How Amazon Got Started

Today, people all over the world know Amazon (AMZN) as a multi-billion-dollar ecommerce company that continues to push the retail industry in new directions. Amazon does much more than sell items through its website. It generates tremendous revenues through cloud computing services, movie production, and streaming services.

Amazon also owns several smaller companies, including Whole Foods, Zappos, and Twitch Interactive.

Despite Amazon’s global success, it began like many small businesses.

When Was Amazon Started and by Whom?

Jeff Bezos started working on the Amazon concept in early 1993. At the time, though, he hadn’t decided on a name or even chosen a business plan. He just knew that the internet offered new retail opportunities, and he wanted to explore his options.

Bezos had already experienced considerable success before he started his now-famous company. He graduated from Princeton at the top of his class with a Bachelor of Science in Engineering degree.

At Princeton, he had primarily focused on electrical and computer engineering. Not surprisingly, the young graduate got numerous job offers. He decided to enter the Fintech industry. He started at the startup Fintel in 1986.

Two years later, he transferred to Bankers Trust. By 1990, he joined the hedge fund D. E. Shaw & Co., where he worked on financial modeling. He became a senior vice-president at age 30.

Despite his success, Bezos worried that he had missed the surge of computer and internet startups that emerged through the 80s and early 90s. Unwilling to miss an opportunity in technology, he left his job as VP at D. E. Shaw & Co. and moved to Bellevue, Washington, a satellite community located just a few miles from Seattle proper.

(Interestingly, Bezos had first considered moving to a reservation outside of San Francisco. The location might have let him avoid federal taxes and given him close proximity to Bay Area’s growing tech industry.)

How Did Amazon Start Off?

While driving from New York to Seattle, Bezos wrote a loose business plan that would help him earn money by selling retail items from his garage.

On July 5, 1994, he incorporated the business in Washington under the name “Cadabra.” Bezos later reconsidered the name “Cadabra” when a lawyer misheard it as “Cadaver.” An online retail store that some people could mistake for Cadaver probably didn’t seem like a smart move to the young Bezos, so he started exploring new names.

He tried Relentless for a short while, but friends warned that it had an off-putting sound. He never incorporated his business under the name Relentless. Funny enough, though, Bezos still owns the website name. If you visited relentless.com, it redirects you to the Amazon site.

Finally, Bezos settled on the name Amazon, and he incorporated it the business entity in Delaware. He liked the name “Amazon” because it sounded exotic, and the Amazon River is the world’s largest river.

Also, he liked that the name began with an “A.” Bezos already anticipated that others would follow his business model. He wanted a name that would appear near the top of alphabetized lists.

At this point, he knew a few things about his business:

• He would operate from his rented garage in Bellevue.
• He would use his website to sell books. (Bezos chose books over other options because there were so many titles to sell and there was high demand for the item.)
• He had $250,000 in investment capital from his parents.
• He would not open a physical location. Instead, he would ship books from his garage to buyers.

It’s difficult to know whether Bezos thought much about how large his company would become. During his graduation speech, he had mentioned his belief that people would live on other planets in the not-too-distant future. In other words, Bezos thinks big.

Given this personality trait, he might have seen selling books as the first stepping stone to changing the face of the retail industry.

What Was Amazon Originally Created For?

Jeff Bezos originally created Amazon to sell books directly to consumers. He didn’t choose books thoughtlessly, though. He considered other consumer goods, too.

At one point, he had a list of five categories that he was considering. They included movies, computer hardware, and software.

In the end, Amazon became a bookseller because that seemed like the most successful business model to Bezos. It helped that Bezos could buy books at very low prices compared to his other options.

It only took a couple of weeks before Amazon was selling $20,000 of books each week from the Bellevue garage.

Perhaps not surprisingly, other booksellers recognized Amazon as a threat to their brick-and-mortar stores. Barnes & Noble launched a lawsuit against Amazon because the online business used the phrase “the world’s largest bookstore,” an obvious nod to the internet’s massive size and the company’s ability to serve people in all 50 states and a growing number of companies.

Barnes & Noble claimed that the statement was false because Amazon wasn’t a bookstore at all. Rather, it was a book broker. The companies settled out of court for an undisclosed sum, and Amazon continued using the phrase.

How Did Jeff Bezos Start Amazon?

Jeff Bezos took a smart approach to starting his now-global company. He had already amassed a fair amount of wealth from jobs in fintech and banking. He used his own money to fund some of the company. He also accepted a $250,000 investment from his parents.

To keep overhead as low as possible, Bezos rented a home in Bellevue, Washington. The home had a large garage that he could use as a short-term warehouse for books.

Taking these steps meant that Bezos could avoid much of the debt that damages other startups. As someone with years of experience in banking, he knew that paying interest cut into profits and made it harder for companies to grow. By avoiding this situation, he set up his business for success.

How Did Amazon Get Funded Early On?

Jeff Bezos started Amazon with his personal wealth and a $250,000 investment from his parents. From the perspective of a startup with a massive online database, secure payment options for customers, and a large stock of merchandise, this isn’t very much money. 

Despite the company’s humble beginnings, it grew rapidly. By 1998, it had enough money to hire executives away from Wal-Mart (WMT). In 1999, time named Jeff Bezos its “person of the year” for popularizing online shopping. 

This strategy worked (obviously). Beginning in 2000, Amazon started using a logo that included its name and a curved arrow connecting the first A and Z, indicating that the company now sold “everything from A to Z.”

When Did Amazon Go Public?

Amazon went public on May 15, 1997. Its IPO posted shares at $18. For reference, the company’s stock price has stayed above $3,000 for the first half of 2021. 

Bezos and other executives within the company did not believe Amazon would earn a profit for at least four years.

Some major investors were upset when they learned this. Amazon’s slow-and-steady approach to growth, however, probably helped it stay in business when the dot-com bubble burst. 

3 Reasons Amazon Got So Big

Amazon has become such a massive company (it’s the second-largest private employer in the United States) because it takes calculated risks.

Three of its biggest payoffs include the following:

Amazon Takes a Long-Term Approach to Growth

Bezos understands how financial growth functions, so he saw no reason to push the company into financial hardship beyond what was necessary. 

As a result, Amazon has grown steadily while avoiding the pitfalls that harm many internet-based retailers.

Amazon Makes Money From Diverse Sources

The typical household knows Amazon as an online retailer that sells a wide range of products. They might also know that Amazon sells streaming devices and access to online content.

More importantly, Amazon makes a tremendous amount of money through its Amazon Web Services (AWS). It has become a leading provider of cloud services that companies around the world rely on to store, share, and process data.

Amazon Privatized Most of Its Deliveries

In the 1990s, Amazon relied on USPS to mail packages to consumers. Today, the company uses a mixture of fulfillment strategies to reach customers as quickly as possible.

In some cases, that means letting third-party sellers on its site send packages through the mail. More often than not, though, Amazon relies on its private fleet of delivery vehicles and drivers. While this might seem like a tremendous expense, it puts Amazon in control of deliveries and costs less over time.

As Bezos famously said, your margin is our opportunity. And that’s applied to FedEx (FDX) as much as anyone. When Bezos started to compete in logistics and delivery, the shudder across boardrooms from UPS to FedEx could be virtually heard by investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.