An entrepreneur by definition has a notable amount of duties, which involve discovering opportunities and exploring them, leading and motivating his workforce, and being farsighted in that he doesn’t only focus on the short-term picture, but looks at things in view of the future (Baumol, 2001). Schumpeter (1934) describes an entrepreneur as one who innovates and finds new ways of producing new things or things already being produced. Jeff Bezos, who this essay dwells on, exemplifies these definitions of an entrepreneur. He was able to recognize the opportunity for electronic commerce to be done via the internet in 1994 and was able to quickly launch and push Amazon.com from a being garage start-up to becoming the largest bookselling company worldwide. Amazon expanded further and has become a multi-billion-dollar online retail company, revolutionising the world of retail.
Background Information
Jeff Bezos was originally born as Jeffrey Preston Jorgensen, on 12 January 1964 in New Mexico to young teenage parents. A brainy kid with early enthusiasm for computers, he graduated from his high school as valedictorian and proceeded to study computer science with electrical engineering at Princeton University.
Despite his interest in entrepreneurship, he decided to gain some working experience after graduation, to learn about how the business world works. Bezos proceeded to work for various firms that specialized in interlinking computing with finance, developing communications systems for companies. His final job prior to opening Amazon was at D.E Shaw, a firm that specialized in developing automated trading systems for Wall Street firms, where he stumbled upon the internet that changed his life forever.
Discovering The Opportunity
An entrepreneurial opportunity creates the possibility for new products or services to be sold for more than they cost to produce and can occur in different ways (Kirzner, 1997). Mooney (1985) based on Peter Drucker’s literature explained that opportunities can be found within the establishment of new knowledge, for example, the development of technology such as the internet. At D.E Shaw, Bezos was tasked with looking into viable opportunities within the newly buzzing internet, and that was how he discovered a potential might exist within the internet’s high growth rate
According to Brandt (2011), Bezos was interested in exploring this unexploited potential and using this to create wealth for himself. He was interested in implementing his already existent technological and business skills to create a massive retail business. The internet provided a place for connecting vast amounts of people, thus creating an opening for reaching and selling to massive amounts of people.
Venkataraman (1997) explained that information asymmetries exist, and the information available to each individual depends on their various circumstances. Shane and Venkataraman (2000) further explored the idea that people with greater experience and knowledge regarding opportunities were more likely to exploit it. Bezos’ previous technological working experience gave him a greater ability to spot this opportunity and recognise the value within it the incentive to pursue this opportunity, confirming these theories.
As e-commerce was yet to have been discovered or associated with the internet, an element of pattern recognition must have come to play. Bezos was able to find a link between the internet and the world of retail, allowing him to identify this opportunity (Baron, 2006). That being said, Bezos can be regarded as a Schumpeterian innovator, having the ability to spot a new opportunity, rather than just correcting an already existent market (Kirzner, 1997)
In trying to decide what venture to pursue, Bezos created a deal flow list, narrowing down to his initial product and target market. From his list he decided he wanted; a familiar product with a large market size, few direct competitors, a ready source of inventory, discount opportunities, low shipping costs, ease of database creation and obvious online potential. From these, he decided to pursue online bookselling. He noticed that there were existing companies running mail-order systems, with increasing demand, but none had taken advantage of the internet yet.
Findings by Amit, Cockburn, and Muller (1995) narrate that an entrepreneur should have less to lose from pursuing an opportunity, but Bezos proved contrary. He was working as a well-paid vice president when he decided to leave his job but deemed the cost of regret of not exploring this opportunity to be higher than the cost of leaving his job
Attributes of an Entrepreneur
Some bodies of work believe that successful entrepreneurship is based on traits which only certain people possess (Shane, 2000). Exploring this idea, we view Bezos’ different traits.
Bezos from the onset was quite optimistic about the future of Amazon, due to his strong sense of self-belief. This was a quality outlined by his mother as the reason for investing in him. Even after the company grew, employees described him as someone with an infectious enthusiasm for his company. High level of optimism was a characteristic described by Shane and Venkataraman (2000) of an entrepreneur.
Zhao and Seibert (2006) examined a five-trait model in which they believe that entrepreneurs score high on conscientiousness and openness to experience, whilst they score low on neuroticism, agreeableness and are indifferent to extraversion. Bezos’ different attributes correlate with the resultant attributes of an entrepreneur gotten from these studies.
Being the risk taker he was, Bezos ensured that all investors were willing to take a risk as well, telling them to only invest if they were willing to lose all of their investment. Despite the risk of failure, he developed a reputation for being an honest and hardworking entrepreneur, pushing the firm’s growth and profit levels.
Bezos has been described as being low on empathy by his grandparents, as well as employees. He has been described as being very temperamental and impolite towards employees. This further concurs with the low level of neuroticism experienced by entrepreneurs.
Bezos was described as being very open to receiving new ideas, regardless of the idea’s source, another key characteristic of an entrepreneur, although he tends to be very critical and opinionated. He doesn’t hold back whenever he has something on his mind. These traits further agree with Seibert and Zhao’s conclusions.
The Entrepreneurial Start-Up
The entrepreneur organises and combines different resources in order to pursue opportunities that are discovered (Elfring and Hulsink, 2002). The following section shows how Bezos, according to Brandt, served the role of gathering various economic resources to create and develop the company.
After leaving D.E Shaw, Bezos needed people to assist him in his quest to building Amazon. Using connections built over the years, he was able to meet and convince Sheldon Kaphan, an engineer looking for the next big company, and a software programmer Paul Barton-Davis, to join him. He had also met his wife, Mackenzie Tuttle, who was a colleague from when he worked at D.E Shaw.
A strong believer in hiring people with talent rather than experience, he needed people willing to think different to the norm as Amazon was a new type of retail business. Hence his hiring of Kaphan and Davis who had no prior experience developing the retail software needed by Amazon. His wife also assisted with handling the clerical and accounting duties, having had to learn accounting on the job.
Bezos was very particular about locating his company somewhere with a good labour market i.e. populated with entrepreneurs and programmers. Also, he wanted a place with a low populace in order to reduce the number of people that would have to pay sales tax on products, as according to American law, retailers are liable to sales tax in any city where they have a physical presence. He then wanted a major city with a busily running airport and good proximity to the warehouse of any book distributor. Based on these, he chose to settle in Seattle where he set up operations from the garage of his house.
He decided on the name ‘Amazon’ during his drive to Seattle, as it was easy to spell and would show at the top of listings in alphabetical order. He then started funding his entrepreneurial journey by bootstrapping using his personal savings, as well as obtaining some capital from his family who invested due to their belief in his capabilities.
Within his first year in Seattle, he tested how other online sellers worked by purchasing from them and learned about how traditional booksellers worked. To minimise costs, Bezos bought a few computers and used free open-source software that was amendable. As this was a new company type, most of their software programs were created newly. They also built a database to hold information about book titles. Kaphan was responsible for creating the user interface systems and Davis dealt with back-end systems that ran the company.
Originally, Bezos’ plan was to minimise the company’s inventory, while ensuring a quick flow of books from producers to the final consumer, although this plan changed as Amazon grew. In doing this, there would be less need for warehouse storage, and he believed that this would enable Amazon to minimise costs, stemming from a reduced physical presence
As a difference from offline competitors, Amazon had the ability to locate book titles and place orders faster due to their automated process. They also created an inventory tracking system to enable them to track how long it would take for books to be shipped to customers. This allowed them to use a moderate estimation strategy, overstating the length of time for shipping to customers, in order to keep customers pleased with speed of delivery.
Prior to launching, security features were embedded in the company’s systems to prevent hackers accessing credit card details. Also, the website was adapted to the various existing web browsers. ensuring enough critical information was displayed on non-graphical sites, to ensure ease of use. Although not complete, he launched an experimental version of the site and requested for feedback from a test audience. As his philosophy was to focus on the customer’s needs, he used the feedback to improve the site and continued collecting feedback even after the site was launched.
Amazon’s Expansion and Growth
Amazon was launched on July 16, 1995, with an early start on competitors, who had not discovered this opportunity in the internet’s high growth rate. To attract an audience, Amazon started off with all products being discounted. Bezos used this as a penetrative method into the market, as he was selling at lower prices than even the biggest chain stores. Without any advertising, Amazon’s popularity soared.
Amazon innovatively led the market, starting a system of recommending books to consumers based on their previous purchases, and differentiated themselves from offline booksellers by offering customer reviews for books, thus building a reputation of caring for customers. They also started an associates program, which allowed other sites to recommend and link to books on their webpage, giving those sites commission on sales made. The One-Click feature was also added and patented, cutting the ordering process to just one step.
Following the launch, Bezos secured more funding from private investors, amounting to $981,000. As the internet’s popularity grew, he drew the interest of speculative venture capitalist firms, General Atlantic, and Kleiner, Perkins, Caufield, and Byers (KPCB), and received $18 million from them. This follows a stark divergence from Amit, Brander, and Zott (1998) conclusions which perceived that venture capitalists were less willing to invest in start-ups due to informational asymmetries and led to a reduced performance in firms. This was then countered by Amit and Zott (2007), explaining that in buoyant economic periods, venture capitalists might be more willing to invest in innovative companies.
With enough capital, he focused on growth rather than profitability for Amazon, as the competition was increasing and he wanted to develop an advantage and capture as much of the market as possible. He began to pump money into acquiring more employees, better technology and finding more opportunities.
Two years after launching, Amazon became a public company. Demand for its shares flew, despite lack of profits. This could be attributed to its early start over the competition, high turnover, and brand popularity. Over the years, the company’s valuation rose above its biggest competitors and became the market leader. Bezos had to start investing substantially into advertising. Also, Amazon increased warehouse number and capacity, building automated distribution centres to reduce inefficiencies from the middle parties (distributors), thereby allowing them to ship straight from the publishers.
Bezos was continuously thinking of new ways to improve service offered to consumers. He purchased many retail companies and used them as an opportunity to expand Amazon’s product offerings, venturing into selling CDs, and DVDs. He also created Amazon’s Marketplace, allowing other retailers sell on Amazon. Though successful, he had a couple of failed ventures, such as Amazon Auctions, but continued to strive despite such setbacks. Amazon was as Schumpeter (1934) described, a creative destroyer, clearly paving the way for competitors, and their products offered.
Notwithstanding the firm’s high growth rate, Amazon was yet to make a profit by 2000. The dot-com crash saw a product sales drop, and share prices crumble. The company suffered the most amongst all internet firms from the crash. It was at this point that Bezos decided to focus on profitability by cutting costs and employee numbers drastically.
In 2002, for the first time since launching, Amazon made a profit of $5 million. With this, he was able to cut down prices even more, from better management of the firm’s costs. From here on, the company’s profit levels rose, and Amazon has continued to grow. Amazon began offering cloud computing services known as Amazon Web Services. By 2007, the company had come out with the commercially successful Kindle e-book reader, which was delving into a new market for electronic books.
Entrepreneurial Contexts
Contexts are another way in which entrepreneurship has been defined through. They explain the different circumstances that surrounded the entrepreneurship process (Welter, 2011). Within this essay, the social and spatial contexts would be viewed, and their implications on the start of Amazon.
Different social relationships built by entrepreneurs provides them access to multiple resources and forms of support. According to (Elfring and Hulsink, 2003) business relationships improve the entrepreneur’s chances of discovering and exploiting opportunities. From Bezos’ introduction to the internet by Shaw to many of his original employees having been gotten through his business connections, social networking played a vital role in Amazon’s success. Familial ties also contributed significantly, as they offered both financial support as his first investors and provided emotional support to him (Welter, 2011). His wife even took up the role of an accountant in the first year of starting.
Geographic locations can also play a key role in determining the future of entrepreneurial ventures. Firms can gain some localisation economies based on where they are situated. In Seattle, Amazon had access to a large and specialised labour market, filled with other entrepreneurs and programmers. They benefitted from information spillovers, from previous employees of competitors. Also, they had access to a nearby distributors warehouse, allowing them the ability to speedily ship out books (Elfring and Hulsink, 2003).
Reflection
In light of the framework above, all the different elements could be said to account for the eventual success of Amazon, but one stands out particularly. This is the discovery of the opportunity by the entrepreneur. It preceded all other factors and played the most important role. Bezos may possess various attributes and contexts, but without an early discovery of opportunity, might not have grown to be as successful.
Mooney (1985) explained that opportunities based on innovations tend to have small windows for exploitation, hence understanding the advantage an early start had for Amazon. Amazon was able to develop and improve on their website, acquire technological efficiencies and capture a significant amount of the market, all before competitors could catch up.
The 30-Day Turnaround Challenge
The challenge was a social entrepreneurship project which involved creating profits from an initial seed investment of £30. All profits were going to be given to the Rainbow Centre for Children – a charity organisation that gives support to children and families experiencing different forms of bereavement. Working with a team of 6 members, we had to brainstorm on profitable ideas to pursue.
Majority of the group members were Asian and hence saw the opportunity in selling Chinese buns to students on campus, as the University of Bath has a large Chinese population. Likewise, online donations were viewed as a way in which we could access other members of the public that weren’t students at the university.
Whilst trying to execute our idea, we encountered health and safety issues regarding the transportation and storage of the buns, and hence decided that it was not going to be worth venturing into. To address this setback, we discussed other viable options and came up with an idea of selling repackaged store-bought confectionery along the campus parade. This enabled us to avoid any further health concerns and strive ahead with our plans.
Roles were divided amongst ourselves for acquiring the different resources we needed. These included renting a table, purchasing a variety of confectionery and sourcing and buying cheap packaging needed for sales. Our online donations page also went active and was consistently shared across various social media sites.
On the day of sales, goods were packed into bags, while we set up our table in front of the student union building – deemed ideal because of a large number of people that walk by daily. Working collectively, we drew in various people either willing to buy our product, or just donate to our cause. Altogether, £187.84 was raised including initial capital and online donations.
Reflecting on our entrepreneurial journey, it seems clear that a key factor in our ability to raise as much revenue as we did was the effect of our social context. Friends and family were more willing to donate online and support our cause for raising money. Based on (Elfring and Hulsink, 2003) conclusion, we witnessed that strong ties provide support and easy access to resources. Although beneficial, our dependence on donations limited our ability to maximise our profit potential from actual sales.