Venture capital firms “bury their dead very quietly,” Shikhar Ghosh, a senior lecturer at Harvard Business School, told the Wall Street Journal in 2012.
The post-mortem report
Vietnam’s latest large failure, Project Lana, did things slightly differently. First it built the company very quietly, and when it was time to close up shop, it posted an indictment of e-commerce as an industry on what had been a baby goods site.
An IDG-backed venture, Project Lana’s one-page website offered no information to its visitors past that it was an Internet company in Vietnam geared towards women, and its CEO James Vuong spoke to the press as little as possible.
When he did, it was to address rumours of mass layoffs and clarify its restructuring: though originally three sites, after 2013 Project Lana would solely be focussed on Beyeu, a baby goods retailer.
But last month when this last active verticle went offline, someone in the company’s offices posted three sentences, in English, arguing that e-commerce was a fool’s game.
The region’s booming demographics and rising GDP have attracted entrepreneurs from all over the world, and while failures are embarrassing, they offer the most valuable lessons for future ventures. Was it a failure of e-commerce or maybe it was inexperience the most we can make from this massive venture suddenly going offline? Thankfully not.
Peter Thiel, paraphrasing the philosopher Rene Girard says,“Imitation is inescapable.”
Two companies have entered Vietnam with big money and plans to start several e-commerce startups at once. One is faltering globally and the other just shut its doors. Two companies hardly make a study, but maybe it’s time to take a closer look at this strategy.
An engineer for Project Lana, said that it wasn’t looking to Rocket, but it’s hard not to draw parallels to the German incubator when he described “building a machine” capable of pumping out verticals for whatever market offered an opportunity.
When asked if small wasn’t beautiful, or if expenses shouldn’t have been kept low, or if any other oftrepeated startup maxim held true at Project Lana, he told me that the company was not a startup.
“We wanted to get to the top of the hill first. There would be nothing for second place,” he said. “We were trying to build something that would scale easily.”
Anticipating their market hegemony, an industry insider reported, it invested tens of thousands of dollars in an ERP system and kept an inventory of approximately US$100,000. In order to show top line growth, it offered huge promotions, cutting into the already razor thin margins diapers offered.
But this was all accounted for, the engineer said. Eventually Webtretho (WTT), the women’s forum which attracts 11 million visitors a month, and an IDG portfolio company, would start delivering repeat customers and better margins.
Project Lana put so much faith in WTT that it spent little time or money on customer acquisition basing all of its efforts off the forum, and the rest of its time getting the ‘machine’ ready. The engineer now calls that “a mistake.”
When it started to unravel
But attributing the failure of Project Lana to the team’s oversights and over confidence in WTT’s worth would only be telling part of the story.
The ‘machine’ did show promise, after all. The team got zero-to-launch time down to a month and a half for its verticals, though it never got a chance to go fully operational. Things might have gone differently if it had more time and money.
“IDG being involved is what attracted us,” he said of the largely foreign-educated (and relatively expensive) team, but it was this involvement which also sealed their fate. When IDG wasn’t able to give the expected cash infusion, it left them to seek outside funding. They weren’t able to find any.
Despite rumours that CEO James Vuong had been attending conferences and events looking for investors or buyers, it seems no one was willing to take the plunge. How much IDG had already sunk, what it was asking for, and what Project Lana showed potential buyers, we can only speculate.
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So while organisationally WTT stood in between IDG and Project Lana, it’s hard to imagine that the company’s beginning as a VC firm’s darling, rather than ending up as one, doesn’t have something to do with its backwards trajectory: several projects and lots of money at the start, but shrinking with time until it didn’t exist.
Project Lana was not a startup, the engineer reminded me several times, and it certainly didn’t act like one.
But potential investors might have been looking at its numbers as if they were: based on spending and growth. Reviewing its own numbers, IDG might have wished that it had backed an entrepreneur already operating in the ecosystem rather than trying to play one. And if its deal flow slows in the future as startups identify it as a potential competitor rather than backer, the company will know why.
If it succeeded, Project Lana’s team would have been geniuses, and very rich. Instead, it seems it was so confident at the start that it ignored conventional wisdom. And even as faults began to reveal themselves, felt no need to reevaluate. It’s easy to get greedy, but with so many successes and failures to learn from, some mistakes are becoming less excusable.
Are they not?
[Update – 12/8] The original story quoted James Vuong saying: “Personally, I have not been involved with that company” since the restructuring two years ago (although TechinAsia listed him as the CEO this summer).
To clarify this point, Vuong reached out via email: “The e-commerce business was spun-off to a separate company. I am the CEO of Project Lana as TechinAsia listed. I did help the e-commerce team on fundraising but I didn’t run the e-commerce company.”
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