The Everything Store notes & summary
Bezos is relentless, very bright, and one of the best managers in the planet.
I just finished ‘The Everything Store’ by Brad Stone and I loved it. It charts the rise of Amazon from an online bookseller operating out of a garage in Seattle to a billion dollar company at the height of the dotcom bubble, which it barely survived when the bubble burst, and went on to become a roughly ~$1 trillion dollar company.
Amazon has been around for a long time, longer than Google/Alphabet, Netflix, or Facebook/Meta. Not only are they the apex predator in the e-commerce space, they are quite a sophisticated technology company. They were the first to nail the e-reader, the inventor of the smart speaker (which grew so popular that Apple and Google copied them years later), and the inventor of web services (which Google and Microsoft copied).
The book also focuses a lot on Bezos and talks about his parents, his childhood, his private life, and his other ventures, including Blue Origin. Despite being 10 years old the book is quite popular, and I found it prominently displayed in my local book store. These notes below were initially scribbled down in the first few pages as I read the book, and include some additional notes I just added. The page numbers correspond to the paperback version, because hardcover books are a rip off and a pain in the ass to read, though they are better to take notes on.
Without further ado, here are my notes.
pg.40 - Bezos pledged to found a growth start-up by the age of 30. While working for one of the first ever quant investment firms he noticed that the internet was growing at 2,300% a year (it was actually growing at 2,300x, or 230,000x a year but Bezos read it wrong) and decided that this was his opportunity. He thought that selling things online was the best bet, and books were the easiest thing to sell so that’s why he started selling books online.
pg.70 - Bezo’s parents put in 100k to get the company up and running, and Bezos put in about double that of his own money. The business had, in Jeff’s words at the time, a 70% chance of failing. That is insane. It is also very common for the parents of founders to give their kids large initial investments. Capital was a lot harder to come by back then as interest rates were higher (start-ups, especially risky growth start-ups, need to pay at least triple the interest rates of the Govt and usually more. If Govt interest rates are 7% as they were back then it makes it very very expensive to raise money for a start-up. Venture Capital has largely removed this barrier). Nike was founded in 1964 and its founder Phil Knight had to work full-time while investing his savings and getting his friends to work for free at his start-up to make the business work, and even that was a serious struggle that almost brought his company down multiple times. The easy access to capital that we enjoy today is a huge driver of growth and a luxury that is relatively new. It’s relatively easy for a few smart college grads to raise 20k of free cash with no equity, and 500k with a decent plan and some equity. That’s how Paul Graham recommends starting a business, using the 500k to get profitable and only then raising money, on your own terms. He also recommends starting a business right out of college, before you get a job and expensive habits. I have just decided, right now, that I start a start-up now, instead of waiting a few years. But first I will finish this blog.
pg.86 - Bezos could be pretty cold with his staff. Shel Kaphan was Amazon’s first employee and moved from California to Seattle, took a 50% pay cut, and was contractually obligated to fork over $5k to buy stock in the company. About 4 years later Amazon was huge and Bezos basically pushed him out, hiring more experienced managers to take over Shel’s responsibilities and left him with no influence, despite technically being CTO.
Bezos was nothing but nice to Shel in person but clearly didn’t think much of his engineering skills and didn't feel obliged to give Shel first dibs on engineering projects. Bezos never fucked him over, he just wasn’t going to potentially limit his company by keeping his friends in charge. This would never happen in government, or in any organization where the manager is insecure and relies on friends in high places to prop him up. Bezos relies on his ability alone and could’ve been voted out at any time during the last 20 years of his reign, but hasn’t been because he’s so good. Tesla have a similar situation with Musk although Musk has a bit more control, and the Google & Facebook founders have a complete monopoly of control and cannot be voted out.
pg.91 - Bezos raised a ton of capital when it was cheap. Amazon IPO’d in 1997 and raised nearly $2 billion in 1998 at rock-bottom interest rates (4.75%) when the dotcom bubble was well underway. Amazon’s market cap peaked at $20 billion before the dotcom bubble burst in the early 2000s, after which it fell back down to $2 billion. Amazon was able to cut costs and use the money he had raised cheaply to see him through the downturn. If he had to raise money in the downturn it would’ve cost him at least twice as much, and up to 20x as much. He seized the opportunity.
All founders should’ve raised as much money as possible during the last 5 years when interest rates were near 0%. We are now entering a bear market with rates increasing to 5% and companies need to insure that they have cut their costs so that they are either profitable or have enough money already raised to see themselves through this recession which will last until possibly 2025. Most founders saw this current bubble coming and cashed out in 2021. This bears some similarity to the current bubble burst.
SPEED SPEED SPEED. Speed is SO important to high-performing teams. If you consistently react faster than your competitors, even by 5%, you are ahead of them 100% of the time. In Bezo’s first job posting he asked for somebody who could build network infrastructure in 1/3rd the time considered normal. Amazon had posters around their warehouses and offices that said ‘GET BIG FAST’.
Bezos made a number of bold bets around this time. He was an early investor in Google, an investment which alone would’ve made him a billionaire. This and other investments was partly why he was named 1999 Time Person of the Year, as he seemed to embody the age of the Internet better than anybody. Bezos management of Amazon in terms of bets can be summarized as follows:
Build a stable cash cow.
Let somebody else run the cash cow.
Focus your time and money on bold new bets.
Most of those bets will fail, but one will succeed and become an even bigger cash cow.
Let somebody else run the new cash cow.
Repeat.
In Amazon’s case, the cash cow was actually not Amazon.com, but running the e-commerce operations of other companies.
p.131 Amazon was so busy on using the cheap capital to grow the business that they didn’t worry about profitability until the bubble burst. Then they trimmed the fat, announced some layoffs, started running the e-commerce platforms of other companies, and became profitable, allowing them to get through the downturn. Becoming profitable also meant that they could raise money again at reasonable rates because they had proven their ability to create a return on investment.
This is very similar to what we are seeing now. As the cost of capital has skyrocketed recently companies are announcing mass layoffs. There was no need to be too conservative money-wise because cash was so cheap, it was all about growing as fast as possible.
Cheap money = GET BIG FAST
Expensive money = GET PROFITABLE FAST
pg.142 Bezos was uncomfortable with their current cash cow of building the e-commerce platforms of other businesses.
Bezos stayed focused on the long term vision for the company and realized that, even though the partnerships with other companies to run their e-commerce was the only profitable part of the business, it limited their growth by preventing them from selling the same goods on their own platform. It was a necessary evil to keep the company going after the dotcom crash but Bezos wouldn’t allow his Amazon to get addicted to the safe, easy, predictable returns from these deals. If he was the type to play it safe he would have kept his lovely salary at his old hedge fund. No laying up.
pg.150 - Jeff started Amazon Marketplace, which allowed anybody to sell new or used products on Amazon, on the same page and right next to where distributors were selling their own products. This was very unpopular with sellers, who now faced more competition, and with category managers within Amazon who were judged based on growth and sales. He also introduced a feature allowing customers to post reviews of products, which were displayed prominently on the product page. This too upset the same group of people who were afraid it would hurt sales and their bottom line. Jeff didn’t care, it was better for the long-term growth of the company and for customers. Jeff had no problem upsetting everybody, all he cared about was the customer. He embodies customer obsession, one of the 14 leadership principles at Amazon.
pg.162 - The Flywheel. Amazon’s secret sauce. It works as follows:
Increasing sales leads to economies of scale, which leads to lower prices for customers, which increases sales, and on and on and on. Anything that increases sales spins the flywheel even faster, making the whole product better. Increasing selection, making checkout easier, adding features customers like (customer reviews, marketplace, etc.), and anything that increases sales has a compounding effect. Increasing sales compound faster and faster until, eventually, you capture pretty much the entire market, as Amazon has done.
Jeff and his team didn’t fully realize this virtuous cycle until 2001, and when they did Jeff, against the advice of his board, decided not to write about it to woo investors. He kept it secret. Short-term pain, long-term gain. Secrecy is one of Amazon’s greatest weapons. They are super secretive when they’re developing new products, so that once they’re released they have a huge headstart. Google’s CEO Eric Schmidt didn’t even really realize how big AWS was until one day he realized that every startup in Silicon Valley was using it. Amazon hires for these projects aren’t told what they’re working on until after they’re hired. You’ll see this pop-up again and again.