Media billionaire Jeffrey Katzenberg recently pulled the plug on Quibi, his own start-up.
As with any other box-office bomb, the post-mortem blame game may prove more creative, entertaining — and instructive — than the feature itself.
Katzenberg founded Quibi with former eBay CEO Meg Witman. They raised $1.75 billion in start-up capital.
This C-suite power couple sought to upend entertainment with short-form content designed specifically for mobile phones. After spending six months and $1 billion of investor money, Katzenberg canceled Quibi halfway through its first season.
Failure Without Scandal?
These days, a business failure without a scandal seems refreshing, even quaint.
Well, almost without. Some questions do remain over divvying up remaining cash. A company claiming that Quibi infringed its IP rights has asked a court to set up a reserve for IP-rights-infringement claims.
At the same time, Quibi plans to return about $350 million to early investors. These include Whitman, as well as Katzenberg’s own production company.
The founders’ coming out of this effort largely whole might cast their decision to shut down early in a less flattering light.
So What Really Happened?
The Official Line
Katzenberg and Whitman attribute Quibi’s failure to a concept that “wasn’t strong enough to justify a stand-alone streaming service” combined with launch during a pandemic, a time when their anticipated base was home rather than riding subways, commuter trains, and buses, or hanging out between classes or meetings.
As to a more precise answer, lament the two executives, “Unfortunately, we will never know.”
Other people claim deeper insight into Quibi’s demise. They blame Quibi’s mobile-only launch, which ran counter to early advice. Stuck at home, viewers who wanted to project Quibi content onto their TVs could not. Last month, Quibi released a TV app, but the company lacked the time and funds to adjust its subscription model and other features.
The Old-School Answer — Nobody Knows Anything
As acclaimed Hollywood screenwriter William Goldman (Butch Cassidy and the Sundance Kid, The Princess Bride, etc.) famously noted of the movie business:
“Nobody knows anything…Not one person in the entire motion picture field knows for a certainty what’s going to work. Every time out it’s a guess and, if you’re lucky, an educated guess.”
Goldman’s words ring true for the start up / venture capital world as well. About half of start-up and emerging companies fail to survive to the next funding round.
In other words, for start ups, failure represents the norm. Katzenberg and Whitman pitched investors the blockbuster crossover potential of “Hollywood meets Silicon Valley.” This sounded high-concept, but really meant that Quibi was a doubly risky bet. Amid the glitz and hype, this fact and other basics of start-up governance got lost or forgotten.
Lessons Learned — Start-up Governance
Hindsight is 20/20. Rather than pick apart Quibi and its founders and investors, it’s better to let Quibi’s example remind us of some home truths about start-up-company governance.
Star Power Represents A Double-Edged Sword
Investors prize executives with successful track records. Multi-exit founders have defied the odds. But even for the undeniably talented, start-up failure rates remain high.
In addition, having founder(s) who have not just solid track records but star power presents certain risks.
- They expect deal terms and treatment that match their reputations
- Their egos get in the way of their listening and adapting
- They don’t have to make things work
Katzenberg and Whitman no doubt worked hard to make Quibi successful. But, were they ever fully invested? Mightn’t investors have wanted them to have fought longer, even if it meant bowing out a bit less gracefully?
By contrast, Elon Musk ticks the first two bullet points above, but he also risked his entire fortune on Tesla and SpaceX. Investors knew Musk might be grasping and pig-headed, but he did have to make things work.
Plan On Problems
If Hollywood action films seem formulaic, try start-up pitch decks. Here’s the rubric:
- There is large and growing market
- Some complication/dislocation creates a HUGE opportunity
- We are uniquely positioned to capture this opportunity
- Our team has the talent and track record to execute
VCs understand that pitch decks promise a smooth and rapid rise to the sky. VCs also know (but sometimes forget) that reality is different.
According to Igor Neyman, a multi-exit founder who currently heads SteppeChange, a data-science/digital-transformation company, “Even where technology companies correctly see the market opportunity, they rarely succeed without repeatedly adjusting and iterating their initial concept and technical approach.”
Quibi blew through $1 billion in cash in six months on high-priced talent. Its business plan left neither the resources nor the runway to adapt or overcome obstacles. This seems foolhardy.
It’s Easier To Sell A Have-To-Have Than A Nice To Have
CrowdStrike represents one of those rare companies that made it big by executing according to plan. Mark Sherman, Managing Director with Telstra Ventures, sizes up
CrowdStrike’s example this way: “CrowdStrike founders had many years in the cybersecurity business. They saw the security challenges from booming demand for mobile and cloud applications. In addition to the product gap this boom created, the founders understood that security represented a have-to-have rather than a nice-to-have.”
Selling a have-to-have into a white-space market makes customers more eager to buy and more willing to work with the company to iron out problems and to refine an offering which the company controls.
Quibi, by contrast, was selling a nice to have. Moreover, Quibi’s success would only have established consumer demand for short-form content. Wealthier and better-positioned competitors could have easily followed fast. Where, after Quibi’s spending $1 billion, was the moat that would guard the company’s competitive advantage?
Avoiding The Casting Call For Quibi II
Success makes people stupid. Failure teaches. However, the official line’s pinning Quibi’s failure on the specific circumstances of product and pandemic limits the lessons people draw.
No one wants to produce or star in Quibi II. Placing Quibi’s misfortunes in the larger context of start-up governance helps us spot — and stay away from — any sequel.
[This blog first published in Forbes. Reprinted here with permission.]