Hannah Bates: Welcome to HBR on Strategy – Case research and conversations with world’s top business and management experts to help you unlock new ways of business.
Have you heard of the Museum of Failure? It is home to over 1,000 relics of failed business ventures, including Heinz Tomato Ketchup Cookbook, Big Pencils for Women, and Lehman Brothers stock certificates. These flops and washouts may be fun to laugh at, but they have strong lessons for business leaders.
In this episode, museum founder and venture capitalist Sean Jacobson, with the help of artifacts in his warning collection, identifies six forces of failure, up to poor financial management. Along the way, you will learn how to avoid your company making the same costly mistakes.
Incidentally, if you want to see the items Jacobsohn is talking about, please visit HBR’s YouTube channel. There is a video version of this episode.
This is Jacobson.
Sean Jacobson: I have lots of favorites. Pets.com Sock Puppet in 1998 could have been successful if they didn’t build a business that would lose money. Harley Davidson Cologne in 1996 gave it a tobacco scent. This is an unopened bottle. No, they weren’t kidding. They were serious about it. Of course, they did a lot of product extensions. Sparkling water, cheat slip balm.
Another one of my favorites is Alan from 1964. He was Ken’s best friend. You may remember him from the Barbie movies.
Alan: Hello Barbie!
Barbie: Ah, hello Alan.
Sean Jacobson: Here he is in his original box. Alan wore the same clothes. He was his best friend. The problem is that everyone just wants to own Ken, not Alan. Yes, I have two cans of new cola. Do you want me to bring them out? It was really hard to switch the masses to something completely different. I haven’t tasted it. I’m certainly seduced, but some of these things are 15, 20, 30 years old so I probably won’t taste anymore.
I’m Sean Jacobson, a partner at Norwegian venture partner. I’m on 14 boards. I am also the founder and curator of the Museum of Failure. The Museum of Breakdowns is growing with over 1,000 items. Failed companies, failed products, sports related items, failed to fail to toys. I tagged all my 1,000 items with one or two failures.
Product market fit, team, financial management, timing, competition, customer success. I have experienced all six powers of failure and share one example of each. I have a champagne bottle from Webvan IPO dates in 1999. Webvan is a good example of product market fit. They were the world’s first grocery delivery company.
Speaker 4: You have the right to go home from work and find good things waiting for you in the fridge.
Sean Jacobsohn: They raised over $880 million and launched 10 cities before launching. The business model required a lot of capital. They had a distribution center. They hired their own drivers. So we had to raise $880 million. There is not enough demand for an early version of your product. Don’t scale it yet.
So I have a Terranos mug and I also have an Elizabeth Holmes business card. Their goal was to revolutionize the blood collection industry, which was worth $10 billion at its peak. Theranos didn’t have a strong team or board. None of them had domain expertise. They tried to test using blood pinpricks, but that’s not enough data. Yes, when they don’t have domain expertise, when they hire others who don’t have domain expertise, you believe something is possible when they’re not.
This is a copy of Google Glass. I can put it here too. A great example of customer success is Google Glass. They didn’t pick the right early customers well. They started with the doctor, and while they were talking to the patient, they were able to see the patient’s records in the glass. So there was no need to use a computer. It felt invasive.
It doesn’t seem like much of a personal thing and you’re not used to having someone with a strange device in your face trying to communicate with you. Due to the lack of a cool factor, I couldn’t find any other segments of the population that wanted to wear something like this. It is important to choose the right early customers who represent your larger market. Many times people choose the most useful customers rather than helping you build a large company. I love this so I actually bought two on eBay.
ESPN mobile phones for financial management. They were released for the iPhone a year ago. What the call did was to share scores with ESPN mobile content. They burned $150 million, including several Super Bowl ads. It was only 6% of the sales target. They probably have more features on the phone. The phone wasn’t enough.
Speaker 5: Introducing Mobile ESPN. Sports fans, your phone has arrived.
Sean Jacobsohn: Here are some items: Wework Thermos and Koozie from Wework Summer Camp. For timing, a good example is our job. WeWorks, a coworking space business. And when the pandemic hit, demand for office space fell off the cliff and burned at $16 billion. The goal was to give people flexible spaces that allowed them to lease monthly according to demand, allowing them to expand the space up and down.
They also signed a 10-15 year lease at peak market prices, then lost and rented them. There are levels of unlucky to some extent, but I think they had the wrong business model. You need to be able to pulsate what is happening in the market and predict what will happen in the next 12-24 months.
And I had some friends donate their blockbuster membership cards to me. And every store had signs saying, “Gentle, rewind.” For competition, Blockbuster is a good example. They are in the movie rental business. At its peak there were 9,000 stores. They missed the opportunity to move online and Netflix had lunch. They also bought Netflix for $50 million after they made it public, and turned it down, and instead Netflix would beat them.
When talking about competition, you need to make sure there are no competitors in startups that offer cheaper and better ways. You need to be aware of how they are differentiated from all competitors in the market segment and how they are better than them.
I admire businesses for taking risks and trying new things. Some of these big risks turn into huge outcomes, some fail spectacularly. I am often amazed at the lack of research they did before spending a lot of money unfolding something that doesn’t work.
Hannah Bates: It was Sean Jacobson, a partner at the Norwest Venture Partner and founder of the Museum of Failure.
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This episode was produced by Scott Lapierre and my name Hannah Bates. Curt Nickisch is our editor. Ian Fox, Maureen Hoch, Erica Truxler, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – thank you to our listeners. See you next week.
