If you had to pick a single eureka! moment, a time when suddenly
everything became clear about what the future had in mind for
Jeff Bezos, it was on a May day in 1994. The 30-year-old was
sitting at the computer in his 39th-floor office in midtown
Manhattan, exploring the still immature Internet, and he found a
site that purported to measure Net usage. Bezos couldn't believe
it: the Internet was growing at a rate of 2,300% a year. "It was
a wake-up call," he says. "I started thinking, O.K., what kind of
business opportunity might there be here?"
Thinking up business possibilities, in fact, was Bezos' job at
D.E. Shaw, an unusual firm that prides itself on hiring some of
the smartest people in the world and then figuring out what kind
of work they might profitably do. David Shaw, a former professor
of computer science at Columbia University, had been wooed to
Wall Street by Morgan Stanley, where he specialized in the arcane
field of quantitative analysis--using computers to spot trends in
the market. He formed his own company in 1988, initially to carry
on that kind of work, but with so much brainpower around the
office, it seemed a shame to waste it all on Wall Street. It made
sense to pursue other businesses too. During much of his four
years at Shaw, Bezos "was sort of an entrepreneurial odd-jobs
kind of a person," Shaw recalled recently.
Bezos had graduated from Princeton University, majoring in
electrical engineering and computer science. The field was
unplanned: he had chosen Princeton for its legendary physics
department. Shortly after arriving, however, he discovered that
he wasn't the smartest guy in the world after all. He felt
outclassed by the physics jocks and gravitated to comp-sci.
His first job out of school was at Fitel, a start-up that was
building a network to handle international financial trades. He
spent about two years there, worked about the same amount of time
at Bankers Trust, then got an interview at Shaw.
Actually, it was one of Shaw's partners who interviewed Bezos
first and urged the boss to meet him, saying, "He's going to make
someone a lot of money someday." Shaw agreed, understanding that
Bezos was unusual not only for his balanced intellect--he could
handle complex logic as well as articulate his thinking--but also
for the overall package: smart, creative, personable, precisely
the kind of person they wanted. Over time, Bezos became a
specialist in researching business opportunities in insurance,
software and then the booming Internet.
But how to take advantage of that online explosion? The Net had
been, until 1994, a largely commerce-free zone. It was created by
the Defense Department to keep its network of computers
communicating in case of nuclear attack. The system then evolved
into a network over which university and government researchers
could exchange messages and data across most computer platforms.
The government decided to get out of the Internet business and
allow private companies to step in and develop it. Bezos recalls,
"I'm sitting there thinking we can be a complete first mover in
e-commerce." He researched mail-order companies, figuring that
things that sold well by mail would do well online. He made a
list of the Top 20 mail-order products and looked for where he
could create "the most value for customers." Value, in his
equation, would be something customers craved: selection, say, or
convenience or low prices. "Unless you could create something
with a huge value proposition for the customer, it would be
easier for them to do it the old way," he reasoned. And the best
way to do that was "to do something that simply cannot be done
any other way."
And that's what ultimately led to books. There weren't any huge
mail-order book catalogs simply because a good catalog would
contain thousands, if not millions of listings. The catalog would
need to be as big as a phone book--too expensive to mail. That, of
course, made it perfect for the Internet, which is the ideal
container for limitless information.
Bezos needed to learn the book business fast. Fate was his
handmaiden: the American Booksellers Association's annual
convention was set for the very next day in Los Angeles. He flew
out and spent the weekend roaming the aisles and taking a crash
course in the business. Everything he learned encouraged him. The
two big wholesalers for books were Ingram and Baker & Taylor. "So
I went to their booths and told them I was thinking of doing
this." Books, it turns out, are among the most highly databased
items on the planet. The wholesalers even had CD-ROMs listing
them. It seemed to Bezos as if all the stuff "had been
meticulously organized so it could be put online."
Bezos realized he desperately wanted to start his own online
bookstore. First he talked it over with MacKenzie. She too had
graduated from Princeton, but six years after him; they met at
Shaw, where she worked as a researcher. An English-literature
major at the university, she had been novelist Toni Morrison's
assistant and now had begun a novel of her own. MacKenzie was all
for the adventure.
Next Bezos went to Shaw, who said he was sorry to lose such a
talented executive but fully understood Bezos' desire to strike
out on his own. He cautioned him to make sure, however, that this
was what he truly wanted to do. Bezos decided to spend the next
two days recalculating the risks.
In his typically analytic way, Bezos cast his decision in what he
calls the "regret-minimization framework." He imagined that he
was 80 years old and looking back at his life. And suddenly
everything became clear to him. When he was 80, he'd never regret
having missed out on a six-figure Christmas bonus; he wouldn't
even regret having tried to build an online business and failed.
"In fact, I'd have been proud of that, proud of myself for having
taken that risk and tried to participate in that thing called the
Internet that I thought was going to be such a big deal. It was
like the wild, wild West, a new frontier. And I knew that if I
didn't try this, I would regret it. And that would be
inescapable."
Bezos figured that the average Net start-up had a 1 in 10 chance
of success; he gave himself a 30% chance. "That's actually a very
liberating expectation, expecting to fail," he says. That's
exactly what he told his first investors--family and friends: "I
think there's a 70% chance you're going to lose all your money,
so don't invest unless you can afford to lose it."
"When he called and said he wanted to sell books on the Internet,
we said, 'The Internet? What's that?'" remembers Mike Bezos, who
initially questioned his son's sanity when he heard him say he
was quitting his cushy job to start a company that would probably
fail. But this was Jeff, after all, and his parents trusted him
and believed in him every moment of his life. In the end, "we
talked about it for two minutes," says Jackie Bezos. They ponied
up $300,000, a huge chunk of the money they had saved for
retirement. "We didn't invest in Amazon," says his mother, "we
invested in Jeff." The ROJ--return on Jeff--was substantial.
Today, as 6% owners of the company, they're billionaires.
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