Webvan's main problem was they expanded before they had their model figured out. They invested tens of millions in warehouses they didn't need with their current volume as well.
If they had spent time on their model they'd have figured out that it only made sense to target the upper middle class neighborhoods at the time profitably. With that realization they'd never have built all the warehouses and with a lower burn they'd have survived only to eventually own the market.
The founder was a really smart guy who had already created a very successful startup. But he was under an imperative from his investors to ramp up fast.
A lot of the hard learned wisdom from that time would create a different outcome possibly today. I know that I'd have done a lot differently with my own startup back then if only I knew what is common wisdom today ;<).
Back in that time everyone placed an over importance on being first and then locking up the market quickly. Sometimes like maybe Uber that's important.
Reid Hoffman is still a proponent of this tactic with what he calls blitzscaling. Course nowadays he's a VC ;<).
But as Google demonstrated you can enter after the market is mature with both a better product as well as a better business model and dominate.
Two things I remember from the webvan era- 1) how benchmark navigated / debated their investment (chronicled in https://www.amazon.com/eBoys-Inside-Account-Venture-Capitali...), 2) at the precise time that webvan was failing, fresh direct was succeeding but no one outside of NYC heard about their success because webvan failed so spectacularly.
Webvan brings up old memories and I really thought of it as the future. My neighbors tried it a few times and I can remember it showing up. When I asked my parents to do it they thought I was crazy. Pretty sure cost had something to do with it. I’d still fill up a shopping cart just because.
Webvan failed but if the gig economy was around it could’ve succeeded for a time. These companies need non-employees to make it viable I believe.
Will Uber eats and the like become the next Webvan? Grocery store delivery? Paying someone to shop for you then picking it up?
IMHO, robots will not be picking people up and delivering our groceries in the near future. Your business can’t depend on the weather. Gig economies are not good for the gig seekers long term.
The hilarious part to me is how Webvan as deployed represented a cutting of scope. Originally they were going to sell everything. Groceries were the start-small compromise!
One valuable lesson here is that being correct but too early is the same thing as being wrong. Webvan vastly overestimated the speed of change. 20 years later and I still get most of my groceries from the corner store. I have friends who do mostly delivery, but that's still far from a perfect experience.
Another is that any startup should ask questions like: what do we think we'll learn, and can we learn that for less money? They spent $800 million finding out the answers to things like, How much do people want to buy groceries on line? and What are sustainable economics for grocery delivery?
They could have gotten the answers they did for less than 1% of what they spent. Build a web site, rent a few trucks, buy most of your groceries from the nearest grocery store, launch a limited test in your most favorable zip code. They would quickly have learned how viable it was, and the other $792 million could have gone to startups with more of a chance of delivering sustained customer value.
There was a grocery delivery startup called Grocera that operated in Waterloo region for a little while a couple years ago (https://www.crunchbase.com/organization/grocera). It's defunct now, but my wife ordered from them a few times, and was pretty sure it was one of the founders who showed up at the door, pulling the order out of the back of their own hatchback.
So much value in learning first hand about the experience first hand, both for the customer and the staff person.
> So much value in learning first hand about the experience
I couldn't agree more! I'm working for a startup doing alcohol/cannabis delivery. Before there was funding, our founders rode their bikes to do these deliveries (and have still done some deliveries in the past 6 months).
There was so many lessons learned from doing our deliveries. One such example: we had a bug where our push notifications told the customer we had arrived, but were actually still pretty far away (GPS math sure is fun :P)
This totally depends where you are. Here we are talking about the US but in the UK for example all the major supermarkets offer delivery for a small fee. In Canada Save-on-foods has a delivery service.
Sure, grocery delivery is commonly available here too. But what percentage of groceries are sold through delivery? That was the real thing material to WebVan's business plan. They were betting the rate of change was much higher than it turned out to be.
And I'll note that WebVan was betting on replacing supermarkets, so they needed much more dramatic numbers. A supermarket already has 90% of business up, running, and paid for. WebVan spent hugely just to get to approximate infrastructure parity -- something that turned out to be totally unnecessary.
Parent is extremely insightful. It shouldn't be downvoted.
I remember trying to plan a startup with a guy who did similar things. He'd let his imagination run away, and then try to compromise on something far beyond realistic.
I should have walked away sooner than I did... We went nowhere because every week it was another "Groceries were the start-small compromise."
Yeah, this is a common entrepreneur failure mode. You need to be ambitious and visionary to start a new thing. And investors love to hear the grand plans! Tempering that is one whole other skill.
That guy sounds like he was trouble from the beginning. But if you get in this situation again with somebody less crazy, one thing I've done is to draw a graph with a dot just above the zero point and then a circle at the top right. I get them to talk about their grand 20-year vision, and I explain that's the circle in the upper right.
Then I draw a bunch of tiny line segments that walk erratically toward the circle. I explain that each week we need to take one step in the direction of the vision. The I ask them to focus real small, and think of the tiniest thing we can do toward the goal, something that fits in a week. Once the have a few of those, I'll ask, "How can we prove that this step really went in the right direction?" (It can also be useful to pull in the Lean Startup framework of validating hypotheses here.)
Sometimes that's enough to get visionaries to start breaking it down. And sometimes it exposes that the person is only good at dreaming big, but is unable to actually execute. Either way, it can yield valuable info.
Wish I saw your reply sooner. That's a great technique. You're probably a serial entrepreneur, or someone very close to that.
> And sometimes it exposes that the person is only good at dreaming big, but is unable to actually execute.
In my case, I figured out the problem when we tried to write a business plan. We've kept in touch for years since, and seeing where he's gone, that assessment is pretty accurate. He always has big dreams, but he succeeds when he focuses on mundane tasks.
It's silly, because he had a hit with an app, but spent too much money developing it and lost money. If his dream wasn't as big, he'd be profitable.
> These companies need non-employees to make it viable I believe.
I'm curious about this. Does this mean that, once gig-economy workers factor in all the costs that are normally born by employers (Insurance premiums? Certain taxes? Mileage costs? What else?), that they are effectively making less than minimum wage? If so, why do they do it? If not, what is the intrinsic reason that this work must be done by contractors rather than employees?
Definitely. A lot of current startup darlings are shifting costs traditionally borne by the business to the workers. Uber is exhibit A here. Taxi companies, for all their flaws, at least paid for, maintained, and took on most of the risk of the cars. With Uber, all of that is on people desperate enough to drive for Uber. This strikes me as woefully inefficient systemically; large organizations are much better placed to manage cost and amortize risk.
For example, maybe I want to make extra money but don't want to be tied to a shift. This type of flexibility is amazing for lots of people. It's very appealing if you need extra money, and have a lot of time. Unfortunately, this aligned in an economic cycle where people needed work, and undervalued their value as workers(and for sometime bonuses, and gamification made this type of work very profitable i.e. 4k a week driving uber in SF).
The gig economy is more about having workers without giving them benefits and with making the workers shoulder the burden of shifting demand throughout the day. With food delivery you have the lunch rush and the dinner rush and outside of those windows your demand is a lot smaller. The gig economy means the company isn't on the hook for predicting or satisfying that demand; if there's too many workers for the demand, it's the workers who take the pay hit rather than the company. And if demand spikes unpredictably the company has an easy lever to push to get more workers out there (just notify workers of the spike, and surge pricing as needed to make the unplanned demand more attractive to the workers).
So the gig economy is really just auto scaling applied to human resources instead of computing resources.
Is that actually true, though? I've seen anecdotal reports from certain Uber drivers or whatnot, but I have not seen data. (It seems counterintuitive that such a huge amount of contractors would continue to choose that work over traditional employment in service jobs if it paid less.)
It could be that they're not factoring in the cost and maintenance of their vehicles because they foresee this as being a temporary period of their life. They're borrowing from the future cost of their cars.
From my experiences with Gig workers, I used to work in the engineering part of an early one, there will be definitely a bi-modal distribution between full time and part time workers. There will be those that will only want to 'pay a bill' with the proceeds. There will also be those that buckle down and organize their lives/finances around it. For the former, it wouldn't surprise me that they're earning less than service jobs, all in. However, the freedom of choosing one's hours really is powerful for those looking for just a few extra hundred dollars, plus the emphermeral cost against one's vehicles is easy to overlook.
This same factor applies to Amazon, McDonalds, Walmart et al: they pay minimum wage (though Amazon steals some back, though not as much as companies like DoorDash) but not really enough to live on; the balance is made up via a subsidy from the government (food stamps et al).
But those government-subsidized jobs count as "jobs" in the unemployment statistics so I suppose it's all good.
Gig-economy workers are working for cash, and most are operating at a net loss. That's one of the reasons why the mythology around "gig economy" is that people are just making extra cash on their downtime. All of these platforms push their contractors to accept more work for longer durations of time.
An Uber driver gets paid something like $0.80/mi for a trip that costs something like $1.05/mi. But the independent contractor doesn't factor in depreciation and maintenance well.
With employees, you generally provide employees with vehicles, reimburse employee expenses, or otherwise ensure that net pay less expenses are more than minimum wage. The average cost of operating a car for normal (not livery) use is about $0.55/mi. The number for an Uber is probably 30-50% more.
All of these bullshit gig economy businesses that require a car would be dead in the water if they had to pay real employees or deal with the compliance issues, worker's comp, etc.
The N.Y. Times published more detailed data last year iirc.
I used the GSA expense schedule for the standard mileage rate and various online sources (rural mail carrier reimbursement ($0.70), livery and van per mile estimates) to estimate the actual cost.
Better data exists on the expense side, but I didn’t go down that path due to time constraints.
You (as the business operator) need the flexibility of being able to pay only for work done, to adjust pay based on performance metrics very easily, and to avoid the otherwise heavy costs of traditional hiring and firing.
You don't want to be on the hook for guessing how many drivers you need on a given day or for a given area. By utilizing them as contractors, they naturally adjust their own numbers as work becomes highly available or scarce, and you're not on the hook to pay them when they're not contributing to your bottom line.
As for why the workers do it: In many cases it's likely not their best financial decision, but there is some value to them in the flexibility of the schedule. And the ones that get particularly good at gaming the system (to the extent that it's possible) might make enough that it beats comparable jobs.
I always chuckle when threads about shopping delivery come up on HN. It's part of the holy trinity of delivery, instant bank transfers, and the metric system, where Americans line up to explain why none of those things could ever actually work, despite the fact that they are working perfectly well in much of the rest of the world. There's something almost Onionesque about it [1].
I think it’s more of an income thing than a location thing.
Most supermarkets will have a minimum spend and then there is a delivery charge on top. Both are pretty cheap but if money is tight then that is one easy convenience to go without.
I know people with not great income who use delivery due to working parents and can't afford a car, so ordering delivery from a large supermarket is cheaper and has better range than the walkable corner store alternative, and frees up a ton of time.
Ironically I find I spend less when shopping online too because I’m less likely to impulse buy stuff. Though I do often break the “don’t go shopping when you’re hungry” rule, which doesn’t help.
I suspect there's also a social proof aspect. If five of your six closest local friends get their shopping delivered, you're very likely to try it yourself. If you don't know anyone who does it, you aren't.
At least in the US, I go to the grocery store because I enjoy going. Because I buy so much online, and I telecommute, it's just my excuse to get out of the house...
... And, honestly, I'd rather buy fresh produce and perishables in person. The rest of things at the grocery store are usually cheaper in person.
Anyway, IMO, the real value of online shopping is that you no longer have those 3-hour trips from store to store to find that thing that everyone ran out of, or has poor selection. The grocery store for staples is the last thing online merchants can really replace.
Maybe Webvan was before its time. Instacart is doing just that and has lots of partnership too e.g. Costco/Sprouts etc. They might just become successful.
I used webvan back in 1999, and it felt... ridiculous? Like they had to be spending a ton of money to bring me basic groceries? But 1999 was like that.
What I think they really missed is how much they were in the logistics business rather than the grocery business -- immediately. That's a seriously tough nut to crack and you have to be Amazon or Walmart or (now) Uber to really play in that space.
> Will Uber eats and the like become the next Webvan? Grocery store delivery? Paying someone to shop for you then picking it up?
Maybe for prepackaged foods, but I hope not fresh foods like meats, veggies, etc. Most stores have a wide variety of quality in the same bin for any given food and I'd rather be the one to choose.
I'd say 10% of orders (I order ~2 times a week) contain an item that wasn't of sufficient quality. Their customer support is great when this happens, always refunding the bad item (though sometimes that's besides the point -- I needed that item for my meal!)
The $100 yearly membership fee amortizes to ~$1/order, and the markup on products seems to be ~5-10%. So I'm paying a little extra to avoid going to multiple grocery stores on a weekend/weeknight
UK supermarkets have offered both a collection service as well as a delivery service for years. It’s great, you do your grocery shopping online and schedule a delivery or collection time and the supermarket does all the hard work for you. And the whole
Thing costs a couple of quid.
So, you can use Waitrose, where delivery is free, but there's a £60 minimum order, and their prices are generally higher than the other supermarkets (Waitrose is the UK's high-end supermarket for moderately posh people [1]). Or you can use solidly middle-class Sainsbury's, where there's a £25 minimum order, delivery costs £1 - £7 depending on the time and day, but it's free for orders over £100. Or something else. Or sign up to a subscription plan which will work out cheaper if you get a lot of deliveries, etc.
As I said in my post, I normally pay £2. But the price is variable depending on time of day etc. I can’t recall what the minimum spend is but it’s way below our typical weekly spend anyway.
I remember a journalist did a story on webvan and how ridiculous it’s biz model was. They ordered a snickers bar, which was delivered by itself. The cost to deliver that snickers bar was multiple times the cost of the product.
Knew a person who worked there at the time and they said the problem no one could solve was optimizing logistics because they couldn't cherry pick their customers. One order could be halfway across town from the next, and they had to fulfill that in a timely manner.
In 1999 and 2000, I worked for a startup in the Bay Area. Twice a week our kitchen was stocked with fresh food delivered by WebVan. We had a ton of their crates sitting around that we used to store computer parts and other facilities needs, since they never seemed to collect them.
Right around mid-2000, the deliveries stopped as the market started to tank and we had to "tighten our belt", and the free food disappeared and the vending machines went from free to 10 cents each (and there was a small riot). I suspect we weren't the only startup that did that. It makes me wonder how much of their revenue was from other startups. Kind of reminds me of 2019...
They actually brought good food. I considered signing up for myself at my house, but it was just too expensive for a single guy. Might have been good for a family though.
The implication here is that a lot of value associated with 2019-era VC-funded startups is derived from the revenue they receive by selling to other VC-funded startups.
Boy, this brings back memories. I was working at Andersen Consulting (AC, then Accenture) at the time our CEO, George Shaheen, left to join Webvan. The general sentiment at AC (at least amongst the grunts in my circle) was that we were glad to see George Shaheen leave, but were all left wondering if we should be jumping ship too, to join the dot-com boom.
The partners at AC were trying to hang on to talent for dear life because of the dot-com boom. When Webvan went bust many of the the partners/associate partners were quick to point that out, maybe as some kind of misguided retention pep-talk or something.
As a funny aside, there were some who used to call George Shaheen "George Unseen:"
I worked for Redknife, later renamed OpenLatitude, that was WebVan's primary B2B exchange hub. We translated their orders/invoices/catelogs back and forth to their vendors. They were our second best customer behind MicroWarehouse.
When they went down, they took us with them. MicroWarehouse exercised a contract clause to purchase our software and hired me on a three month contract to teach them how to use it. I took it because my option was to be laid off.
Brings back memories, and not all good ones. What a wild ride.
The part this thread seems to be missing is that like we didn’t have much internet back then.
Sure you didn’t have it in your pocket, but also most people didn’t have it in their house either. And if you did you had to dial with a phone line (which is a thing attached to a wall) and make it so you couldn’t get any calls while you were doing it.
And it would take like 41 seconds for a grainy picture of a banana to roll in from top to bottom. And you’d get disconnected and lose your cart. And so on.
cookies are sent with every request, you were lucky to have >28k modem back then. Json didn't really exist, xml was king.
There were plenty of reasons. Apache needed a mod to store a session in a cookie instead of a url and HTTPS was really hard to do. Java had its way, PHP had another, ASP had another... everything was different and there were no patterns.
my area at the time was one of the first to get cable modems. 10mbps (and as much as 40) vs 56k dial-up. it was heavenly. the webvan site would have been no match, had it been offered where i lived.
In Seattle we had HomeGrocer and it was awesome. Absolutely seemed like the future of groceries, they had great selection and especially great produce. The delivery people drove company vans (with a distinctive peach logo on the side) and wore a uniform (like UPS) and AFAIK were all full-time employees. Sadly they were acquired by Webvan and it all fell apart.
i felt that way about the massachusetts-based lighthouse bank[0] founded in 2000 and unaffiliated with the current santa cruz-based lighthouse bank. high-interest checking, no-fee, internet-only bank. it was amazing until it got merged into brookline bank and essentially dissolved.
SoFi just launched this product, and they are even giving $50 referral bonuses on both ends to sign up (referer and referee). I'm really wondering if it's a sustainable business model.
it's quite sustainable i'd bet. banks traditionally make money by lending most of its deposits to other people and earning interest on that lending.
as long as the deposits are large enough, that interest should cover the fixed costs (employees, infrastructure) and the variable costs (paying out interest, referral bonuses) of providing the accounts. internet-only banks also lower their fixed costs by foregoing expensive retail square footage.
Interesting how some of the business models that were not profitable in the early 2000's are resurrected with the on-demand workforce - cutting out the most expensive part.
Cloud computing makes scaling the IT side of things much easier & cheaper than it used to be too. The old model was buy a giant Sun box, buy a bunch of Oracle software, ... take a look at ORCL in the 2000ish time frame
Hire too many employees, build out too much capacity without a market that can provide the necessary demand, operating costs get too high, and you're done. Of course if the terms of investments and the discipline of the founders are combined able to regulate the growth rate, these things become less of a problem.
Grow too fast and not judiciously. Expand rapidly, making assumptions about expenses and operations and revenue. Then a few months later, there were unexpected expenses, operations aren't going as smoothly as anticipated, and revenue is nonexistent. The buckets of money turns into buckets of debt (possibly actual debt, or maybe debt from the perspective of the investors). Then...not much you can do.
Companies grow because they hope more growth == more revenue == more profits, but it can easily go south. Fast forward a few months or years and they're stuck spending tons of money just to keep everything going, owing tons of money, but not making any money.
If you expand too quickly then you might not have the sales to maintain the large growth. Then your profits from good markets go to propping up bad markets and before you know it you aren't making any money in any markets.
In the same way one kills a software development project by having too many developers: you feel like you need to put everyone to action immediately, so you end up with a mass of disjointed, barely functional code.
Because they scaled the business before they knew how to operate the business.
Edit: In order to scale a business, the founders typically need to operate the business themselves at a much smaller scale. Once the founders prove out the business model, the next challenge is hiring people and teaching them how to do the job. The same thing happens again as the initial hires become managers or take up senior roles and transfer knowledge.
Killing yourself with a bucket of money is basically hiring people to do jobs that you (a company) hasn't figured out how to do yet.
Webvan is an interesting case because it could have succeeded if it was not for some strategic blunders (i.e. the idea was good and to some extend the execution in the beginning).
The main thing they did wrong was buying and the fumbling the Home Grocer acquisition [1]. Web van was investing heavily in their own warehousing system so they scrapped Home Grocers which at that time was actually better. The acquisition was a large financial cost (1,2 billion) but also a large opportunity cost.
Is he still getting paid? I'd assume once the company went under there'd be no one to do the paying. In which case it doesn't seem like such a great play.
Well, sort of - it was a really good start, but given that was his incentive structure he should have been slowly and steadily building a sustainable business and instead he went and blew what could have been the opportunity of a lifetime by not being able to say no to bad strategy pressure from overly-aggressive VCs. Good negotiator. Bad CEO.
You could also say that it was really good negotiation by the other side; if you're a board member of a startup during the bubble and all you get to control is CEO pay, then you did everything you could to incentivise him to behave sensibly, and the rest unfortunately was on him.
Not really. The company went bankrupt and it’s an unsecured debt. It would have been a good play if it was collateralized or the company actually succeeded.
Ah, I assumed the deal was independent of WebVan's fate. I acknowledge that makes little sense. I must have been captivated by the vision of that check in the mail.
They raised a pile of money from Benchmark, Sequoia, and Softbank. Does anyone know what happened with these investments? Did they get out post-IPO while it was still high flying?
Bill Gurley answers on behalf of Benchmark here,saying they lost about $3.5 million but he would do it again (this answer is from 2004, seems he's addressed it in later interviews as well): https://www.quora.com/How-much-money-did-Benchmark-capital-l...
I remember how excited people were about webvan. And look, 20 years later we have it! You can order from Whole Foods and get it in 2 hours thanks to Amazon.
Webvan's main problem was they expanded before they had their model figured out. They invested tens of millions in warehouses they didn't need with their current volume as well.
If they had spent time on their model they'd have figured out that it only made sense to target the upper middle class neighborhoods at the time profitably. With that realization they'd never have built all the warehouses and with a lower burn they'd have survived only to eventually own the market.
The founder was a really smart guy who had already created a very successful startup. But he was under an imperative from his investors to ramp up fast.
A lot of the hard learned wisdom from that time would create a different outcome possibly today. I know that I'd have done a lot differently with my own startup back then if only I knew what is common wisdom today ;<).
such an important insight, that the investors were the ones pressuring him to structure it in this way.
Back in that time everyone placed an over importance on being first and then locking up the market quickly. Sometimes like maybe Uber that's important.
Reid Hoffman is still a proponent of this tactic with what he calls blitzscaling. Course nowadays he's a VC ;<).
But as Google demonstrated you can enter after the market is mature with both a better product as well as a better business model and dominate.
> But as Google demonstrated you can enter after the market is mature [] and dominate.
I don't think Google (founded 20 years ago) is a good example of entering a mature market.
I think a better example is Facebook (founded 15 years ago) which won against MySpace.
I thought Salesforce (founded 20 years ago) should be a good example, but their market cap is still well below SAP's.
Search was “mature” and “solved” prior to google. Altavista, webcrawler, infoseek, etc. Obviously it wasn’t actually solved ;-)
> I thought Salesforce (founded 20 years ago) should be a good example, but their market cap is still well below SAP's.
Wouldn't chalk that up as a counter example. Just on how slow Enterprise migrations are.
It wasn't an obviously wrong call.
At a time when a sock puppet attracted millions in VC, it wasn't unreasonable to worry about better capitalized competitors overtaking you.
True, but not blameless - he was the one to attempt to execute the plan that way.
Two things I remember from the webvan era- 1) how benchmark navigated / debated their investment (chronicled in https://www.amazon.com/eBoys-Inside-Account-Venture-Capitali...), 2) at the precise time that webvan was failing, fresh direct was succeeding but no one outside of NYC heard about their success because webvan failed so spectacularly.
Webvan brings up old memories and I really thought of it as the future. My neighbors tried it a few times and I can remember it showing up. When I asked my parents to do it they thought I was crazy. Pretty sure cost had something to do with it. I’d still fill up a shopping cart just because.
Webvan failed but if the gig economy was around it could’ve succeeded for a time. These companies need non-employees to make it viable I believe.
Will Uber eats and the like become the next Webvan? Grocery store delivery? Paying someone to shop for you then picking it up?
IMHO, robots will not be picking people up and delivering our groceries in the near future. Your business can’t depend on the weather. Gig economies are not good for the gig seekers long term.
The hilarious part to me is how Webvan as deployed represented a cutting of scope. Originally they were going to sell everything. Groceries were the start-small compromise!
One valuable lesson here is that being correct but too early is the same thing as being wrong. Webvan vastly overestimated the speed of change. 20 years later and I still get most of my groceries from the corner store. I have friends who do mostly delivery, but that's still far from a perfect experience.
Another is that any startup should ask questions like: what do we think we'll learn, and can we learn that for less money? They spent $800 million finding out the answers to things like, How much do people want to buy groceries on line? and What are sustainable economics for grocery delivery?
They could have gotten the answers they did for less than 1% of what they spent. Build a web site, rent a few trucks, buy most of your groceries from the nearest grocery store, launch a limited test in your most favorable zip code. They would quickly have learned how viable it was, and the other $792 million could have gone to startups with more of a chance of delivering sustained customer value.
There was a grocery delivery startup called Grocera that operated in Waterloo region for a little while a couple years ago (https://www.crunchbase.com/organization/grocera). It's defunct now, but my wife ordered from them a few times, and was pretty sure it was one of the founders who showed up at the door, pulling the order out of the back of their own hatchback.
So much value in learning first hand about the experience first hand, both for the customer and the staff person.
> So much value in learning first hand about the experience
I couldn't agree more! I'm working for a startup doing alcohol/cannabis delivery. Before there was funding, our founders rode their bikes to do these deliveries (and have still done some deliveries in the past 6 months).
There was so many lessons learned from doing our deliveries. One such example: we had a bug where our push notifications told the customer we had arrived, but were actually still pretty far away (GPS math sure is fun :P)
This totally depends where you are. Here we are talking about the US but in the UK for example all the major supermarkets offer delivery for a small fee. In Canada Save-on-foods has a delivery service.
Sure, grocery delivery is commonly available here too. But what percentage of groceries are sold through delivery? That was the real thing material to WebVan's business plan. They were betting the rate of change was much higher than it turned out to be.
And I'll note that WebVan was betting on replacing supermarkets, so they needed much more dramatic numbers. A supermarket already has 90% of business up, running, and paid for. WebVan spent hugely just to get to approximate infrastructure parity -- something that turned out to be totally unnecessary.
Parent is extremely insightful. It shouldn't be downvoted.
I remember trying to plan a startup with a guy who did similar things. He'd let his imagination run away, and then try to compromise on something far beyond realistic.
I should have walked away sooner than I did... We went nowhere because every week it was another "Groceries were the start-small compromise."
Yeah, this is a common entrepreneur failure mode. You need to be ambitious and visionary to start a new thing. And investors love to hear the grand plans! Tempering that is one whole other skill.
That guy sounds like he was trouble from the beginning. But if you get in this situation again with somebody less crazy, one thing I've done is to draw a graph with a dot just above the zero point and then a circle at the top right. I get them to talk about their grand 20-year vision, and I explain that's the circle in the upper right.
Then I draw a bunch of tiny line segments that walk erratically toward the circle. I explain that each week we need to take one step in the direction of the vision. The I ask them to focus real small, and think of the tiniest thing we can do toward the goal, something that fits in a week. Once the have a few of those, I'll ask, "How can we prove that this step really went in the right direction?" (It can also be useful to pull in the Lean Startup framework of validating hypotheses here.)
Sometimes that's enough to get visionaries to start breaking it down. And sometimes it exposes that the person is only good at dreaming big, but is unable to actually execute. Either way, it can yield valuable info.
Wish I saw your reply sooner. That's a great technique. You're probably a serial entrepreneur, or someone very close to that.
> And sometimes it exposes that the person is only good at dreaming big, but is unable to actually execute.
In my case, I figured out the problem when we tried to write a business plan. We've kept in touch for years since, and seeing where he's gone, that assessment is pretty accurate. He always has big dreams, but he succeeds when he focuses on mundane tasks.
It's silly, because he had a hit with an app, but spent too much money developing it and lost money. If his dream wasn't as big, he'd be profitable.
> These companies need non-employees to make it viable I believe.
I'm curious about this. Does this mean that, once gig-economy workers factor in all the costs that are normally born by employers (Insurance premiums? Certain taxes? Mileage costs? What else?), that they are effectively making less than minimum wage? If so, why do they do it? If not, what is the intrinsic reason that this work must be done by contractors rather than employees?
Definitely. A lot of current startup darlings are shifting costs traditionally borne by the business to the workers. Uber is exhibit A here. Taxi companies, for all their flaws, at least paid for, maintained, and took on most of the risk of the cars. With Uber, all of that is on people desperate enough to drive for Uber. This strikes me as woefully inefficient systemically; large organizations are much better placed to manage cost and amortize risk.
Or you could look at the recent DoorDash tip theft controversy, one of many such blow-ups. Anand Giridhardas has a lively discussion of that here: https://twitter.com/AnandWrites/status/1153312792964935682
I feel this is a little too cynical.
For example, maybe I want to make extra money but don't want to be tied to a shift. This type of flexibility is amazing for lots of people. It's very appealing if you need extra money, and have a lot of time. Unfortunately, this aligned in an economic cycle where people needed work, and undervalued their value as workers(and for sometime bonuses, and gamification made this type of work very profitable i.e. 4k a week driving uber in SF).
The gig economy is more about having workers without giving them benefits and with making the workers shoulder the burden of shifting demand throughout the day. With food delivery you have the lunch rush and the dinner rush and outside of those windows your demand is a lot smaller. The gig economy means the company isn't on the hook for predicting or satisfying that demand; if there's too many workers for the demand, it's the workers who take the pay hit rather than the company. And if demand spikes unpredictably the company has an easy lever to push to get more workers out there (just notify workers of the spike, and surge pricing as needed to make the unplanned demand more attractive to the workers).
So the gig economy is really just auto scaling applied to human resources instead of computing resources.
Is that actually true, though? I've seen anecdotal reports from certain Uber drivers or whatnot, but I have not seen data. (It seems counterintuitive that such a huge amount of contractors would continue to choose that work over traditional employment in service jobs if it paid less.)
Uber published a study with 2014 data here that says their drivers make ~$20/hr not including expenses which they estimate at like $3/hr https://drive.google.com/file/d/0B1s08BdVqCgrZWZkV0ZfZnhGUGc...
This MIT study says $8-10 after expenses https://www.npr.org/sections/thetwo-way/2018/03/07/591430857...
Plus given that drivers could be trying to drive when there's no demand, its very possible for people to earn below minimum wage.
That's a long time ago. They've cut the payment substantially since then.
https://www.inquirer.com/news/uber-lyft-rideshare-drivers-ph...
Plus given that drivers could be trying to drive when there's no demand, its very possible for people to earn below minimum wage.
If you count every hour that people want to work regardless of whether their employer wants them to, there aren't many employers who pay minimum wage.
Thanks!!
It could be that they're not factoring in the cost and maintenance of their vehicles because they foresee this as being a temporary period of their life. They're borrowing from the future cost of their cars.
From my experiences with Gig workers, I used to work in the engineering part of an early one, there will be definitely a bi-modal distribution between full time and part time workers. There will be those that will only want to 'pay a bill' with the proceeds. There will also be those that buckle down and organize their lives/finances around it. For the former, it wouldn't surprise me that they're earning less than service jobs, all in. However, the freedom of choosing one's hours really is powerful for those looking for just a few extra hundred dollars, plus the emphermeral cost against one's vehicles is easy to overlook.
This same factor applies to Amazon, McDonalds, Walmart et al: they pay minimum wage (though Amazon steals some back, though not as much as companies like DoorDash) but not really enough to live on; the balance is made up via a subsidy from the government (food stamps et al).
But those government-subsidized jobs count as "jobs" in the unemployment statistics so I suppose it's all good.
Gig-economy workers are working for cash, and most are operating at a net loss. That's one of the reasons why the mythology around "gig economy" is that people are just making extra cash on their downtime. All of these platforms push their contractors to accept more work for longer durations of time.
An Uber driver gets paid something like $0.80/mi for a trip that costs something like $1.05/mi. But the independent contractor doesn't factor in depreciation and maintenance well.
With employees, you generally provide employees with vehicles, reimburse employee expenses, or otherwise ensure that net pay less expenses are more than minimum wage. The average cost of operating a car for normal (not livery) use is about $0.55/mi. The number for an Uber is probably 30-50% more.
All of these bullshit gig economy businesses that require a car would be dead in the water if they had to pay real employees or deal with the compliance issues, worker's comp, etc.
This all sounds eerily close to data, which is what I'm looking for :) What is the source for your figures?
One source for the rates paid is: https://www.inquirer.com/news/uber-lyft-rideshare-drivers-ph...
The N.Y. Times published more detailed data last year iirc.
I used the GSA expense schedule for the standard mileage rate and various online sources (rural mail carrier reimbursement ($0.70), livery and van per mile estimates) to estimate the actual cost.
Better data exists on the expense side, but I didn’t go down that path due to time constraints.
My guess:
You (as the business operator) need the flexibility of being able to pay only for work done, to adjust pay based on performance metrics very easily, and to avoid the otherwise heavy costs of traditional hiring and firing.
You don't want to be on the hook for guessing how many drivers you need on a given day or for a given area. By utilizing them as contractors, they naturally adjust their own numbers as work becomes highly available or scarce, and you're not on the hook to pay them when they're not contributing to your bottom line.
As for why the workers do it: In many cases it's likely not their best financial decision, but there is some value to them in the flexibility of the schedule. And the ones that get particularly good at gaming the system (to the extent that it's possible) might make enough that it beats comparable jobs.
Almost every one I know in the UK has their groceries delivered. According to the official stats it’s only 7% of grocery spend though.
I always chuckle when threads about shopping delivery come up on HN. It's part of the holy trinity of delivery, instant bank transfers, and the metric system, where Americans line up to explain why none of those things could ever actually work, despite the fact that they are working perfectly well in much of the rest of the world. There's something almost Onionesque about it [1].
[1] https://www.theonion.com/no-way-to-prevent-this-says-only-na...
This is definitely the kind of thing heavily influenced by location. I'm from the north and I don't know anyone who gets them delivered.
I think it’s more of an income thing than a location thing.
Most supermarkets will have a minimum spend and then there is a delivery charge on top. Both are pretty cheap but if money is tight then that is one easy convenience to go without.
I know people with not great income who use delivery due to working parents and can't afford a car, so ordering delivery from a large supermarket is cheaper and has better range than the walkable corner store alternative, and frees up a ton of time.
Ironically I find I spend less when shopping online too because I’m less likely to impulse buy stuff. Though I do often break the “don’t go shopping when you’re hungry” rule, which doesn’t help.
I suspect there's also a social proof aspect. If five of your six closest local friends get their shopping delivered, you're very likely to try it yourself. If you don't know anyone who does it, you aren't.
I would be the outlier in that particular example but I think there is a fair amount in truth in what you said nonetheless.
Where do you count as "the north" ? Plenty of delivery vans around in Manchester.
At least in the US, I go to the grocery store because I enjoy going. Because I buy so much online, and I telecommute, it's just my excuse to get out of the house...
... And, honestly, I'd rather buy fresh produce and perishables in person. The rest of things at the grocery store are usually cheaper in person.
Anyway, IMO, the real value of online shopping is that you no longer have those 3-hour trips from store to store to find that thing that everyone ran out of, or has poor selection. The grocery store for staples is the last thing online merchants can really replace.
The UK even has an online only supermarket, Ocado, though they seem to be partnered with Waitrose as they offer a lot of Waitrose branded products.
Maybe Webvan was before its time. Instacart is doing just that and has lots of partnership too e.g. Costco/Sprouts etc. They might just become successful.
I used webvan back in 1999, and it felt... ridiculous? Like they had to be spending a ton of money to bring me basic groceries? But 1999 was like that.
What I think they really missed is how much they were in the logistics business rather than the grocery business -- immediately. That's a seriously tough nut to crack and you have to be Amazon or Walmart or (now) Uber to really play in that space.
> Will Uber eats and the like become the next Webvan? Grocery store delivery? Paying someone to shop for you then picking it up?
Maybe for prepackaged foods, but I hope not fresh foods like meats, veggies, etc. Most stores have a wide variety of quality in the same bin for any given food and I'd rather be the one to choose.
I love to cook and wouldn’t trust someone else picking out my groceries. Not to mention these things cost more.
I currently use Instacart (as an Express member).
I'd say 10% of orders (I order ~2 times a week) contain an item that wasn't of sufficient quality. Their customer support is great when this happens, always refunding the bad item (though sometimes that's besides the point -- I needed that item for my meal!)
The $100 yearly membership fee amortizes to ~$1/order, and the markup on products seems to be ~5-10%. So I'm paying a little extra to avoid going to multiple grocery stores on a weekend/weeknight
UK supermarkets have offered both a collection service as well as a delivery service for years. It’s great, you do your grocery shopping online and schedule a delivery or collection time and the supermarket does all the hard work for you. And the whole Thing costs a couple of quid.
It’s a great convenience.
My grocery store will do delivery through Instacart. According to Google Instacart adds $5.99 plus 10% of the order.
What does your store charge?
The market for delivery has evolved comparable complexity to mobile phone contracts, sadly:
https://www.lovefood.com/guides/3444/cheapest-supermarket-on...
So, you can use Waitrose, where delivery is free, but there's a £60 minimum order, and their prices are generally higher than the other supermarkets (Waitrose is the UK's high-end supermarket for moderately posh people [1]). Or you can use solidly middle-class Sainsbury's, where there's a £25 minimum order, delivery costs £1 - £7 depending on the time and day, but it's free for orders over £100. Or something else. Or sign up to a subscription plan which will work out cheaper if you get a lot of deliveries, etc.
[1] https://www.buzzfeed.com/floperry/of-the-most-middle-class-t...
As I said in my post, I normally pay £2. But the price is variable depending on time of day etc. I can’t recall what the minimum spend is but it’s way below our typical weekly spend anyway.
I remember a journalist did a story on webvan and how ridiculous it’s biz model was. They ordered a snickers bar, which was delivered by itself. The cost to deliver that snickers bar was multiple times the cost of the product.
Knew a person who worked there at the time and they said the problem no one could solve was optimizing logistics because they couldn't cherry pick their customers. One order could be halfway across town from the next, and they had to fulfill that in a timely manner.
> Grocery store delivery?
Amazon does this already with Whole Foods.
In 1999 and 2000, I worked for a startup in the Bay Area. Twice a week our kitchen was stocked with fresh food delivered by WebVan. We had a ton of their crates sitting around that we used to store computer parts and other facilities needs, since they never seemed to collect them.
Right around mid-2000, the deliveries stopped as the market started to tank and we had to "tighten our belt", and the free food disappeared and the vending machines went from free to 10 cents each (and there was a small riot). I suspect we weren't the only startup that did that. It makes me wonder how much of their revenue was from other startups. Kind of reminds me of 2019...
They actually brought good food. I considered signing up for myself at my house, but it was just too expensive for a single guy. Might have been good for a family though.
Can you please explain the bit about 2019? Do you feel a downturn is happening/coming?
The implication here is that a lot of value associated with 2019-era VC-funded startups is derived from the revenue they receive by selling to other VC-funded startups.
I see, thanks for the clarification!
Boy, this brings back memories. I was working at Andersen Consulting (AC, then Accenture) at the time our CEO, George Shaheen, left to join Webvan. The general sentiment at AC (at least amongst the grunts in my circle) was that we were glad to see George Shaheen leave, but were all left wondering if we should be jumping ship too, to join the dot-com boom.
The partners at AC were trying to hang on to talent for dear life because of the dot-com boom. When Webvan went bust many of the the partners/associate partners were quick to point that out, maybe as some kind of misguided retention pep-talk or something.
As a funny aside, there were some who used to call George Shaheen "George Unseen:"
http://www.bigtimeconsulting.org/remember-george-4
http://www.bigtimeconsulting.org/ceo-of-the-future-4
http://www.bigtimeconsulting.org/george-unseens-reward-4
http://www.bigtimeconsulting.org/webminivan-a-look-back-4
There is now a very successful company with exactly the same business model in the UK: https://en.wikipedia.org/wiki/Ocado
I wouldn’t say it’s exactly the same, it definitely targets the higher end of the market.
timing clearly is everything
I worked for Redknife, later renamed OpenLatitude, that was WebVan's primary B2B exchange hub. We translated their orders/invoices/catelogs back and forth to their vendors. They were our second best customer behind MicroWarehouse.
When they went down, they took us with them. MicroWarehouse exercised a contract clause to purchase our software and hired me on a three month contract to teach them how to use it. I took it because my option was to be laid off.
Brings back memories, and not all good ones. What a wild ride.
The part this thread seems to be missing is that like we didn’t have much internet back then.
Sure you didn’t have it in your pocket, but also most people didn’t have it in their house either. And if you did you had to dial with a phone line (which is a thing attached to a wall) and make it so you couldn’t get any calls while you were doing it.
And it would take like 41 seconds for a grainy picture of a banana to roll in from top to bottom. And you’d get disconnected and lose your cart. And so on.
It was different back then.
Lol, amazing how fast the internet has gotten. Started on a 14.4 modem, now I’m being told gigabit fiber is available in my neighborhood. Just... wow.
Disconnected, okay. Lose your cart... why? Cookies and sessions existed back then.
cookies are sent with every request, you were lucky to have >28k modem back then. Json didn't really exist, xml was king.
There were plenty of reasons. Apache needed a mod to store a session in a cookie instead of a url and HTTPS was really hard to do. Java had its way, PHP had another, ASP had another... everything was different and there were no patterns.
56k modems were pretty routine by 1999 and ISDN (It still does nothing) was a thing. But by 2000, DSL rollouts were starting to happen.
my area at the time was one of the first to get cable modems. 10mbps (and as much as 40) vs 56k dial-up. it was heavenly. the webvan site would have been no match, had it been offered where i lived.
In Seattle we had HomeGrocer and it was awesome. Absolutely seemed like the future of groceries, they had great selection and especially great produce. The delivery people drove company vans (with a distinctive peach logo on the side) and wore a uniform (like UPS) and AFAIK were all full-time employees. Sadly they were acquired by Webvan and it all fell apart.
i felt that way about the massachusetts-based lighthouse bank[0] founded in 2000 and unaffiliated with the current santa cruz-based lighthouse bank. high-interest checking, no-fee, internet-only bank. it was amazing until it got merged into brookline bank and essentially dissolved.
[0] https://www.bloomberg.com/research/stocks/private/snapshot.a...
>high-interest checking, no-fee, internet-only bank.
SoFi just launched this product, and they are even giving $50 referral bonuses on both ends to sign up (referer and referee). I'm really wondering if it's a sustainable business model.
it's quite sustainable i'd bet. banks traditionally make money by lending most of its deposits to other people and earning interest on that lending.
as long as the deposits are large enough, that interest should cover the fixed costs (employees, infrastructure) and the variable costs (paying out interest, referral bonuses) of providing the accounts. internet-only banks also lower their fixed costs by foregoing expensive retail square footage.
Reminds me of another business in the delivery space: https://en.wikipedia.org/wiki/Kozmo.com
Interesting how some of the business models that were not profitable in the early 2000's are resurrected with the on-demand workforce - cutting out the most expensive part.
Cloud computing makes scaling the IT side of things much easier & cheaper than it used to be too. The old model was buy a giant Sun box, buy a bunch of Oracle software, ... take a look at ORCL in the 2000ish time frame
Of all the companies to bite in the the dot-com crash, Webvan really did seem like it was truly viable.
I think they were suffering from too much money that needed to be spent too quickly. If they had moved slower they may have become like amazon.
What does that even mean? How do you kill yourself with a bucket of money?
Hire too many employees, build out too much capacity without a market that can provide the necessary demand, operating costs get too high, and you're done. Of course if the terms of investments and the discipline of the founders are combined able to regulate the growth rate, these things become less of a problem.
Grow too fast and not judiciously. Expand rapidly, making assumptions about expenses and operations and revenue. Then a few months later, there were unexpected expenses, operations aren't going as smoothly as anticipated, and revenue is nonexistent. The buckets of money turns into buckets of debt (possibly actual debt, or maybe debt from the perspective of the investors). Then...not much you can do.
Companies grow because they hope more growth == more revenue == more profits, but it can easily go south. Fast forward a few months or years and they're stuck spending tons of money just to keep everything going, owing tons of money, but not making any money.
If you expand too quickly then you might not have the sales to maintain the large growth. Then your profits from good markets go to propping up bad markets and before you know it you aren't making any money in any markets.
In the same way one kills a software development project by having too many developers: you feel like you need to put everyone to action immediately, so you end up with a mass of disjointed, barely functional code.
Because they scaled the business before they knew how to operate the business.
Edit: In order to scale a business, the founders typically need to operate the business themselves at a much smaller scale. Once the founders prove out the business model, the next challenge is hiring people and teaching them how to do the job. The same thing happens again as the initial hires become managers or take up senior roles and transfer knowledge.
Killing yourself with a bucket of money is basically hiring people to do jobs that you (a company) hasn't figured out how to do yet.
Lose money on every sale and hope you'll make it up on volume (or more charitably, that at a certain scale profitability will emerge)
You can overspend on stuff. When the money runs out you have a business that can’t sustain itself. Uber is running that risk too.
If your business model is selling $50 bills for $40, it's not sustainable.
Webvan is an interesting case because it could have succeeded if it was not for some strategic blunders (i.e. the idea was good and to some extend the execution in the beginning).
The main thing they did wrong was buying and the fumbling the Home Grocer acquisition [1]. Web van was investing heavily in their own warehousing system so they scrapped Home Grocers which at that time was actually better. The acquisition was a large financial cost (1,2 billion) but also a large opportunity cost.
[1]https://www.academia.edu/11307477/HomeGrocer.com_Anatomy_of_...
The CEO of WebVan negotiated a contract to pay him $375,000 per year for life - including his wife's life, if she survives him.
I'm not sure what to say except: well-played.
Is he still getting paid? I'd assume once the company went under there'd be no one to do the paying. In which case it doesn't seem like such a great play.
Well, sort of - it was a really good start, but given that was his incentive structure he should have been slowly and steadily building a sustainable business and instead he went and blew what could have been the opportunity of a lifetime by not being able to say no to bad strategy pressure from overly-aggressive VCs. Good negotiator. Bad CEO.
You could also say that it was really good negotiation by the other side; if you're a board member of a startup during the bubble and all you get to control is CEO pay, then you did everything you could to incentivise him to behave sensibly, and the rest unfortunately was on him.
Not really. The company went bankrupt and it’s an unsecured debt. It would have been a good play if it was collateralized or the company actually succeeded.
Yes, that seems the opposite of the kind of deal you'd want to make with a hotly burning startup.
Ah, I assumed the deal was independent of WebVan's fate. I acknowledge that makes little sense. I must have been captivated by the vision of that check in the mail.
http://www.webvan.com/
As resurrected by Amazon in 2009. How the mighty have fallen.
The cup holders...
https://www.sfgate.com/bayarea/matier-ross/article/Webvan-gh...
There are no bad ideas, just early ones.
(I believe this was first said by my partner Marc)
They raised a pile of money from Benchmark, Sequoia, and Softbank. Does anyone know what happened with these investments? Did they get out post-IPO while it was still high flying?
Bill Gurley answers on behalf of Benchmark here,saying they lost about $3.5 million but he would do it again (this answer is from 2004, seems he's addressed it in later interviews as well): https://www.quora.com/How-much-money-did-Benchmark-capital-l...
I remember how excited people were about webvan. And look, 20 years later we have it! You can order from Whole Foods and get it in 2 hours thanks to Amazon.
Textbook example of: GOOD_IDEA < GOOD_EXECUTION
https://www.youtube.com/watch?v=I6IQ_FOCE6I ;-(