WEBVAN – A STARTUP AHEAD OF IT’S TIME
Louis Borders had a vision for Webvan to be a quick and reliable service for people to order the items they needed, and have them delivered within a thirty-minute window. It raised VC funds and even had a blockbuster IPO after which it was valued at $1.2 billion at its peak, before racking up $830 million in losses and filing for bankruptcy within a few more months. All of this, fifteen years ago in 1999.
Operations and customer service played an important role in fulfilling Border’s vision. Webvan relied heavily on differentiation in service. Drivers were heavily screened and trained prior to employment. Webvan also allowed for the orders to be delivered whether the customer was home or not. Webvan had 50,000 products for customers to browse, which was more variety than the standard 30,000 of normal grocery stores.
THE BOTTLENECKS
They were growing very quickly, but the problem was the numbers. Webvan’s 1999 sales were projected around $411.9 million, while its losses were around $35 million. $411.9 million was less than what large grocery store chains were making in one day. Forecasts for 2001 had Webvan sales at $518 million, and losses at $302 million for the year. $518 million would be less than 1% of the entire grocery market.
Webvan had a decent amount of named competition in the industry. This meant they had to share their margin with supermarkets. Each of these companies did something a little differently, whether it was the way they shipped orders, the products they were shipping, or the clientele they were trying to focus on. New entrants into the market at this time were also high.
AN UNEXPECTED ENDING
To survive in 2000 and 2001, the company needed an average order size of $103. In February 2000, the average order was $80. By the end of that year, it had increased to only $81.Webvan took its first orders in June 1999, then shut down in June of 2001.
Fewer customers signed up than planned; costs were higher than expected; and efficiencies never paralleled with the original vision. Undeterred the founders marched on implementing the original plan. But then, reality kicked in for Webvan. The result was R6,4 billion in losses and one of the most spectacular flame outs from the dot.com era.
THE LEARNING
70% of the start ups failed due “premature scaling”. Premature scaling is when the founder grows the business with a vision that doesn’t make sense, just as Webvan did. It may be the value proposition doesn’t attract enough customers, or the cost structure is wrong or the marketing isn’t attracting attention it should. In short, if your vision doesn’t fit with reality your dream will stay just that, a dream.
Reference : http://justintharp.com/wp-content/uploads/2017/04/Case-7-Webvan-PDF.pdf
Reference : https://yourstory.com/2014/09/webvan-e-tailer
