Amazon.com by Robert Spector, an account of the rise of Jeffrey Bezos and Amazon, is a depiction of the “Perfect Storm” of circumstances that created Amazon’s explosive growth. From the founder and his initial goals, to the elements that heralded the incredible opportunities the company capitalized on, Amazon.com is a story that reads like the startup version of a celestial alignment.
The Founder and his Goals: Reaching the Stars
Jeffrey Bezos was an accomplished visionary long before the conception of Amazon. Spector’s account depicts Bezos as an inventive, focused, and precocious youth. Graduating as valedictorian from high school with awards in math and science, summa cum laude from Princeton with a BSE in electrical engineering and computer science, successful engagement in early entrepreneurial endeavors, and a career path that lead to his seven figure position as senior vice president with D.E. Shaw; Bezos’s life is laid out like a prodigious tale of greatness. Throw into the mix a charismatic and motivating personality, and Jeffrey Bezos by Spector’s account was born and breed to be a star.
Spector accounts Bezos’s high school valedictory speech, where he argued for the colonization of space as a means to secure the future of the human race, as a demonstration of Bezos’s grandiose ambitions. These ambitions were evident in the Amazon structures, which were designed to eventually grow into a billion dollar business from the start. Virtually every aspect of the Amazon system was designed to handle an exponential expansion of capacity and adaptation. The biggest miscalculation on his part was the rate at which Amazon would grow.
Bezos anticipated a startup phase requiring several years of training consumers to purchase books online. With that caveat in mind, he had set out with a shoe string budget for Amazon which was self funded for the first six months. Investing $10,000 as common stock and making interest-free loans to the company in the amount of $44,000, Bezos launched the company in 1994 from a converted garage in Seattle, Washington. This oversight, while instilling a culture of frugality, had left the Amazon team scrambling for capital in 1995.
Feeding the Growing Giant: Capital Pains
A critical growth point was reached in 1995 that could have prematurely ended Amazon’s journey. Bezos was still in the process of beta testing the Amazon site, but was burning through capital despite his frugal spending habits. Even after raising $100,020 and $145,553 in exchanged for equity from his father and mother respectively, Bezos was broke by the time the Amazon site launched that summer.
This time period is one of the few areas where Spector’s account of Amazon referenced significant difficulties. Seattle was not the angle investor hot bed that Silicon Valley was, nor was Amazon a business model that investors were knowledgeable of or comfortable with. However like the inevitability of fate, Bezos through his network with Nicholas Hanauer raised $981,000 by the end of 1995.
The next infusion of capital occurred in the spring of 1996, after Amazon incited a bidding war like scenario to gain $8 million on a $60 million dollar valuation. This represented a significant increase from their first venture capital offer of $1 million on a $10 million dollar valuation. Not only did this give Amazon the leverage to grow without their prior capital concerns, they did it by gained the support of Kleiner Perkins Caufield & Byer which was the leading VC firm in Silicon Valley.
Success Factors: The “Perfect Storm” of Amazon’s creation.
Any seasoned entrepreneur, or investor in entrepreneurial companies, will tell you that a truly successful venture requires a complicated mix of key elements. These include a strong founder and team, access to knowledge and capital, and a genuine market of interested customers in a growing industry. Additionally, it all has to be integrated together through a common vision, determination, and sense of urgency. For Amazon, the magnitude of these elements was on a celestial scale and came into alignment at just the right time.
Founder and Team
Jeffrey Bezos’s prior established credibility and his ability to inspire support for his vision were crucial in his task of recruiting skilled team members. Beyond being well versed in the technical requirements of what needed to be done, Bezos assembled a winning team and listened to their input. By giving his team the voice and inspiration to do what was needed, he created a high-energy can-do culture in Amazon. A leader by example and of productive informality, Bezos was known for rolling up his sleeves and packing books with the rest of the team. He was also subsequently known for being a formidable opponent during the spontaneous rubber-band fights that were known to break out.
The whole Amazon team was carefully selected, as a team effort, with Bezos making the final hiring decisions. Seeking the very best talent, a practice which was partly instilled at the insistence of the self proclaimed “glorified recruiter” John Doerr, was only one side of the coin. Bezos was looking for people that were truly inspired and wanted to do things that mattered.
Open Book, Open Wallet
An extremely critical element to Amazon was its access to knowledge and capital. The decision to start an internet book company in an area that some consider the Mecca of programming talent, and only hours from the largest book distribution center in the U.S., was certainly no accident. Bezos had meticulously weighed his options before setting up shop, and was subsequently a stringent enforcer of hiring only the best talent. The recruiting process at Amazon was as meticulous as the platform on which the whole company was based. Candidates had to endure a gauntlet of screeners, background and reference checks, and interviews, with the slightest error eliminating them. As many as a hundred pages of documents were assembled on each candidate and reviewed by the interviewers.
To offset any informational or experiential deficiencies the Amazon team faced, Bezos had a high quality network of experienced business professionals to tap for guidance and support. The capital requirements of Amazon were covered by Bezos himself, whom already had a successful career, his relatively wealthy parents, and investors gained through his network. Nicholas Hanauer, who was an early addition to Amazon’s trove of resources, was a pivotal asset to their financial solvency. Not only was he a significant influence in getting Bezos in front of potential angle investors, he wrote the initial check that got that round of funding started. Without the backing of Hanauer during that time, Amazon’s chances would have been seriously crippled.
The Internet, Customers, and the Book Industry
Having extensively researched the internet-book-store opportunity as part of his employment at D.E. Shaw, Bezos understood the potential of his vision despite D.E. Shaw’s decision to not pursue it. The Internet was growing at 2,300% a year with a customer base filled with intellectual early adopters, making it the ideal business channel, while the $30 billion book industry proved to be the perfect product compliment to this exploding business conduit.
In the early days of the internet, online consumers were a pre-segmented cross section of intellectual early adopters. The internet was still in its infancy and navigating it generally required a high level of technical acumen. Those on it at this time were consumers who were eager to try new things, including online book purchasing, technically savvy and affluent. Subsequently this consumer set was also a high rate consumer of books. This, advantageously, meant that all current internet consumers were likely target customers and no additional segmentation was required.
The book industry was fragmented, capital intensive with a long average-operating-cycle of 79 days, and books were a well know product. Their cataloging methods with ISBN#’s and extensive databases made searching for them simplistic compared to other product types. Especially important were the numerous limitations that traditional brick-and-mortar book stores had that could be eliminated by an internet based model.
By contrast to traditional stores, Amazon would have a negative operating cycle of 33 days, making it extremely capital efficient, as well as allowing customers to access a database of over a million book titles. The massive 60,000 square foot Barns & Noble superstores only carried up to 175,000 titles. This gave the Amazon business model a considerable advantage in terms of perceived consumer value and re-investable cash flow.
To learn more about the book selling industry, Bezos attended a four day book-industry course before launching Amazon. Through this he not only gained valuable insight into what it took to actually sell a book, he made contacts within the industry and found customer service inspiration. During that four day course Richard Howorth, President of the American Booksellers Association, gave a speech about the importance of customer service. Recounting a tail of going well above and beyond the normal call of duty, Howorth inspired Bezos to make customer service a cornerstone of Amazon’s business model. Something that subsequently helped propel Amazon to excellence.
A final element that pushed Amazon to grow and improve was that much of what they were doing was being done for the first time. The Amazon team knew they didn’t know the best way to do things initially, so a mentality and process of constant improvement was established. Amazon was continually looking for better ways of doing things and making sure they were doing at least as good a job, if not better, than their competitors. This drive and flexibility was what allowed them to stay ahead of emerging competitors.
Conclusion: Closing thought on Get Big Fast
In Amazon.com Get Big Fast, Robert Spector depicts an inspiring tale of how to launch a company the right way. Well planed, executed, and adapted for changing conditions, Bezos’s vision for Amazon was brilliant and well timed. However, Spector makes it too neat and tidy of a story. The challenges of managing a company undergoing such explosive growth must have been enormous. The recount of these trials, particularly in the first few years, seems to be glossed over to a large extent. Regardless of the down played challenges, Spector’s book clearly shows that when the right elements are brought together at the right time a tremendous business can be forged.