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Hey folks,
Hope you’re doing great! I’ve been away for a while because I’ve been studying for my exams. This week I was able to squeeze in time to write a Tech Breakdowns post. So, first things first, welcoming the 9 new people that have joined our community this week.
I’ve been thinking a lot about timing. When you’re launching a new product, you have to know that the market is ready for it. The need to understand the market is especially important for innovative products since there are no data points to look at. Steve Jobs was good at figuring this out. During the go-go days in the late 90s, internet companies were forming left, right and centre and after the dot-com bust, most of them died. A lot of them were straight-up bad ideas and deserved to die. Among the ones that died, were a few outliers that had a good idea and a great vision but bad timing. Today, let’s look at two companies that were too early for their time and their modern counterparts.
Timing is Everything
Webvan
Webvan was a grocery delivery company that promised deliveries within 30 minutes. Further, the company offered premium-grade groceries at unbelievably low prices. The infrastructure that enabled this was way ahead of its time, the company invested in automated warehouses complete with miles of conveyor belts and robots as far as the eye could see. Following the mantra of the time to “Get big fast,” the company raised $396 million from blue-chip investors including Sequoia Capital, Benchmark Capital, Softbank, Goldman Sachs and Yahoo.

When capital was cheap in the late 1990s the company blindly spent money to build up infrastructure that the technology of the time couldn’t support economically. The company that started in Foster City, California hoping to turn a profit by achieving scale, spent a considerable amount of cash when it expanded to eight other cities. The expansion plan included spending a billion dollars to build warehouses and to acquire a fleet of delivery vehicles.
Following the trend of other internet companies at the time, Webvan went public in November 1999, just 3 years after its inception. At its peak, the company was valued at $4.8 billion and at that time the company had a cumulative revenue of $395,000 and net losses of over $50 million. The company was trading at a revenue multiple of freaking 12,150 times!
Also, the company’s management team had no previous experience in running a groceries business. In its final annual report, the company said that it may have to shut down due to growing financial troubles. In June 2001, the company filed for bankruptcy and laid off 2000 employees.

The company’s failure was no fault of the product. The company failed because of rapid expansion without a proportional gain in customers. Customers that did use Webvan, loved it. On the rating website Epitome, the company had an 89 per cent approval rating from 109 users that reviewed Webvan.
Today, online grocery delivery is a big business around the world. The world’s largest online grocery delivery company, Instacart has carefully avoided the traps that Webvan fell victim to. Instacart, instead of building its own infrastructure, relies on the existing grocery shops and chooses to focus on delivery and customer experience. Instacart has a better pricing strategy than Webvan too. Instacart charges a small delivery fee but that in and of itself does not support the unit economics of delivering groceries. So, the company also marks up the prices of the items, so the actual prices are not visible to the customer. The company targets consumers who prioritise the ease of shopping online over the marked-up prices.
Arguably, Amazon was the biggest gainer from Webvan’s collapse. Amazon got to learn from the mistakes that Webvan made and then later hired former Webvan employees to launch its own grocery delivery service – Amazon Fresh. Later, Amazon acquired KIVA Systems, the company that developed the technology that powered Webvan’s warehouses. Also, Amazon now owns the domain webvan.com.
Pets.com
Do you own a pet? If so, you’ve probably ordered per supplies online. Julie Wainwright was approached by a VC to run Pets.com a new pet supplies company. The company’s first round was led by none other than Amazon! When the company launched, they had ads everywhere – TV, radio, print, outdoor. In November 1999, they even launched a magazine, the first edition of which was sent to one million pet owners in the US. At the heart of their marketing plan was a $1.2 million Super Bowl ad that aired in January 2000. The company was terrific at marketing and getting people to talk about it but not so much with developing a working business model.
For starters, the company launched without any market research. Had they done at least some market research, they would have realised that the industry as a whole has a profit margin between two to four per cent. Then, even after excluding the absurd cost of advertisements, in the first year, the company was selling products at a third of what it was paying to its suppliers. Pets.com was trying to acquire customers by offering heavy discounts and free shipping, but it was impossible to turn a profit on heavy products like cat litter and pet food without at least charging for shipping. During the second year, the company saw a massive increase in the number of orders, but they were still selling products at 27% less than cost, so the orders only accelerated the company’s demise. Pets.com ceased operations after a mere 268 days after its IPO in February 2000 where it raised $82.5 million.
Eleven years later, Ryan Cohen realised that the same model of delivering pet supplies online was now feasible and he founded Chewy. Chewy compared to Pets.com is founded on better unit economics. Also, more people are shopping online than ever before.
So, as I said at the top, being early is just as bad as being late. Both these companies along with many others from that era (see: Boo.com, Heat.net, Beenz etc) were too optimistic about people’s willingness to switch to online alternatives. Also, the market for these companies was restricted to the limited portion of the population that had access to the internet. A case can be made that these companies could have survived the dot-com bust had they been diligent with their resources. Good timing is clearly important but it is no replacement for bad management.
That's all for this week folks. See you next week!
Shobhit (@ShobhitJethani)
How did you like this week’s post? Your feedback helps makes this great.
Super interesting!