First Stage Investor

What Went Wrong With Quibi

What Went Wrong With Quibi
By Andy Gordon
Date October 22, 2020

In calling it quits, Quibi proved the adage that nothing guarantees success except success itself. 

The company seemed to have everything going for it. A massive pool of capital — $1.75 billion worth. An A+ roster of investors that included Alibaba, Goldman Sachs, JPMorgan Chase and practically all the major studios — Sony Pictures, MGM Studios, Lionsgate, Walt Disney, NBCUniversal and Viacom. And it had Mexican business magnate Carlos Slim. 

Two megastars led the company: former Disney studio head and DreamWorks co-founder Jeffrey Katzenburg and Silicon Valley uber-CEO Meg Whitman, who grew eBay into an $8 billion business and turned around Hewlett-Packard.

And if that wasn’t enough, Quibi was also riding a major mobile-video trend. Average daily viewing minutes had gone from six to nearly 80.

Quibi offered shorter-form content of 10-15 minutes for people on the go. It launched in April with the brightest of bright futures. It was going to be the next Netflix. 

What could go wrong?

Startups go under all the time. In this sense, what happened to Quibi is not so unusual. It dreamed big — it lost big. Happens all the time. 

Quibi is the classic “how the mighty have fallen” story. People who were used to success and took it for granted have failed. A company that was hailed as the future of mobile entertainment lasted all of six months before going under. Quibi spent lavishly not only on its content producers (and famous actors) but on its fancy offices. It spent prodigiously because it could. 

Quibi bought the exterior-facing signs of success before it climbed the mountain — or even began the climb. It’s a great story for the masses. But it’s not that useful for us. As early investors, we’re more interested in what went wrong. Was it predictable or even obvious? How was it missed? 

The Quibi people themselves chalk up its demise to an accident of timing. Nobody could have foreseen the coming of COVID-19. Whitman said, “No question, we’ve launched at a difficult time.” And Katzenberg echoed that sentiment when he said, “I attribute everything that has gone wrong to coronavirus” (though Quibi later claimed he was joking). But mobile phone use is up these days. I don’t buy that bad timing was the only issue.

Let’s go back to the very beginning of every startup — the big idea. Quibi’s idea was interesting. It had merit. I’d say it was worth pursuing and trying out

Startups usually put their product through a beta testing period before it’s commercially rolled out. Let a limited number of people (50-500 typically) use it for free to see if they like it… if they’d be willing to pay for it and how much… and would they be upset if it were taken away. 

This is NOT considered an optional step. Without feedback from the market — from real customers — founders fly blind, relying on their own imperfect sense of what the market wants. And that’s what Quibi did. For Katzenberg and Whitman — whose target audience was decades younger than themselves — this was a particularly risky course of action. And it proved fatal. Their product wasn’t compelling enough (at least not at the price it was being offered at). 

In startup circles, this is called product-market fit. For long-time members of First Stage Investor, you’ve heard me mention product-market fit about a million times. It’s a risk when it’s not proven, and a positive factor when it is. Quibi never bothered to move product-risk from the negative to the positive side of the spectrum. 

The second missing piece is another byword in startup circles — execution. At first glance, Katzenberg or Whitman seemed like the ideal duo to guide Quibi to the heights of success. But a deeper dive reveals something very different. 

The best founders — I imagine — lie awake at night wondering what they could do better. I never got that impression with either Katzenberg or Whitman. They’ve done it all and seen it all. They were acclaimed figures in their industries. They’ve made tons of money. They had nothing left to prove and knew better than anybody else how to run a successful enterprise. 

All of that led them to be too stubborn in their judgements. They did not listen well. And they did present a unified front. They quarreled and disagreed. They protected their own domain against trespass by the other. Not so ideal, after all. 

Of the two — lack of product/market fit and execution — the latter is more forgivable to miss. Maybe it was too much to ask two A-type super-driven and successful personalities to mesh seamlessly. But in terms of compatibility and decision making, more was reasonably expected of them. Execution was supposed to be a strength. But Katzenberg and Whitman underperformed, turning it into a major weakness. 

Predicting execution is one of the hardest things to do as investors. The lesson here is NOT to jump to easy conclusions. Great execution in the past does not guarantee the same in the future. Or the other way around. Founders with little track record of previous entrepreneurial success don’t automatically bring about poor execution. 

It’s important to take every startup on a case-by-case basis. And to stay as impartial as possible when making an assessment. Don’t get caught in temporary hype or be dazzled by impressive founders. Even what looks like the best laid plans can fail, as we saw this week.

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