What Every Entrepreneur Should Learn From the Webvan Failure
Alex Bard
Updated
The Entrepreneur Insider network is an online community where the most thoughtful and influential people in America's startup scene contribute answers to timely questions about entrepreneurship and careers. Today's answer to the question "How do you come up with a new startup idea?" is written by Alex Bard, CEO of Campaign Monitor.
In founding a company, you will experience both amazing and challenging experiences. For most entrepreneurs I know, this volatility is particularly noticeable in the first few years. After the initial rush of opportunity comes inflated expectations, which often turn into doubt and disillusionment. It is during this period that you need to decide to push through, pivot your idea, or quit.
Stewart Butterfield, one of the most successful founders of the recent tech boom, started two gaming companies before turning one into Flickr and the other into Slack. But it was only through the journey of each that he recognized it was time to do something else with his teams and assets. How do you know if your idea can turn into a viable business, or if it makes sense to focus your energy elsewhere?
Here are four questions that will help you determine whether your idea can be a real business:
What problem am I solving, and how am I solving it? You should feel energized by the problem and inspired to solve it. If you find your conviction faltering, consider that a red flag. Without passionate leadership, a new company won't last. It's better to walk away early on and invest your energy elsewhere.
Assuming you're excited about the problem and solution, engage your target customers and involve them in the process of defining your product and vision. Connect with a meaningful sample size to deeply understand their pain points, priorities, desires, and willingness to pay for your solution. If you're not hearing that your product solves a salient problem they're willing to pay for (this is specific to B2B companies), then your idea likely won't turn into a real business.
My cofounders and I carefully considered this question when building Assistly, a customer service software company, in 2009. At the time, we knew that companies needed to invest in customer service, even during a tough economic climate. Getting in front of potential customers validated this need, especially for small and medium-sized businesses. It might not have been the sexiest idea, but it solved a big problem in a changing market.
Why should I do this now? Knowing when to start a company is crucial for finding your market fit and determining whether you're building a real business. Webvan, the online food delivery startup, was one of the biggest failures of the dot-com bubble. While there was some demand for food-delivery services in the early 2000s, the market turned out to be unsustainable. Over the last 15 years, mobile connectivity has exploded, resulting in a proliferation of delivery startups like Instacart, Amazon Now, and Google Express. The core concept hasn't changed; rather, technology evolved over time to facilitate a viable market at a lower cost. These external conditions often dictate whether a company will be successful--so think critically about whether the timing is right for your business.
Am I building a business? Building a company is inherently risky, and even more so in a tough economic climate like the one we now face. In order to raise capital and run a successful long-term business, you need to plan how to monetize the business. You may be solving a problem, but if you can't ultimately monetize it, then you don’t have a real business.
After the customer-discovery phase, focus on the unit economics --the expense to acquire a new customer and the revenue your product can generate on a per-unit basis. This calculation will help you understand if you have a great business or just a neat idea. You'll continue to need the passion of your earlier days, but nailing your key metrics could make the difference between a crucial funding round and a prolonged grind.
What would you do in my position? As you would with any major decision, consult people you trust. Talk to your cofounder first, then seek input from advisors who have a more objective point of view. Beyond your investors and board members, other entrepreneurs can shed light on their experiences. Look for those who are about five years ahead of you in their entrepreneurial career, and ask what they would have done differently, or what they'd do in your situation. Finally, consult your significant other, family, and close friends. A decision about your startup affects you not just professionally, but personally.
If you do decide to push through the challenges and move forward with your startup, make sure you continue to check in with yourself and with other people. Try not to get caught up in the expectations you have for your company. Focus on the question of whether you're creating a solution that people need. Is it pain relief, or a supplement? If the answer is ever the latter, it might be time to change direction.
