sounds like a pretty lame excuse. It failed because the market is saturated, the growth slowed, and the margins are low . It was badly managed company, a poor product, and a bad marketplace. There are many major successful web 2.0 companies are over-funded but didn't fail.
I agree... they once had a nice product, but failed to skate to where the puck was going, became a me too company... with no differentiating vision. Go-Pro already pretty far down the same path.
External capital(the current VC kind) is not essential to entrepreneurship, it is a tool for defining/researching market capacity more quickly. The catch is that market capacity is something that both investors and entrepreneurs are pretty poor at predicting, especially at scale.
That detail can be seen in the difference between lenders and investors, amount wise. In that lenders are more risk averse, generally, with regards to market capacity.
What? They may need short term loans but almost every business in the real world funds itself through its own operations. They may take out loans but then they pay them off.
That's true. They also raised $54mm in their IPO, so $164 mm total, a tiny amount given their current size, but it would seem like a lot of money to burn if they'd failed.
Facebook got a lot of investments ( https://www.crunchbase.com/organization/facebook ) before they became profitable (pretty much one of the only companies to successfully challenge Google in the ad business). And Slack AFAIK is profitable, and they've had hundreds of millions in funding ( https://www.crunchbase.com/organization/slack ) but I think they were profitable pretty early on and just raised money because the terms were good rather than because they strictly needed to.
Silly comparison? So a Camry is not a successful car because people would rather own BMWs? Do you not realize Tesla has been intentionally making high-end, luxury vehicles, which are more desirable by nature?
Leafs and Priuses are only part of Nissan and Toyota, their stock obviously cannot fully reflect the success of those vehicles. And Tesla's stock is notoriously overvalued.
You are misreading my comment. I didn't claim anything negative about Leaf or Prius. The Tesla S is an absolutely better car than Leaf or Prius. And since it costs much more, it should be. If we weight for price, that depends on your price sensitivity.
You are missing the point, all things equal of course people will want the vastly more expensive luxury product. That has nothing to do with how good Tesla is at making things. Regardless of the appeal of the Model S, Toyota is much better at making cars in volume than Tesla.
Similarly, I'd rather have a McLaren than Tesla (or Toyota), but that doesn't speak anything about the talents of either firm at mass producing cars.
> Tesla certainly did a lot better than other attempts at electric cars
You have decided that that claim hinges on their ability to mass produce cars.
I think Tesla has done more for the electric car market than any of the other companies. I can't justify that with data, but I think it's a reasonable position. We have different points. I'm not missing yours.
but hardware has high initial costs. higher than software in many instances. you need physical space, manufacturing , and more employees than in a purely digital company
yes, but what i said still applies. entrepreneurship is gambling with reasonable odds, right? hardware might be a longer shot, but at the end of the day its approximately random (skewed on the side of players with more money)
Hardware is pretty tough. But it's possible to turn it into a nice business. You probably own a lot more hardware than software, and spend more on it - all that was produced by mostly successful hardware companies.
What's really tough is turning a Bluetooth speaker business or a smart-watch business into a multi-billion dollar business. It's the over-investment and sunk-cost problem that ruined Jawbone, not the hardware nature.
The big difference to me is that I think that Pebble had successfully found a small niche as the alternative smartwatch with considerable customer loyalty. If they would have stayed small I think they would have been a very successful company.
Jawbone was in a larger market with more competition and much less customer stickiness. I believe that they were in more of a "go big or go home" scenario.
Think it's worth keeping in mind the state of the smartwatch market in 2017 is a fraction of what people thought it would be when Pebble was going big and the Apple Watch was a rumour. Investors were clearly hoping it was about to explode like smartphones did.
I mean I don't even feel the Apple Watch will still be around in the next few years.
Yes, hindsight certainly makes things clearer; I doubt I would have made better decisions than Pebble did.
The frustrating thing is that Pebble could have had a nice $20M p.a. business selling their smartwatches. Not big enough for Apple & Google, but definitely enough to make a good profit for a small company.
That 2015-2016 smartwatch hype may well have killed the market for everybody. It reminds me of the VR hype in the early nineties that killed the market for ~20 years.
And I do like getting notifications on my Garmin watch as well as using the GPS for some activities. But, in a world where so many people also carry their smartphone with them almost everywhere, people aren't going to fiddle too much with the small device on their wrist when they can pull a phone out of their pocket.
> people aren't going to fiddle too much with the small device on their wrist when they can pull a phone out of their pocket
Definitely. The jump from dumbphone to smartphone was pretty huge. I can do a lot more on the go now than I could before. The jump from smartphone to smartphone + smartwatch is smaller, and possibly just lateral rather than forward. It doesn't enable many more things than just a smartphone, but it offers you a slightly more convenient way of doing some things, at the cost of another device to charge and keep track of.
Exactly my thought. Pebble was fine until they took a funding round and suddenly had VCs pushing them to become "the next Apple". Then they hired way too many people, refocused on where they thought 'the big market' was (ie. fitness) rather than where their market was (ie. long battery life, e-paper based smartwatches with an open application ecosystem), and tried to pump out new models too fast.
It seems a recurring theme in SV that companies neglect to consider the overall market size for their niche product when deciding how large to try and scale their business.
sama wrote a good article about this a few months ago[0]. The key quote as it applies here:
"The second most important thing to understand is that raising too much money or raising money at too high a valuation can severely limit your optionality. Very often I’ve seen cases where founders know in their hearts they have an airplane but are able to convince good investors it might still be a spaceship. This really causes a lot of heartache, and often precludes your opportunity for a good acquisition later."
I wonder if this is true of the hardware wearable market on general. There's a solid set of niches but none are going to be hugely profitable on their own in the near to medium term due to a small market size. Apple is beyond "over funded", both in terms of equity and investor perceptions, so it can stay in on the hopes it eventually pans out.
In general, wearables, a lot of consumer IoT (SmartHome), action cams, maybe consumer drones (?), maybe VR (?), etc. there's also a lot of fashion/fad. And, as you suggest, the actual core number of users in a lot of these areas may turn out to be relatively small when the dust settles. And the current fads switch elsewhere for a couple of years.
That's not to say that everything is doom and gloom. But it's a tough market for companies to play in and they probably need to be reasonably diversified for when one area falls out of mainstream favor.
I think the problem with wearables is that the estimated market size, back when smartwatches were 'going to be the next big thing', was based on perceptions from before mobile phones took off, when everyone wore watches because they needed one to tell the time. But now everyone has a mobile phone, they don't need to wear a watch, and so the only people who wear watches are people who actually want to wear one, which is a far smaller market than "everyone".
So, what exactly is the mechanism that makes overfunding lead to a company's failure? I didn't actually find a clear answer to this. The article mentions that less funding would've implied a lower valuation, letting the company get acquired...but then wouldn't the acquiring entity have gotten left with a failing Jawbone anyway?
> what exactly is the mechanism that makes overfunding lead to a company's failure
It covers up problems until it's too late. Remember Color, the social network that spent like $500,000 on domain names [1]? Now imagine those kinds of decisions being made by every C-level executive. That's Jawbone.
Production issues, market-fit issues, et cetera could all be dismissed by management to shareholders and management to themselves on account of the massive, unaccountable cash pile. "Overfunding" means investors shifted too much control to management too early. (By contrast, well-funded teams know they will have to periodically check in with investors for future funding rounds. That motivates explicable behaviour.)
The whole point of an acquisition is that the acquirer can realize value from the acquired firm that it couldn't get in the open market (e.g. via synergy with its own offerings, or by denying its competitors access to the technology, or just as an "aquihire" where the team is the thing being acquired and not the product). It's routine to see companies acquired that don't have a stable revenue stream, or even an obvious path to one. Think Google acquiring Android for a good example.
Perhaps the company operates in a market niche which doesn't have that much room for dramatic expansion. They could continue as a smaller, profitable company, but they get investment which expects a higher level of growth. So they try to radically break out of their speciality, but over-extend and go belly up.
To make a bad baseball analogy: VC is like trying to step up to bat, swinging at every pitch and only considering it a success if you hit a grand slam homerun.
If they'd taken less money, maybe they could have gone after a smaller (but more profitable) niche. Maybe they wouldn't have aggressively hired sales teams in as many countries across the globe.
Look at something like the VR/AR space - right now there's a firm upper limit to the number of potential buyers in that space. So, you have this whole sector where things got overfunded and _weird_.
Like what do you do when you've got $100mil in funding. VCs are expecting a Billion dollar exit. You've made a great product, but the timing is still too soon? That the whole industry needs 5 more years to mature?
I think it is that when investors invest, they expect you to use their money to grow quickly. You can't just sit on the money and grow at the same rate.
That means you end up getting huge offices, loads of employees, etc. It becomes a gamble that your product will be successful at a huge scale rather than a natural growth from a small scale. If it fails you still have the hundreds of employees and massive rent, but no revenue.
Another harmful effect is that overfunded startups are "zombie companies"; the traditional zombie is an old-school business propped up by a government:
However, an overfunded company that is propped up by investors can make competitors unprofitable. For instance, Uber giving out half-price taxi rides has been harmful to everyone in that business. (Of course Uber made a deal to only offer service in the NYC area in NY and ban ride sharing in upstate because Uber wouldn't want to waste half-price rides on people in Albany, Syracuse and Buffalo who won't help them IPO -- and they don't want competitors to emerge there.)
You need to give your investors a decent return that implies revenue some many multiples of the investment.
If you are over-funded, the products that you have conceived, the markets that you are targeting, these need to change to deliver the return now needed.
At some point, the very company itself has to change to be something else. A lot of companies struggle at this point, and in essence the problem is self-created by taking on too much investment as the original market and product may have been just fine for a lower return that would have satisfied the first few rounds of investors.
IMO there are a vast number of problems caused by overfunding that can compromise a company. Other users have already brought up some.
But the one most salient in my mind is that overfunding removes the pressure to ship.
I've seen this often from repeat entrepreneurs who are able to secure a large amount of financing for their new ventures, and wind up bikeshedding over the perfect product.
Instead of releasing quickly and iterating quickly, the immense amount of cash causes the company to move more slowly than they otherwise would.
Overfunding also bypasses some of the sanity checks that are supposed to exist in the VC system - that a company receives enough funding to get to some future milestone that demonstrates success. A bank account flush with cash removes the need to justify your own existence to investors on a regular basis, and causes companies to not realize strategic errors until it may be too late.
Eric Paley from Founder Collective has written a lot about the mechanics of over-funding. The basic mechanism is that companies start scaling marketing efforts that don't return $1 for a $1 investment.
That's obviously startup 101 stuff, but scale makes a huge difference. Losing money is fine if there is a long term network effect, but more often than not it's just an effort to make toppling growth look good enough to attract a VC in the next round.
So instead of being a modest company, that's nearly profitable with loads of potential, you become a company that is wildly expensive to keep afloat and seem to have less potential since you've already spend hundreds of millions experimenting with acquisition. Instead of having a million potential customers, there are maybe a couple dozen VCs that can make or break your future. That's overly generalized, but here's a reading list for a more detailed explanation:
You get lazy with too much money and don't sweat details.
One of the on the ground quick ways to assess whether a company is going to succeed or fail is to look at the supply closet. If it's packed with stuff, you'll find other sloppiness and lack of discipline elsewhere.
I had a calculator watch when I was 12-13. It was amazing tech, mind blowingly cool. I wore it for like a month. The utility and usability research for the smartwatch type niche was done in the 80s as far as I am concerned, and it was pretty conclusive.
Although trackers are an inherently different tool.
I remember the weird company name due to frequent TV ads. I don't remember the product. Only the weird name and the confusion about the unclear product stuck.
"They can also be a false signal to investors, who often look at how much money a company has raised as a signal of its success, when "in fact, it's the opposite,"...
I think this is definitely true of a physical product company... without a subscription model of some other way to generate MRR.
OK, so I wasn't paying attention. But back in the day, I recall loving the Jawbone cellphone headset. Especially for noisy and windy environments. Did it just get too greedy?
IMO it seems like they just lacked focus and abandoned their core competency to follow trends in markets where they couldn't compete. They started out as a military contractor and pivoted that tech into fantastic bluetooth headsets. From there they went on to make great bluetooth speakers.
At some point they acquired a medical devices company and hopped on the fitness tracker bandwagon, it's that point they seemed to have lost their way. After a string of crappy fitness trackers, and completely ignoring their headsets and speakers, they failed.
I completely agree with you. Their bluetooth products were amazing and so well designed with great UX! If they had just stuck with those and continued...the possibilities were endless. Spotify integration out of the box like with Amazon Echo? Whole-house audio solutions? You name it. The Jambox and mini jambox are still the best and only bluetooth based speakers that I own.
I am not a fitness target customer, but I also had no market knowledge about the fact that jawbone was in the tracker space. They must have had great market domination in the headset space, as they are the only brand I can identify from memory.
Always sad to see a product company chase a trend based on investor sentiment, with negative outcomes.
There's something funny about the line "Startup failures are not uncommon, but a billion-dollar company that has raised huge pools of money going belly up remains a rarity."
Jawbone raised ~$900 million. It's a bit strange to talk about companies as unicorns when their post valuation is so heavily dependent on other people's money. Like GroupOn and a few others, actually running a business seems to have gone worse than just sitting on the stack of cash would have.
I don't know if I buy this "explanation" of why they failed, but then I don't have a good explanation.
See, even if a company is "over funded", as long as they have operating margins, they can survive forever by cutting overhead and just keep selling the product. This company had inventory.
Unless you have debt. The interest payments could sink you. So it wasn't the "overfunding" that was the problem, it was the form of the funding that was the problem. $900 million in equity would have been fine. $400 million in debt was not fine.
You see, I am one of the people who think this is the best tracker on the market by far because of its sleep tracking. It was an early, accurate, detailed sleep tracker. It tells you your REM sleep, and I suspect it is dead on.
I stock up on the old products on clearance because they don't make them anymore.
> I stock up on the old products on clearance because they don't make them anymore.
I often think about this when a company goes under, especially hardware focused ones. I assume it's only a matter of time that their servers will no longer accepting requests, APIs will no longer function and your device will suddenly become useless. Personally, I feel that this is a perfect use case where open source can shine by liberating locked down devices.
For sleep tracking specifically, Apple bought Beddit. It's a strip that you lie on which may be better or worse depending upon your situation than something you wear. I have a review copy I got. It seems to work OK although I don't really get any insights from the data.
Based on a sample size of 2, I was pretty sure that among FitBit, Jawbone, Misfit and Health mate (remember them?), Jawbone UPs provided the most accurate sleep tracking.
It also happened to be more rugged than Fitbit. I think Fitbit has caught up on the sleep tracking with their most recent models, but you still usually need to get a replacement before the warranty expires.
How about death of the Earth by overfunding? How many social network apps does the world need? This whole structure of VCs is ridiculous. It's just a cover for the ones that are gov sponsored and will win out in the end, anyway.
All these VC millions (and billions) could be invested in schools, farming, roads, hospitals, parks, free sauce.
I still question why Jawbone felt the need to go beyond their core products. The Bluetooth earpiece worked very, very well, and I loved it so much I've lost four of them. Did Jawbone really need to expand into other products?
80 comments
[ 74.7 ms ] story [ 2638 ms ] threadThat detail can be seen in the difference between lenders and investors, amount wise. In that lenders are more risk averse, generally, with regards to market capacity.
https://www.crunchbase.com/organization/amazon#/entity
Would you rather have bought stock in Tesla, Nissan or Toyota ten years ago?
Leafs and Priuses are only part of Nissan and Toyota, their stock obviously cannot fully reflect the success of those vehicles. And Tesla's stock is notoriously overvalued.
Similarly, I'd rather have a McLaren than Tesla (or Toyota), but that doesn't speak anything about the talents of either firm at mass producing cars.
> Tesla certainly did a lot better than other attempts at electric cars
You have decided that that claim hinges on their ability to mass produce cars.
I think Tesla has done more for the electric car market than any of the other companies. I can't justify that with data, but I think it's a reasonable position. We have different points. I'm not missing yours.
What's really tough is turning a Bluetooth speaker business or a smart-watch business into a multi-billion dollar business. It's the over-investment and sunk-cost problem that ruined Jawbone, not the hardware nature.
Jawbone was in a larger market with more competition and much less customer stickiness. I believe that they were in more of a "go big or go home" scenario.
I mean I don't even feel the Apple Watch will still be around in the next few years.
The frustrating thing is that Pebble could have had a nice $20M p.a. business selling their smartwatches. Not big enough for Apple & Google, but definitely enough to make a good profit for a small company.
That 2015-2016 smartwatch hype may well have killed the market for everybody. It reminds me of the VR hype in the early nineties that killed the market for ~20 years.
And I do like getting notifications on my Garmin watch as well as using the GPS for some activities. But, in a world where so many people also carry their smartphone with them almost everywhere, people aren't going to fiddle too much with the small device on their wrist when they can pull a phone out of their pocket.
Definitely. The jump from dumbphone to smartphone was pretty huge. I can do a lot more on the go now than I could before. The jump from smartphone to smartphone + smartwatch is smaller, and possibly just lateral rather than forward. It doesn't enable many more things than just a smartphone, but it offers you a slightly more convenient way of doing some things, at the cost of another device to charge and keep track of.
It seems a recurring theme in SV that companies neglect to consider the overall market size for their niche product when deciding how large to try and scale their business.
"The second most important thing to understand is that raising too much money or raising money at too high a valuation can severely limit your optionality. Very often I’ve seen cases where founders know in their hearts they have an airplane but are able to convince good investors it might still be a spaceship. This really causes a lot of heartache, and often precludes your opportunity for a good acquisition later."
[0] https://blog.ycombinator.com/navigating-mid-success/
That's not to say that everything is doom and gloom. But it's a tough market for companies to play in and they probably need to be reasonably diversified for when one area falls out of mainstream favor.
It covers up problems until it's too late. Remember Color, the social network that spent like $500,000 on domain names [1]? Now imagine those kinds of decisions being made by every C-level executive. That's Jawbone.
Production issues, market-fit issues, et cetera could all be dismissed by management to shareholders and management to themselves on account of the massive, unaccountable cash pile. "Overfunding" means investors shifted too much control to management too early. (By contrast, well-funded teams know they will have to periodically check in with investors for future funding rounds. That motivates explicable behaviour.)
[1] https://techcrunch.com/2011/03/24/color-com-was-acquired-for...
If they'd taken less money, maybe they could have gone after a smaller (but more profitable) niche. Maybe they wouldn't have aggressively hired sales teams in as many countries across the globe.
Look at something like the VR/AR space - right now there's a firm upper limit to the number of potential buyers in that space. So, you have this whole sector where things got overfunded and _weird_.
Like what do you do when you've got $100mil in funding. VCs are expecting a Billion dollar exit. You've made a great product, but the timing is still too soon? That the whole industry needs 5 more years to mature?
That means you end up getting huge offices, loads of employees, etc. It becomes a gamble that your product will be successful at a huge scale rather than a natural growth from a small scale. If it fails you still have the hundreds of employees and massive rent, but no revenue.
https://en.wikipedia.org/wiki/Zombie_company
However, an overfunded company that is propped up by investors can make competitors unprofitable. For instance, Uber giving out half-price taxi rides has been harmful to everyone in that business. (Of course Uber made a deal to only offer service in the NYC area in NY and ban ride sharing in upstate because Uber wouldn't want to waste half-price rides on people in Albany, Syracuse and Buffalo who won't help them IPO -- and they don't want competitors to emerge there.)
If you are over-funded, the products that you have conceived, the markets that you are targeting, these need to change to deliver the return now needed.
At some point, the very company itself has to change to be something else. A lot of companies struggle at this point, and in essence the problem is self-created by taking on too much investment as the original market and product may have been just fine for a lower return that would have satisfied the first few rounds of investors.
But the one most salient in my mind is that overfunding removes the pressure to ship.
I've seen this often from repeat entrepreneurs who are able to secure a large amount of financing for their new ventures, and wind up bikeshedding over the perfect product.
Instead of releasing quickly and iterating quickly, the immense amount of cash causes the company to move more slowly than they otherwise would.
Overfunding also bypasses some of the sanity checks that are supposed to exist in the VC system - that a company receives enough funding to get to some future milestone that demonstrates success. A bank account flush with cash removes the need to justify your own existence to investors on a regular basis, and causes companies to not realize strategic errors until it may be too late.
That's obviously startup 101 stuff, but scale makes a huge difference. Losing money is fine if there is a long term network effect, but more often than not it's just an effort to make toppling growth look good enough to attract a VC in the next round.
So instead of being a modest company, that's nearly profitable with loads of potential, you become a company that is wildly expensive to keep afloat and seem to have less potential since you've already spend hundreds of millions experimenting with acquisition. Instead of having a million potential customers, there are maybe a couple dozen VCs that can make or break your future. That's overly generalized, but here's a reading list for a more detailed explanation:
Wasting Time with the Startup Joneses:
https://techcrunch.com/2015/07/30/wasting-time-with-the-jone...
When Burn Rate Outweighs Enthusiasm:
https://techcrunch.com/2016/01/13/never-let-burn-rate-outwei...
VC is a Hell of a Drug:
https://techcrunch.com/2016/09/16/venture-capital-is-a-hell-...
Overdosing on VC: Lessons from 71 IPOs:
https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-f...
One of the on the ground quick ways to assess whether a company is going to succeed or fail is to look at the supply closet. If it's packed with stuff, you'll find other sloppiness and lack of discipline elsewhere.
Wasn't Apple even lumping their Watch sales figures into the "Other" category along with the Apple TV out of embarrassment.
Although trackers are an inherently different tool.
"They can also be a false signal to investors, who often look at how much money a company has raised as a signal of its success, when "in fact, it's the opposite,"...
I think this is definitely true of a physical product company... without a subscription model of some other way to generate MRR.
At some point they acquired a medical devices company and hopped on the fitness tracker bandwagon, it's that point they seemed to have lost their way. After a string of crappy fitness trackers, and completely ignoring their headsets and speakers, they failed.
Always sad to see a product company chase a trend based on investor sentiment, with negative outcomes.
Jawbone raised ~$900 million. It's a bit strange to talk about companies as unicorns when their post valuation is so heavily dependent on other people's money. Like GroupOn and a few others, actually running a business seems to have gone worse than just sitting on the stack of cash would have.
See, even if a company is "over funded", as long as they have operating margins, they can survive forever by cutting overhead and just keep selling the product. This company had inventory.
Unless you have debt. The interest payments could sink you. So it wasn't the "overfunding" that was the problem, it was the form of the funding that was the problem. $900 million in equity would have been fine. $400 million in debt was not fine.
You see, I am one of the people who think this is the best tracker on the market by far because of its sleep tracking. It was an early, accurate, detailed sleep tracker. It tells you your REM sleep, and I suspect it is dead on.
I stock up on the old products on clearance because they don't make them anymore.
I often think about this when a company goes under, especially hardware focused ones. I assume it's only a matter of time that their servers will no longer accepting requests, APIs will no longer function and your device will suddenly become useless. Personally, I feel that this is a perfect use case where open source can shine by liberating locked down devices.
One I had buried in my subconscious. I wonder what my options are.
Fitbit is, of course, another option.
I think you're referring to the 2015 Charge HR. Manufacturing improved with later models and there are fewer defects.
All these VC millions (and billions) could be invested in schools, farming, roads, hospitals, parks, free sauce.