Denial by Richard S. Tedlow

Author:Richard S. Tedlow
Language: eng
Format: epub
Publisher: Penguin Publishing Group
Published: 2010-04-25T16:00:00+00:00

In fact, all of the information that one needed to evaluate Webvan realistically was contained right in the IPO prospectus that the company filed with the SEC. Firms are required to be blunt about the risks involved in their business in these documents. So blunt, in fact, that it has been said that you would never buy anything if you read a prospectus for it. In this instance, however, the prospectus may have understated the difficulties Webvan faced.

The assumptions were piled upon one another. According to the prospectus, customers would find Webvan’s website user-friendly, customers would place orders sufficiently large to make delivery economical, the totally automated warehouse would function flawlessly, as would the scheduling and managing of dozens of vans and their drivers. The returns of purchases would not prove a problem, and the IT infrastructure would work fine, first time out. These claims were only as strong as their weakest link. Peapod, Streamline, and other home-delivery grocery operations had been around for years. None of them had achieved anything like the volume or efficiency that Webvan demanded.

A detailed analysis of the challenges this firm faced would fill a library shelf. For example, Webvan’s vast Oakland warehouse, with its five miles of conveyor belts, forty-one motorized carousels, and $3 million of electrical wiring, struck John Cassidy as “something out of a Fritz Lang movie.” But despite the futuristic gadgetry—or maybe because of it—Webvan quickly encountered serious logistical problems. “The cold temperatures necessary to preserve fresh produce made the conveyor belts malfunction,” Cassidy writes. “The celery didn’t fit into the produce bags; the soft cheeses got crushed; and the delivery vans got stuck in the San Francisco traffic.”

This disaster-waiting-to-happen was the most generously funded venture of 1999. It closed its doors in 2001, the victim of long-known problems that it simply denied existed in its case.

Even amidst their boosterism, Webvan’s leaders gave hints of knowing-but-not-knowing the reality they faced. “Maybe we have one of the great flameouts in history going here,” George Shaheen joked to a symposium at Northwestern’s Kellogg School of Management in February 2000. I wonder how his investors felt about his joke. In 1999, Louis Borders admitted, “When I talk to my old friends in the book business about this, they think I’m nuts.” Asked how he responded to such skepticism, he answered, “Some days, I agree with them completely.” All the way back in 1997, when a Benchmark Capital partner remarked to Borders that he was creating a billion-dollar company, Borders replied, “Naw. It’s going to be ten billion. Or zero.”

It was zero.

Of course, some products of the dot-com bubble did prosper. Amazon, eBay, and Google are now established members of the corporate elite. Who’s to say that even now there aren’t new dot-coms being born that will eventually defy the odds to become household names of their own? Or that there aren’t whole new technologies being hatched in some garage that will have an Internet-like impact on the world? We have seen how easy it is to overestimate the difference a technology, company, or way of doing business will make.

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