How to lose 1.8bn dollars in 10 days
This article was originally posted in June 2020 and unfortunately, Quibi closed by October. We hate betting against startups, and that certainly wasn’t the goal of this article but there are lessons from Quibi’s mistakes that you can apply to your own startup and prevent a similar outcome.
Quibi launched on April 6th, 2020 and immediately signed up 1.7 million customers. The company is run by entertainment and tech royalty, and has raised $1.8 billion dollars.
Unfortunately, Quibi is already dead. They won’t be around in 18 months. Luckily, your startup can be.
IMPORTANT EDITORS NOTE: I hate these types of articles. I never write them. There is no opinion lazier than “I bet startup X will fail,” aside from maybe “See, I told you startup X would fail!”
Predicting a startup will fail is like betting on every number on the roulette wheel except that green “00” and then puffing your chest out when one of your numbers hits.
My favorite line from my favorite scene from my favorite movie is this gem from Ratatouille:
“The bitter truth we critics must face is that in the grand scheme of things, the average piece of junk is probably more meaningful than our criticism designating it so.”
Articles like this can discourage people from pursuing ideas, and helping people pursue ideas is the whole reason I exist.
<Deep breath>
With all that in mind… I still had to write this article. It’s rare that there’s such a public example of the textbook wrong way to start a company. When Quibi fails spectacularly despite unlimited funds I don’t want people to throw up their hands and say it was a valiant effort. It wasn’t. Quibi will fail because of the same fundamental - and avoidable - mistakes 95% of founders I meet with make. Quibi’s best case scenario now is they become a martyr - a case study that helps other founders succeed.
On to it.
So Quibi’s going to fail and that intro was too long.
Got it.
Let’s get to the first question for many of you:
“What in the heck is Quibi?”
It’s a “short-form mobile video platform” started in 2018 by industry royalty - Jeffrey Katzenberg (billionaire film producer), with Meg Whitman (billionaire business / tech executive) as CEO. Quibi raised $1.8 billion (with a “b”) dollars to produce “short, mobile-focused films.”
After ~two years of stealth-ish development, Quibi launched April 6. You can download the app and sign up for a 14-day free trial before paying $4.99 / month with ads or $7.99 without. About 1.7 million people (and counting) have.
Here’s Quibi’s landing page.
The differentiators are clear:
Length (shows are 2-4 hours long total, broken into ~10 minute episodes)
Quality (big name actors + directors)
Medium (only available on your phone)
Quibi launched with 30+ shows super-saturated with big names; Idris Elba, Kristen Bell, Bill Hader, Lebron James, a Hemsworth, Jennifer Lopez, etc. They have documentaries, reality TV, dramas, comedy.
The big (only) question everyone seems to be asking is… can Quibi compete with Netflix, Amazon, and HBO?
According to Katzenberg, they don’t have to.
“We’re competing against free,” Katzenberg told The Verge in January. “We have to offer something that is meaningfully, measurably, quantifiably, creatively different.”
Whitman continues - “You’re at a doctor’s office, you’re commuting to work, you’re waiting for the kids at school and you have these in-between moments. We’re bringing the best of Hollywood content… to an entirely new environment.”
Quibi exists because you don’t watch Netflix or HBO on your phone at the dentist.
The pitch… isn’t bad. You might even want to download the app. I did (here’s the link).
I hear your inner-monolog:
“You know? There isn’t high-quality content created for those moments. I haven’t ever watched 10 minutes of an episode of Game of Thrones on my phone while waiting for the dentist. Brian might be wrong on this one - Quibi might be on to something here.”
Let’s see.
(They aren’t).
The Three Questions for Early Growth: Don’t be the Best, be the Only.
Startups are an “eventual meritocracy.” It’s certainly not as good as a real meritocracy, but it’s better than most industries.
When you’re first starting out, things like wealth, privilege, and prior success will give you asymmetric opportunity. That’s how you raise $1.8 billion (still, somehow, with a “b”) before you’ve got a single customer.
But eventually, the cows come home to roost (deep cut).
You’ll only survive if a core group of early customers love your product. These customers will then catalyze broader growth. Love is a high bar - you’ll only get it if you’re solving a real, urgent, painful, immediate problem. For these fickle first customers, they’ll view your product as either a “hell yes!” or a “no.” They won’t rally around something mediocre.
And here’s where most founders - and Quibi - make their fatal mistake. They (rightly) see fickle early customers as their biggest risk. So they spend gobs of time and money building what they think will be a “great” first product. Something polished, with tons of features, options and Hemsworths*. They think this de-risks a fickle early customer. If you launch something polished to enough people, surely some group of customers is bound to love it. Right?
*at least one Hemsworth - I can’t remember if there are multiple.
Nope
The problem stems from a misunderstanding of what a great early product is. People love products that feel personal. Products that feel like the company sat in their living room and listened to them vent about a painful problem no one else seems to care about, then solved it for them.
If no one feels this way, you won’t grow. The first product needs to be based on a living room insight.
I visualize it as a see-saw.
If I’m starting a company, I know I’ll have to beat everyone in the world at something. It’ll either be the uniqueness of the customer insight at the core of my product, or the product itself.
Specific understanding of customer leads to a unique product.
No unique customer insight leads to a broad product
The game I can win is picking the customer I build for, because I set the stakes. I’ve stacked the deck. I can just narrow in on a tighter and tighter group of customers until I have an insight that’s unique and can build something those people love.
Kevin Kelly succinctly makes the point:
Don’t be the best. Be the only.
“But Brian… this isn’t some startup in a garage. These are people who can build a $500 million product without blinking and can have Hemsworth(s) lined up with one call. They don’t have to start small. Shouldn’t they leverage that?”
Nope. There’s no cutting the line.
The first step is a tight customer group that loves your product. That customer group needs to be cohesive and aligned in the living room problem you’re solving for them.
In 2020, a unique insight into a customer is what’s scarce - products are a commodity.
These three questions allow you to understand whether your startup idea - or, in this case, Quibi’s - is based on a customer insight strong enough to anchor a product early customers will love.
They’re simple, straightforward, and ridiculously hard to answer:
Who’s it for?
What’ll it help them do?
What do you know about these customers that everyone else is missing?
Let’s see how Quibi does.
Quibi’s Three Question Disaster
Let’s take a simplistic look at the questions from Quibi’s perspective. I dusted off my keynote stick figures to illustrate.
Who’s it for?
Quibi is razor sharp on who they’re for: people who have 10 minute slots throughout the day, enjoy high-quality content, and have a smartphone.
Great.
That includes me. And you. And just about everyone else in the US. So let’s use me.
How Quibi sees their customers
2. What’ll it help them (me) do?
Again, Quibi is concise. They’ll help me watch high-quality content during the short breaks throughout my day. Katzenberg is clear he can beat whatever “free” thing I do now.
Here’s how Quibi sees me, before and after I’ve downloaded their app.
How Quibi Imagines my 10-min blocks now
How Quibi imagines my 10-min blocks with Quibi
3. What do you know about customers that others are missing?
The toughest of the three. Let’s go back to the source:
“People say while there’s so many different streaming services, yes there are,” Whitman added. “But there’s none at all like ours. Most streaming services are designed to be watched at home in the living room, probably at night or on the weekends. Ours is designed to be watched during the day and on the go.”
Here’s how Quibi sees the world.
Quibi’s core insight - the thing they’re basing a ~$2bn company on - is that if there were an option for high-quality, short-form content, people would choose it over scrolling through blogs that claim they have an overnight oats recipe but make me scroll through 3,500 words to find the actual recipe or whatever else they do.
And maybe they’re right.
But the three questions are about transparency. They prove you have a level of insight into this first customers that’s deeper than competitors solving the same problem. In this case, the problem is the “10 minutes of free time, what do I do” problem.
Ideally, they get at the question at the core of most transformational companies - to my knowledge first asked by the YC folks:
“What do you believe that most other people don’t?”
The obvious example, but a helpful one:
Airbnb believed people would rather sleep in a room above people’s garage than a hotel. That was crazy when it was first proposed. But the insight wasn’t blind - it was based on groups of people already showing this behavior on Craigslist and Couchsurfing when they couldn’t book hotels for things like South by Southwest, and his initial product made it easier for those people to do what they were already doing. Airbnb built a focused product that solved a massive problem for a tiny group of customers they had unique insight into. Then, they grew in concentric circles.
Quibi’s insight looks weak and obvious in comparison.
To test it out, I’ve given Quibi the past 2.5 weeks. Every time I had those ~10 minute breaks in my day, I took notice of what I did. Of what Quibi’s competition actually was.
Here’s a typical example:
Yesterday, I had 10 minutes before a virtual dermatologist meeting (hey now #2020).
Uh oh….
Jobs to be Done and Pink Surfboards
A few years back I traveled with a friend to surf up and down the coast of Australia. He was an experienced surfer. My surfing experience consisted of watching Point Break a few dozen times. We went into a surf shop our first day:
“Hi! We’d like to rent two surfboards.”
“Great. What are you hiring them for?”
Australian accents are the best.
I grinned and replied, we’re “hiring” them to go surfing.
“Well, yeah, mate. But do you want to surf big waves, do you want to splash around in knee-deep water, do you want to take a few Instagram pictures then be off - what are you hiring them to do?”
We quickly got his point, realizing my friend was hiring a board to surf head-high waves and I was renting a board to take an Instagram picture and then float around on my belly looking for sea turtles quoting Keanu Reeves.
The pink board I was given to float around and not bother any of the real surfers on
The late, truly great Clayton Christensen dubbed this Jobs to be Done. Your customer hires your product to do a specific job.
In my ten-minute gaps throughout the day, I hire all sorts of products to do all sorts of job.
Here’s what I noted that I did with my time:
Engaging with texts, emails, Slack, Whatsapp
Reading / watching the content sent to me from those channels (a surprisingly huge number of videos, articles, and photos)
Checking on work tasks for the day + calendar
Checking weather / financial app / news / sports (even though it’s slim pickins these days)
Kindle / Audible
Backgammon / Fifa Soccer
And here were the “jobs to be done”:
Feel closer to friends
Feel more prepared for work
Feel more prepared for life
Learn something I can put in a blog
Play something entertaining
Did I watch videos? Absolutely. I watched everything from John Oliver to Michael Jordan clips to grainy, old Bill Burr standup. I even watched thirty minutes of “Middleditch and Schwartz” on Youtube spliced up over a few small breaks.
But every video I watched had been sent by a friend in a group chat. I was anxious to watch so I could discuss. The job to be done wasn’t “watch great content,” it was feel close with friends.
The additional elephant in the room is I don’t have Facebook, Instagram, or Twitter on my phone. Most people do, and spend those 10-minute segments there.
Quibi falls over themselves to note that they aren’t competing with Netflix, Amazon, and HBO. Instead, they’ve chosen to compete with Apple, Twitter, Facebook (IG, Whatsapp), and 10 years of ingrained habits, positive feedback loops and trillions of dollars spent to do a tremendous job of solving my core jobs to be done in short windows.
Sheeeeeeesh.
Now I did watch Quibi shows. I forced myself to. And they’re really well made. But they solved no problem for me. There’s plenty of good content around, and with most of the content I consumed, the real job to be done was talking with friends about it.
How to Grow
This is how companies get big. There aren’t exceptions.
Start with a customer with a very clear problem. Build a hyper-specific product for them.
I’m making all this up, but maybe Quibi noticed a few things:
Spotify has created a long-tail of artists that have rabid, tight fanbases
These artists tour small venues constantly
Fans scour Youtube for videos of live performances of bands and download, then watch them during 10-minute breaks throughout their day
They constantly share new clips they find with group texts and on Reddit
Great. Quibi is flush with cash, and they think this is an interesting first niche to get rabid customers. So they deploy solo, professional videographers to a group of small bands that are touring cities across the country.
They start posting these videos on Youtube. They get active on Reddit channels. They build a page that says “Quibi will have live concerts, broken into 10-min segments you can shuffle through, for $4.99 / month. Sign up.”
They are a “hell f’n yes” to this audience, who signs up in droves. Quibi knows who they are and knows what they want.
Specifically, they realize the core Job to be Done for this customer is to share this music and be part of a community. So all the features they build are around sharing. You can easily create gifs, you can clip the music and add to tiktok (I don’t understand tiktok and this might not be how it works), you can drop it in Reddit or your group text.
They’re mobile only for a reason - they take advantage of what a phone can do.
2. Add a feature or two, spread to an adjacent segment influenced by your first segment.
The band lovers are on text chains with non-band lovers, too. They start bombarding these people, who are intrigued.
Now people who kind of like these artists, but definitely like interacting with their friends, are in the mix.
The initial product wouldn’t have been a “hell yes” for them, but their Job to be Done is engaging with their friends. And their friends are excited about Quibi, and they keep getting these freaking Quibi video clips sent to their chat, so they join to keep up.
Perhaps you learn that this customer likes documentaries on these musicians. So you make a few, chopped up into 10-min stories. You test and see how they perform.
3. Expand to more customers, add what you’ve learned works
Now, you’ve got customers with diverse interests on the product. You can start testing things.
Try out non-music documentaries. Try out a mini-series. Bring back Reno 911. See how people react.
Is this solving a JTBD for your customer? Is it resonating? If so, keep it and go deeper. If not? Pull it.
Try niche customer acquisition channels. Add features to increase engagement for specific types of content.
An early company is a learning machine. Lean into the fact that you don’t really know anything.
Don’t pretend your data driven.
“I said to Meg that, until day one, every decision that we make around content will be driven by instinct,” Katzenberg said. “Minutes after we launch, everything will be driven by data.”
Data informs the product. You can’t build a huge product then launch and say you’re data driven.
Here’s a translation of the above quote:
Let’s see.
A Week After Launch, Quibi Promises to Ditch Mobile-Only Format.
“It’s quite an engineering lift -- it’s not easy -- but the engineers are trying to think about how to do this on an accelerated time scale,” Chief Executive Officer Meg Whitman told Bloomberg TV.
Whoops!
Quibi is ditching their main differentiator a week in, after two years and hundreds of millions of dollars of development. Something that’ll take “more than six months.”
Be impatient with action, patient with results.
I started with my favorite quote from my favorite movie, and I’ll end with my favorite quote about investment (startups). Jeff Bezos, on the best advice Warren Buffet gave him:
“I asked Warren, I said your investment thesis is so simple. You’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone copy you?”
“Because nobody wants to get rich slow.”
The way to grow big requires you to start very small. To focus and solve small problems. To learn and then grow. To not skip steps. It’ll feel like it’ll take longer, but it’s the only path.
You can’t skip steps. You can’t underestimate the nuances of customer segments.
You can’t skip straight to the Hemsworths.
As always, reach out if you want to talk about this approach: Brian@gettacklebox.com
