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What We Can Learn From The Failure Of Quibi

2020 November 1
by Greg Satell

In 2018, Steve Blank wrote a piece in Harvard Business Review questioning the viability of the “lean startup” model. Given that Steve had pioneered lean startup techniques, I was intrigued. Why would he, all of a sudden begin, to doubt an idea that had been so successful and, to me at least, still seemed so relevant, even for large enterprises.

As it turned out, what made Steve hesitate was a new venture called “New TV” that was headed up by the dream team of legendary Hollywood producer Jeffrey Katzenberg and star Silicon Valley CEO Meg Whitman. Beyond talent and cache, it had raised almost $2 billion. With that much money, how could it lose?

Now we know. The venture, which eventually came to be known as “Quibi,” recently announced it was shutting down, less than seven months after its product launch. It’s become an all too familiar tale. Multi-billion dollar washouts, including WeWork, Better Place and others, have become all too common. We need to learn from their mistakes.

You Can Have Too Much Money

At the heart of Steve Blank’s argument against his own idea was that The Lean Startup “was an answer to a specific problem,” namely that startup companies face a limited runway due to scarce capital. In effect, he sees launching a new company as a race to identify a viable business model before you run out of money.

In Quibi’s case, however, there seemed to be unlimited capital. Its nearly $2 billion in funding would give it the ability to roll out a full-fledged business and, if things didn’t work as planned, still have the option to pivot. With access to that much money plus, presumably, ample access to even more, how could Katzenberg and Whitman go wrong?

To be honest, I never found the argument to be persuasive. I’ve launched countless businesses in my career and one thing I’ve learned is that you need to keep capital scarce in the early days. Limiting the amount of money you have around forces people to face up to problems and solve them. You can’t ignore warning signs when you’re close to broke.

Quibi, on the other hand, failed because it did ignore signals. With almost limitless programming budgets, producers knew they could sell Quibi their worst work. Infighting between Katzenberg and Whitman was ignored. Potential snafus, such as the inability for consumers to screenshot and share memes or to watch on TV screens, were overlooked.

Identify The Hair On Fire Use Case

Conventional marketing strategy dictates that you identify the largest addressable market for your product. That, after all, is where you can reach the most people, scale your business and earn the most money. So it made sense for Quibi to target Millennials in search of “quick bites” to watch while on line at Starbucks.

Yet when you’re launching something new and different, you don’t want the largest addressable market which, almost by definition, already has a lot of companies serving it. Instead, you want to identify a hair-on-fire use case—a problem that somebody needs solved so badly that they almost literally have their hair on fire. That’s where you’ll find customers to put up with the inevitable bugs and glitches that always come up.

For example, with Tesla, Elon Musk didn’t target the largest addressable market—a mid-market family model—but rather Silicon Valley millionaires who liked the idea of a high performance, eco-friendly car. Those customers weren’t price sensitive and didn’t need to depend on the car to pick the kids up at soccer practice, but did give the company a foothold in the luxury market. The mass market product, the Model 3, would come years later.

I’m sure there is a “hair-on-fire” use case for a short form video platform. Unfortunately, these things are never obvious, if they were, they would already be large addressable markets. Presumably, Katzenberg and Whitman considered themselves to be so smart that they could get it right on the first try.

Train The Monkey First

At Google’s X division, the company’s “moonshot factory,” the mantra is #MonkeyFirst. The idea is that if you want to get a monkey to recite Shakespeare on a pedestal, it’s best to start by training the monkey, not building the pedestal, because training the monkey is the hard part. Anyone can build a pedestal.

Returning to the example of Tesla and Elon much, in the case of electric cars, the “monkey” was always making a battery powerful enough to achieve an acceptable range. In the early years, that’s what the company focused on and, with an affluent customer base, they could do so without worrying too much about costs.

Once Tesla had customers, it could begin to focus on learning from them and adapting to what they wanted from an electric car. At the same time, it was able to develop manufacturing and operational capability that allowed it to scale. All of this went very slowly at first, but then accelerated at a pace that took incumbent car companies by surprise.

In the media business, the “monkey” is always to build an audience. Yet Katzenberg and Whitman chose to plow money into content, assuming that they knew what their (at that point nonexistent) audience wanted. Essentially, they blew through all of their money building the pedestal and assumed the monkey would train itself.

Your Strategy Is Always Wrong

In their letter announcing the closure of Quibi, the founders wrote, “And yet, Quibi is not succeeding. Likely for one of two reasons: because the idea itself wasn’t strong enough to justify a standalone streaming service or because of our timing… Unfortunately, we will never know but we suspect it’s been a combination of the two.”

Yet the point isn’t that Quibi got it’s strategy wrong or that the pandemic altered its chances of success, but rather that your strategy is always wrong. Everybody gets disrupted sooner or later and every business model eventually fails. The art of managing a venture isn’t to execute the “right” strategy, but to make the strategy less wrong over time.

Katzenberg and Whitman, it seems, allowed their previous success to blind them. They appear to have simply assumed that they were so smart that they could get it all right out of the gate. They didn’t allow room for error, to make mistakes or to pivot. When things didn’t go as planned, there was nowhere else to go. They had to pack it in.

Probably the most important thing we can learn from Quibi’s failure is to not believe your own PR. Plan for and prepare things to go wrong. Nobody really knows anything until it can be observed in the real world. Or, as Steve Blank might put it, no business plan ever survives first contact with a customer.

– Greg




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