BRE Assignment

Webvan Failure Detailing What Went

Wrong and Where the Promoters Failed to
Assess and Mitigate the Risks

Submitted To: -
Atanu Mandal

Submitted By: -
Dinesh Khanna (18215)
Webvan history
Webvan was Founded in 1996, It was selling groceries online and delivering them directly to
customers’ home within a 30-minute window of a chosen timeslot. Company’s founder Louis
Borders hoped to revolutionize delivery services by offering personalization through the
extensive use of technology. Webvan met its founder’s expectations – Gomez, a leading provider
of Internet research and analysis, named Webvan the Number 1 online grocer in 2000, praising it
for its speed and comprehensive, intuitive online shopping experience.
They firmly believed that technology used cleverly would make him successful. The executives
at Webvan believed that huge investments in technology would result in high productivity and
help them beat all other online supermarkets and brick-and mortar stores. They predicted that
their workers would be 10 times more productive than a traditional shopper and hence they
would gain profits faster.
A startup that raised Private fund from and even had a blockbuster IPO after which it was valued
at $1.2 billion at its peak, before racking up $830 million in losses and filing for bankruptcy
within a few more months

Timeline
• Webvan was found in 1990
• Webvan was created with a mission to create automated process that was designed to
manage all aspects of online grocery business, from order taking to delivery.
• On November 5, 1999 webvan offer IPO
• Later, they raise $800 million from private investors
• In May 2000, company launched its Atlanta operations
• In June 2000, a major competitor, HomeGrocer.com, agreed to merge with Webvan
• In June 2000, Webvan purchased through 50 distributors and directly from 300 vendors it
also sold about 35000 SKU’s up from 15000 when it began its operations.
• Webvan went bankrupt in 2001.

Where things went Wrong

• WebVan projection was to achieve 7.9 billion market value when it’s actual market was
roughly 178 million dollars, projections are made based on the capability of the company,
their projection was unrealistic,
• They never considered the action plan to achieve that market value, they expected people
will buy only from the web because of their USP (Unique Selling Point) home delivery
within 30 minutes of time window, they considered all people their customers who are
using the internet in those days, finally, they got only 12 % of orders from the users,
which is miserably failed their projection.
• All the board members and top management thought the business as a technology startup
not as supermarket retail business, many employees are from tech-based background,
they never considered taking an experienced supermarket or retail food expert
 • WebVan miserable failed to understand the customer psychology, customers are different
in nature we should not bundle them as one, targeted customers for online supermarket
• WebVan invested huge amount of money on warehouses, they used the latest technology
to automate their warehouses, they put lot of money on software algorithms to monitor
the order status
• Another main and last reason for WebVan failure was” Think Big & Grow Fast”, they
wanted to grow fast there was a pressure from the investors to move forward and expand
the business idea as much fast as you can, they started expanding business in 26 cities

Mitigations
• The grocery business is a "high touch” business. It’s important for many people to see
and touch their produce. Webvan neglected taking this into account. For instance, if I am
buying tomatoes to make spaghetti sauce tomorrow versus next week, I want them to be a
certain ripeness. They might have been better served with a mobile grocery model where
if I want tomatoes, the van would stock a variety at different degrees of ripeness and I
could choose (if I happen to be there when the delivery happened). Or, if Webvan’s
interface at least allowed me to specify when I wanted to use the produce, they could
perhaps have taken a guess at the ripeness... but this is a very human-intensive task
unsuited to large scale automation.
• Picked a different geography in which to go-to-market. The sprawl of the Bay area is
unsuited to a fledgling delivery business, particularly perishables. A relatively compact
city such as SF or NY would have been the best initial market to test the waters. I think
that’s a very important reason why FreshDirect was so successful.
• Picked a different business model that is more distributed perhaps. They could have
offered centralized order collection, and routed them to local grocery stores and assisted
them with order fulfillment. This offers a couple of advantages. (a) It’s more customer
friendly - if the tomatoes are not of the ripeness I want, it’s not a huge schlep to some
warehouse far away to exchange them if I so choose (b) If distance weren’t such a big
factor, the delivery windows could have been made a lot smaller which in turn translates
to happier customers who in turn can provide instant feedback. If the company had
internalized Steve Blank’s customer development model, this would have allowed them
to do customer discovery properly and scale appropriately.
• Don’t cut corners especially in a business whose main value add is customer service! I
finally stopped using them after they delivered a gallon of milk that expired in 24 hours
for the THIRD consecutive time. Their business involved perishables. The business
model should have made allowances for inventory write-offs instead of trying to pawn
off expiring products to customers.
• My intuition says a majority of Webvan’s customers were not the ones who are picky
about their produce - the kind that head out to the farmer’s market at 7 AM on a Sunday -
but people who would be okay with a greater % frozen or canned stuff. They could have
executed really well on the non-produce stuff, perhaps pivoted into delivery of prepared
food, and maybe could have vertically integrated down the line...