because "optimism is essential"
Few entrepreneurs have taken as many lumps in the court of public opinion as Jeff Bezos has since his famous cross-country drive to Seattle in 1994 to found Amazon.com. Even as recently as June 2000, Lehman Brothers analyst Ravi Suria was memorably predicting that Amazon, based on Suria's analysis of the company's cash flow, would be unable to service its debt by the first quarter of 2001--and a lot of people believed him. As a result, Bezos had to spend quite a bit of time fending off speculation that bankruptcy was around the corner and explaining why he'd chosen, at least initially, to stress growth over profitability. (The fact that the company's most famous Wall Street booster had been Henry Blodget only made matters worse, as Blodget sank into infamy even faster than the market declined.) But even fewer entrepreneurs have had the satisfaction of succeeding despite such skepticism. Not long after Amazon announced its first-ever full-year profit, we invited Bezos to talk about how he beat the odds and what the future holds--not just for him and for Amazon but for the entrepreneurial spirit.
I've joked that in the case of Amazon.com, half of it was good timing, half of it was luck, and the rest of it was brains. And there's a lot of truth in that. The fact of the matter is, the odds are stacked against any start-up. Heavily so. There's a huge amount of luck and timing involved.
Amazon.com's most vulnerable moment was when we were trying to raise a million dollars of angel financing--there was a moment there, back in 1995, where the company very easily could have not continued to exist. We probably had meetings with over 60 people, the process took several months to close, and we ultimately raised the money from about 22 different angel investors. And by the way, that's completely normal: There was a period in the late 1990s when people could, with a single phone call, raise $60 million, but that's abnormal. If you go out to raise a million dollars for an untested idea--that's supposed to be hard. And it was.
But I am very optimistic. I'm generally a very happy person. My wife says, "If Jeff is unhappy, wait three minutes." I believe that optimism is an essential quality for doing anything hard--entrepreneurial endeavors or anything else. That doesn't mean that you're blind or unrealistic, it means that you keep focused on eliminating your risks, modifying your strategy, until it is a strategy about which you can be genuinely optimistic. People think entrepreneurs are risk-loving. Really what you find is successful entrepreneurs hate risk, because the founding of the enterprise is already so risky that what they do is take their early resources, the small amounts of capital that they have, whatever assets they have, and they deploy those resources systematically, eliminating the largest risk first, the second-largest risk, and so on, and so on.
"You don't choose your passions, your passions choose you."
Entrepreneurship is really more about a state of mind than it is about working for yourself. It's about being resourceful, it's about problem solving. If you meet people who seem like really good problem solvers, step back, and you'll see that they are self-reliant. I spent summers on my grandfather's ranch, in a small town in Texas; from age four to 16 I probably missed only two summers. One of the things that you learn in a rural area like that is self-reliance. People do everything themselves. My grandfather bought a used D6 Caterpillar bulldozer, and it had a stripped transmission. He had to get a big gear out of this thing and that one gear probably weighed 500 pounds--so he had to build a small crane! That kind of self-reliance is something you can learn, and my grandfather was a huge role model for me: If something is broken, let's fix it.
To get something new done you have to be stubborn and focused, to the point where it might seem unreasonable. But at a certain point, you have to be flexible and change. The hard part, of course, is knowing when to be stubborn and when to be flexible. So we do a lot of experiments. Some of the experiments succeed and some fail, but all of them are designed to improve the customer experience. Look at something like free super saver shipping--our free shipping on orders over $25. That is something we very methodically experimented with for a full year. At first, orders over $99 would ship free, and then orders over $49 would ship free, and then orders over $25 would ship free. We knew that customers would like that, so it was a question of, would it drive enough sales to make it worthwhile? We compared it with a television advertising campaign: We picked two markets, Minneapolis and Portland, Oreg., and for a year we did television advertising just in those markets. We wanted to see if we would get a sufficient lift in sales to justify television advertising, and to compare that with giving the money directly to the customers in the form of free shipping instead of to the television networks. That's a very customer-experience-focused experiment, and when we were done we decided we would make the $25 free shipping indefinite. It's been in place now for almost two years.
On the other hand, we invested in a number of dot-com companies--Pets.com, Living.com, Kozmo.com, and Homegrocer. Our strategy was to create placeholders for these categories that seemed interesting to us. But ultimately all the businesses I mentioned failed. Of course, if I knew everything I know now, I would have invested the money differently. But that's hindsight. When you do experiments you have to expect a certain fraction of them not to succeed.
Even once you have a strategy that makes sense and holds together from different angles, optimism is essential when trying to do anything difficult because difficult things often take a long time. That optimism can carry you through the various stages as the long term unfolds. And it's the long term that matters. If you look at the online space over the next 20 years, you're going to continue to see innovation. Certainly things are different from nine years ago, but there are still going to be thousands and thousands of successful companies. This is a big industry, and it's going to have lots and lots of winners, of all sizes. Amazon itself has a kind of ecosystem of people involved in entrepreneurial activities. We have 600,000 active seller accounts now, and over 900,000 associates--the websites that link to us--and a lot of those are small businesses with multiple employees. We recently started making available software kits that let people use the basic building blocks of Amazon.com to build their own websites and e-commerce applications and so on, and we've had over 50,000 downloads. That's beyond what we would have expected.
If I were just setting out today to make that drive to the West Coast to start a new business, I would be looking at biotechnology and nanotechnology. I also think about data security--every time you read about the next computer virus, you wonder if there aren't entrepreneurial solutions to that. These are fundamental technologies, things that are going to change the world. But the truth is, I probably wouldn't do any of those things because I grew up programming computers. So maybe I'd think about data security, but I'm sure I'd do something with software and computer science and software engineering. Certainly, in the spring of 1994, the thing that motivated the formation of Amazon.com was noticing that Web usage was growing at 2,300% a year.
One of the huge mistakes people make is that they try to force an interest on themselves. If you're really interested in software and computer science, you should focus on that. But if you're really interested in medicine, and you decide you're going to become an Internet entrepreneur because it looks like everybody else is doing well, then that's probably not going to work. You don't choose your passions, your passions choose you. One of the reasons you saw so many companies that were formed in 1998 or 1999 fail is that they were chasing the wave. And that usually doesn't work. Find that area that you are interested in and passionate about--and wait for the wave to find you.--Rob Walker
Rob Walker is a contributing editor.