From the Archives: Jeff Bezos
Sooner or later, there develops some sort of founding myth for every company. Amazon.com’s just happens to be true. More or less.
The myth goes this way: In 1994, at age 30, Jeff Bezos came across a report projecting annual Web growth at 2,300 percent. To a Princeton graduate in electrical engineering and computer science, “that was a huge wake-up call.” So, three months later he walked away from being the youngest senior vice president of D.E. Shaw, a Wall Street hedge-fund firm, and set out west in an aging Chevy Blazer with his wife, MacKenzie, driving and their golden Labrador in the back. By the time they reached Seattle, he’d written the initial draft of a business plan on his laptop, retained a lawyer by cell phone, and started the search for a vice president of development. Five days later they moved into a rented house in the suburb of Bellevue, set up shop in the garage, and voila! Amazon.com, the online retailer that bills itself as Earth’s Biggest Bookstore, was born.
Breaking with the Past
It seems so obvious four years later, now that Amazon.com is the universal model for successful Internet retailing (a.k.a. “e-tailing”), its soaring share price lifting 41 percent owner Bezos to within spitting distance of an estimated billion-dollar net worth. But there’s a lot more to the story, as you find out when you talk with Bezos in his office in downtown Seattle, where shirtsleeves and jeans or khakis are considered office dress, two-by-fours support old doors as tables, and top executives have futon couches.
What possessed him to give up assured success and security and go out on the limb in an entirely new and untested field?
“I call it a regret-minimalization frameworks,” he says, following the phrase immediately with the rolling, infectious laugh that is his hallmark. “I projected myself into my 80s and asked what regrets I had about my life. And I realized that, at 80, I probably wouldn’t even remember all the things that seemed so important right then, like forgoing the end-of-year Wall Street bonus. But I would definitely remember that I’d ignored the emergence of the Internet just as it was happening and tell myself I’d been a fool.”
The Move West
“I’ve always been interested in the juxtaposition of computers and x, where x is anything that can be revolutionized by computing,” he continues, “and I wanted to see if there was a business opportunity in this. That meant moving on it.”
Okay, but why move so fast?
“That figure of 2,300 percent,” he says. “That’s huge. Nothing usually grows that fast outside a petri dish. With that kind of growth rate, a sense of urgency becomes your most valuable asset.”
Nobody can accuse Jeff Bezos of lacking a sense of urgency. His last day of work at D.E. Shaw was June 30, 1994. By July 5 he was in Seattle.
Of course it was all far more complex than that. What the myth leaves out is hard work. In the three preceding months Bezos had drawn up a list of 20 products that could be sold on the Net, from clothing to gardening tools, then thoroughly researched his top five: CDS, videos, computer hardware, computer software and books.
“I used a whole bunch of criteria to evaluate the potential of each product, but among the main criteria was the size of the relative markets. Books, I found out, were an $82 billion market worldwide. The price point was another major criterion: I wanted a low-priced product. I reasoned that since this was the first purchase many people would make online, it had to be non-threatening in size. A third criterion was the range of choice: there were 3 million items in the book category and only a tenth of that in CDs, for example. This was important because the wider the choice, the more the organizing and selection capabilities of the computer could be put to good use.”
By the time Moishe’s Moving System had taken all the Bezoses’ belongings and stacked them in the moving van, he knew what he wanted to sell and how. He just didn’t know from where. He’d narrowed the choice down to Portland, Ore., the Nevada side of Lake Tahoe, Boulder, Colo., and Seattle. He was looking for a state with a favorable sales-tax climate, a large high-tech workforce, and proximity to a major book-distributor center. Since all four candidates were in the same general direction from New York, he told Moishe’s to head west and call him on his cell phone the next day. Halfway across the country, he decided.
Tinkering in the Garage
That mid-country decision as to location is part of the myth. The following year is not. That was the year when only a handful of people had even heard of Amazon.com; the year before it opened for business in July 1995 out of Bezos’s garage; the year Bezos and his wife and three others spent working full time on relationships with shippers and wholesalers and on fundraising but, above all, on software development: “That was the long pull, the software development.”
In the first few weeks they were open for business, Bezos would just put the packages in the back if the Blazer and drive them to the post office himself. Now, four years later, huge post office semis arrive at his warehouse to be filled up each day. And the company is rocketing in size, posting growth rates of as much as 74 percent by the quarter.
Was it simply a matter of the right idea at the right time? Bezos’s answer is unexpected: Only marginally. “I think ideas are easy,” he says. “It’s execution that’s hard. If you and I were to sit here for an hour and scribble on this chalkboard on the wall, we could come up worth a hundred good ideas. The hard part is making them work, and there are several key components in that.”
4 Keys to Success
“First,” he says, “there’s research – thoroughly evaluating the market. Then, and this is probably the biggest single component, there’s bringing together a talented and diverse group of people. That is absolutely key. You attract them by giving them the opportunity to build something important, to improve customers’ lives, and to change the world in some fundamental way. Great people should also be owners, and they are, through our generous stock-option incentives.
“A third key component is prioritization. Once you have the big vision, you’ll see that within it there are hundreds of smaller ones, and you need the ability to do brutal triage, to be able to say, ‘No, we don’t do this, that, and that; we’re going to focus exclusively on these three things.’
“Fourth, and also key – its all key! – is consistently articulating the vision of what is to be achieved. You can have the best people, but if they’re not all moving toward the same vision, it’s not going to work.”
His current vision? “Our job is to accelerate access to things that inspire, educate and entertain.”
Yes, the company recently announced its decision to expand its selection of videos and CDs, as well as a push to increase its overseas presence with the purchase of three European firms: the United Kingdom’s Bookpages Ltd and Internet Movie Database and Germany’s ABC Telebook Inc. “Visions do change over time,” explains Bezos. “They expand. And while consistency is important, it’s equally important to remember that this is a dynamic marketplace and you have to evolve.”
Especially once you have competition, as Amzon.com now does. Giant bookseller Barnes & Noble opened up its online store in May last year, leading analysts to predict that Amazon.com would soon be, according to one quip that clearly still rankles Bezos, “Amazon.toast.” In fact, says Bezos, “the gap increased rather than decreased. We went from $60 million annualized sales revenue in May to $260 million by the end of the year, and from 340,000 customers to 1.5 million, 58 percent of them repeat customers – all that in the context of ‘Amazon.toast.’ We’re doing more than eight times the sales of Barnes & Noble. And we’re not a stationary target. We were blessed with a two-year head start, and our goal is to increase that gap.”
How do you do that against the largest physical retailer in the business? “There’s only one way. It’s very simple but very hard to execute. That is to figure out exactly what it is your customers want and then deliver it better. We know our customers want selection, ease of use, convenience and good pricing, so we’re making sure we offer them the best of all those.”
The Harvest to Come
And how about that little matter of profit? Amazon.com is a runaway success. It made headlines by going public in May 1997, less than two years after starting operations, at $18 a share. Eleven months later it was trading at nearly $100 a share, and the company announced a jump to 2.26 million customers and a two-for-one stock split – but it has yet to turn a profit. In 1997 it lost $27.6 million on $147.8 million in sales and continued its initial strategy of spending heavily on advertising.
Bezos is unapologetic about the lack of profit. “We’re focusing on introducing ourselves to customers. To do anything else right now would be a very poor management decision. It’s not at all unusual for a 4-year-old company to be in an investment cycle rather than a harvest cycle. What is unusual is for such companies to be publicly traded, but even that’s not unique. Biotechnology companies have operated in this mode all along, and public markets have supported that strategy. And I think they’ve supported us because the Internet has created an opportunity for companies to build brand names far more quickly than has been historically possible, which means that everything else happens far more quickly, too.”
Thus, Bezos’s response comes as a surprise when I ask him what book has been the most influential for him. I expect a business book of one sort or another. Instead, he cites a downright old-fashioned novel: The Remains of the Day, by Kazuo Ishiguro. “Before reading it, I didn’t think a perfect novel was possible. I’m always interested in things that seem to be impossible but are then achieved. Like when you got to see the Cirque du Soleil. It seems it should be impossible for human bodies to do such things, yet they do them elegantly and beautifully and seemingly effortlessly. Or when you watch a master juggler doing things with a ball that you could have sworn were against the laws of physics if you hadn’t seen them with your own eyes. I am entranced by that: the idea of the impossible achieved.”
Is there a parallel to be found there with Amazon.com? “No, I don’t think so,” he says with possibly just a touch of false modesty. “What we’re doing here is unusual but nowhere in the same league as impossible.”
A high-wire act, then?
He shrugs. “High wire has never seemed impossible to me.”
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