence called clarity, which is both completeness of thought and simplicity of thought. You'll be able to get the best minds around your table to actually digest it. Then you can beat the idea up. And that is the best way to test things. People are so anxious, like they have an idea, they want to go big, they want to start building, they want to start releases. Stay in the problem space a little longer. Do thought experiments relative to this. Study it, study history, study other situations like this. And you'll find it's typically not that the big concept is wrong, it's the little hooks or the cold start problem that you need to get right. Like how do you actually get started in this? What is the real, I kind of mentioned the thing that we had to gain clarity on in the marketplace, which was the concept of customer trust and what that really meant for our marketplace versus eBay. You have to get to clarity on that level of topic in order to actually be successful at this. It's not that the grand concept isn't right. It's that the detail and the critical details aren't flushed out. And when they're not flushed out, guess what you can't do? You can't test it.

20:43Bill Gallagher: Yeah. So that's an interesting thing. I hadn't thought about that as part of testing so much, like just the debate, the thinking, the discussion. There are thought experiments, right? I was thinking about testing more in terms of let's actually throw a little bit of money, like the bullets before bombshells idea, like let's—

How overdependence on partners killed Target's e-commerce

21:06John Rossman: And those are very valid ways of testing. But if you don't truly understand what the critical risk is upfront, then you can't design a targeted test for it. Now, if a relatively simple situation like this product or this product headline, which one is better, that's an A/B test, yes, accelerate into a little wizard of Oz testing and everything. But if it's a bigger conceptual, like new channel, new customer, new use cases, new product categories, well, those are much more complex situations. You really need to identify what's the real risk here and figure out a way to test it as you're pointing out.

21:56Bill Gallagher: You know, in the before the web and in the early days of the web, there was America Online. And one of my prior companies did a whole lot of ad creative for AOL. And I remember going to a meeting in Virginia and with the head of their direct marketing group or whatever they call themselves. And we were doing like not thousands, but hundreds and hundreds of pieces of ad creative for different products that they were selling directly because they had the subscriber revenue, which was soon to go away, and the per minute revenue, which all got flatlined. And then they were trying to market the traffic like other people were in different ways. And so we were doing ads like banner ads and in particular pop-up ads. So they'd get some quantity of like printers and scanners and software and cameras and things like that. And then they'd want to sell those. And when you signed on, you got a pop-up ad in the first thing. And so the creative director, we're doing this review of the business and that kind of thing, because we were one of the more major partners for that. And he's like, I really don't like this and I don't like that. And I'm like, I don't like any of it. I think it all sucks. Like, I don't care about what it looks like, what it says. We just, we come up with a premise, we run a couple of them, and then we put weight on the one that works. It sucks too. They all suck, but that one sold scanners. So I don't care if you like it or not. I don't like it. Did it sell or not? Did it work? And you look today at some of the ads and things like that. It's like, did it work? Did you test it? Right. And we debate these things. It doesn't matter sometimes, your opinion. Right?

23:53John Rossman: And again, like, those are, it's absolutely true. And those are fairly well-defined simplistic types of tests. But you're investing that $80,000 on this new concept and you just go for it. Right? Like, that is what happens all the time, all the time in companies, small and big, which is they recognize the need to innovate to transform. Great. They come up with an idea, but it's obscure. It doesn't have clarity. It doesn't have refinement. They really haven't thought it through. They commit big to it. Right. And then it's only till the end do they figure out that doesn't work. Well, that's really the story of GE Predix, right? And a big part of the downfall of an American icon of General Electric, which is they had this general concept about an internet of things processing platform that they called Predix. Nobody knew what it meant. They didn't build to real use cases to real customers. They committed to the street big time relative to the incoming pipeline and the results that they were gonna get. And that's really why Immelt failed out of that company. That story happens a thousand times, small companies, mid-sized companies, large companies of falling in love with an idea and then committing big when you could have tested it so much better and refined the concept and come up with alternatives relative to it and really thought it through. And the goal is to both maximize the ambition, but manage the downside risk relative to it too. That's how you survive these audacious goals while testing them out is actually seeking upside ambition while managing the downside risk. That's the playbook of big bet leadership.

25:56Bill Gallagher: So when I'm working with entrepreneurs and other senior executives, I think that one of the things that they're resistant to hearing all the things that could go wrong. So I'm usually coaching them like, yeah, you could go on to like theoretical infinite number of things that could go wrong. But what if you just focused on a few of the most likely? So what are the most likely things to go wrong with this situation? Let's dig into that. You might be resistant to the theoretical extent of it, but let's focus on the big probability.

26:33John Rossman: And especially discerning those things that are gonna happen upfront versus those things like, yeah, it's a problem, but it'll be a high quality problem down the line. We'll keep our eye on it. But like, let's not worry about that today. And so oftentimes these kind of cold start problems of like getting the first adopters, getting the first success stories, actually running water through the pipes, that tends to be, you know, a version of the cold start problem that you have to do and why you have to focus so intently on getting your first customers, your first implementations, learning from them, making success, and then figure out like, okay, now the scaling playbook maybe comes into play here and everything, but there's at least three stages to a concept. And what you're pointing out is like, you gotta focus on the right problem at the right time in those different stages of a situation.

27:37Bill Gallagher: Yeah. And there will be, as we go through—

27:42Bill Gallagher: Unforeseen things, things that nobody anticipated that you did not expect that you weren't even looking there. And they can be crippling kinds of things. And so you will encounter things that you have to deal with down the road, inevitably, right?

27:57John Rossman: Yeah. And that's one of the advantages of thinking through these things a bit more upfront is you can maybe spot some of these things. Maybe it's a contractual issue or a liability issue, or how you frame your contracts that you can kind of identify upfront and keep an eye on those things and structurally not paint yourself into a corner.

28:24Bill Gallagher: You know, I remember we worked on a new product launch and then we did it and we got the first million dollar order and then we expanded it. We spent a lot of time thinking about it and I challenged my team. I'm like, I know you designed it to work, but did you think about what could go wrong? And I pushed back on them in this regard. And then we did our first million dollar day, and that was amazing. We went on to do a million dollar hour on QVC actually, later. But we did our million dollar day and it was really exciting. And then we started, we more than doubled retail footprint that we had and the doors that we were in and that kind of thing. So then we needed new fixtures and we sourced things from China after. And then a funny thing happened. An obscure adhesive from a new supplier in China went into all of the stores and created issues with our product across the board. And we didn't even know where it was coming from. We didn't know it was an adhesive coming from them in that way. And we started looking all over for where is this? Months went by that impacted ourselves. That's an unpredictable kind of a crisis, right? And now we had to deal with it after the fact and recover from it. Like, you will, like, we thought of a lot of things there. And then something happens that, you know, you'll have a flood or a recession or, like, whatever. Right?

30:01John Rossman: Well, I mean, that's why picking your partners carefully is important and everything. Right? And, you know, low cost isn't always the best metric for a key dependency really, which in this case sounds like it was an adhesive, right?

30:09Bill Gallagher: It was an adhesive. And we actually picked pretty carefully. I always was like, I wanna work with people that I feel like have good gut for, that I visited their factories, that I, you know, that kind of thing and feel good about. And they were well intentioned. They just didn't know they changed some supplier at some point on something, and they didn't know the adhesive had a gross effect. And oh my God, it was a huge, huge impact. It was real, you know. So talk to us about enterprise services.

30:48John Rossman: Yeah, so I got to run two businesses at Amazon. So the marketplace business and then enterprise services. So enterprise services was we ran other large retailers, not just their website, but their branded fulfillment, branded customer service. So I had responsibility for target.com, Toys R Us, Marks and Spencer, Sears Canada, the nba.com, a platform of others. And nobody remembers this business, right? And the issue was structural in a couple of ways. First, smart customers were kinda looking at Amazon as like, aren't you kind of my future competitor here, you know, and everything? And Amazon, no doubt, was trying to learn these categories, learn these businesses, while leveraging the fixed costs of our business, fulfillment infrastructure largely, to run their pipeline through. And so it was kind of like, do you prioritize short term ease, let's outsource this business to Amazon, or long term capability building, we need to build it in house? And that was kind of the wicked choice that these retailers were making. If you look at Target, I don't think that they ever really recovered their .com business from outsourcing it to Amazon for the first, you know, about first ten years. Toys R Us, I mean, that's a great story of not understanding the details of contract and training your customers to go to Amazon to purchase toys. And they really seeded that toys business to Amazon inadvertently relative to it. I got to manage the lawsuit that Amazon and Toys R Us was in during this time. And the final segment was kind of a moot point because at that point, all the customers were coming directly to Amazon to search for toys. And that was the future of the business. So, you know, in business like that, you need to be very careful about when there's a shift, a fundamental shift, a new thing that may look very small today, you need to be careful about seeding that away to others because it's like, you know, they've got the expertise, this is a small thing. Think about Microsoft and their search business. They had a small local search business called Sidewalk in the mid-1990s. It couldn't compete with the P&Ls of their large products and everything. They didn't know how to incubate something. They weren't looking ahead and going, God, this could be a really interesting thing. They've paid billions of dollars trying to recover that, some sort of legitimacy in the search business, and they had it in house. And so those are examples of separating out big businesses from small businesses and that small businesses within big businesses. But you know, as Steve Jobs said, like ideas are really easy to squash, right? Like they are, those are just ideas. You need to really create an envelope, a different environment for those things to work in because they are fundamentally different than your at scale businesses.

Why enterprise services clients never recovered

34:18Bill Gallagher: You know, I think about that and I don't know a lot of the details, but as I hear it on the surface, I think it was fundamentally idiotic for Toys R Us and Target to outsource that work to Amazon. Right? They should have done the work and figured it out to do it on their own. And but I think about like nba.com and I think about other partners who aren't in the business of that. And I think, oh, it makes sense for them to go and outsource something.

34:48John Rossman: Well, I think that's, you know, it's easy to look backwards and make that call and everything. But at that point in time when e-commerce was less than 1% of your business and what's the wisdom, right? Which stick to your knitting and everything, right? And the ability to ride on somebody else's rails, like there's legitimate arguments for why that would be smart. What are the similar decisions that companies are making today that are akin to that type of decision? Well, guess what? What's everybody doing relative to AI, you know, and everything, right? Everybody is leveraging other people's infrastructure to get their AI capability going. Is this analogous in some ways to the situation?

35:39Bill Gallagher: Put a thin skin on something, why would anybody use you versus going direct and using Claude versus going direct and using chat? You put a, like a quick interface on something, probably not that useful. Yeah.

35:59John Rossman: So, you know, I think it's really easy to look backwards and identify that these were bad decisions. But I'm telling you, I worked with that senior Target team, picked extremely good operators, extremely good thinkers and intentful. Like they didn't wanna just build a brand for today, but they were building a brand forever and they lost it, you know, and everything, right? That happens in business.

36:28Bill Gallagher: Yeah. It's a fascinating thing to see. And it certainly is easier to look at it in the rearview mirror.

36:39John Rossman: Hindsight is great, right?

36:42Bill Gallagher: Yeah. But that is the type, can look forward and go, wait a minute, what are we doing now? Right?

36:49John Rossman: And that was just the point I was gonna make, which is those are the types of thought experiments that if you're looking at like, okay, here's the bet I'm making and you're really breaking it down. One of the best ways to study those is to find analogous…

37:03John Rossman: Historical reference points that like, oh, what can I learn from that Target story that applies to this? Does it apply to this at all? And what should I learn from it? But again, if you haven't drilled down into your concept, into your bet, and you haven't identified what the real risk is, then you can't go do that really precision, laser, cheap, fast thought experiment around what's the historical stories that I should learn from. So we have a chapter around other people's thinking and how to leverage other people's thinking and approaches to help dissect how you should proceed in your case today.

37:44Bill Gallagher: Oh, that's interesting. Yeah, getting that expanded perspective, right? We think and look at the world from one particular thing, but everybody looks at it a little bit differently. The more brains you can leverage to a thing, the better off you are.

T-Mobile's fallback plan during Sprint acquisition

38:06Bill Gallagher: Tell us a story about T-Mobile.

38:09John Rossman: Yeah, so in 2018 I got a funny call from the strategy team up at T-Mobile, Jeremy Malkowski and Kevin McCaffrey. They're like, hey John, we were living in California at the time, come on up. We're located in Bellevue, Washington. Okay, I know where T-Mobile is. I used to live in Bellevue. I live there now and everything. And T-Mobile is a fairly simplistic business, right? It is literally a pipe business. They would refer to it as a dumb pipe business. They knew that they needed to build a test and experiment approach to building new businesses beyond the core infrastructure business. Kevin McCaffrey was going to be the leader of that new business incubation. And I got invited to be an advisor to them for over three years in building an approach to think through ideas and test ideas just as we're talking about today. And we had a lot of fun, a lot of success. They had an alternate big bet going on at the same time, which was the Sprint acquisition, which is a whole story. But we gave them a portfolio of concepts that were at various places along the pipeline that was really an alternative if the Sprint acquisition didn't go through, which if you remember is the longest due diligence that ever went on for a corporate acquisition, took over eighteen months for it to get approved. They needed to have a fallback plan, and we were really the fallback plan relative to that acquisition going through, which was approved.

39:49John Rossman: And so fast forward a couple of years ago, we're in the heat of the pandemic. I'm kind of like, hey, what's the next best story that needs to be told out there? And I developed this concept around big bet leadership and how do you get established companies to recognize the need to take risk-calibrated investments and bold moves in new business lines. And I was like, well, that's the story we wrote at T-Mobile. So I called Kevin, who at that point was running the strategy team in the Google Ads business, and I pitched him on this concept and he was like, I've been waiting for you to do this. And so I talked to Kevin, so he's the co-author of Big Bet Leadership and we work together today to help enterprises think through their portfolio of things they could do to solve wicked problems in their business. That's what Big Bet Leadership is for. And it was a really fun book, fun project, and I'm very, very proud of it because it gives senior leaders, not mid-managers, not individual contributors, it gives senior leaders an explicit playbook of what do they need to do differently in their job to lead these innovation-style, these small ideas types of initiatives that is different than their at-scale businesses.

41:09Bill Gallagher: It's a fascinating thing to think about how all of these go through changes. And like personally to have been connected to a few of them, I was a senior person at Sprint before it was a wireless business in the late eighties and early nineties, right? And in that day it was a long distance business.

41:29John Rossman: Long distance business then?

41:30Bill Gallagher: Long distance, domestic and international. I worked on the international stuff. And at that time we had three companies, AT&T, MCI and Sprint, right? And Sprint was definitely the third player of the three, but innovative in network and in branding and put a lot of money into the brand, right, in building the brand and trying to create something that was leverageable. And MCI was really known as the money saving alternative, the scrappy upstart to AT&T. Now none of those brands really matters anymore.

42:16John Rossman: Yeah. So what's the macro lesson out of this? Which is companies have a fairly short lifespan, right? There's only a few companies that really have a playbook for how do you continually reinvent this, right? So what's going on at Amazon and Microsoft right now, you'll hear about all these layoffs that are going on and it's being blamed on AI. This is not about AI. AI is a tool that's maybe helping them execute, but what Andy Jassy and Satya Nadella are worried about, they're worried about their companies slowing down and becoming a historical footnote, because this is what happens to companies. They come and they go. And so they are trying to get back to a lower bureaucracy, faster moving, higher accountable. You know, Jassy talks about wanting to be the world's largest startup. What he means by that is having hundreds of startups that are loosely coordinated within Amazon. And so this concept of highly aligned, loosely coupled organizations is a really important concept in the future management science here. That's what all of this is about, is these healthy companies recognizing this historical mandate, which is companies are going to fail if you don't keep investing in future businesses. If all you do is optimize today's portfolio of businesses, it's just a question of when.

Companies fail when they optimize only today's business

43:45Bill Gallagher: You know, that's a really interesting thing to think about. Google's business right now is really threatened by AI in a huge way. People increasingly are using AI and now they're bringing in AI to their search results and trying. What's so ironic is they invented the core technique.

44:06John Rossman: That all of this AI is driven off of, right? And so it's another story of kind of like the innovator's dilemma, which is, well, we invented it, we can't necessarily go to market with it, somebody else did, now they're being forced to do that. I'm pretty optimistic about Google's play relative to this, but to your point, like, man, you know, talk about a company, the world's best business model ever that three years ago had no scent of competition. Their biggest challenge was government interference, right? Now there are actual threats and lively competitors in the business. I think it's good for all of us to have this type of situation, and it'll be interesting to see how it plays out.

45:01Bill Gallagher: Mid-nineties, I'm in a meeting of some institutional investors and hedge fund managers in San Francisco. And somebody asked me, and I had a couple of software companies in those days and somebody asked me and they're like, okay, well, what do you think about Yahoo versus Google? Now this is before what happened, but Yahoo is still important, still the dominant player. Google was just kind of new in those days. And I said, listen, Yahoo's got the traffic and the brand. Google has an innovation here that's relevant and important, but Yahoo could just copy this and they'll be fine. Of course, they didn't, and they didn't focus and they didn't do any of it. And they just kept trying to do the thing they always did. And now who cares about Yahoo anymore, right? It's virtually worthless by comparison to Google. And now the new thing, I thought that Microsoft was fast heading to irrelevance. And then they started investing in AI and they started with some new leadership and the bombastic—

46:20Bill Gallagher: Former leaders kind of went away, and some more thoughtful leadership came to bear. And now I'm like, oh, you better pay attention to Microsoft today.

46:30John Rossman: Oh, I mean, they've got an extremely dynamic, healthy business. And Satya has really turned that culture from a know-it-all culture to a learn-it-all culture. And they're much more humble. And this is what's driving, you know, the layoffs at Microsoft. It's certainly not because they need to do it from a cost standpoint. No, he is debureaucratizing that organization and trying to invest in the future. That's what's behind it. Whether the moves will be successful or not, whether these are the right moves, you know, I don't have enough insight relative to that, but that's the motivation behind it.

47:15Bill Gallagher: Clearly there is something happened there. Let's talk about pulling it all together. The Pig and the Lipstick is kind of our—this is your book where you try to wrap things together and tell some of your story. Talk to us about that and that's kind of where we'll pull it all together.

47:31John Rossman: Yeah. So The Pig, the Lipstick, and the Playbook of Champions—Kevin McCaffrey pointed out to me about six months ago. He goes, John, like your operating style and all of your principles, your combined work is really the fix for the ailment that ails these companies, which is complacency and the acceptance of mediocrity. So I published—it's a free book, it's a free download. If you just Google The Pig, Lipstick, and the Playbook of Champions, you can get to it. But it is really like the enemy of successful companies is mediocrity and complacency. And the Playbook of Champions is the solution relative to that. It's no big surprise, but it's a really tactical playbook to do it, which is it's around creating mission, it's around creating world-class processes, and it's about allocating enough time and resources to inventing the businesses of the future. That's the playbook that we've been talking about here today. And I also kind of tell a little bit of my personal story and what's gotten me here today. I kind of, I tell the story—it's like, I was the fourth of four. My dad worked for the State Highway Department of Oregon. The extent of their ambitions for me was to work for the State Highway Department of Oregon. I was voted most likely to be a truck driver by my graduating class. No offense to truck drivers, but that was not meant as a compliment to me and everything. And it was really through some coaches and teachers that I had in high school that I started to like, oh, like, I got some juice, there's more to this. And I started seeing other models of success. And really my whole career has been about to some degree rewiring my own internal expectations about myself and striving, having ambition to do more. And that's what I think is fundamentally ailing so many companies and teams is that they don't have enough ambition. You gotta front-load the ambition. You should strive to be great. And then doing all these things becomes a lot easier. But if you don't have the ambition, it's really hard to make the tough decisions and to do the work that's required to have the opportunity to have these championship moments.

50:04Bill Gallagher: You know, out of all of the thousands and thousands of people that listen to our show, that come to a talk or a workshop that I encounter through the year. And I'm in, I don't know, 15 cities every quarter. I'm in more than 50 a year. I encounter all kinds of people and they're all kind of flirting with stuff, but the number of people that actually step up and say, you know what, tell me what I'm missing. You know what, tell me how the companies that have hit a billion that you've worked with, what did they do that I'm not doing? The number of people that step forward is really, really small. And I know that if you're listening, if you're watching, that you're already thinking that. Put your hand up, get some help, stop trying to do it all alone. Stop playing a small game. I know you're hungry for a little more. You wouldn't be in my audience. Right? So make a comment on LinkedIn and tag me in it. Send me a DM. I'll talk to you about it. I'll connect you to other people. We'll put you in a group or some other thing with some similarly ambitious people and we'll start to get you doing. So stop holding back. I think that's a brilliant place to go. If you want to get in touch with John, let's put his—there you go. JohnRossman.com. That's where to go and find—or find me on LinkedIn. It's really easy. Find him on LinkedIn there too. Lots more to do. Obviously, I love our conversation today. I hope folks got as much out of it as I did. I really enjoyed it. We could have gone and chased some more threads there that we didn't and talked for a lot longer, but better keep this a reasonable amount of time for our audience and what they expect. Thanks again, everyone, for watching, for listening. If you'd like to do something, just send me a note on LinkedIn or send me a DM or a comment, or you can go to sign up for one of our workshops. We do a workshop every month. ScalingCoach.com is where you get that. Big thanks to my friend and mentor, Verne Harnish, made the whole Scaling Up, pulled it all together, the Scaling Up framework and wrote the book and that kind of thing. And to Wanda and Anna who get our show produced, and prepped and all that stuff every week, in and out. We'll talk to you again. Keep scaling.

52:33Bill Gallagher: Thanks for listening today. One last thing. If anything in this episode hit home, my book digs into it further. Busy Is Broken. Do Less. Scale More. It's all about how to stop drowning in work and build a business and a team that scales without you. Available right now with content samples at busyisbroken.com. Go grab it. Be less busy.