Why do companies fail? (Part II)

My notes from Crossing the Chasm are here. In this post, I talk about specific examples of companies that failed and those that were successfully adopted by the mass market.

Companies that perished in the chasm

Segway: Why did it fail?

1. It did not have a ‘whole product solution’ — where could you park it? How do you charge it? Do you use it on roads or sidewalks? Regulation was another aspect that was not considered. It was also banned from sidewalks and roads in some countries. Perhaps a narrower launch market would have helped.
2. It did not identify a target market — This is the single biggest theme of the book. When crossing the chasm, you need to identify a single market segment and go deep till you have established credibility in that market segment. Segway seems to have suffered from ‘Build it and they will come’. They should have instead picked one segment to go after.
3. It wasn’t able to create competition for itself. This is important because people didn’t know what to compare it to and consequently Segway wasn’t sure which budget it was actually going after.
4. That being said. Segway did pave the path for Bird and Lime. It takes failure to know what not to do. In 2015, it was acquired by its Chinese rival — Ninebot. Ninebot now manufactures electric scooters.

Webvan: This was an online grocery delivery company that was founded during the dot com bubble of the '90s.

1. The main mistake they made was not identifying a target market segment. The goods they offered were of the quality that Wholefoods would offer today, yet the prices they launched with were similar to Walmart. In essence, they were not sure if they were going after the price-sensitive market or the affluent price-insensitive market. They should have ideally offered goods at a higher cost since they were providing a luxury. Let’s contrast this to Instacart. Instacart actually marks up the cost of the goods they sell. As such, a price-sensitive customer will never use Instacart.
2. Another aspect of segmentation was what they decided to sell. They were selling everything from groceries to pet supplies to OTC drugs.
3. Their rapid expansion also led to their implosion. They were operating in 10 cities with a goal of getting to 26. Each new city they targeted had enormous fixed costs of setting up warehouses. Instead of first trying out the warehouse model and operations in a couple of cities they spent a lot of capital upfront and then started evaluating the operating model. A big reason for this was the mentality of growing fast at any cost.
4. A lot of Amazon execs came from Webvan. I am sure their learnings have helped Amazon succeed where Webvan failed.

Iridium: In mid-1998, its stock price had tripled YoY and it had over 1000 patents. It had the technology to use a network of low Earth orbit (LEO) satellites as a replacement for cell phone towers. However, it filed for bankruptcy by August 1999. It is interesting that they seemed to have paved the way for SpaceX’s Starlink project. While Iridium had 77 satellites in orbit, Starlink currently has 900 though it plans to go up to 40,000 satellites. The former orbit at 485 miles while the latter is slightly closer at around 340 miles from Earth. One reason for this was that improvements in cellular technology greatly reduced the need for Iridium’s technology. It did not help that it took a really long time for Iridium to go from concept to launch and the technology and product landscape had changed during that time. Their design had serious usability issues, for instance, the handset was massive and you couldn’t use it in places that didn’t have a direct line of sight to the satellites, for instance inside buildings.

Successful Chasm Crossings

Macintosh- The way the Macintosh crossed the chasm was, to begin with the graphics department of large enterprises. This department was responsible for creating executive and marketing presentations. This was the niche it identified and then dominated. After this department, it started focussing on adjacent departments- marketing and sales departments internally, as well as creative agencies and ad agencies that worked with graphics departments externally.

Documentum- The niche they focussed on was the regulatory affairs departments in F500 pharmaceuticals. This was a very narrow segment to pick. However, when picking the beachhead segment we need to consider the magnitude of their pain point and not the size of the segment.

Salesforce — Salesforce didn’t target a vertical market segment, instead, they narrowed down on the persona they marketed to. They started with salespeople and their managers. They didn’t target marketers or customer service reps. Salesforce was at the forefront of SaaS companies and their value prop was not having a large IT workforce to manage their applications. This was going to be a problem for large enterprises that already had a lot of IT employees on their payroll. To deal with this, Salesforce targeted mid-market companies who would reap the benefits of reduced maintenance overhead.

Vmware — Vmware focussed on system administrators to cross the chasm. The specific use case here was testing code in a production environment. Pre- virtualization involved setting up hardware to replicate the production environment. With Vmware, admins could reuse the same hardware for multiple programs as well as save the system config for future use, eliminating busywork. Having proven valuable to sysadmins, Vmware then focussed on IT operations managers. With this persona, the advantage was first cost-saving followed by increased reliability.

Wealthfront — Focussed initially on Facebook employees just prior to the Facebook IPO. This is because the younger techie crowd would appreciate the superior UX that Wealthfront provided and also had smaller amounts to invest which was in contrast to typical financial management firms that required larger investments. After Facebook, they then went after Linkedin employees and this opened the gates for other tech companies like Google, Amazon, Apple, etc. Tech millennials were their beachhead segment.

Facebook started at Ivy League universities and spread like wildfire from there. With eBay it was collectibles.