The founders of Webvan seemed to have a flawed business plan, if any. They had developed the business successfully (as indicted by the successful IPO), however they failed to manage their finances and were soon spending more than they earned. This un-necessary spending was primarily due to the flawed planning done by the top management of Webvan (Mr. Shaheen). The company made aggressive expansion into multiple cities, which was too expensive for the company’s finances. Webvan had spent a fortune to buy super-luxury furniture, IT equipments and offices, which were complexly unjustified given the scale of operations.
The management compensation was well above the market average, which meant Webvan had failed to maintain and follow a balanced budget for sustainable growth. Webvan management seemed too optimistic about eliminating the offline checkout experience. However, even though the offline checkout experience had its drawbacks, but that did not mean that customers wanted to completely replace offline shopping experience for online one. The Webvan website was excessively complex, which caused customers to quit the site without ordering.
Webvan had an untested plan, which was not rigorously checked for consistency with the real world situations. The volume of orders from Webvan customers dropped considerably in the last three months of its operations. Webvan had reported a net loss of $217 million and an accumulated deficit of $830 million. Such a bad financial situation for a company clearly means inevitable demise of the company, Webvan was no exception. The Webvan closure is the prime example of flawed planning and execution by management. The company failed to accurately predict sales and thus manage expenses accordingly.
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