Why Jeff Bezos started Amazon.com in Seattle

March 22, 2014

birdsflying

This post is about how to make decisions, how to find answers & how to follow the herd at the right times.

The solution lies in starting with the right assumption.

Story of me driving fast & getting a ticket:

I went to University of Illinois in Champaign-Urbana. The drive from Chicago suburbs is about 2.5hrs. Sometimes 3hrs.

If driving 90-105 mph, I can cut it down to 2hrs, 10mins.

The drive itself is long & boring. Just one long highway surrounded by corn fields.

I was always excited to get back to college so I could hang with friends, taste freedom & drink as much as I wanted.

One summer night, I was driving around 97-100mph, super excited to get back.
I noticed that all the cars around me were going unusually slow.

My assumption was that they are all idiots & I’m smart.
Why drive slow when you can drive fast?

As I zoomed by, I noticed a car hidden in the middle of the highway, facing my direction, suddenly turn on its lights.

Shit.
Cops.
Damn.

I couldn’t see him because it was dark & the car was hidden in the grass trough. I had no idea cops hid like that. I had never gotten a speeding ticket before.

I quickly slammed the breaks and drove below the speed limit.

Cop stopped me.

Said his radar gun caught me at like 95mph. If I had been caught even one mph higher, I’d have gone to jail for the night.

Wow.

Important lesson:
Don’t assume the herd is wrong.
Sometimes when other drivers are slowing down, it’s for a good reason.
Either there is an accident or a cop hiding with a radar gun.

Jeff Bezos drove cross country from New York to Seattle to start Amazon.com

Why?

I couldn’t figure this out.
Why not California? Why not Chicago? Why not New York?

One could start a business anywhere.
Why Seattle, Washington?

This question lingered in my mind for years. I couldn’t find any interviews where he explained why.

Until last night.
I had to think differently.
I decided to start with an assumption.

Assumption: Jeff Bezos is smart.

This is obvious today since he is super successful, but not so obvious in 1996 when he was a noname guy starting an internet company. I’ve heard tons of his interviews & know that he’s really into numbers. He went to Princeton, studying computer science & worked on Wall Street. In his commencement speech, he mentions loving numbers as a kid.

Since he is smart, he must have made this decision wisely.

Since this decision is wise, Seattle must be the optimal place to start an internet company.

Ok, what other businesses are located in Seattle?

A quick wikipedia search & the following popped up:
Microsoft
Valve
Starbucks
Costco
Nordstrom
Nintendo of America

Why would Bill Gates & Jeff Bezos decide to live in Seattle?

It can’t be the weather. It rains all the time.
Surely, California has the best weather in the country.

Could it be taxes?
The State of Washington does not have personal or corporate income taxes.

That could be the reason.

But there are 7 states without income taxes:
Washington
Alaska
Nevada
Florida
South Dakota
Texas
Wyoming

Why not start a business in Texas? or Florida?

There must be something else.

It could be the taxes.
It’s not the weather.
What else?

Then, I looked at a map of the United States:

map of united states

What are the obvious characteristics?
Seattle is on the west coast.
Seattle is close to California, which has good weather & silicon valley talent hotbed.

Assumption: Doing business in Seattle is good because it’s close to California, where all the tech action is. Plus Seattle tax rates are favorable. If the weather sucks, easy to travel to California anytime.

Assumption 2: Doing business in California must therefore be bad.

Quick search reveals Cali has high tax rates:
8.84% corporate income tax (flat rate)
13.3% personal income tax (top rate)
7.5% sales tax

Why not do business in nearby Oregon, Idaho or Nevada?

I’ll cut to the chase since I think you get my point.

Oregon:
7.6% corporate income tax
9.9% personal income tax, 3rd highest in USA
0% sales tax

Idaho:
7.4% corporate tax
7.4% personal tax
6% sales tax

Nevada:
0% corporate tax
0% personal tax
6.85% sales tax
Highest crime rate in USA, 5yrs in a row
Weather too hot?
Not enough internet talent?
Bad political climate?
Bad demographics?

Arizona:
6.5% corporate tax
4.54% personal tax
5.6% sales tax

Washington:
0% corporate tax
0% personal tax
9.5% sales tax (Seattle)
0.471% B&O tax on gross income (for retailers)
Good political climate?
Good demographics? A lot of white folks, 70%.

The details don’t matter. What matters is the assumption.

This solution didn’t present itself until I imagined Jeff Bezos as being a smart & wise businessman. Thus his decisions must have a good reason.

Then everything else unfolded.

Sounds simple but this took me years to figure out.

I hope to apply this to other parts of my life.
ie:
Where to live.
How to live.
How to invest.
How to behave.
How to talk.
What to do for hobbies.
What to read.
What to believe.

Observe wise people. Assume they must be behaving a certain way because they are wise. Do research, if possible. Emulate their wise behavior.

I don’t have to reinvent the wheel.
I can follow the (wise) herd.

PS: How do we figure out who is wise?
Good question. That is something you’ll have to figure out!

##
Sources:
birds flying: elpadawan flickr
map of usa: 50states.com
wikipedia
taxfoundation.org
respective state websites