Rest in Peace 20 Years Later, Pets.com: thanks for all you taught us startup folk
20 Years ago today, Pets.com IPO’ed. My favorite obituary: “From IPO to RIP in 268 days!” It’s also been branded number seven of the “top 10 IPO flops of all time!”
Let’s hope we all learned a lot as one of the alleged rockstars of internet 1.0 crashed from $11 to $0.19 per share in nine months….What indeed did we learn?
1. Test everything, especially expensive customer acquisition efforts: Pets was certain its sales would explode with a $3mm ad on the Super Bowl. With no pre-testing, no copy testing, and no prior tv ads to convince them this’d draw customers cost-effectively. The bold strategy looked great in a business plan, but not so good on the P&L.
2. Study your unit cost analysis: How could anybody ever sell “lowest prices anywhere” 50 pound bags of dog food, delivered for free, and make money on that sale? Where was the calculator when you figured this out?
3. Customer Lifetime value is lovely, only if you live long enough: How long does it take to make money after expensive upfront customer acquisition spending. Assumptions like “customers will buy an average of six times” are only useful once they’ve been tested and proven. Otherwise, as Pets.com taught us, it’s a recipe for disaster.
4. Cute is nice. Big problems are better: The legendary pets.com sock puppet is adorable, but how hard is it, really, to get pet products locally, at the supermarket or home delivered? Were the pets folks solving a serious, painful, frequent problem, or jumping on the e-commerce bandwagon and hoping it’d pull them along. Then there’s Wag, the 100% global dog walking service recently written down to zero by the legendary Softbank fund. Hmm. Don’t supermarket bulletin boards do this pretty well?
In sum, as one of the leaders of the lean startup movement, I thank the pets.com folks for showing us what not to do. Perhaps their best achievement of all was launching the Steve Blank revolution today known as “lean startup…” test and iterate everything, scale carefully and slowly as data tells you to, and listen to your customers first, second and third to find the wisdom that can help you build a great company
Author, trainer, consultant, trainer-trainer
Bob travels the world, helping startups, incubators, governments, and established corporations learn how to effectively deploy Customer Development process through speaking, workshops, and in intensive 8-10 week hands-on Startup Boot Camps. His training takes many forms, including speeches, workshops, and hands — on consulting.
He teaches Customer Development and Business Modeling in full-semester and week-long classes at Columbia Business School, where he is an Adjunct Professor of Entrepreneurship, and many other places around the world.