As Bill Gates once said, “It is fine to celebrate success, but it is more important to heed the lessons of failure.” There are lots of inspiring stories of success in the tech industry. There are also a lot of lessons that product managers can learn from failures as well. Failure stories are always interesting to read. Product managers sometimes get a vicarious thrill and say “there by the grace of God I don’t go.” The stories of Oxy Media, SclaeFactor, and Quibi are especially informative.
In Kindergarten most kids are taught a few basic rules on how to function in society. Don’t lie, cheat, or steal is one of them. Many startups have broken these rules and paid the price for it. Product managers should learn from these mistakes and strive never to repeat them. The recent case of Oxy Media is a great example.
Ozy is an American media and entertainment company launched in September 2013 by Carlos Watson and Samir Rao. Its headquarters is in Mountain View, California, and it also has an office in New York City. Ozy produces podcasts, television series and events. It was founded in 2012 and has about 120 employees. It did about $50 million in revenue in 2020 and is profitable. Since 2012 it has raised over $70 million in funding from notable investors like Ron Conway, Laurene Powell Jobs’ Emerson, German publisher Axel Springer. Interlock Partners, LionTree, Atinum Investment, and Clayton, Dubilier & Rice.
Despite raising over $70 million, Ozy imploded and shut its doors in the space of a week. A brief chronology:
9/26/2021. Ben Smith of the New York Times reported that during a due diligence call with Google Ventures Samir Rao, Oxy’s COO used a voice disguiser to impersonate Alex Piper, the head of unscripted programming for YouTube Originals. Oxy’s CEO Carlos Watson later apologized to GV saying that Samir Rao had a mental health crisis.
9/29/2021. Ozy’s Board announces an investigation and Samir Rao takes a leave of absence.
9/29/2021. Angel investor Ron Conway returns his shares in Ozy
9/29/2021. Former BBC News presenter Katty Kay has quit her role at the US media company Ozy Media after just three months.
10/1/2021. CNBC. Marc Lasry resigns as chair of Ozy Media after 3 weeks, following reports of alleged misconduct at the firm. Lasry is CEO of Avenue Capital Group and led Ozy’s Series C $35 million round.
10/1/2021. October 1. NPR. Ozy’s Carlos Watson resigns from NPR corporate board after a week of scandal.
10/2/2021. Ozy’s Board of Directors announced it was shutting down Ozy, effective immediately.
10/5/2021. LifeLine Legacy Holdings, an investor in Ozy’s Series C, files a Federal lawsuit alleging fraud n Connection with the Purchase or Sale of Securities Violations of Section 10(b) of the Exchange Act and Rule 10b-5.
Since the story broke there have been dozens of reports of other malfeasance. An Emmy Award-winning television producer resigned from beleaguered Ozy Media this summer after he discovered he was producing a show for the embattled company without there being a network on which to air it. Brad Bessey joined Ozy Media in June 2020, to work on The Carlos Watson Show – a daily, half-hour talk show presented by Watson, who is also Ozy’s CEO. He was told repeatedly that the show would be broadcast on the cable channel A&E. But this summer he discovered that there was no agreement with A&E, and that the show would just appear on Ozy’s YouTube channel. Ozy misrepresented that they had the first talk show on Amazon Prime. “A show Watson hosts for Ozy has been promoted by the company as “Amazon Prime’s First Talk Show,” despite being uploaded directly to the Amazon platform by Ozy itself, Amazon recently made Ozy take down billboards promoting Watson’s show as such.” It has been alleged that Ozy bought traffic to drive up their vires on social media and their website. The list goes on and on.
As product managers, you can tell when something is off. Do not be afraid to investigate and take the appropriate actions. Frances Haugen, the Facebook whistleblower, may have taken things to the extreme, but you should get out of a bad situation sooner versus later.
ScaleFactor was founded in 2014. The startup had a magic fix: artificial intelligence-powered tools that could replace the accountant, and do so much more. For a fraction of the cost, ScaleFactor promised to take care of bookkeeping, bills, and taxes. ScaleFactor raised $103 million over three rounds. Customers would The only problem: the AI didn’t work.
As reported by Forbes:
“For its core bookkeeping tool, ScaleFactor told customers that after an initial consultation, the artificial intelligence-powered product would do the work: pull numbers from other software, like Quickbooks or Xero, and then figure out how transactions should be listed or organized. Rather than monthly statements, ScaleFactor’s software would show real-time updates on its portal,
But in reality, the tool was glitchy and couldn’t be relied on to accurately sort transactions, so ScaleFactor employed a team of bookkeepers and accountants who instead would manually complete a customer’s books or correct errors from the software, according to employees who worked on its product, accounting and customer sales teams. To bolster this effort, ScaleFactor hired The Outsourced Accountant, an offshore firm in the Philippines, to help. But no matter where they worked, the unpredictable technology continued to lead to errors in customers’ books.”Forbes
In late 2019 things began to fall apart. Customers were increasingly dissatisfied and demanded refunds. As reported by Forbes:
“After canceling her contract in April, Reinders, who complained online, says that she learned a ScaleFactor employee had incorrectly credited $17,000 to a customer of her e-commerce business. But by the time the error was realized more than 6 months after the fact, she was unable to recoup the money because a collectable term period had expired. “We had really good, clear, clean books when we hired them,” she says. (ScaleFactor offered her a partial refund on her annual $23,000 contract, Reinders says, if she signed a non-disclosure agreement barring her from talking about her experience; she didn’t.)
Now that the company is closing, other ScaleFactor customers are reckoning with the risks of doing business with a startup that might over-promise and under-deliver. San Francisco-based coffee shop owners Cornelia and Robert Stang, are hiring a new accountant to scrub months of erroneous bookkeeping. “How hard can this be? We are a coffee shop,” Cornelia recalled telling ScaleFactor when she abandoned her contract this year. “If you can’t fix our problem you can’t fix anybody’s.”Forbes
ScaleFactor set up an internal ‘churn desk’ to manage the outflow of cash. At the end of the day, ScaleFactor never got its AI working. Instead of near-real-time financial statements, customers received monthly statements. They relied upon outsourced bookkeepers in the Philippines to manually process customers’ books. They often made mistakes. The only technology they got working was an internal workflow engine, or “a guided to-do list” for ScaleFactor employees that organized tasks required to close a customer’s books.
In August 2019 ScaleFactor raised 60 million in a Series C round. In February 2020, ScaleFactor announced “ScaleFactor 2.020”. They pivoted away from their original product to a new marketplace for on-demand finance professionals. In June 2020, ScaleFactor announced a suspension of operations and returned an undisclosed amount of money to their investors.
Product managers can learn a lot from ScaleFactors experience. Tackling complex issues with new technology is hard. Challenges are to be expected. The ‘fake-it-till-you-make-it’ ethos has helped many tech companies launch revolutionary products. But when you start having to use outsourced accountants to manually do what your artificial intelligence was supposed to do, it’s gone too far.
Quibi was founded in 2018 by Jeffrey Katzenberg, the former CEO of Walt Disney. Meg Whitman, the former political candidate and CEO of HP Enterprise became Quibi’s CEO in January 2018. Quibi targeted a younger demographic, with content delivered in 10-minute episodes called “quick bites” (with the name Quibi derived from “QUI-ck BI-tes. Quibi raised $1 billion from major Hollywood studios and later $750 million from private equity investors. Quibi spent over $1 billion on content for its new platform. Quibi’s short-form mobile streaming platform was intended to be a disruptor to the streaming space, a revolutionary competitor that offered scripted and reality television in bite-size chunks from A-list actors, writers, directors, and producers.
Quibi launched in April 2020. According to MediaPost “Mobile app tracking/analytics firm, Sensor Tower shows Quibi reached the fourth most-downloaded iPhone app on its launch day but is down to #78 as of today. Analytics firm App Annie also shows Quibi having debuted at #4 in the Apple App Store, and reported that it was down to #71 as of April 16.
On October 21, 2020, just six months after Quibi’s launch, The Wall Street Journal reported that the streaming service was shutting down. Later, that same day, this news was confirmed by both Katzenberg and Whitman. Katzenberg told Deadline Hollywood, “There was no question that keeping us going was not going to have a different outcome, it was just going to spend a whole lot more money without any value to show for it. So, out of respect for these people that put up this extraordinary amount of capital to do it, that’s irresponsible and we both felt we shouldn’t do it.” In the interview, Katzenberg also cited the unfortunate timing of the launch during the pandemic as a contributing factor.
Product managers can learn a lot from Quibi and Katzenberg. Katzenberg had a ton of experience and insight into the entertainment market. They raised an ungodly amount of money and put it to work to advance their vision. But it didn’t work. Product-Market fit is hard and Quibi didn’t have it. The lesson is to put your best effort into something, but quickly recognize when it does not work. Quibi did that. They shut down six months after launching but returned over $350 million to their investors.
As Julius Ceasar is reported to have said “Experience is the teacher of all things”. Product managers can learn a lot from startup failures. Three lessons stand out. Don’t lie, cheat or steal. Don’t fake it till you make it. And know when it is time to fish or cut bait.
Also published on Medium.