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Andrew Ricci

September 17, 2016

Avoiding the Fate of Pets.com

The 1990s dot-com bubble hosted some of the greatest stock disasters in American history. Let’s not forget that at one point, Pets.com ruled the internet world, even if its reign at the top of the dot-com retail empire only lasted two years. When the bubble burst in 2000, Pets.com was found floating in the fish tank and $300 million in investment capital got flushed down the drain. Today’s innovative companies that are breaking new ground have a lot to learn so they can disrupt business as usual, break the mold, and avoid Pets.com’s tragic fate.

It is all about malleability. Today’s market exists in a hyper-competitive world, where companies must be constantly updating and adapting themselves.

Uber is an example of a unicorn that has successfully broken the mold of collapsing startups and has grown into one of the most successful companies in the world, by adapting and catering to consumer demand, adjusting prices to match the target market, and handling crises as they grow opportunities.

Uber’s launch in 2010 with $1.25 million in funding was preceded by several trial runs in different locations across the nation. This allowed Uber to see its potential while evaluating demand alongside their current funds. The multiple launch events took place at different times and in different locations. In 2010, Uber went live in San Francisco, where it would then raise an additional $11 million in Series A funding by February 2011. This prompted Uber to continue expanding, first to New York City, then country-wide, including Seattle, Chicago, Boston and Washington, D.C.

While Uber saw potential, they did not launch prematurely. Instead, the company waited for the right combination of demand and funds before launching in new cities. Normally, the startup culture is not compatible with traditional corporate culture, and coincidentally, Uber’s patience did not adhere to traditional tech bubble standards.

What was most pertinent to its success was Uber’s ability to transform each crisis into further opportunities, evan as they faced challenges from labor and cab companies along every step of the way.

Whether it was a cease and desist order or an anti-Uber protest, Uber’s responses have kept them afloat, even amongst all the ride-share competition across the globe. When Uber was issued its first of many cease and desist orders, it continued operating. It chose to challenge the order in the courts, and continued its operations rather than fold.

Another prime example of Uber’s crisis response was during an international protest that took place in Western Australia. While 200 drivers were parked outside of the Parliament House, Uber offered free rides to new customers. In just 24 hours, Uber saw a 500 percent increase in new riders. While Uber could not have planned for this type of publicity opportunity, their quickness and willingness to act prove why they can be deemed one of the best companies in the last 10 years to deal with the conversions of crises to opportunities.

So why haven’t companies just implemented malleability into their business model?

The most recent example of a public company facing the Pets.com firing squad is One Kings Lane (OKL). OKL, launched in 2009, was a dot-com based warehouse that catered to a specific niche market, hosting flash-sales for luxury furniture and home-good items.

By the end of their first year, they raised an undisclosed amount of funding.By the start of 2014, OKL raised $112 million and was valued at over $900 million.

This is a rapid growth in both investment and valuation, and it may have been too much too fast. By mid-2014, OKL cut 15 percent of its staff in its restructuring plan and shut down its branch website called Hunters Alley, launched only six months prior. Another round of budget cuts followed 18-months later, when 25 percent of its staff was laid off, along with five executives. By June 2016, it was announced that Bed, Bath & Beyond purchased OKL at the bargain price of $230 million.

OKL was not growing its revenue, nor was it responding to its competitors. OKL also was not malleable to the market. The Generation Y age group is the highest demographic to shop online. That age demographic is also the least likely to be buying luxury furniture, even at discounted rates. Rule number one of sales and communication is to know your audience, and this clearly was not the case.

At the end of the day, startup companies have to  look at the bigger picture. While Pets.com is one of the best known examples, the trail to success for startup companies is littered with the remains of others who started with tremendous promise and a great idea but failed along the way, and each has a story and an important lesson to teach. Companies looking to take their disruptive and innovative ideas mainstream should therefore take note and learn from both the successes and the failures that have come before them.

Carly Berkenblit contributed to this article

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Posted by: Andrew Ricci

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