June 28, 2017 by Speakers' Spotlight
Amazon, Whole Foods, and the Future of the (Old) New Economy
Bill Taylor has encouraged a generation of executives and company-builders to think differently about change, leadership, and the new world of work. A spirited and hard-charging entrepreneur, Bill co-founded Fast Company, easily the most influential voice on business and innovation in the last two decades. Fast Company chronicles the revolution in management and competition driven by technology, and profiles the mavericks and rule breakers who achieve outsize success by taking a different path. In less than six years, a magazine that took shape in borrowed office space in Harvard Square sold for $340 million. In this article for HBR, Bill comments on the recent sale of Whole Foods to Amazon, and what it means in the big picture:
I heard the news today, oh boy — Amazon is buying Whole Foods Market in a deal worth nearly $14 billion. The combination of these iconic companies, both of which have come of age in the last two decades, raises obvious questions. Does the transaction reflect how hard it’s been for Whole Foods to keep Wall Street satisfied with its growth and profits? (It does.) Does the deal underscore just how expansive a vision Jeff Bezos has for Amazon, his dream of it becoming the “everything store”? (No doubt.)
To me, though, the much more profound question, both substantively and symbolically, is what the deal says about the future of an approach to business, branding, and organizational culture that Whole Foods and Amazon have come to represent. In a nutshell, does this deal signal the beginning of the end for the so-called new economy, or is it more like the end of the beginning? Is it a sign of strength for those of us who believe there are smarter, saner, more sustainable ways to create economic value and build organizations based on humane values, or is it a warning sign? What lessons can we draw about what it takes to turn progressive ideas about business strategy and practices into enduring businesses?
Before I turn to those questions, please allow me one moment of personal privilege. As soon as news of the Amazon–Whole Foods deal crossed my Twitter feed, I dove into the archives of Fast Company, the magazine I cofounded with Alan Webber after both of us had served at HBR. In one of our very first issues, back in 1996, we did a deep dive into a strange, offbeat, little-known grocery operation based in Austin, Texas. We respected its commitment to organic food, we chuckled at its hippie sensibilities, but we marveled at its business principles. “Whole Foods Market, Inc. is the largest natural-foods grocer in the United States,” we told our readers. “It is also one of the business world’s most radical experiments in democratic capitalism. Plenty of companies talk the talk of empowerment, autonomy, and teamwork. This company has spent 16 years turning those (often empty) slogans into a powerful — and highly profitable — business model.”
Meanwhile, just a few issues later, I personally conducted an interview with a hard-charging entrepreneur who had left his comfortable perch in New York City to set up an internet-based bookstore in Seattle. I met Jeff Bezos at one of the first e-commerce conferences ever organized, sat by him at lunch, and within minutes knew I had to hit the “record” button on my cassette recorder. (I told you this was a while ago.) Bezos was anything but a household name back then, and “Amazon” was mainly known as a big river in South America, but I sensed how far-reaching and disruptive his vision was. “Bezos’s outfit is no empire,” I told my readers, “but its influence far exceeds its size.”
Today, more than two decades later, we are left to make sense of a business transaction whose influence, I believe, will far exceed its size. Here, then, are my big takeaways on Amazon, Whole Foods, and the future of the new economy.
With great disruption comes great responsibility, especially when it comes to Wall Street. Over the last 20 years I’ve marveled at how Whole Foods has managed to grow so big, win over millions of customers to its point of view on nutrition and sustainable food, and still maintain its high-service, high-engagement, democratic culture. The one piece of the long-term puzzle that Whole Foods never quite solved, though, was its relationship with Wall Street. Sure, for many years it was the ultimate growth stock, as it entered new cities and conquered new markets. But John Mackey, the company’s cofounder and CEO, never quite lived up to what Wall Street expects from a CEO. He was erratic, like when he got caught talking up the stock in finance-oriented chat rooms. He was recklessly provocative, like when he compared Obamacare to fascism. So when the company’s business performance started to stall, Mackey didn’t get the benefit of the doubt. Being a publicly traded company, especially one that wants to change the game in its industry, means being willing to act like an adult, something I’m not sure Mackey ever wanted to do. It’s like Bob Dylan wrote: “To live outside the law, you must be honest.” That’s a lesson for innovators everywhere, especially those who aspire to lead public companies. Amazon can now provide the adult supervision that Whole Foods needs.
Success sows the seeds of its own undoing, unless you keep rethinking how you succeed. One of the truly important contributions made by Whole Foods is how, thanks to its remarkable growth and visibility, the organic and nutritional sensibilities it championed have penetrated every aspect of the economy and society. Other entrepreneurial companies, like Trader Joe’s, have developed their version of the Whole Foods message. The giant legacy grocery-store chains have dramatically elevated the quality of their products and presentation. Whole Foods truly did change the game in an entire industry — which changed the stakes for Whole Foods. That’s another big lesson: Turning breakthrough ideas into long-term success means continuing to refresh, renew, and rethink those ideas. I’m not sure this great innovator ever figured out how to respond to the waves of imitation it unleashed.
The logic of either-or competition has given way to the power of both-and competition. Whole Foods and Amazon are icons of the new economy, but they’ve always represented opposite ends of the strategic and customer-service spectrum. Whole Foods was about physical experiences — the color and smell of the produce, the tattoos and body piercings of the employees — and the high prices you paid for that experience. Amazon was about convenience, immediacy, one-click ordering, and the lowest prices imaginable. Now, Whole Foods has launched a line of smaller, lower-cost stores, called 365 by Whole Foods, with limited selection, fewer employees, and lots of automation. Meanwhile, Amazon is opening its own physical bookstores and expanding its commitment to brick-and-mortar business. The familiar trade-offs that used to define competition (high touch or low cost, digital or physical, even public company or private company) just don’t apply as starkly anymore. It’s another big lesson this big news highlights: We’ve gone from an economy of either-or to an economy of both-and.
Figuring this all out takes truly exceptional leadership. This may sound like an obvious point, but I’m not a big fan of the great-man or great-woman school of leadership. Yet as I think back to Apple’s renaissance under Steve Jobs, and as I look at the turmoil facing Uber under Travis Kalanick, it’s hard not to conclude that as the world gets reshaped by disruptive technologies and new business models, the patience, competence, and bandwidth of an individual CEO is still often the make-or-break factor in long-term performance and success. Perhaps stellar leadership is even more important in an environment like this than it was in a more stable environment. I don’t think many CEOs could pull off what Bezos aspires to do with Amazon: combine massive scale, huge scope, low prices, attention to customers, and a spirit of crisp execution and quick experimentation. But at this point it’s hard to doubt Bezos as a company builder, in the same way that it’s become hard to doubt Warren Buffett as an investor or Bill Gates as a philanthropist.
No matter how much we celebrate the power of ideas, finance, brands, and culture, it’s hard to deny that there is little that’s more powerful in business than an individual leader with a fierce drive to win and an open mind about how to do it. And that may be the most important lesson of all.