The Everything Store: Jeff Bezos and the Age of Amazon (6 page)

Bezos tapped Lovejoy to assist with recruiting and told him to go hire the smartest people he knew—just like David Shaw, Bezos wanted all of his employees to be high-IQ brainiacs. Lovejoy brought in four friends from his alma mater, Reed College, one of whom was Laurel Canan, a twenty-four-year-old carpenter who was planning to return to school to become a Chaucer scholar (it never happened). Canan helped build the much-needed packing tables, and then he formally joined the company and took over operations in the warehouse. (The landlord had finally allowed Amazon to expand out of the Sonic Jungle room and take over the entire basement.) One of the first things Canan did upon being hired was give up coffee. “You can’t do a job like that on caffeine. You have to do it on carbs,” he says.

It was an eclectic team operating under unusual circumstances in a challenging environment, and together they took their first tentative steps into an exotic river called the Internet. To everyone’s surprise, they all got swept up in a swift current. The first week after the official launch, they took $12,000 in orders and shipped $846 worth of books, according to Eric Dillon, one of Amazon’s original
investors. The next week they took $14,000 in orders and shipped $7,000 worth of books. So they were behind from the get-go and scrambling to catch up.

A week after the launch, Jerry Yang and David Filo, Stanford graduate students, wrote them an e-mail and asked if they would like to be featured on a site called Yahoo that listed cool things on the Web. At that time, Yahoo was one of the most highly trafficked sites on the Web and the default home page for many of the Internet’s earliest users. Bezos and his employees had of course heard of Yahoo and they sat around eating Chinese food that night and discussing whether they were ready for a wave of new business when they were already drowning in orders. Kaphan thought that it might be like “taking a sip through a fire hose.”
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But they decided to do it, and within the first month of their launch they had sold books to people in all fifty states and in forty-five countries.
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Every day the number of orders increased, and the tendrils of chaos—the company’s constant antagonist over the next several years—began to tighten around the young startup. Bezos insisted that Amazon had to have a customer-friendly thirty-day-return policy, but it had no processes in place to handle returns; it had a line of credit but would regularly max out its account, and MacKenzie would then have to walk down the street to the bank and write a check to reopen it. Tom Schonhoff, who joined that summer after getting a computer science degree at the University of Washington, remembers Bezos bringing a latte to work each morning and sitting down at his disorganized desk. One day, the young CEO grabbed the wrong cup and took a slug of curdled, week-old latte. He spent the rest of the day complaining that he might have to go to the hospital. Everyone was working long days, scrambling to keep up, and not getting enough sleep.

On August 9, 1995, Netscape Communications, the corporate descendant of the pioneering Mosaic Web browser, went public. On the first day, its stock jumped from an initial price of $28 per
share to $75, and the eyes of the world opened to the gathering phenomenon that was the World Wide Web.

While he and his employees worked exceedingly long days, Bezos was always thinking about raising money. That summer the Bezos family, using the Gise family trust (Gise was Jackie’s maiden name), invested another $145,000 in Amazon.
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But the company couldn’t continue hiring and growing on the Bezos family savings alone. That summer, Nick Hanauer, a garrulous fixture of the Seattle business community whose father had started a successful pillow manufacturing company, helped to line up pitch meetings for Bezos. He canvassed sixty potential investors, seeking to raise $1 million from individual contributions of $50,000 each.
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In the meetings, Bezos presented what was, at best, an ambiguous picture of Amazon’s future. At the time, it had about $139,000 in assets, $69,000 of which was in cash. The company had lost $52,000 in 1994 and was on track to lose another $300,000 that year.

Against that meager start, Bezos would tell investors he projected $74 million in sales by 2000 if things went moderately well, and $114 million in sales if they went much better than expected. (Actual net sales in 2000: $1.64 billion.) Bezos also predicted the company would be moderately profitable by that time (net loss in 2000: $1.4 billion). He wanted to value the fledgling firm at $6 million—an aggressive valuation that he had seemingly picked out of thin air. And he told investors the same thing he told his parents: the company had a 70 percent chance of failing.

Though they could not have known it, investors were looking at the opportunity of a lifetime. This highly driven, articulate young man talked with conviction about the Internet’s potential to deliver a more convenient shopping experience than crowded big-box stores where the staff routinely ignored customers. He predicted the company’s eventual ability to personalize a version of the website for each shopper based on his or her previous purchases. And he prophesied what must have seemed like a radical future: that everyone would one day use the Internet at high speeds, not over screeching
dial-up modems, and that the infinite shelf space of the Web would enable the fulfillment of the merchandiser’s dream of the everything store—a store with infinite selection.

Bezos started his investment tour at the Mercer Island home of Eric Dillon, a tall blond stockbroker and one of Hanauer’s best friends. “He swept me off my feet,” Dillon says. “He was so convinced that what he was doing was basically the work of God and that somehow the money would materialize. The real wild card was, could he really run a business? That wasn’t a gimme. Of course, about two years later I was going, ‘Holy shit, did we back the right horse!’ ”

Bezos also pitched Bob Gelfond, a former D. E. Shaw colleague. Gelfond turned for advice to his skeptical father, a man who had had a long career in book publishing and who had experienced the pain of trying to get his company to embrace personal computers. His father recommended against the investment, but Gelfond had watched Bezos smoothly operate in the hedge-fund world and bet on his friend anyway. “It’s one thing to have a good idea, but it’s another to have confidence in a person to execute it,” he says.

Many others turned Bezos down. Hanauer and his mother invested, but one of Hanauer’s brothers and his father declined. Tom Alberg, a former executive at McCaw Cellular, met Bezos and was dubious because he loved browsing in bookstores. Then a few days later he failed to find a business book for his son at a local shop, and he changed his mind and decided to invest. The attorney who told Alberg about the deal invited Bezos to speak at an investment group that met regularly at Seattle’s tony Rainier Club. He thought the valuation was too high and passed.

Bezos later told the online journal of the Wharton School, “We got the normal comments from well-meaning people who basically didn’t believe the business plan; they just didn’t think it would work.”
¹¹
Among the concerns was this prediction: “If you’re successful, you’re going to need a warehouse the size of the Library of Congress,” one investor told him.

Todd Tarbert, Amazon’s first lawyer, sighs heavily when
recalling his decision about whether to personally back the company. For the first time in his career, he wanted to invest in a client’s firm, and he secured written permission to do so from the Washington State Bar Association. He also talked to his father about taking out a loan against their jointly owned farmhouse. But then Tarbert’s son was born prematurely, and he took a month off from work and never got around to writing the $50,000 check. By the time Tarbert returned, Bezos had already raised the $1 million at a slightly-lower-than-hoped-for $5 million valuation.

One day in late 1997, after Amazon’s IPO, Tarbert was playing golf with his dad. “You know that company Amazon that just went public?” his father asked. “Was that the company we were talking about? What happened with that?”

“Yeah, Dad. You don’t want to know,” Tarbert replied.

“Well, what would that be worth today?” his father continued.

“At least a few million,” Tarbert said.

At the end of that summer, Nicholas Lovejoy told Bezos he wanted to move from part-time to full-time. To his surprise, his former D. E. Shaw colleague didn’t want to hire him full-time. Lovejoy had been working a modest thirty-five hours a week, playing ultimate Frisbee, kayaking, and hanging out with his girlfriend, and Bezos was imagining a different culture for Amazon, one where employees worked tirelessly for the sake of building a lasting company and increasing the value of their own ownership stakes. Lovejoy pleaded his case, arguing he was ready to sign up for sixty hours a week like everyone else, but he couldn’t change Bezos’s mind. Bezos even asked him to find a full-time employee to replace himself, which seemed particularly cruel. Eventually Lovejoy gave him a stack of résumés, and he put his own at the top. He also appealed to MacKenzie, Kaphan, and Davis and got them to change the boss’s mind. Lovejoy would work a variety of jobs at Amazon over the next few years, writing code and book reviews, ferrying packages to the post office at night, and eventually winding up in finance.

Bezos felt that hiring only the best and brightest was key to
Amazon’s success. For years he interviewed all potential hires himself and asked them for their SAT scores. “Every time we hire someone, he or she should raise the bar for the next hire, so that the overall talent pool is always improving,” he said, a recurring Jeffism. That approach caused plenty of friction. As Amazon grew, it badly needed additional manpower, and early employees eagerly recommended their friends, many of whom were as accomplished as they were. Bezos interrogated the applicants, lobbing the kind of improbable questions that were once asked at D. E. Shaw, like “How many gas stations are in the United States?” It was a test to measure the quality of a candidate’s thinking; Bezos wasn’t looking for the correct answer, only for the individual to demonstrate creativity by coming up with a sound way to derive a possible solution. And if the potential employees made the mistake of talking about wanting a harmonious balance between work and home life, Bezos rejected them.

Paul Davis was incredulous. Amazon at the time was offering about sixty thousand a year in salary, stock options of questionable value, a meager health plan with a high deductible, and an increasingly frenetic work pace. “We would look at him and ask, How do you think you’re ever going to attract anyone with that kind of background to a company that has no revenue and that is not projected to have any kind of revenue?” Davis said. “I don’t see what the selling point is here!”

Little by little, the CEO with the piercing laugh, thinning hair, and twitchy demeanor revealed his true self to his employees. He was unusually confident, more stubborn than they had originally thought, and he strangely and presumptuously assumed that they would all work tirelessly and perform constant heroics. He seemed to keep his ambitions and plans very close to the vest, not revealing much even to Kaphan.

When his goals did slip out, they were improbably grandiose. Though the startup’s focus was clearly on books, Davis recalls Bezos saying he wanted to build “the next Sears,” a lasting company that was a major force in retail. Lovejoy, a kayaking enthusiast,
remembers Bezos telling him that he envisioned a day when the site would sell not only books about kayaks but kayaks themselves, subscriptions to kayaking magazines, and reservations for kayaking trips—everything related to the sport.

“I thought he was a little bit crazy,” says Lovejoy. “At the time we offered 1.5 million books. Only about 1.2 million of those you could actually order. The database came from Baker and Taylor and we had about forty books in the warehouse.”

Bezos was also proving himself to be something of a spoilsport. That year the engineers rigged a database command,
rwerich,
to track the number of daily purchases as well as orders throughout the lifetime of the company. They obsessively watched those numbers grow—it was one of their pleasures amid the typically frenetic days. Bezos eventually told them to stop doing it, in part because it was putting too much strain on the servers. And when Amazon had its first five-thousand-dollar-order day and Lovejoy wanted to throw a party, Bezos rejected the idea. “There are a lot of milestones coming and that’s not the way I want to run things,” he said.

By early 1996, the young company was outgrowing its space in the Color Tile building. Employees were jammed into three small rooms, four door-desks in each, and the basement warehouse was overflowing with books. Kaphan, Davis, and Bezos piled into a car and went looking for a larger office in industrial areas around Lake Washington. Bezos emerged from every building to proclaim the space too small, Davis recalls. He wanted to accommodate whatever came for the company down the road.

That March, Amazon finally moved to a larger building with a more spacious warehouse a few blocks away. The new office was next to the Pecos Pit, a popular barbecue stand whose tantalizing aromas would waft into the warehouse each day starting at around ten in the morning.

But one early employee did not move with them. Paul Davis, who later became an advocate for open-source software and a critic of Amazon’s enforcing its 1-Click patent, told Bezos he wanted to spend more time with his newborn daughter. Leaving Amazon so
early cost him a literal fortune in unclaimed stock options. A few months later, he would punctuate that misstep by slicing off the tip of his thumb with a band saw while preparing his home for sale. Bezos and Tom Schonhoff went to visit him in the hospital.

Somehow Davis, a native Londoner, was immune to the gospel of Jeff. He looked askance at the work-first zealotry, and he noticed that Bezos had changed a clever motivational phrase about choosing among three ways to work. In the old Bellevue house, Bezos had said to Kaphan and Davis, “You can work long, hard, and smart, but at Amazon.com you can pick only two out of three.” Now the young CEO liked to recite, “You can work long, you can work hard, you can work smart, but at Amazon you
can’t
choose two out of three.”