Strategy Letter I — Ben and Jerry’s vs. Amazon

Author: Joel Spolsky URL: https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-ben-and-jerrys-vs-amazon/ One-line: There are exactly two viable growth models — slow, organic and profitable, or capital-fuelled land grab — the choice is forced by the structure of your market rather than by taste, and the only genuinely fatal move is failing to pick one.

The argument

Written in May 2000, weeks after the dot-com peak, this is the first of Spolsky’s Strategy Letters and the one everything else in the series hangs off. His claim is that a founder has one decision that conditions every other decision: grow slowly, organically and profitably (the “Ben and Jerry’s” model), or raise enormous capital and get big fast without regard to profitability (the “Amazon” model).

What makes the essay durable is that Spolsky refuses to treat this as a values question. He gives a market test, not a temperament test. Get Big Fast only makes sense where there is no established competition and the business has genuine network effects or lock-in — because in that case the land grab creates a barrier to entry, and if you do not run it someone else will. In a market that already has entrenched competitors, the same spending is simply a fast way to destroy capital, because you are not claiming territory, you are trying to make customers switch.

He then works through the consequences of the choice as a series of paired trade-offs, and the interesting ones are the non-financial ones:

• Culture is a casualty of speed. Above roughly 100% annual headcount growth, mentorship cannot physically happen, so values cannot be transmitted. Spolsky’s example is Netscape going from 5 to about 2,000 programmers in a year. If your competitive advantage is a set of learned engineering practices, growing fast destroys the advantage you were growing to exploit.
• Money is a time-substitution technology, and that is the point. Executive suites at three times the cost, consultants instead of employees, above-market salaries — each is a bad deal on a spreadsheet and a good deal if the calendar is the binding constraint. A Get Big Fast company that refuses to make these trades is the failure mode he thinks is worst of all.
• Mistakes go unnoticed at speed. Amazon buying Junglee for roughly $180M and then shutting it down is his illustration: piles of cash make expensive errors invisible.
• Recruiting forces a choice too. “You can make a nice place to work, or you can promise people they’ll get rich quick.” An organic company cannot offer the lottery ticket, so it has to make the journey itself the compensation — real vacations, no permanent 80-hour weeks, managers who get out of the way.

His case study is Juno versus AOL: Juno’s management would not dilute shareholders to fund customer acquisition during the land rush, and never built chat or IM, so it never got what Spolsky calls “stealth lock-in” — the switching costs a customer does not notice accumulating. The outcome he reports is roughly 3 million users at $5.50/month against AOL’s 21 million at $17.

The closing move is the one worth keeping. The failure he singles out is not picking the wrong model; it is incoherence — deciding you must be an Amazon company and then behaving like a Ben and Jerry’s company while in denial about it, haggling over engineer salaries while the Christmas season slips a year.

Notable quotes

The worst thing you can do is fail to decide whether you’re going to be a Ben and Jerry’s company or an Amazon company.

The trouble with the Amazon model is that all anybody thinks about is Amazon. And there’s only one Amazon.

As a rule of thumb, you can make a nice place to work, or you can promise people they’ll get rich quick. But you have to do one of those, or you won’t be able to hire.

Archived text

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Connections

• Joel Spolsky — the author; he co-founded Fog Creek Software the same year, and later Stack Overflow, which is itself a Ben-and-Jerry’s-then-Amazon story.
• Blitzscaling — Reid Hoffman’s framework is the Amazon column of this table, formalised fifteen years later and given a doctrine. Spolsky got there first, and with a sharper market test for when it applies.
• Bootstrapping — the Ben and Jerry’s column. Spolsky’s version is unusual in arguing bootstrapping is not merely safer but strictly correct in markets with established competitors.
• Default Alive or Default Dead? — Paul Graham’s later question is the operational form of Spolsky’s choice: a company that has not decided which model it is running cannot answer it.
• Network Effects — the load-bearing variable. Spolsky’s screen is network effects plus lock-in plus no incumbent, and only that combination justifies the land grab.
• Amazon — the named archetype, chosen in 2000 when the model was still unproven.