Wednesday, August 18, 2010

Why Tesla Is the Next Webvan

By Eric Jackson08/18/10 - 06:59 AM EDT

Every 10 years ago, the smart folks in Silicon Valley select some inefficient industry that is run by dummies which they are going to set straight and end up revolutionizing. Ten years ago, there were smart entrepreneurs (with Internet backgrounds) with even smarter venture capitalists behind them who started a company called Webvan designed to revolutionize buying groceries. People would no longer go to a bricks-and-mortar store, they said, they'd buy all their groceries online.

After raising hundreds of millions of dollars and going public, Webvan failed. The smart Web entrepreneursoverlooked some basics about running a grocery business -- online or offline -- like needing to have big expensive distribution centers. Maybe if they'd had some grocery execs in the fold (on the management team or board) they might have thought of that "key success factor" for operating in that industry. But before their failure, if you'd asked them about bringing in some industry talent, their response had been: we're trying to recreate this industry so we don't want to tie ourselves down to the old ideas that have failed.

Ah, how important it is to balance "fresh eyes" to look at industry challenges anew with "gray hair" wisdom that can tell you which potholes to avoid stepping into.

In Silicon Valley, with lots of money, ego, and talent, you can will a lot of companies into reality -- especially if they are able to capture some exciting buzz. However, success breeds lots of arrogance. Webvan was Exhibit A of how that arrogance can result in a high-profile failure.

There's another Webvan-like company that just went public a few weeks ago and is heading for the same kind of ignominious failure by the end of 2012: Tesla Motors (TSLA).

Tesla shares many similar characteristics with Webvan. The company was founded in 2003 with the view of providing the world's leading electric cars. You could argue that they've been losing money ever since. The company is set on revolutionizing the auto industry.

By 2004, they needed cash and found Elon Musk, a PayPal co-founder with cash in his jeans since eBay(EBAY) acquired it. Musk, 39, is now Chairman, CEO, and Product Architect of Tesla. He has an explicit employment contract which will keep him in that role until the end of 2012.

The company -- thanks to Musk's involvement, his worthwhile mission of creating non-fossil fuel powered cars, and the pixie dust he brought of his past PayPal success -- found it easy to raise money in Silicon Valley. They attracted investments from Google(GOOG) co-founders Sergey Brin and Larry Page, eBay co-founder Jeff Skoll and a host of well-know VC firms. Most people are familiar with its racy Roadster -- currently Tesla's only car with a list price of over $100,000.


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