American History 1988
Chapter 385 - 374 Human Relationships and Transactions

Chapter 385: Chapter 374 Human Relationships and Transactions

Amazon’s supply method wasn’t technically sophisticated because it didn’t have a warehouse, which meant no inventory at all.

After customers placed orders for books on the website, Amazon would then purchase the books from major book wholesalers like Ingram, receive the books a few days later, and then dispatch them to customers.

Thus, it could take as short a time as one week or as long as one month for a book to arrive in the reader’s hands.

But in that era, for the sparsely populated expanse of America and book lovers around the world,

having one’s beloved books delivered to their doorstep after only a week was an incredibly delightful and reassuring ordeal.

After Amazon went online, its reputation began to spread quickly due to word of mouth from its earliest users.

At first, every order would excite Bezos and his employees immensely.

Whenever someone placed an order, a program would sound an alert, and everyone would gather around to see if the buyer was someone they knew.

But after a few weeks, the constant ringing of the bell demanded that it be turned off.

It turned out that although Amazon’s warehousing wasn’t technically demanding, it solved the longstanding storage problems faced by many brick-and-mortar retailers.

Amazon didn’t need to arrange goods on shelves yet was able to meet customers’ demands for every book, from the well-known to the obscure.

Bezos once boasted to his investors, "If it’s not out of print, it’s in stock!"

In its first month of operation, Amazon received orders worth $60,000, and the total revenue for ’95 was $511,000.

This even surpassed Bezos’s expectations, yet Amazon was facing numerous crises.

Internally, the speed of shipping books couldn’t keep up with the rate of customer orders, with the shipped books numbering less than half of total orders.

The company lacked a book storage center to satisfy users’ "long tail" book demands, and there were many disappointing aspects of the website’s technology.

At the same time, Amazon faced its own crisis in the external environment.

Bookstore giants Barnes & Noble and Borders had taken notice of this new competitor encroaching on their territory and wanted to nip it in the bud.

Because it was said that the volume of orders Amazon held was far beyond outside expectations, they just lacked their own storage centers, resulting in delayed revenue from orders.

These pieces of information might have leaked from book wholesalers like Ingram, and both physical bookstore giants believed it without a doubt.

Despite their annual sales revenue exceeding $2 billion—thousands of times that of Amazon’s—

the power of the internet was beginning to show; these physical retail behemoths worried that Amazon might become a significant future threat, so they had already started making moves via the distribution channels.

Poor Amazon, without having made much of a splash yet, was already in a precarious situation.

Thus, Bezos devised an "expansion-first" strategy, capitalizing on the first-mover advantage to capture market share.

He resolved to grow Amazon rapidly at any cost to prevent being devoured by competitors!

To execute this strategy required a lot of people and money, the first issue to be addressed being money.

The financing of $1 million in ’95 had long been assimilated as Amazon’s nourishment.

The funds required for this expansion-first strategy far surpassed what $1 million could solve.

Bezos set his sights on Silicon Valley, the venture capital center of North America, no! The entire world was there.

Compared to Seattle and New York, only Silicon Valley could offer the kind of support useful to startup companies.

Amazon had joined the CommerceNet Consortium last year, with its online payment software and security protocols coming from the latter.

And the headquarters of the CommerceNet Consortium were in Silicon Valley, so, leveraging this connection, Bezos got in touch with KeyPoint Ventures.

Sure enough, as he had anticipated, KeyPoint Ventures’ response was much more timely than that of the 22 investors he had initially persuaded.

The Christmas holidays had just ended, and early into ’96, their senior partner, John Duerr, was preparing to make a trip to Seattle himself.

This was good news for Amazon, and Bezos saw hope for the success of his plans.

He knew that Silicon Valley venture capitalists were different from individual investors; if they planned to visit your company, it meant they were interested in you.

On the agreed-upon day, Bezos waited with his wife in front of the garage that served as Amazon’s headquarters.

Knowing how humble Amazon’s headquarters were at the moment, he had made a special effort to clean up the garage inside out with the help of his employees.

The office location could be simple, but the people of Amazon had to be confident and upbeat.

As Bezos contemplated the upcoming negotiations, a black GMC van approached from afar.

Seeing the van slowing down, Bezos perked up; he knew the people from Silicon Valley had arrived.

The first person to step out must be Duerr, whom Bezos had spoken to on the phone and whose information he had read.

But the young man who followed left all the Amazon employees momentarily stunned.

Bezos and his wife exchanged a look, both seeing disbelief in the other’s eyes.

They thought to themselves, today isn’t April Fool’s Day, is it?

"Forgive my intrusion, Jeff, I’m excited about Amazon’s model,"

Dean didn’t need an introduction as he came forward and greeted them with familiarity.

"Incredible," Bezos shook his hand, "Today, I’ve met one of the greatest entrepreneurs of our time."

"Entrepreneurs who dare to step out of their comfort zone to explore are all deserving of respect." Dean, without any pretense, smiled and greeted each person he met.

"Alright, now that everyone is here, shall we go inside to talk?" Duerr came forward to end the pleasantries, liking to get straight to the point.

"Certainly, Amazon is going to surprise you," Bezos had a feeling that today would go smoothly.

What followed was like any venture capital process, with Dean and Duerr sitting down and listening attentively to Bezos’s explanation of Amazon’s operational model.

Actually, they had already studied the general information about Amazon before coming.

But this process was still necessary because it could reveal a founder’s overall quality, and on that basis, they could judge whether he could become a qualified entrepreneur and manager.

This certainly did not stump Bezos, a Wall Street veteran; he was very clear about his own goals and where Amazon’s strengths lay.

After listening to his explanation, Dean and Durell exchanged glances, then began to ask questions.

"How should Amazon deal with potential competitors in the future? Your current model has no barriers, it’s too easy to imitate."

"In this market, the winner takes all, and we have already taken the advantage. As long as we keep it up, we can stay ahead.

Of course, in order to consolidate our advantage, Amazon needs to expand rapidly and take the market first.

This is precisely why we’re gathered here today, and in addition, Amazon has plans to build its core technology for the future."

"Explain in detail." Interest shone in Durell’s eyes.

"Warehousing and logistics." Bezos held up two fingers, "Amazon plans to build its own warehouses and distribution centers.

It differs from the traditional logistics industry as it will use computers to do part of the work, which are far more accurate and efficient than manual labor."

The ambition behind Bezos’s plans took Durell by surprise, but he quickly became excited.

He liked this forward-thinking concept, which was exactly the type of startup company KeyPoint Ventures always favored.

"Does Amazon plan to expand its product line to other fields?" Dean raised another question.

"Of course, if the opportunity is right," Bezos answered without hesitation.

"OK, let’s discuss this for a moment." Dean turned and spoke in a low voice with Durell for a while, then asked Bezos a question that visibly perked him up.

"Regarding Amazon, what valuation are you targeting? And how much equity do you expect to release in this funding round?"

"This is what we have on hand right now, and the orders are not yet completed." Before answering, Bezos presented his meeting gift.

Dean and Durell were both surprised as they scanned the information.

Over 5 million US Dollars, a number much greater than the 500,000 they had been aware of.

"These were the final orders from last year, and this year has just begun." Holding a substantial amount of orders, Bezos was filled with confidence in Amazon.

With this growth rate, if the finances were in place, this year’s turnover could be an unpredictable figure.

"It’s surprising to us, okay, so tell us what kind of help Amazon needs."

Durell set aside the documents; his interest in the company, still housed in a garage, was growing.

Bezos and his wife exchanged a glance, then he laid out their ideal target.

"We value Amazon at 80 million US Dollars, offering 10% of the equity, raising 8 million US Dollars."

"Jeff," Durell watched him intently, his fingers on his chin, "I hear you’re from Wall Street?"

"Yes, I’m very fortunate to have had that work experience," Bezos replied with a smile.

"Then you should know the rules," Durrell frowned slightly, "The valuation of no startup can be more than ten times its revenue."

"We are an Internet company, and Amazon has proven its potential." Bezos argued his point shrewdly.

"Listen, this has nothing to do with the Internet. Amazon’s valuation can only be based on its revenue at this moment.

The potential for the future may be great, but that’s in the future. No one knows if a Nile Shopping will pop up tomorrow.

Those core competencies you mentioned earlier, none of them have been realized or proven yet."

Although Durrell was very interested in Amazon, he did not hold back when negotiating the price.

Even for venture capitalists, money is money, and there’s no doubt he wanted to exchange the smallest investment for the richest returns.

Bezos instinctively wanted to retort, but Dean interrupted them.

"The funding amount remains at 8 million US Dollars, but what about releasing 15% of the equity?"

Dean knew Amazon needed money, so to ensure its development, the 8 million in funds was indispensable.

But as compensation, Bezos needed to offer more shares.

The group looked at each other, unable to make a decision on the spot.

"Durell, 8 million. Two for you, one for me, consider it a favor owed to you," Dean turned his gaze to his companion.

After slightly mulling it over, Durell shrugged, "For your sake, I have no objections."

Having received a positive response, Dean turned back, looking at that rapidly balding head.

"The valuation is suitable for Amazon, plus Netscape might be able to give you some guidance on website technology."

Bezos and his wife met each other’s gaze, both somewhat tempted. They were making plans for a complete upgrade of the Amazon website.

And Netscape was an expert in the field; everyone was using this browser now.

"Perhaps this is not a bad approach," Bezos relented.

"Good!" Dean nodded in satisfaction.

The deal was made, and Amazon had the urgently needed funds, visibly relaxing Bezos.

However, just as they were preparing to pop the champagne and celebrate, Dean suddenly came up with a new idea.

"Speaking of logistics, Jeff, are you interested in this business?"

"What?" Both Bezos and Durell were taken aback.

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