“Of Web 1.0’s most memorable implosions, Webvan still takes the cake. The online grocer raised $375 million in an IPO, descended upon eight major U.S. cities, peddled a 26-city expansion plan and somehow warranted a $1.2 billion market cap—all with the burn rate of a ticking time bomb. Eighteen surreal months later, the company closed down shop, laid off 2,000 and had nothing to show for itself except 30,000 Webvan-branded cup holders at San Francisco’s Giant’s ballpark.”
“The key takeaway—for venture capitalists, grocery chains and well, everyone else—was that carting small-ticket, low-margin items to people’s front doors from billion dollar warehouses did not a sound business model make.”
Bad idea, right?
Well, maybe not. When I was visiting my friends Jim and Sarah in Seattle recently the were talking about how they were ordering groceries through Amazon Fresh. And that seems to be working ok. Perlroth’s article describes the success of another online grocer, Relay. In fact, there are quite a few online grocers that are actually doing pretty well these days.
Many think that Webvan scaled too fast. This was particularly a problem because there were a bunch of issues with online groceries at the time. How do you deliver them if no one is home? How do you make money on small orders? Are people really willing to buy groceries online?
In the years since, these and other questions have been answered, by firms that built their business models slowly, experimenting to figure out what works and what doesn’t in this market.
Webvan was the right idea, but at the wrong time.
Here is Jack Dorsey describing his first attempt at building something like Twitter, back in 2000:
The technology worked. The problem was that at the time, no one had mobile phones that allowed them to use the tool – it really only worked with the latest Blackberry phones.
Right idea, wrong time.
This is the digital camera that Kodak invented in 1975:
If they invented the digital camera, why didn’t they end up dominating the market? The big problem in 1975 is that memory was very expensive, and very big. So you couldn’t actually record many pictures at all on a digital camera, and even then it cost a bunch. There was no way that digital cameras could work in 1975.
Once more, right idea, wrong time.
This is a big innovation problem – the right idea at the wrong time is still wrong.
Innovations diffuse along an s-curve. They start slowly, build for a long time (much longer than we expect), then finally tip. Or they fail – you can’t tell in advance.
The value for X is a lot longer than we think it will be. This is what creates the problem of the right idea at the wrong time. You can see where things are heading, the technology might even all be there, but for one reason or another, the business model doesn’t work yet.
Business models have to be developed over time. At the start, it’s hard to know exactly how your great new idea is going to work. You have to test the hypotheses in your business model in the market. This hypothesis validation is really where Webvan fell over.
There are other steps that you can take to accelerate this process, but there’s a serious timing issue in innovation.
It’s not enough to come up with a great idea, you also have build a great validated business model for it, and the supporting and market both have to be ready for it.
Of course, some ideas are just terrible no matter when you have them:
image credit: wrong way image from bigstock & kastelle
Tim Kastelle is a Lecturer in Innovation Management in the University of Queensland Business School. He blogs about innovation at the Innovation Leadership Network.