Movie Review & Start-up Commentary: e-dreams

Posted on May 25, 2007

e-dreamsWow… watching this film really opened my eyes to what went on at some of the biggest companies in the bubble. I had seen Startup.com before which is very similar to this movie. That film follows govWorks.com from beginning to end but the story wasn’t as crazy I thought it would be. Sure, they had their problems but it was nothing compared to what you see in e-dreams.

e-dreams follows the guys from Kozmo.com, a service that would deliver whatever you ordered in under one hour using a fleet of bicycle messengers. Seems harmless enough I suppose but check out these stats:

- Raised $250mm in VC in about a year

- Went from 10 - 4000 - 0 employees in about a year

- Did a deal with Starbucks where they paid Starbucks $150mm over 5 years for the right to market to Starbucks customers and they made about $25mm from Starbucks for allowing them to be the only coffee they would deliver (more on this deal later - as a biz dev guy myself it made me cringe for a number of reasons - in fact, I felt physically ill after hearing the terms)

- CEO/co-founder was incredibly out of touch with the operations of the business due to his obsession with talking to the media (it’s just about all he did if the movie was accurate - of course you never know how they cut the film)

- Wanted to go public when the company was bringing in $3.5mm per year but still had a net loss of $26.3mm per year

- Pushed away their college student base (about 80% of their customer base) while trying to go for older folks who would buy more expensive stuff

In today’s web atmosphere this sounds completely absurd and it should have probably sounded absurd during the bubble too. Let’s talk about the biz dev deal with Starbucks since that was one of the craziest things in my mind.

The deal with Starbucks basically allowed Kozmo to leave video drop boxes (for returning videos rented via Kozmo) in Starbucks stores and market to Starbucks customers in other ways for $150mm to be paid over the life of the 5 year deal and Kozmo would get back about $25mm over 5 years for exclusively selling Starbucks coffee on their site. What could be wrong with that, right? A lot of things.

Granted 80% of Starbucks customers were internet users so getting to them made a lot of sense for Kozmo. However, did hitting them everyday of their lives for 5 years make sense? Can someone say frequency capping? The killer was that the company really wasn’t in any position to sign a deal worth that much money even if the deal made sense.

Of course the business model was a bit suspect (no delivery charge or decent mark-up on the products) and they grew far too fast and raised way too much money but aside from that the other glaring issue was that the CEO, Joseph Park, didn’t have a hand in much of anything other than talking to the media (or so it seemed from the film).

One of the most glaring examples of this lack of involvement was when Joe went over to one of the warehouses (called “spokes” at Kozmo) and the manager showed him the new Kozmo Intelligent Delivery System (K.I.D.S.) that, of course, is crucial to Kozmo’s core functionality of delivering stuff to people quickly. The manager asks Joe if he’s seen this yet and replies that he hasn’t seen it at all. That’s crazy. An internal product that is crucial to the company was developed and Joe had no idea what it was, how it worked or how it looked.

The quote in the movie that summed up Kozmo, and the whole internet bubble, came from a programmer on the Kozmo staff named Rich Marshall.

“A lot of these companies never intended to be businesses and we’re [Kozmo] a business now. …. [In reference to all companies in the boom/bust] Get investor money, get a sexy website, get bought if they’re lucky, cash out if they’re lucky. If they’re not, who cares? Start over. Big deal. Crash and burn was just as sexy as succeeding.”

Those were crazy times and while I was not part of them I did watch it all go down while at Bentley College and it wasn’t pretty. I think those times have made me the frugal guy I am today (i.e. when I go to NYC on business I stay with friends rather than spend company money on a hotel for example which in NYC are super expensive and I fly late night/early AM if possible to save on the flight and to maximize work hours) and I believe that frugal attitude will continue to help me through my career.

e-dreams is a great movie for anyone to watch but I think it is especially good for entrepreneurs and start-up folks to check out (also check out startup.com if you have a chance). It’s a great example of what not to do and a lot of times those examples are just as helpful as examples of what to do. Don’t repeat history, right? Be a student of History and don’t make the same mistakes.



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