Spend Management Lessons George Will Take to Siebel

Many of us were seduced by the .com era. But few spent more aggressively than Webvan, the Internet grocer which blew through over $600 million in funding before shutting its doors.

But while George Shaheen, Webvan's former President and CEO, was certainly not to blame for all of the grocer's challenges, we're sure he certainly learned some lessons in the process. To wit, we present some Spend Management lessons he'll be sure to take with him to Siebel. Many of lessons come from old articles in cnet and the San Francisco Gate. We reprint them below for our reader's edification (along with our own analysis).

1) Avoid investments with too long a payback. "The margins in the grocery business are razor slim, and there isn't much to spend on home delivery ... Webvan spent $30 million [to build each warehouse and distribution facility] and it would take decades for the warehouses to pay for themselves."

Siebel learning: Invest in products and services that will provide payback in a reasonable timeframe.

2) Forgetting to bridge strategy and operations -- Don't just bank on your own upfront analysis to determine hypothetical operating expenses. Until the bitter end "Webvan executives believed that its strategy helped it [to] operate more efficiently than offline grocers ... In each city it operates, Webvan shipped and warehoused from a single large and highly automated facility." Unfortunately, Webvan invested in a centralized model with sky-high upfront and fixed costs with the expectation that volume would scale. It did not.

Siebel learning: When it comes to placing large bets, don't bank on forecasts. Measure performance from the start and take corrective action immediately (the same could be said for implementing and managing new suppliers).

3) "Spend cautiously" Apparently, "Webvan [was] spending money to update its logo and graphics when the company was already in trouble."

Siebel learning: Know when to reduce costs versus create unnecessary ones.

4) "Make sure your core business is profitable ... Webvan spent $150-$160 an hour on delivery costs and made about 1.8 deliveries per hour. Webvan reported to The Industry Standard in June 2000 that the average order size was $91.33. What it made barely covered delivery, much less the cost of the food itself."

Siebel learning: Don't enter market segments where it's impossible to compete and build a profitable business.

5) "Don't build too fast too soon ... Webvan launched in a large number of markets right away ... after all, if you want to deliver a tomato to Seattle, you can't do it from San Francisco -- it's perishable. So they had to build infrastructure, warehouse space, offices, etc., in every new market, which is hugely expensive."

Siebel implication: Be conservative (but also don't wait for a competitor like Salesforce.com to sneak up and eat your lunch).

6) "Set limits on what your customers can expect ... Webvan began a minimum-order policy late in the game after initially allowing orders of any size" According to one reporter, "When Webvan first started, my friend wanted to check it out he ordered two avocados -- they delivered it. And, even worse, he wasn't home the first time, so they had to redeliver!"

Siebel implication: Model all potential costs and cost centers before creating policy. And understand the implications!

-Jason Busch

Discuss this:

Your email address will not be published. Required fields are marked *