“Failure” is an ugly word. Some say there is no such thing as long as you are learning and applying that knowledge to your next attempt. Let’s just assume for a moment that failure is real, and is indeed an option.
As an entrepreneur, failure is something you’ll have to come to terms with. You will have failures as you try to build a business.
Even as you succeed, the possibility for failure is always there. In fact, sometimes a surge of success can actually end in failure.
A few weeks ago, we talked about once successful businesses that slowly died out and shut down altogether. Today, we’re going to focus on one specific company that fell almost as quickly as it rose.
The Brief Success of Pets.com
Pets.com is often the poster child of the dot-com bubble burst – and with good reason. They received huge amounts of capital investment before actually achieving anything, they became a nationally known brand through a wildly successful marketing campaign, and then they imploded almost immediately after.
Looks good….wait a minute
Before things came to a terrible end, however, it looked as though they might be the last big internet company to come out of the 90’s. Like so many early internet companies, their concept was simple: sell pet food, supplies, and accessories online. The pet supply industry was valued at $23 billion at the time, and little to none of that was being moved through the internet.
With such a simple, powerful domain, success seemed all but guaranteed. Especially once their advertising kicked in. The Pets.com sock puppet mascot became a nationally recognized icon almost immediately.
Whether you loved him or hated him, you knew him. After all, he appeared on Good Morning America, Live with Regis and Kathie Lee, a Super Bowl Commercial, and as a float in the Macy’s Thanksgiving Day Parade in the span of months.
All this marketing was funded by venture capital money, as well as Amazon, who bought half of the company’s shares very early on. While Amazon wasn’t quite what is today in the late 90’s, it was still a pretty big deal.
When Pets.com went public, it closed at an $82 million IPO. Soon, they were employing 320 people.
So what happened?
Pets.com was all basic idea and no actual execution, research, or planning. The company started when a Harvard business student convinced the guy who owned the domain to use it for selling pet supplies.
That was the entire vision, and it was enough to convince investors to buy in.
Before they had any plans on how to scale to being a nationwide distributor, Pets.com had embarked on an $11 million marketing campaign. Trouble was, they were losing money on every sale they made, even before advertising was taken into account.
A lot of issues stemmed from the fact that they did almost zero market research beforehand, so they had no idea what consumers’ spending habits would be. It turned out, many people weren’t ready to buy pet supplies online, and those who were bought small quantities of simple products with poor profit margins.
These types of orders actually hurt Pets.com’s finances.
They attempted to incentivize additional purchases by offering things like free shipping, but as you may know, pet food isn’t known for being light weight. Their expenses increased.
Meanwhile, they were investing heavy amounts of money in expanding infrastructure, servers, engineers, and more to handle their growth and expansion. This was before pre-built ecommerce solutions existed. There was no cloud computing. Software hadn’t been designed to connect websites with warehouse inventory.
They had to try and do it all themselves, which led to additional errors, delays, and worst of all, further loses.
Pets.com was this hugely recognized brand that no one actually used.
Realizing they weren’t going to be able to make it work, Pets.com made one of their smarter decisions and liquidated their assets. This happened less than 300 days after going public.
While a fair share of money was lost, it’s worth noting that Pets.com did get some money back to their investors after their liquidation. PetSmart bought their domain (and they still have it), while a car financing company bought the sock puppet mascot for $125,000. Yep, that actually happened.
What Business Owners Can Learn from This
While Pets.com is often used as a cautionary tale about investing in unproven startups, I think there’s a more important lesson here. Simply put, they didn’t plan. They didn’t strategize. They didn’t research.
They tried to skip over the first, and arguably most crucial part of starting a business, and it ended up being their death sentence. A business needs more than a hot idea and some money.
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