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Why was the dream team "Quibi", which raised 100 billion yen in initial funds, forced to suspend its business in half a year?
Why was the dream team "Quibi", which raised 100 billion yen in initial funds, forced to suspend its business in half a year?

Entrepreneurship Education A series focusing on "failure" based on papers and cases related to entrepreneurship with Babson College, the No. 1 in the United States. Entrepreneurship "Failure Studies".
This time, I would like to introduce useful information for entrepreneurs and aspiring entrepreneurs, taking the failure of the video streaming service "Quibi" as an example.

Have you given up on the challenge because of "insufficient resources"?

What do you think of when asked, "What do you need for a successful business?" Innovative ideas, technologies that cannot be imitated, enthusiasm that never gives up, etc. will vary from person to person. On the other hand, many people think of "resources" such as money, human resources, and personal connections. Some people may be interested in starting a business, but think that "I have no money or personal connections, and I can't start a business."

However, few startups have these resources out of the box. Rather, because of limited resources, entrepreneurs take the customer issues in front of them seriously and seriously consider how to devise ways to maximize the effect with limited resources. It will be possible to do.

This time, for entrepreneurial candidates who are not taking a step because of "insufficient resources", based on the case of the United States, "traps of belief" that those who have resources fall into and "have no resources" Introducing the "mindset that people need to increase their chances of success."Fig. 1 with frame (1) .jpg


Lessons learned from the failure of video streaming service "Quibi"

Has anyone heard of a service called "Quibi"? Quibi is a short video distribution service founded in 2018 by Jeffrey Katzenberg (co-founder of DreamWorks, USA and former chairman of Walt Disney) in LA, USA. The unique company name comes from "QUIck BIte".

Focusing on the fact that content viewing on the go lasts for more than 8 hours in the present age when smartphones have become commonplace, Katzenberg found the possibility of video content specializing in "smartphones & gap time". Specifically, by transmitting ultra-short content of 10 minutes per episode instead of the conventional drama content of 1 hour per episode, we targeted users who want to enjoy the content casually in their spare time. It's easy to imagine that the drama "Naoki Hanzawa" is 10 minutes per episode.

Innovative ideas that seemed to capture the trends of the times quickly attracted attention, and in 2018, the year of establishment, Meg Whitman (former CEO of Hewlett-Packard and eBay) was invited as CEO, and about 100 billion We even raise yen funds. It's also surprising that at this point there were still less than 10 employees. After that, we continued to produce content casting popular actors one after another, and finally released the service in April 2020 after spending a huge amount of advertising expenses.


Gears that started to go crazy, customer perspective that was fatally lacking

Overwhelming name recognition of the founder, excellent manager, ample funds, casting of popular actors. At first glance, the dream team Quibi, with its undisputed conditions, made a good start, with 300,000 DL on the App Store on its release date in April 2020.

However, from the following week, the number of DLs will gradually slow down, and even after that, the situation that far falls short of the expected number of DLs will become normal. And on October 21, 2020, six months after the release, we finally announced the closure of the platform. The dream team, where no one doubted its success, came to an end too badly.

Quibi's failure factors, which have received worldwide attention, have been analyzed and considered from various perspectives, and cannot be discussed uniformly at this time. Of course, the influence of special factors such as corona would have been enormous.

Prior to those factors, Quibi lacked a fundamental perspective. That is, "Does our business meet the needs of our customers?" In other words, "Does this business solve the problems that our customers have?"

Quibi is an unprecedented service in that it specializes in "smartphone viewing and ultra-short videos," and has entered a market where demand has not been verified. In short, at the time of entry, their business remained a hypothesis and needed to be tested for success. In fact, given the fact that customers have been asking "why can only be seen on smartphones" since the release in April 2020, it can be said that the original hypothesis had to be revised.

Regular ventures have limited resources, so you need to avoid spending too much on what your customers don't need. Therefore, by proceeding with product development while checking the degree of matching with customer demand through products with the minimum necessary functions (MVP: Minimum Viable Product), etc., the success rate can be increased while efficiently allocating resources. It would be desirable to raise it (strategy for those who do not have it).

In the case of Quibi, on the other hand, there were too many resources, and as a result, we were "able" to push forward with the development of services that our customers didn't need. In other words, the content that should be able to be verified without investing a large amount of money, such as problem setting / hypothesis verification, affinity with customer needs, and balance of differentiation from existing competitors, was not sufficiently verified. You can guess. On the other hand, there may be a risky shift * in which the entire employee is pulled by strong management decision-making (high-risk selection).

* People who usually make careful judgments and can act modestly can easily make more dangerous and risky decisions by making collective judgments.


"Premature withdrawal" that can be evaluated even in the event of failure

On the one hand, there are some points that deserve evaluation. It means that we decided to withdraw from the business early. Katzenberg explains why, "to return as much money as possible from investors (before the business gets worse)." At first glance it sounds obvious, but it's actually a very difficult decision.

Please imagine it. Is it easy to withdraw from a project that has already invested tens of billions of yen? Few people can say yes right away.

The idea of "escalation of commitment" is useful for understanding this psychological state. This refers to a state in which the initial action falls into a negative spiral by continuing the action while having doubts, even though there is no prospect of success due to changes in the business environment. This psychological state tends to increase in proportion to the amount of time and money invested so far *.

Failure is the best teaching material, but it doesn't make sense if you don't apply the lessons you learned from your failure to the next opportunity early. Therefore, "contingency planning (emergency response measures)" is extremely effective as a framework for deciding whether or not to withdraw from a failed business at an early stage. Specifically, we define failures quantitatively and qualitatively in advance and formulate a concrete action plan according to them. Although the definition of failure is relative, the risk of escalation of commitment should be significantly reduced by deciding in advance to "withdraw when crossing this line" *.

Fig. 2 with frame (1) .jpg

Of course, there is no doubt that it is desirable for everyone not to fail. But unfortunately, entrepreneurial failures are common, and it's rare for the first business to suddenly succeed. For example, a very high percentage of successful entrepreneurs in the United States have experienced several bankruptcies in the past (former U.S. President Donald Trump also has several in his real estate business in the past. I have experienced self-bankruptcy).

In other words, starting a business is not just one time, but many times as long as you have the energy and enthusiasm. With that in mind, it would be far more beneficial to take advantage of that failure and move on to the next challenge, rather than spending valuable time on a business that feels unlikely to succeed.

In Quibi's case, Katzenberg's courageous judgment, which overcame this powerful psychological trap, considered stakeholder interests, and gave up on the business early, is often commendable.

* Source: Yamakawa, Y. and Cardon, M. (2017) How prior investments of time, money, and employee hires influence time to exit a distressed venture, and the extent to which contingency planning helps. Journal of Business Venturing, 32: 1-17


So far, I have introduced the "strategy of those who do not have" based on overseas cases. How was it? Resources are good, but they are a sufficient condition for success, not a requirement. I hope this article will help increase the number of people who take action by taking a positive view of resource shortages.


Comment from Professor Yamakawa of Babson College

This time, we introduced overseas cases with keywords such as "importance of hypothesis verification", "escalation of commitment," and "contingency planning,". Quibi's case is a very special case in the United States, and although various analyzes are still being conducted, their failure gives us a lot of suggestions. What is important for a startup in the early days is not the amount of resources, but the speed of seriously facing customer issues and accumulating verification and improvement cycles at high speed. And for that reason, it is important to take action first.

However, there are various obstacles to taking action. For example, fear of failure. Even if you have an idea, there are many people who cannot take action because of fear. "Failure is okay, but fear of failure is not." In this regard, we at Babson College's entrepreneurship education recommend "acceptable / affordable loss".

As long as each failure is within the acceptable range of loss, you can continue to take action, and if you make more mistakes, quickly change direction and connect to the next action. You just have to go. Just keeping this idea in mind should lower the hurdles for taking action.

It's always "Action Trumps Everything" and "Failure is Good". Failure to learn from action is the best teaching material.