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Brad Stone wrote The Everything Store and a couple other books. He’s written about technology for over 20 years for outlets like the New York Times and Newsweek. Today he’s a senior editor at Bloomberg News. This book was based on more than 300 interviews he did with people closely involved in Amazon’s growth.
Who hasn’t heard of Jeff Bezos? He’s been the richest person in the world for over 3 years. Bezos is an entrepreneur famous for creating Amazon.com, an online store that started by selling books, but now sells pretty much everything.
So how did Jeff become so successful? That’s exactly what we’ll explore in this note.
Let’s speed through a few basic fact about Jeff Bezos’s childhood mentioned in The Everything Store book:
Those who knew Jeff during high school say that even back then he was very competitive. He won many science and math awards. One day, he announced he would be the valedictorian, then worked like crazy to achieve it, beating several hundred other students.
In his valedictorian speech, aside from some Star Trek quotes, Jeff mentioned his dream was to create permanent human settlements in space. That must have sounded like an outrageously big goal for a random high schooler, but it was a clue to Bezos’s future. His high school girlfriend once told journalists:
“Whatever image he had of his own future, it always involved becoming wealthy,” Ursula Werner says. “There was no way to get what he wanted without it.” What exactly did he want? “The reason he’s earning so much money is to get to outer space.”
In 2005, Jeff Bezos began secretly buying huge areas of land in Texas. There he built a spaceport for his aerospace company Blue Origin. They also now have a headquarters south of Seattle. Bezos is spending $1 billion of his own money every year to fund the company. Blue Origin has received multiple grants from NASA. They’ve also designed reusable rockets that can return to Earth after a launch and land themselves.
Jeff’s childhood dreams of going to space were probably what kept him driven and motivated for so long growing Amazon.
So consider what big vision can drive your own motivation. A big goal can help us feel energized on a daily basis to work towards our dreams, even if we never reach them completely.
Jeff Bezos was born into a regular working class family, but he was a gifted student. Everyone knew he was obsessed with someday going to space, and today his space company Blue Origin is funded by his Amazon wealth.
Never chase the hot thing… you need to position yourself and wait for the wave.—Jeff Bezos
Jeff Bezos received early admission to Princeton and graduated in 1986 with a degree in electrical engineering and computer science. He worked on Wall Street for a few years at small financial companies.
In 1991, he arrived at the financial firm also known as D. E. Shaw & Co, or DESCO for short. This was not like most firms in New York. It was innovative, using computer algorithms to make money in global financial markets. On the inside, the company felt more like a startup. Employees dressed casually and came from a wide range of backgrounds including math and computer science, not only finance.
At DESCO, Bezos impressed people around him and quickly rose to leadership positions in the company. It was also here that he met his wife Mackenzie, working as an administrative assistant. They started dating and were married 6 months later.
In the early 1990s, the internet was just beginning to take off. Bezos was reading some specialized technology newsletters and keeping a close eye on it. The founder of DESCO also believed this global computer network would have a massive social impact. He and Bezos met a few hours every week to exchange ideas about it.
One of their early ideas was an online store where you could buy everything you wanted and read reviews from other customers. Jeff was so captivated by this idea of an “Everything Store” that he finally told everyone he was leaving to build a startup.
Think about that for a second. Many people (including Bezos himself) say that timing is a big part of success. But it wasn’t an accident that he started Amazon just as the internet was taking off. Jeff Bezos was proactively keeping a close eye on technology news so he could know what the next big thing would be.
By the way, another entrepreneur who changed the world chasing an idea was Phil Knight. To chase what he called “his crazy idea,” Phil flew to Japan and met with Japanese shoe company executives. He pretended to be a serious American businessman, but he was really just a kid fresh out of college. Then he spent years struggling to build his company from scratch, even selling shoes from the trunk of his car.
Phil wrote that, “Starting my own business was the only thing that made life’s other risks—marriage, Vegas, alligator wrestling—seem like sure things.” But in the end his risks paid off, because Phil is now the billionaire owner of Nike, the biggest sports clothing company in the world. If you want to read his inspirational entrepreneurial story, then read our full summary of Shoe Dog by Phil Knight.
In the early 1990, Bezos graduated from Princeton and began working at a small New York firm which combined finance and computer science. He saw hints the internet was taking off, so he left to start an “Everything Store.”
Jeff’s decision to start Amazon was obviously a great move in retrospect, but at the time most people thought he was crazy. His mom told him to start the business on the side and keep his high-paying financial career.
I’m sure most of us who have considered starting a business have been in this position. It feels scary. It might not work. We might lose money. We might fail.
So how did Jeff convince himself to take the big risk? He says he uses a “regret-minimization framework” to make decisions. Basically, it’s a way of thinking where you imagine what you’ll regret more at the end of your life.
When I’m 80, am I going to regret leaving Wall Street? No. Will I regret missing the beginning of the Internet? Yes.—Jeff Bezos
The self-help author Stephen Covey has this practical exercise to find what we really value in life. He says we should visualize our future funeral. (Yes, really!)
Imagine you are watching over your funeral and people are giving short speeches about the type of person you were. So… what would you like them to say about you? Spend a few minutes at least to write down your answer.
I believe this exercise can help us make the right decisions in life and “minimize regrets” like Bezos did. If you want to learn some more interesting self-help tips like this, then read our full summary of The 7 Habits of Highly Effective People by Stephen Covey.
So Jeff and Mackenzie Bezos packed up all their belongings and loaded them on trucks. Then they flew to Seattle at the other side of the country and began looking for a home.
Why Seattle? Sales tax reasons, actually. Online companies didn’t have to pay sales tax on out-of-state customers, so it made good business sense for them to avoid operating in the more populated states like California or New York.
In 1994 when Jeff decided to start Amazon, he was risking failure and giving up a great financial career. He took the leap by considering what he would regret most in the future, and that was missing out on the start of the internet.
Jeff Bezos believed that opening an online store that sold everything would be too difficult in the beginning. So he brainstormed a few different categories of products that Amazon could start with.
He decided books were the best starting point because:
Choosing a specific product category is also a smart marketing strategy. The branding experts Al Ries and Jack Trout say that “The essence of marketing is narrowing the focus. You become stronger when you reduce the scope of your operations. You can’t stand for something if you chase after everything.”
Many beginner entrepreneurs believe a wider net catches more customers, but this is usually false. A new business is more likely to gain traction with a narrow focus, which means targeting a particular segment of the market or offering a unique benefit the competitors don’t. For example, Fedex became successful by offering only overnight shipping and nothing else. To learn more great marketing insights like this, read our summary of The 22 Immutable Laws of Marketing by Al Ries & Jack Trout.
For the first few years of Amazon, the team’s day-to-day focus was only on selling more books. Yet once in a while Bezos’s real goals would slip out.
One employee who loved kayaking remembers Bezos telling him that in the future Amazon.com would sell not only books about kayaking, but everything related to it! Including kayaking magazines, vacations and paddles! At the time, they only had a small office with a few books in the basement, so this sounded impossibly ambitious!
In 1998, after a few years, Jeff selected Music CDs and Movie DVDs as the next major categories for Amazon because these were quite similar to books. These categories contained millions of unique items, massive back catalogs, and relatively uniform shipping sizes. Then after that, they expanded to toys and electronics. Then jewellery, clothes, tools and everything else.
Amazon started out only selling books. An online bookstore has a natural advantage over a physical store, being able to offer much greater selection. Later Amazon expanded to new categories one-by-one: music, DVDs, electronics, and more.
The first few months in Seattle, Amazon operated on a shoestring budget:
Mackenzie Bezos did their early accounting and finances. Shel Kaphan was their first employee, he designed the technical foundations of the website. Today anyone can set up an online store in minutes using apps like Shopify, but back then it was very difficult. Their first goal was to make a website better than already existing ones like Books.com, which was run by an Ohio bookstore.
Who could have known this small team in a Seattle garage was building something great? A business that would make Jeff the richest man on the planet?
“The whole thing seemed pretty iffy at that stage,” says Kaphan, who some consider an Amazon cofounder. “There wasn’t really anything except for a guy with a barking laugh building desks out of doors in his converted garage […] “
Amazon was financed with $10,000 of Jeff’s own money, and around $90,000 in loans. Jeff’s parents also invested $100,000 in the startup, even though Jeff seriously warned them there was a 70% chance they would lose all the money.
In early 1995, they shared the first version of the website with some family and friends. By today’s standards, it looked very rough and amateur. Their friends made a few purchases, and each new order would trigger a bell sound in their office. Everyone would rush over to see who made the order.
After a few months, they moved to a small office closer to downtown. Part of the basement in that building became their first warehouse. When someone ordered a book on the website, then Amazon would order the book from a wholesaler. The book would be received in their basement, then they reshipped it to the customer. It usually took a week from order to delivery. Obviously a very primitive system, but it was good enough to get them started.
In the book The Lean Startup, Eric Ries recommends that every new business launch a basic product to the market as soon as possible. This is called a Minimum Viable Product (MVP), and it can help you start learning what your customers really want.
You see, Eric Ries had failed twice before in launching startup companies because in the end, nobody actually wanted his product. So in his next try, he decided to release a very basic product first. He used this stripped-down product to gather customer feedback and metrics, which guided his team to building the successful 3d instant messaging app called IMVU.
You can read our summary of The Lean Startup by Eric Ries which explains the story in greater detail. This is probably the most-often-recommended book for startup founders.
In summer 1995, the Amazon website officially launched to the public. Right away, they had trouble keeping up with all the orders. It seems they were being swept up with the growth of the internet. There were over $10,000 in orders the first week, and it only went up from there. Every evening, Bezos and the other office employees helped finish packing orders in the basement.
Even with all those sales, they were not making profits, and Bezos had to find outside investors to keep the company growing. His parents invested another $145,000. Then 20 outside investors gave $50,000 each. At that time, Amazon was valued at $5 million, yet in 1995 alone, they lost $300,000 dollars. So that valuation depended totally on Bezos convincing others a grand future lay ahead for Amazon. Nobody but he could imagine just how big.
Amazon began with a few people working on desks made of doors in Jeff’s garage. They worked hard to get a very basic version of Amazon online quickly. Their website received overwhelming orders very soon because the internet itself was growing like crazy.
Before writing this book, Brad Stone went to interview Bezos and asked him what made Amazon different. Bezos answered:
“We are genuinely customer-centric, we are genuinely long-term oriented and we genuinely like to invent. Most companies are not those things. They are focused on the competitor, rather than the customer. They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else. And they prefer to be close-followers rather than inventors, because it’s safer. So if you want to capture the truth about Amazon, that is why we are different. Very few companies have all of those elements.”
At first, “being customer-centric” sounds like a generic slogan any CEO would say. But if we examine the earliest features of Amazon, we see that a focus on the customer experience did set them apart from other online bookstores.
One of Amazon’s earliest features was customer reviews. It’s hard for people today to understand how revolutionary this feature was. Back in the early 1990s, few websites let customers write reviews, good or bad. In fact, many of them assumed reviews were a bad thing, because a negative review could lead to less sales of a product.
On the other hand, Bezos believed customer reviews would help Amazon.com attract more visitors. In an interview with Harvard Business Review, he said “We don’t make money when we sell things. We make money when we help customers make purchase decisions.”
Another game-changing feature was personalization. Their website could dynamically change parts of itself based on each customer’s past purchases. By grouping together customers who had made similar purchases in the past, they could offer accurate recommendations about what other books a customer would like. This caused an immediate bump in sales.
Over the years, Amazon’s personalization technology became better and better. They started showing recommendations based not just on which products people bought, but also the ones they looked at. Eventually most of Amazon’s homepage shifted from human-written promotions to automated recommendations. Tests showed this led to higher sales, but Amazon’s Editorial team was not happy about this change and many of them left.
Today at Amazon, each proposal for a new product or website feature must be presented in the form of a press release. This helps employees and managers consider the idea from the perspective of how a customer will eventually hear about it. This unusual rule is another way Amazon reinforced the value of being customer-centric.
Bezos often says being customer-centric is the reason for Amazon’s success. This is best demonstrated by many of their innovative early features like customer reviews and personalized recommendations.
In 1996, Amazon’s sales were growing by about 35 percent every month! First they moved to a larger office down the street, then to a cluster of buildings outside the city.
With such fast growth, employees were always scrambling, improvising and working overtime to keep up with it. Many times, chaos threatened to swallow the whole company. During the 1999 Christmas shopping season, most of the office workers had to fly to distribution centers to help process the overwhelming number of orders.
From the early days, Bezos wanted employees who were fully dedicated to the mission of the company. As Amazon’s growth accelerated almost uncontrollably, many employees didn’t even take a weekend day off. That wasn’t company policy, just the result of mutual expectations among employees.
Bezos shunned the idea of “work-life balance”, although years later he would talk about “work-life harmony,” which appears to mean integrating one’s career and life purpose.
During one memorable meeting, a female employee pointedly asked Bezos when Amazon was going to establish a better work-life balance. He didn’t take that well. “The reason we are here is to get stuff done, that is the top priority,” he answered bluntly. “That is the DNA of Amazon. If you can’t excel and put everything into it, this might not be the place for you.”
Similar to another famous technology founder Steve Jobs, Bezos set a high bar of excellence for those around him. His feedback could be very harsh if someone delivered sloppy work or suggestion. He’d often say things like “Why are you ruining my life?”
So with a ruthless pace of work for many employees, Amazon continued its upward growth. They raised another $8 million in funding from the venture capital firm Kleiner Perkins. Bezos accepted the money on the condition that one of the investors named John Doerr take a seat on Amazon’s board of directors. Doerr is a legendary figure in the world of Silicon Valley, he played key parts in the success of Intel, Google, Intuit and more.
(Recently Doerr wrote a book called Measure What Matters. In this book, he explains how a management technique called OKRs (Objectives and Key Results) helped Google become so successful. We’ll be doing a summary of this book in the future!)
Then on May 15th 1997, they turned Amazon into a public company, after a lot of legal paperwork. This raised $54 million for the company and suddenly turned Bezos and many other employees into millionaires. Bezos believed it would also help establish Amazon as a serious brand.
With double-digit monthly growth in sales, Amazon was growing almost out of control. To make it work, Bezos fostered a company culture of dedication and high standards. Employees expected each other to work overtime and weekends.
In 1997, Amazon began hiring some of Walmart’s higher-level employees. First was Rick Dalzell, a former U.S. Army Ranger who had worked in Walmart’s information systems division. Then Jimmy Wright, a retired Walmart vice president of distribution. Then a few dozen more. This was significant because at that time, Walmart was the most technologically advanced retailer in the world. (Eventually they sued Amazon for trying to steal company secrets.)
Jimmy Wright redesigned Amazon’s warehouse systems. This was a huge and unusual challenge. Most retailers like Walmart send large daily deliveries from their warehouses to their stores. But Amazon sends a staggering number of small orders to thousands of unique customers every day. Wright designed new distribution centers for Amazon that relied heavily on technology and automation. Blinking lights on shelves guided employees to the right items, then a large machine called a Crisplant sorted the individual orders.
Walmart was undoubtedly one of Jeff’s biggest inspirations. The founder of Walmart had written a book, and Jeff brought a copy of it when he visited an employee’s home. Bezos had underlined part of the book that talked about studying competitors closely to see what you can learn from them. In fact, the Walmart founder would often walk through his competitor’s stores with a yellow clipboard, taking notes on everything.
If you want to learn business wisdom directly from the founder of Walmart, then check out our summary of Made in America by Sam Walton. It’s one of my top 3 favourite books for entrepreneurs.
Another lesson Bezos must have picked up from Sam Walton was the value of frugality. The founder of Walmart was famous for not spending money, both in his business and personal life. He drove the same old pickup truck for years. When asked why, Walton said, “If you get too caught up in that good life, it’s probably time to [retire], simply because you lose touch with what your mind is supposed to be concentrating on: serving the customer.”
Today, Bezos continues to heavily promote frugality within Amazon. They still work on desks made from doors, almost as a symbolic reminder of their humble beginnings. And Amazon gives out far fewer perks to employees than other big tech companies.
Bezos hired many top Walmart employees to redesign his distribution systems. He was also greatly inspired by the thinking of Walmart’s late founder, which included being frugal and endlessly studying competitors for good ideas.
Around 1999, eBay was growing even faster than Amazon, plus they were already profitable. Some of the Amazon team began wondering if they’d picked the wrong business model. To compete with eBay, they launched Amazon Auctions, but it never became popular.
Yet Bezos was determined to transform Amazon from an e-commerce store to a platform for other sellers. He saw that most of the biggest tech companies had become ultra-successful by launching a platform. For example, Microsoft built the platform (Windows) that developers had to design software around. Later Apple did the same thing with mobile apps by launching the iPhone.
Jeff believed Amazon Auctions failed partly because it was separate from the main Amazon website so it received few visitors. He wanted to launch a new Amazon Marketplace with products sold by third-party sellers appearing on Amazon’s own product pages. For example, someone looking to buy a book on Amazon would see used book listings from third-party sellers on the same product page that Amazon sold the new book.
It was a bold idea, but many managers inside of Amazon were unhappy about it. They didn’t want to see sales in their departments go down from outside sellers undercutting Amazon’s prices. If someone bought the third-party product, then Amazon would only get a small commission. Yet Jeff believed the most important thing was to offer customers the greatest selection and the lowest prices. He wasn’t afraid to upset many of his employees and suppliers to ensure Amazon’s long-term success.
In 2002, about 15% of Amazon sales came from products sold by third-party sellers. By 2012, 39% of Amazon’s sales came from third-party sellers, with over 2 million sellers using the platform.
Amazon even offers a service called Fulfillment by Amazon. This allows outside sellers to store products inside Amazon’s own fulfillment centers for a fee. It’s a further step that takes Amazon from being an online store, to the platform others build their businesses on.
However, using the Amazon Marketplace is a double-edged sword for many independent sellers. Amazon’s huge customer base makes it easier for someone to launch their business quickly. But Amazon carefully tracks which third-party products are selling the best on their website, and often begins selling that item themselves. So it’s like giving your most detailed business metrics to your worst competitor.
If you look closely, Amazon is not really an e-commerce store anymore, but a platform for other sellers to use. Almost half of Amazon’s sales today are from third-party sellers, who can even use Amazon’s warehouses and shipping systems for a small fee.
In 2001, the dot-com bubble had just burst, and Amazon’s stock price had plummeted from $107 to single digits. (It would be several years before the stock price recovered, unlike most of the other doomed tech companies.)
It was a tough time. Many employees were feeling very pessimistic and leaving the company. Many investors felt disillusioned about the future vision of Jeff Bezos.
Around this time, Bezos had a meeting with the founder of Costco, Jim Sinegal. They discussed a business deal that eventually didn’t happen. But more importantly, Sinegal shared many of the key business lessons he’d learned over the years.
He said Costco made most of their profits from their yearly membership fee. And he said joining a membership encouraged people to become devoted customers of Costco. With that repeat business, Costco was able to keep their price markups very small. It seems Bezos took a lot of what he heard that day to heart.
That July, as a result of the Sinegal meeting, Amazon announced it was cutting prices of books, music, and videos by 20 to 30 percent. “There are two kinds of retailers: there are those folks who work to figure how to charge more, and there are companies that work to figure how to charge less, and we are going to be the second, full-stop,” [Bezos] said in that month’s quarterly conference call with analysts […]
Amazon knew that waiting for a purchase to arrive was the biggest inconvenience of online shopping. So they believed the faster and cheaper they could make shipping, the more people would shop at Amazon.
During a holiday season, Amazon offered a free shipping promotion for orders over $100. This caused a bump in sales, so Bezos wanted to make it a permanent part of Amazon. One employee cleverly suggested they could hold onto free shipping packages until there was extra room on an express shipping truck, which means the free shipping wouldn’t cost them much. So in 2002, they offered Free Super Saver Shipping for customers willing to wait a few extra days.
Then in 2004, another employee offered the suggestion of a fast shipping club. Bezos immediately loved the idea. It was launched under the name Amazon Prime. For $79 per year, a member could get free 2-day shipping on an unlimited number of orders. Amazon Prime resembled the Costco strategy. The goal was not to make money with the fee, but to create an army of super-loyal customers.
Many of their financial analysts thought it was crazy because they could lose a lot of money on expedited shipping fees. And in the beginning, they did lose money. Yet in the end, Prime was a very successful program. The average Prime member spends twice as much money on Amazon as they did before joining the program.
For $79 per year, the Amazon Prime club gives free 2-day shipping on unlimited orders. At first the program cost the company a lot of money, but Bezos saw it as a long-term strategy. From Costco’s founder, he’d learned that club members become ultra-loyal customers.
In the early 2000s, Amazon decided to reinvent their distribution centers yet again. They decided shipping was going to be a core strength of their business, something they would become the best in the world at.
They hired Jeff Wilke to lead this effort. Wilke was an extremely smart 32-year-old supply chain expert. Before Amazon, he had been running the $200 million per year pharmaceutical business of AlliedSignal.
Wilke had studied multiple schools of thought for optimizing business systems including:
Combining all these different approaches, Wilke totally redesigned Amazon’s warehouses, even changing their official name to fulfillment centers.
After a year, the metrics showed big improvements. The cost of shipping each order was down. And the time from customer click to shipment had decreased from three days to four hours—now faster than most other online stores.
Amazon redesigned their fulfillment centers yet again. They became much faster at shipping orders, by using business techniques from six sigma, lean manufacturing and the theory of constraints.
When Apple released their iPod and iTunes music store, it caused an alarming drop in Amazon’s own CD sales. Amazon’s top managers never expected something like that could come out of nowhere and collapse an important part of their business. It was a wake up call. They had to dominate the ebook market before someone else like Apple or Microsoft did.
Around that time, Amazon’s executives were discussing a book called The Innovator’s Dilemma by Clayton Christensen. In this book, the Harvard professor says great companies like IBM, Xerox or Kodak eventually fail when they don’t embrace new technologies because they’re afraid to undermine their established products. Then some bold new startup comes along and disrupts their business anyway. For example, Kodak created some of the first prototype digital cameras, but they didn’t develop them further because they wanted to preserve their very profitable film business. As a result, today Kodak barely exists.
What’s the solution? Christensen says big organization have to try to put themselves out of business all the time. By setting up small independent teams dedicated to building totally different solutions, usually based on a new technology. Amazon saw a lot of sense in this:
“It is far better to cannibalize yourself than have someone else do it,” said Diego Piacentini in a speech at Stanford’s Graduate School of Business a few years later. “We didn’t want to be Kodak.”
A few failed attempts had already been made to launch a popular e-reader. Barnes & Noble had offered the RocketBook which (ironically) never took off. It seemed people simply preferred paper books over digital ones.
In 2004, Amazon began working on their own device, and they must have got the timing right. E-ink displays were becoming just good enough to put into a mass-market product. Bezos was adamant the Kindle should be easy enough for Grandma to use, like an Apple product. They launched the device in 2007, and it was immediately sold out for several months.
Bezos was also fanatical about offering a selection of at least 100,000 ebooks at launch. Then without letting the publishers know, he set the price of ebooks to $9.99. This shocked many book publishers, because ebooks that were cheaper than paperbacks threatened their core business. Eventually the publishers signed new contracts with Amazon, allowing them to set higher ebook prices. But after that, they felt a lot more cautious about the online bookstore, and they have good reason to.
Amazon launched a Kindle Digital Publishing service, which allows anyone to instantly self-publish their books to the Kindle store. They also offer a service called CreateSpace to print paperback books on demand. Perhaps Amazon’s end goal is to cut book publishing companies out of the process altogether, and pass the savings onto the customer.
Launching the Kindle ebook reader was a big risk. It was a new technology that could have ruined Amazon’s most important business of selling physical books. Yet Bezos knew if they didn’t do it, then a competitor would.
This book was published around 2013, when Jeff Bezos was the 12th richest person in the US and worth about $25 billion. What a difference several years make! Today he’s the #1 richest person in the world, worth well over $100 billion.
And there’s no end in sight to Amazon’s future potential. To achieve Jeff’s mission of an Everything Store which offers ultimate convenience, Amazon is expanding in all directions. They may open physical stores in the future. They may create their own shipping company. They may use drones to deliver orders directly to your house. (Yes, they have been seriously testing that out!)
But we’ll have to wait and see how Jeff Bezos changes our world next. At the very least, it’s clear that Amazon is already one of the most astounding businesses of our time. And now you have some insight into its success.