Accounting Principles, 11th Edition

Feature Story

Don't Worry—Just Get Big

It wasn't that Jeff Bezos didn't have a good job. He was a vice president at a Wall Street firm. But, he quit his job, moved to Seattle, and started an online retailer, which he named Amazon.com. Like any good entrepreneur, Jeff strove to keep his initial investment small. Operations were run out of his garage. And, to avoid the need for a warehouse, he took orders for books and had them shipped from other distributors’ warehouses. One board member recalls how excited the board was whenever an order came in from a customer in a state that Amazon had never serviced before.

By its fourth month, Amazon was selling 100 books a day. In its first full year, it had $15.7 million in sales. The next year, sales increased eightfold. Two years later, sales were $1.6 billion.

Although its sales growth was impressive, Amazon's ability to lose money was equally amazing. One analyst nicknamed it Amazon.bomb, while another, predicting its demise, called it Amazon.toast. Why was it losing money? The company used every available dollar to reinvest in itself. It built massive warehouses and bought increasingly sophisticated (and expensive) computer systems to improve its distribution system. This desire to grow as fast as possible was captured in a T-shirt slogan ...