In an interview, Jeff Bezos shared the story of his company – Amazon and how it all started.
Amazon.com wasn’t called Amazon at first
Almost seven years ago now, I started this most incredible journey called Amazon.com. Actually at that time, it wasn’t even called Amazon. It was called Cadabra, Inc. — as in Abracadabra. That was the original name of the company.
And I had phoned a lawyer on the way to Seattle from a cell phone. And he said – what do you do to incorporate the company. He said, what do you want the company to be called, and I said Cadabra. And he said, Cadaver, and he thought that was a bad name. We changed it a few months later.
The wake-up 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. Outside of, I guess, usually like Petri dishes or something. I mean it’s a very unusual growth rate and that you could tell anecdotally even though there wasn’t good research on this at the time, the baseline of web usage wasn’t trivial.
And so something with a nontrivial baseline growing at 2300% a year is clearly going to be everywhere tomorrow. And so the question was what kind of business plan would make sense in the context of that growth.
And I went through a whole bunch of different things. I made a list of 20 different products, looking for the first best products to sell online. Came up with books for a bunch of reasons but primarily because books are very unusual in one respect and that is that there are more of them than there are products of the other category. So there are literally millions of different books in print in any given time.
And computers are good at organizing such large selections of products and you could build something online that literally couldn’t be built any other way. You couldn’t have a physical world bookstore or paper catalogue with millions of different books. And the primitive technology that was the web in 1994 clearly required that kind of characteristic for business. It had to be something that could only be done in that way. So that’s what led to books.
Regret Minimization Framework
When I decided to do this, I first talked to my wife who is sitting here in the audience. And she had married a relatively stable, goofy, but still relatively stable person working at a Wall Street firm. I worked at a quantitative hedge fund and this was a hard decision.
And I was looking for the right framework in which to make that kind of important decision and the right framework I found is the regret minimization framework and that’s just a nerdy way of saying that you want to project yourself to age 80. And then think back over your life and if you are 81, you want to minimize the number of regrets you have throughout that period of time. I think this is something a lot of people do maybe subconsciously be probably – very few people probably name the regret minimization framework because most people are healthier than that.
But it was a very clear way for me to think about making that kind of life decision. And the way it helped was I thought, okay, if I go do this thing and participate in this thing called the Internet, though I genuinely believe it is going to be a big deal. And if I fail, am I going to regret having tried and failed? I knew the answer of that was no.
But I also knew that if I didn’t try that I would always regret that. I would always wonder and it would haunt me until that mythical day which I actually hope will come. My wife would try to get me to eat better. One of her heroes is Dr. Wild. So if you are in the audience — that your dietary constraints are currently being inflicted upon me. But I suspect it may help me over the long-term.
Amazon.com- The Beginning
And so that was how the decision was made to do this. And there are literally tons of stories about the early days of getting Amazon.com set up.
We spent about a year building the software infrastructure and getting all the vendor relationships in place and so on and so on. The day before we were ready to launch the store in July 1995, one of the software engineers was looking at our little 400 square foot distribution centre. And I remember very clearly this person looked at the 400 square feet, about the size of one car garage. So it was kind of toy distribution centre, and they would build software systems behind it.
And he said — he looked at this little space, he’s like, “I can’t figure out if this is incredibly optimistic or hopelessly pathetic”. And indeed, we didn’t know. There really was no way to know how customers were going to adopt this kind of technology in these very early days. There was a lot of risk involved. In fact, my parents are also in the audience today are my parents who were the original funders of them. They invested about $300,000 which was roughly — was a reasonably large fraction of their life savings.
And 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 him, I thought there was a 70% chance they would lose their entire investment. And that was an important disclosure because I wanted to be able to go home for Thanksgiving dinner no matter what happened. I’m very happy that, that investment has worked out very well for them.
But it was a– I was going to myself triple the normal odds. Start-up companies are very tricky things and fewer than 10% of them actually go on to make any return on an investment at all. And, so I was doing myself a 30% chance and just wildly overconfident.
But things actually worked out. The planets aligned in those early days and start-up companies need early planetary alignment, because there are so many things that can go wrong. And when we launched that store in July 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. And we were woefully unprepared from an operational point of view to handle that kind of volume. And in fact, this — we quickly expanded, we talked to our landlord and we expanded into a 2000 square foot basement warehouse space that had 6-foot ceilings. One of our 10 employees was 6 foot 2 inches. He went around like this the whole time.
And we were doing our day jobs which might’ve been computer programming and all the different things that 10 people will do in a tiny start-up company. And then we would spend all afternoon and into the wee hours of the morning packing up the orders and shipping them out – I would drive these things to UPS and so we get the last one – and we wait to the last second. I got to UPS, and I’d sort of bang on the glass door that was closed. And they would always take pity on me, and sort of open up and let us ship things late.
We had so many orders that we weren’t ready for that we had no real organization in our distribution centres at all. In fact, we didn’t – we were packing on our hands and knees on a hard concrete floor and — I remember just to show you how stupid I can be – my only defence is that it was late. But we were packing these things — everybody in the company and I had this brainstorming, and I said to the person next to me, “This packing is killing me. You know, my back hurts, this is killing my knees on this hard cement floor. And the person said, “Yeah, I know what you mean”.
And I said, “No, we need – it’s my brilliant insight — we need knee pads”. I was very serious, and this person looked at me like I was the stupidest person he’d ever seen, and like, “I’m working for this person. This is great” and said, “What we need is packing tables”.
And I look at this person and I thought that was the smartest idea I’d ever heard. The next day we got packing tables, and I think we doubled our productivity.
That early stage by the way of Amazon.com where we were so unprepared is probably one of the luckiest things that ever happened to us because it formed a culture of customer service in every department of the company, every single person in the company because we had to work with our hands so close to the customers making sure those orders went out, really set up a culture that served us well, and that is our goal to be Earth’s most customer-centric company.
And I think this is zero now which I am suspecting means in the meantime it’s trying to turn over to questions. So I will do so.
So we have time for about three questions.
A Question-and-Answer Session ensued with Jeff Bezos
Jeff Bezos: The balcony always gets kind of neglected, isn’t it? Yeah, okay, go ahead.
Audience: [Question Inaudible]
Jeff Bezos: What advice would I give to an Internet startup company now? Well, my advice would be the same for any kind of entrepreneur and that is make sure that you are focused on something you’re passionate about. So if you look at the early Internet companies they were started and focused on doing something that they thought was very interesting long before the Internet was fashionable in any way. We are currently an underdog once again. We’ve been in business for six years and there was exactly one year when we were not the underdog and that was 1999.
I like the underdog years because it makes – I like it when all the people we hired, their parents told them they were crazy. Like that was kind of the good era, fortunately it’s back. In 1999, all the parents were like, you know, given their brothers and sisters high-fives, my son is working at Amazon.com. So that’s a very – you can’t follow the fashion when you’re trying to do a start-up company, or I think really anything in life. But you have to — as an entrepreneur if you’re going to build a company, pick something you think is interesting, that has the intersection of genuinely creating real customer value and just stay right there and let the wave catch you.
[ See also : Time – The Ultimate Story Teller ]
Audience: Grant Hutchins from Oklahoma. I was wondering what were some of the other products you considered and also on a personal note, you sell a lot of books but do you ever read them?
Jeff Bezos: On the list — the list was built by looking at mail-order sales. So when I got the original list, it was sorted in order of size by mail-order. So for example, apparel is a very large mail-order category. So apparel was near the top of the list. That’s — the things that ended up near the top of the list were books as number one obviously. Music, videos, computer software, computer hardware, those were the kinds of things near the top of that first ranked list — and I’m sorry – I am terrible at multipart questions. What was your second question?
Audience: I asked, do you read books very often?
Jeff Bezos: Do I read books? Yes, in fact, I do. In fact, my parents will attest to the fact that I was difficult to punish as a child because I was quite happy to be grounded. And I’d stay in my room and read. I’m a big science-fiction fan and that’s probably – I’d say at least half of my reading is science fiction and it has been ever since I spent the summers at my grandfather’s ranch which I had to say I know that we’re having geography problems with the entire city but that was in Texas, not New Mexico. In fact, it’s only about 90 miles from where we are right now. But so that had a little sort of Andrew Carnegie style library in that town and which is a very tiny library but like – I have been a third of the collection which was all donated by citizens of this 3000 person town. But a third of the collection was science-fiction, because there was this one guy in town who loved science fiction.
And so that’s been a long love affair. And then my wife inflicts good fiction on me every once in a while, which I wasn’t loving but my favourite novel is ‘Remains Of The Day’
Audience: Hello, my name is Ian. I am from Los Angeles. I’d like to thank you for Amazon.com. It saved me many times. I couldn’t get the book at my local bookstore but that’s not what I want to ask.
Jeff Bezos: But you can wax on about that if you like.
Audience: I’d like to know please what is the role of risk in your life and risk in the success of what you’ve done with Amazon.
Jeff Bezos: So what is the role of risk in life? It’s hard to do anything I think — whatever it is that you want to do, there is going to be risk in your life and risk is a necessary component of progress. So there are different kinds of people that want to do different kinds of things in their life. I like exploration, and in fact, I think that — I’m a little stymied because I like to be a physical explorer. I like to — I would’ve loved to have been Sir Richard Francis Burton or something like that. How much fun would that be to go search for the source of the Nile and have people throw spears at you and stuff? And that’s just — that just sounds great. Obviously it involves a lot of risks. You find most geographical exploration, not all to be sure, but most geographical exploration on earth today is somewhat contrived. It might be something like circling the earth in a balloon, or something like that.
And there are some very deep spots where you can still do that. And there are — and then of course there’s space. I am personally very interested in space and have been all my life and would love someday to do that. All of these things involve risk. I don’t know how you can make any pioneering movements in the world of any kind whether they be the geographical physical exploration that I have just been talking about, or whether it be a more cerebral exploration of a scientific field or I bet you could ask that question of every speaker here and I bet that every speaker here has taken substantial risks whether it be intellectual or otherwise to achieve what they have done.
And Amazon.com as a company— what you do, in fact, the early stages of the company are all about eliminating risks. You take those precious early startup dollars, in my case it’s $300,000 from my parents and then we raised a million dollars from 20 angel investors. You take those precious early dollars and use them to systematically eliminate risks one after the other. And what you hope is that you get to a company of a scale where the company doesn’t need that kind of planetary alignment that it needs in the early days, but that instead the company has more control over its own destiny. And then that actually by the way creates more pressure for that team of people who represent that company. In our case the 7000 folks at Amazon.com have more pressure today than we did six years ago because now our destiny is in our own hands. And we’ve systematically eliminated those risks, to where we have the assets we need to build an important and lasting company. So now if we don’t do it, shame on us.