Failure Forums: Lessons from SimonDelivers – a failure to change customer habits
Editor’s note: This is the second article in a new monthly series title Failure Forums. The series is focused on bringing the role of innovation failure to the forefront and will intentionally bypass the innovation success stories to focus on the lessons learned from failures. It is never easy to disclose our professional failures but these brave innovation practitioners are doing exactly that so that others can learn from their experiences. If you have a story that you would like to share please see Matt’s contact info below. We hope you will enjoy this new angle on driving innovation.
In the late 1990’s it seemed as if everyone was leaving their stable jobs to join hot tech startups. Like so many others, Steve Lauder had the entrepreneurial spirit and saw amazing opportunities ahead of him. In 1998, he left Minnesota based grocery retailer SUPERVALU to join a couple of high risk startups. First he joined Drugstore.com and then in 2000 he jumped to online grocery retailer SimonDelivers as Vice President of Product and Procurement. SimonDelivers had just launched but it would soon feel the repercussions of the Dot.com bust in 2001. Miraculously it had managed to be one of the few that weathered the storm. The West Coast online grocery service Webvan, the pioneer in this space, wasn’t so lucky and it ended up going bankrupt in 2001.
SimonDelivers had been ahead of its time in logistics, supply chain, customer service, B2B sales and CRM but it couldn’t handle the weight of another crisis – the economic recession of 2008 had tightened credit markets and many investors were hunkering down for the approaching storm. In the summer of 2008 SimonDelivers had ceased operations. Within a few months the assets were purchased and the business was re-launched by another local grocer as CoburnsDelivers. Ask Steve today about his experience at SimonDelivers and he will tell you there isn’t a thing that he would have changed about his journey – he has learned so much. This is Steve’s story.
1. You left Supervalu to join a couple of high risk startups in the early Dot.com boom days. How did you see the decision to join Drugstore.com and then SimonDelivers at the time?
The decision was more about my core personality traits than about companies. SUPERVALU could provide a great career, but it would be a slow career … managing “between the lines” and mitigating risks. Innovation experimentation and interest in building things were not going to be part of that path, which is what pointed me toward start-ups. So while co-workers at SUPERVALU questioned why I would move my family across the country and take such risks, I only saw opportunity.
2. When you committed to join SimonDelivers did you consider what would happen if you failed?
No, I really believed in the concept and wanted to work on it very badly. I thrived on the pure excitement of being part of something new and challenging. I always appreciated that I was learning at a faster pace than most others in my career, and I would walk away smarter – no doubt! I guess that’s the great part of taking risks: you learn a lot, regardless of outcome.
3. What kind of odds were you giving the company for success?
Interestingly, those types of thoughts/calculations never entered my mind. I am not saying we never had rough days, but we just kept moving forward. Over time, some people in the company reached a point where the risk of staying was too great for them, so they left. But most of the time we were really just focused on hitting our goals.
4. SimonDelivers had survived the Dot.com Bust but not the Real Estate Bust. What was different the second time?
I think investor fatigue had more to do with the ultimate sale of SimonDlivers.com than market conditions. Many of the funds had been invested for a long time — probably beyond their normal guidelines. The core business continued improving, but maybe they were just past the point of wanting return on investment.
5. You have mentioned before that SimonDelivers had survived for eight years but had been asking the wrong question all along. Can you explain?
SimonDelivers is a great business case study. The company was ahead of its time in logistics, supply chain, customer service, B2B sales and CRM. But a series of very talented CMOs could never get a handle on what the company called the “leaky bucket.”
The foundation of the business, and the investment in warehouse, trucks etc., was based on achieving a certain penetration percentage of the market. We could attract trial customers, but never really grew our loyal base. Numerous efforts were undertaken to understand what was wrong. We looked at service failures, lack of assortment, pricing … all of the normal triggers.
When the task of figuring this out made it to me, I teamed with two great partners – a database geek and a classic direct marketer. We came up with the idea of layering demographic data with behavioral data. I have a vivid memory of staring at the data in a conference room and sitting back and saying, “Wow! The good news is that we have penetrated our market to 95%. And the bad news? We have penetrated our market to 95%.”
What that meant was consumers who fit both the demographic and attitudinal characteristics were only 50% of the assumed base in the original plan. Customers loved us, but the majority did not shop with us regularly because they never changed their habit of grocery shopping.
6. Back in the day there were always rumors that Amazon might acquire SimonDelivers. Was there ever any truth to the rumors?
Not really. SimonDelivers investors pursued multiple options, partnerships, direct sale. Amazon, Wal-Mart and others were happy to entertain conversations, but it is my opinion that they simply were gathering intelligence. It seemed that they had no real intent to become buyers or investors.
7. You mentioned that you had worked with Amazon previously. What was it like working with them?
Drugstore.com had a close relationship with Amazon. Jeff Bezos was on the board for a number of years. It was clear to me at the time that our model of shipping high-value, low-weight, low-cube items intrigued Amazon. Having the partnership/investment from Amazon was like having a big brother. Sometimes they looked out for you and helped you grow, and sometimes they beat you up.
8. In your days at SimonDelivers was there ever a clear indication that the company wasn’t going to succeed?
Yes. I had a moment of clarity on that day in the conference room. After years of studying consumer data and appreciating the difficulty of changing consumer behavior it became clear to me. If we couldn’t reorganize our cost structure and match our operation to the true market potential, we would continue to burn cash. Soon afterward, I left the company. For about another year, there were valiant efforts to keep attracting a new base, but eventually the company was purchased by a group who could address the underlying cost structure. The new ownership continues to deliver groceries today, in the Twin Cities market.
9. How often do you find yourself drawing on the lessons learned from the failure of SimonDelivers in your current work?
There are three lessons I keep with me every day:
- What consumers do (data) is what matters; not what they say — Don’t fight the data!
- The team you surround yourself with or become part of is the most important decision you will make, as a leader or team member.
- Having the right partner is more important than the right plan. Plans are almost never right, so you need partners who can flex and change with you.
After leaving SimonDelivers Steve has retained that curious “entrepreneurial spirit.” He is Senior Vice President of Innovation at financial services firm CPP North America. Pouring your blood, sweat, and tears into a startup that fails can take an emotional toll but it usually involves learning a lot along the way. Steve survived the failure of SimonDelivers but has emerged as a smarter innovator on the other side.
image credit: kare11.com
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Matt Hunt is the CEO and founder of strategy and innovation consulting firm Stanford & Griggs, LLC. With over 20 years of business and technology experience he has a demonstrated excellence in business strategy, innovation, and leadership development with large companies, small companies and non-profit organizations. You can follow Matt on his blog MattHunt.co and Twitter @huntm
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