In Corporate America and the Gig Economy (Part 1, Part 2 and Part 3) I outlined at a very high level the Good, the Bad, and the Ugly of Corporate America and how that is and will impact the Gig Economy. I used the following categories to do discuss these corporate elements: The Entrepreneur Spirit, Infinite Growth = Infinite Profits, Job Creation, The Cold Sweeping Hand, Infinite Profits > Life, and The Race to the Bottom. Amazon, Whole Foods and the Gig Economy (Part 1) was the prelude to The Entrepreneur Spirit. Part 2 will explore how it unfolded for Jeff Bezos as the creation of Amazon. I will be mostly referencing 4 separate YouTube videos that in essence will describe his Entrepreneur Spirit using his own words.
QUOTE NOTE: Many times during interviews or speeches given by Jeff Bezos he will change direction in mid sentence. This indicates his talk is not scripted and more a flow of consiousness but when using them as a quote they can be a tad difficult to follow without listening to the interview/speech in its entirety. I have cleaned these up a bit including avoiding various “ums” and “uhs” in order to make these quotes more consistent and easy to follow.
Amazon: From Book Seller to The Everything Store (Part 2)
The Entrepreneur Spirit of Jeff Bezos
Part 1 contains a reference to a summer education camp he and his girlfriend created called DREAM Institute which was an acronym for Directed REAsoning Methods designed for 4th through 6th graders with required reading of several books for a fee. This has all of the basic elements of “entrepreneur” of coming up with an idea that fulfills a need yet throughout my research from articles to actual interviews he never mentions this endeavor when referencing his first ideas of starting a business aka becoming an entrepreneur. His first ideas of starting a company first occurred to him in college; “I don’t really remember the exact day or anything but when I was in college is when I started thinking about wanting to be an entrepreneur someday. I was not the kid with the lemonade stand. I wasn’t one of these kids who was always trying to raise money. I always wanted to be a scientist when I was little…I also always loved computers…Somewhere in college I started watching some of the people who were setting up college pizza delivery services, the kind of core entrepreneurs and thinking this looks like a really fun thing to do.” (How to Start Up a Business) He ultimately decided that it would be smarter to wait and learn a little bit more about business and the way the world works. That led to his first job after college to work for a startup company using his technical skills that led to other work that was at the intersection of computers and finance with his final role at D.E. Shaw programming computers to make stock trades as detailed in Part 1. All of these experiences ended creating the foundation of what would eventually become Amazon. It was during this time at D.E, Shaw that he came across the information that the web was growing at 2300% and that’s what eventually led to the creation of Amazon. (Exclusive Interview) “The wakeup call that led to starting amazon.com was finding that web usage in the spring of 1994 was growing at 2300% a year and things just do not grow that fast. It’s a very, very unusual growth rate. You could tell anecdotally even though there wasn’t good research on this at the time, the baseline of usage wasn’t trivial. So something with a non-trivial baseline growing at 2300% a year is clearly going to be everywhere tomorrow.” (Amazing Amazon Story) This sparked that college era idea of starting a company igniting his Entrepreneurial Spirit including the best way to begin to map out how to take advantage of this massive growth potential. Many may think that starting out as a bookseller was his original intention yet it was actually a more calculated thought process. His original intention was to eventually be able to sell everything but he needed a place to start that was cost effective. So he made a list of viable products using the Mail Order Business as a common starting point. “The list was built by looking at mail order sales. When I got the original list it was sorted in order of size by mail order. For example, apparel is a very large mail order category so apparel was near the top of the list. The things that ended up near the top of the list were books, is number one, obviously, music, videos, computer software, computer hardware, those were the kind of things that force ranked list.” (Amazing Amazon Story) Anyone starting a business will tell you that you also need a Business Plan in order to map out those ideas coherently. “So the question was what kind of business plan would make sense in the context of that growth. I made a list of 20 different products looking for the first best product to sell online. Came up with books for a bunch of reasons but primarily because books are very unusual in one respect is that there are more of them that there are products of any other category. So there are literally millions of different books in print at any given time.” (Amazing Amazon Story)
He then approached his boss about his crazy idea; “I went to my boss and said to him I’m going to go and do this crazy thing. I’m going to start this company selling books online. This is something that I had already been talking to him about in a sort of more general context. He said “Let’s go on a walk.” We went on a 2 hour walk in Central Park in New York City. The conclusion of that was “this actually sounds like a really good idea to me but it sounds like it would be a better idea for somebody who didn’t already have a good job”. He convinced me to think about it for 48 hours before making a final decision. I went away and was trying to find the right framework in which to make that kind of big decision. I had already talked to my wife about this and she was very supportive so it really was a decision I had to make for myself. The framework I found which made the decision incredibly easy was what I call, which only a nerd would call, a regret minimization framework. So I wanted to project myself forward to age 80. Now I’m looking back on my life. I want to have minimized the number of regrets I have. I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the internet that I thought was going to be a really big deal. I knew that if I failed, I wouldn’t regret that but I knew the one thing I might regret is not ever having tried and I knew that would haunt me every day. When I thought about it that way it was an incredibly easy decision. If you can project yourself out to age 80 and think what will I think at that time it gets you away from some of the daily pieces of confusion.” (Exclusive Interview) One element of the Entrepreneurial Spirit is having a vision so passionate that nothing will stop you including any ensuing personal or monetary sacrifices yet his minimization framework also came in handy; “I left this Wall Street firm in the middle of the year. When you do that you walk away from your annual bonus so that’s the kind of thing in the short term can confuse you but if you think about the long term then you can really make good life decisions that you won’t regret later.” (Exclusive Interview)
After leaving his VP role he decided to move to Seattle, Washington and during the drive he continued to work on the company’s business plan that culminated on July 5, 1994 as the corporation called Cadabra; what?!? Not Amazon?!? Not yet at least besides, he was about to create Internet Magic so what a wonderful name!! “It was called Cadabra, Inc. as in Abra Cadabra that was the original name of the company. I had phoned a lawyer on the way to Seattle from a cell phone to incorporate the company. He said what do you want the company to be called and said Cadabra and he said cadaver? I knew that was a bad name. We changed it a few months later.” (Amazing Amazon Story) His next choice was Relentless.com which was registered in September of 1994 yet many of his friends said it sounded too sinister but he liked it so much that it continues to exist to this day; check it in your browser and see for yourself. If nothing else it truly does describe both his temperament and business model to this day. He then settled on the name of the largest river in the world, The Amazon River. Exotic and different was his perception of this river; a perfect reflection of his vision and amazon.com was officially born.
Another crucial element of implementing these big business plans was financing. The original financing came from his parents retirement savings; “My parents were the original funders of amazon.com. The invested about $300K which was a reasonably large fraction of their life savings. My dad’s first question was “What’s the internet?” so they were not betting on the concept or the idea, they were betting on their son. I told them that I thought there was a 70% chance they would lost their entire investment. That was an important disclosure because I wanted to be able to go home for Thanksgiving dinner no matter what happened. I was giving myself triple the normal odds. Startup companies are very tricky things. Fewer than 10% of them actually go on to make any return on investment at all. I was giving myself a 30% chance; wildly over confident.” He later raised an additional $1 Million from 20 Angel Investors. (Amazing Amazon Story)
Amazon was officially online and ready for business on July 15, 1995 in a 400 sq ft warehouse with absolutely no idea if this was going to be a success. “When we launched that store in July of 1995 we were shocked at the customer response. Literally in the first 30 days we had orders from all 50 states and 45 different countries. We were woefully unprepared from an operational point of view to handle that kind of volume. We quickly expanded into a 2000 sq ft basement warehouse space with 6ft ceilings.” (Amazing Amazon Story) That activity on “the servers that the company used required so much power that Bezos and his wife couldn’t run a hair dryer or a vacuum in the house without blowing a fuse.” (Business Insider) “Books were packed on a table made out of an extra door they found lying in the new home”. (Time) His Business model required little inventory; “Computers are good at organizing such large selections of products. You could build something online that literally couldn’t be built any other way. You couldn’t have a physical world bookstore or a paper catalog with millions of different books.” (Amazing Amazon Story) “We could have more selection. We could also have lower prices cuz we don’t have to have retail real estate in high traffic areas that’s very expensive. Inventorying books in those spaces is very expensive. We get to inventory our books in very low cost warehouse space. It’s also possible to have more information online about products than you could ever have in a physical shopping environment.” (How to Start Up a Business) He used UPS to ship the orders waiting until the very last minute before they closed knocking on the door to let him in. (Amazing Amazon Story) One of the elements that are required for entrepreneurs is scalability and sometimes in order to do that you have to do what Seth Godin refers to as “breaking the system” which means finding the things that weigh it down from being scalable. He overcame the first one early on where he had to have a minimum order of 10 books per order from the supplier yet that could easily result with overstock in his garage. The resolution was an obscure book on lichens that was always out of stock. He didn’t have to receive the 10 books, only place an order for them so this book became the way he fulfilled that obligation always getting what he needed without extras in the interim. (Business Insider)
That early success was eventually met with a string of failures as happens to all businesses at some time including not making a profit for long periods of time. He used his financing dollars to mitigate these risks; “What startup companies do is that they take their precious early capital dollars and systematically eliminate risk.” (How to Start Up a Business) Yet it’s his “relentless” pursuit of his vision to sell everything online “breaking the system” as often as it takes that has eventually resulted in what we see today.
Now that I’ve fully covered every aspect of his Entrepreneur Spirit, Part 3 will go into his unique use of Infinite Growth = Infinite Profits and why his approach to profits comes second to the growth of Amazon which has caused investors concern even to this day. Stay tuned…