A Good Idea Isn’t Enough

You can add WebVan to my list of dumb investments. It was a great idea with an unbelievably stupid ad campaign. The company had no clue who their core audience should have been. Their advertising targeted 20-something males when they should have been looking at working moms. Stupid. — Z.S., online

The Fool Responds: You weren’t alone in being disappointed with WebVan. The Wall Street Journal called it “one of the most glorious flops of the dot-com-bust.”

The company’s concept of groceries being ordered online and delivered to customers’ doors was exciting — so much so that investors plowed more than $800 million into it, when it wasn’t even profitable. The company had smart management, invested heavily in infrastructure (such as high-tech warehouse fulfillment centers), and started out serving 10 cities and regions. In the year before it went out of business, the company took in only $200,000 — in top-line revenue, not bottom-line profit.

The story reinforces the important lesson that a great idea isn’t enough. Many great ideas never catch on — sometimes because their advertising doesn’t get the right message out to the right targets. Investing in unproven companies is riskier than favoring established enterprises. Interestingly, many WebVan executives ended up doing well. Some now work for Amazon.com, which is building out a grocery delivery business — at what it hopes is the right time.