The 6 Forces of Failure—and How to Protect Your Company from Them

Welcome to HBR on Strategy, case studies and conversations with the world's top business and management experts, hand-selected to help you unlock new ways of doing business. Ever heard of the Failure Museum? It's home to more than 1,000 relics of failed business ventures, like the Heinz Tomato Ketchup Cookbook, Bix Pencil Just for Women, and a stock certificate from Lehman Brothers. While these flops and washouts might be fun to laugh at, they hold powerful lessons for business leaders. In this episode, museum founder and venture capitalist Sean Jacobson identifies six forces of failure, from bad timing to poor financial management, with the help of artifacts from his cautionary collection. Along the way, you'll learn how your company can avoid making the same costly mistakes. By the way, if you want to see the items Jacobson talks about, go to HBR's YouTube channel, where you'll find the video version of this episode. Here's Jacobson. I have a lot of favorites. The Pets.com Sock Puppet from 1998. They could have been successful if they didn't build a money-losing business. Harley-Davidson Cologne from 1996. It reeked the scent of tobacco. Here's an unopened bottle. No, they weren't joking. They were serious about it. There's a lot of product extensions. Of course, sparkling water, Cheetos, lip balm. Another one of my favorites is Alan from 1964. He was Ken's best friend. You may remember him from the Barbie movie. Hi, Barbie. Oh, hi, Alan. Here he is in the original box. Alan wore the same clothing. He was his best friend. The problem is everyone just wanted to own Ken, not Alan. Yes, I have two cans of new Coke. You want me to bring them out? It was really hard to switch people in math to something completely different. I have not tasted one. I certainly have been tempted, but some of these things are 15, 20, 30 years old, so they probably don't taste good anymore. Sean Jacobson, a partner at Norwest Venture Partners. I'm on 14 boards. I'm also the founder and curator of the Failure Museum. The Failure Museum has over 1,000 items and continues to grow. Failed companies, failed products, failed sports-related items, and failed toys. I've tagged all 1,000 items of mine to one or two forces of failure. Product market fit, team, financial management, timing, competition, and customer success. I'm going to go through all six forces of failure and share one example of each. I have a champagne bottle from Webvan's IPO date in 1999. For product market fit, Webvan is a good example. They were the world's first grocery delivery company. You have the right to come home from work and find something good waiting for you in the fridge. They raised over $880 million to launch in 10 cities before having proven one. The business model required so much capital. They had distribution centers. They hired their own drivers, which is why they had to raise $880 million. Not enough demand for the early version of your product. You shouldn't yet scale go-to-market. So, I have a Theranos mug, and I also have Elizabeth Holmes' business card. Their goal was to revolutionize the blood testing industry, and at the peak, we're worth $10 billion. Theranos didn't have a strong team or board. None of them had domain expertise. They tried to use a pinprick of blood to do testing, and that's just not enough data. Yeah, when they don't have domain expertise, hiring other people without domain expertise, you believe in something can be possible when it really isn't. Here is a copy of the Google Glass, and I can put it on here, too. A good example of customer success is Google Glass. They did not pick the right early customers well. They started with doctors, and doctors could see patient records on the glass while they were talking to the patient so they didn't have to use their computer. It felt invasive. It didn't seem very personal. You're not used to having someone with a strange device on your face trying to communicate with you. Because it lacked the cool factor, they couldn't find any other segments of the population that wanted to wear something like this. It's important to pick the right early customers that are representative of your bigger market. A lot of times, people pick the most convenient customers rather than those that are going to help you build a big business. I love this one so much that I actually bought two of them on eBay. For financial management, the ESPN mobile phone. They launched a year before the iPhone. All the phone did was calling, sharing ESPN mobile content and scores. They burned through $150 million, including several Super Bowl ads. It only hit 6% of its sales target. They probably should have had more capabilities on the phone. There just wasn't enough to do on the phone. Introducing mobile ESPN. Sports fans, your phone has arrived. I have a couple items here. A WeWork thermos and a koozie from WeWork's summer camp. For timing, a good example is WeWork. WeWork's in the co-working space business. And when the pandemic hit, the demand for office space fell off a cliff. And they ended up burning through $16 billion. The goal was to give people flexible space that allowed you to do month-to-month leases and scale up and down in space depending on your demand. They also signed 10- to 15-year leases at peak market prices. And then they ended up renting them out at a loss. There's some level of unluckiness, but I think that they had the wrong business model. You need to have a pulse on what's happening in the market and be able to anticipate what's going to happen in the next 12 to 24 months. And so I've had several friends donate their Blockbuster membership card to me. And then in every store, there was a sign that said, Be Kind, Rewind. For competition, Blockbuster is a good example. They're in the movie rental business. At the peak, they had 9,000 stores. They missed the opportunity to move online, and Netflix ate their lunch. They also, after they went public, had the opportunity to buy Netflix for $50 million and turned it down. And instead, Netflix ended up beating them. When I talk about competition, you need to make sure that you don't have an upstart competitor that offers a cheaper, better way of doing what you do. You need to be aware of all the competitors in your market segment and how you stay differentiated and better than them. I do admire companies for taking risks and trying new things. Some of these big risks turn into humongous outcomes, and some fail spectacularly. I am a lot of times surprised at the lack of research that they did before they spent a lot of money to roll something out that wasn't going to work. That was Sean Jacobson, partner at Norwest Venture Partners and founder of The Failure Museum. We'll be back next Wednesday with another hand-picked conversation about business strategy from Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you're there, be sure to leave us a review. And when you're ready for more podcasts, articles, case studies, books, and videos with the world's top business and management experts, you'll find it all at hbr.org. This episode was produced by Scott LaPierre and me, Hannah Bates. Kurt Nickish is our editor, and special thanks to Ian Fox, Maureen Hoke, Erica Truxler, Ramsey Gabaz, Nicole Smith, Anne Bartholomew, and you, our listener. See you next week. I'll see you next week.