Webvan's Drive Was Its Downfall

It didn't take a lot of map reading or compass checking to see that Webvan was on the road to closure and bankruptcy, not new funding and profitability.

Consider: when the dot-com bubble was first starting to bust, Webvan's strategy was firmly dedicated to growth, instead of closing ranks and curbing expenses. After the company inked a US$1.2 billion deal in the summer of 2000 to acquire rival HomeGrocer -- the merger was finally completed just last month -- more than a few industry observers shook their heads. But Webvan drove unflinchingly forward.

The company also went on an expansion spree, only to turn around and close up shop in a number of newly opened markets.

Bad business decisions or calculated risks? You be the judge. Either way, however, it appears the company's insatiable hunger for market share in the face of consumer disinterest is the reason that Webvan ran out of gas.

In the dot-com world, a strong image is half the battle and a promising bottom line is the other half. Webvan lost on both fronts.

Exit Ramps

When Webvan unceremoniously departed the Atlanta, Georgia and Dallas, Texas markets, questions were raised regarding the company's long-range plans.

When it consolidated some of its facilities on the West Coast, industry pundits asked even more questions about the company's strategic vision and likelihood of survival.

When it was revealed that departing chief executive officer George Shaheen would receive US$375,000 a year for the rest of his natural life as part of a deal made when he signed up with Webvan, nearly everyone asked questions about the company's business acumen in constructing such a contract.

The struggling company's recent auction of $1.3 million in assets, ostensibly undertaken to finance further expansion, did not do much to change the public perception that Webvan was on its way down.

All of these debacles contributed to an image problem in the industry and among the consumer base. The profoundness of this image problem was exceeded only by the company's ill-conceived style of cash management.

Where's the Cash?

As recently as last month, Webvan CEO Bob Swan tried gamely to put on the best face, saying the company could achieve financial self-sufficiency by the middle of 2002.

Swan claimed the company needed to raise $25 million to reach profits by the target date. Unfortunately, he could not point to any potential sources for that capital.

The fact that his company's stock closed at 6 cents on Friday could not have been particularly encouraging to anyone on the short list of potential investors. (An 11th-hour effort to affect a 25-to-1 reverse stock split and keep the company listed on the Nasdaq was approved last week -- but has now been scrapped with the closure announcement.)

Swan even claimed recently that the company would continue to expand as soon as it broke even. Here's a thought: when aggressive expansion was the company's biggest misstep and a primary reason why it was strapped for cash in the first place, it might have been a good idea to stop talking further expansion.

E-Commerce 101

Conducting editorial post mortems on recently deceased dot-coms serves two purposes.

First, it is instructive to figure out what we might learn from others' mistakes. In this case, the lesson learned is that there might be room for Internet grocers, but that they probably need a brick-and-mortar presence. Consider Britain's Tesco. All indications are that it will thrive.

The other lesson of the Webvan story? Controlled growth.

Building an Internet business does not have to occur at warp speed. Slow and steady can still win the race. Yes, keeping investors quiet and calm during an arduous marathon to profitability is tricky, but it beats dropping out and filing bankruptcy. Webvan was in too much of a hurry to find the top of the e-commerce world.

The Human Element

The epilogue of Webvan's bankruptcy filing is that approximately 2,000 people are now unemployed and looking for jobs in a slowing economy.

While Shaheen is well-provided for with his golden parachute, the workers who made it possible for Webvan to innovate, take risks and deliver for as long as it did were left twisting in the wind. No mention of any type of severance package was made when Webvan made its announcement.

Swan said simply, "At the end of the day ... the clock has run out on us."

The last lesson of the Webvan story is that a company's guts have less to do with its flight toward glory than with how it treats its people in the end.

What do you think? Let's talk about it.