Raising money does not equal success

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Ever hear of Quibi? That’s OK, neither had I. Quibi had all the elements of a successful startup, but why did it fail so quickly and burn through almost $2.0 billion doing so?

The name Quibi came from combining Quick and Bites, as in quick bites of video to be consumed on your phone. This does not sound like a breakthrough idea, especially with players like YouTube and Disney that had been doing video successfully for a long time.

Millions downloaded the 90-day free trial version of the app. After the trial period, only a handful of users signed up to pay $5 per month for a version with ads and $8 per month for an ad-free version.

Why didn’t the founders (or investors) insist on better testing for a paid product? Two big-name founders must know what they are doing, right? Wrong. The founders were good at “managing up” to appeal to investors. But dig a little deeper and we find a few interesting facts that were in hiding plain sight.

Prior to Quibi, Katzenberg managed portfolios of projects where there are many failures and one or two big hits that covered the losses and generated big profits. (Some estimates peg 80% as the number of movies that returned nothing to investors.) If Quibi didn’t work, it was a shoulder shrug from Katzenberg and a thought something like, “Well, that’s the way it goes. The rest of the portfolio has some sure winners.” Except for Katzenberg’s Quibi investors, there was no portfolio, just the huge losses on Quibi.

Before running Hewlett-Packard Enterprise (ranked 143rd in the Fortune 500), Whitman ran eBay. But — as I like to say — this is a big “but,” she stepped into eBay once the business model was working and there was a significant operating company. (This does not detract from the incredible job she did building eBay into a behemoth.)

Neither founder had experience in the perils of pure startup management.

As investors listened to the founders’ the pitch for investment, investors likely felt comfortable with Katzenberg and Whitman since they were talking to people similar to themselves: successful. But was there fire-in-the-belly on the part of the founders? Did Quibi have to be successful in order to put the founders on the map? What burning problem were they solving? You get the idea.

The company folded after six months of operations and blamed the pandemic for its problems. A weak excuse since Disney and YouTube thrived during this period.

Key Takeaways

• Katzenberg and Whitman had long and distinguished careers, but were they qualified to launch a product targeted at a young demographic? They were able to raise vast amounts of money based on their resumes, but those resumes did not translate into on-the-ground experience at a startup.

• YouTube did not start charging for some of its content until its free model was working for nine years and it had more than a billion users. Asking people to pay a monthly subscription is a huge step in a business model and one that needs to be heavily vetted.

• Shame on the investors for pouring billions into a marginal idea and a team ill-suited to run it.

Things I think about

When medical personnel treated the first shark bite victims, they did not want to touch the wounds since they believed the bites were poisonous.

Recommended Reading

The Smartest Guys in the Room.
Journalists cover the Enron story end-to-end. The definitive account.

The Art of the Start 2.0
By Guy Kawasaki, original marketing evangelist at Apple

Thinking in Bets
Poker champ turned consultant teaches us how to evaluate risk.

Zero Fail: The Rise and Fall of the Secret Service
Definitive account of the failures of the Secret Service

The Subprime AI Crisis
Technology contrarian Ed Zitron summarizing all that AI is not

Run the Storm
Detailed account of the sinking of cargo ship El Faro