Bezos Paper

                                                     The Founder of Amazon, Jeff Bezos

                                                                                                                             Jake Blanchfield

                                                                                                                             10/25/17

                                                                                                                             11th

                                                                                                                            Odyssey Scholars



 

   The Everything Store by Brad Stone tells the story of Jeff Bezos, and the legend of his greatest creation, amazon.com. Jeff Bezos very well may be the greatest entrepreneur of the last century. In his early life, he was praised by teachers in grade school for his extraordinary ability to solve problems, and his off the chart standardized testing. Bezos was born in Albuquerque New Mexico on January 12, 1964. He would later move many more times until he ended up in Seattle. Jeff Bezos right out of college worked on Wall Street for a money management company. Called D.E Shaw.  He became obsessed with the internet and computing very early before anyone knew about it, he foreshadowed the exponential growth which was to come with the internet. From January of 1993 to January 1994 the internet grew 230,000%. As Jeff Bezos stated, “Things just don’t grow that fast” (p.44). He latched onto the internet train in its infancy. Bezos also had a passion for reading, he saw an opportunity to apply his love for reading into business. Bezos also realized that there were no good online bookstores. Bezos had noticed that, “No one had yet figured how to do a good job selling books over the internet” (pg.74). As Bezos knew that making one would be an excellent opportunity. Bezos made the decision to leave his lucrative job at D.E Shaw to start from scratch with a new business idea. He was not curtain of amazon.com’s success, but it was worth it for him to take a shot. He told his parents who were his first investors that, “There was a 70% chance that they would lose it all” (pg. 98). Bezos’s parents easily made one of the best investments of all time, making fifty thousand to hundreds of millions. The means which Bezos built his empire, are fascinating and intriguing. He has many core fundamentals which I have considered lessons. Bezos believes that large profit margins encourage competition, he also believes in only hiring the best of the best.

   Bezos’s center focus is always on the customer, no matter the instance. He goes as far as to keep an empty chair in each of his business meetings In order to represent the customer. He believes that slim margins encourage loyal customers while steep margins encourage competition. Bezos is infatuated with providing the lowest prices possible to customers. During the start of Amazon, while Jeff and a few friends worked out a garage, amazon.com offered 40% off the most popular novels. The 40% discount off the best sellers made amazon stick out to book lovers.The incredibly thin profit margins provided customers with unmatched prices. The unheard of discounts and low margins was the start of Amazon’s moat, which would in the future keep the online retailer safe from competition. Jeff Bezos said, “We don’t make money when we sell things. We make money when we help customers make purchase decisions” (p.99). These ideas were responsible for Amazon eventually overtaking the biggest book retailer, Barnes and Nobles.

Bezos emphasized that it is not only enough to provide a superior service, but Amazon also had to innovate and better their services on the customer’s behalf. Jeff stated, “We see our customers as invited guests to a party, and we are the hosts. It's our job every day to make every important aspect of the customer experience a little bit better”(p.172). He understood that that innovation could not be lead by customers, and their desires. Instead, Bezos and Amazon strived to create new things which the customers would love but never thought of. Many businesses get stuck with maintaining what they have, and only making changes when customers require something new. Bezos would disagree with this model, he would think that it is the business’s job to innovate and provide new things to the customer.

While big retailers focused on how to increase profits, Bezos focused on bettering their service and collecting Barnes and Noble's customers. Once Amazon was annually doubling their sales and somewhere in the range of billions of revenue, Bezos announced the Kindle. He sold the Kindle at a break-even price, which made the Kindle by far the most cost-effective E-Reader. Jeff also offered all bestseller titles at a flat rate of 9.99$, this made every E-Book purchase a short-term loss for Amazon. Amazon’s short-term losses tallied up to over one hundred million dollars within their 9.99$ book campaign. Notice how I wrote, “Short-term loss”, in the sentences above. With this campaign amazon overtook over 90% of the E-Book market, the short-term losses became an amazing investment.

   Jeff Bezos preachers a philosophy which is very popular in business and entrepreneurship. Upon starting amazon, Jeff got together all of the most highly qualified people to be part of his business. He would only hire people that perfectly we’re suited for the job. He wanted only the most qualified. His iconic philosophy for new hires was that they must be better than the last hire, so with every new hire, the hiring bar was raised. He also had a very unconventional way of conducting interviews, he would ask odd personal questions in order to determine their ability to be a good worker for Amazon. He would ask the potential hires in interviews very odd questions to see the way which they thought, and their raw intellect. Most famously he asked, “How many gutters are there In the United States.” (p.147) He would examine people’s thinking with this odd question, and it was a huge part of the interviews. If the potential hire showed any sign of desiring, “A balance of home and work” they would immediately forfeit their chance of being an Amazon employee. After the interview process was complete final decisions were always made by an Amazon executive. Bezos preached the importance of always raising the hiring bar, he only wanted the best of the best for each pillar of his business.

   Amazon’s business model started from humble beginnings. They started solely as a bookseller, and they didn’t even hold inventory. They were able to start their endeavors out of a garage. Upon receiving an order they purchased the book from the wholesaler, and then directly shipped to the customers. The only things which they owned were customers and the website itself. Every person after placing an order with Amazon usually became a very loyal customer, due to the great deal which he or she received. Although Amazon at the start had no liquid assets, they owned their customers. A list of customers usually becomes the most valuable asset which an online company can possibly have. To break it down, at the start Amazon really was just a middleman. In each Amazon order there were three different sides, starting with Amazon, then the wholesaler, and ending with the happy customer with a new book in their hands.  Each part of the sequence is extremely important. Amazon acted as the bridge between the consumer and the online wholesaler, and cut out the retail giants like Barnes and Noble. Due to the fact that Amazon had minimal overhead, they also had little risk. They didn’t have to go out and purchase thousands of books and store them. All they had to do was get them after the order was already completed. This type of business is very common now in the online business space. It is widely regarded as “Dropshipping”. A dropshipping business can now be created with just a few hundred dollars. The drop shipping model is now much more saturated now than it was in the time of Amazon’s creation, but there is still room for success.

The massive majority of businesses focus on balancing the interest of customers, employees, and the bottom line of the balance sheet. The balancing act is like a tripod, most corporations try to balance each leg perfectly. Amazon flips this ideology onto its head. Bezos is laser-focused on the customer. For the last decade, Amazon’s bottom line is just about always a break even. They oftentimes finish business quarters with losses of hundreds of millions, this is not because they are a poor business, but because Bezos is laser focused on the customer. The absence of free cash flow makes Amazon take a different approach in gathering capital for expansion, and acquiring new businesses. Due to Amazon’s control over their incredibly large client base, they have the ability to gather large sums of capital very quickly. Amazon simply raises their margins on some of the products they sell for a short period of time until they’ve gathered all the capital they need, and once they have the desired capital they immediately drop their prices again.

As of November 2017, Jeff Bezos’s Net worth has skyrocketed to 83.6 billion, surpassing Warren Buffet and at one point Bill Gates. Bezos at one point this year was the most wealthy person on earth. Yes, Jeff Bezos is brilliant, hard-working, and innovative, but lots of his success comes from his simple philosophy of keeping the customer happy.  Bezos will most likely go down as one of the greatest business thinkers of our time. Bezos’s frugal and low-margin mentality will become a model which more and more businesses begin to follow.







 

Jake Blanchfield