Wednesday, April 9, 2014

GovWorks - What could have possibly gone wrong ?


Choosing the right strategy for your firm is a very important step that an organization is ought to take to realize a quantitative output of their goals. Many organizations do not choose the right strategy for them and eventually fail. When i read through the article "Seven Big Ways to fail", i could understand about the different sirens that indicate the failure of a strategy. Based on this i have decided to narrow down my focus on the companies that failed during the .com burst and talk about the case of govworks, a firm that intended to provide easy government services to the public. 

A sneak peek into the .com burst

During the period of 1997-2000, stock markets in industrialized nations saw their equity value rise rapidly from growth in the Internet sector and related fields since the number of internet users increased tremendously since 1995, who were viewed by companies as potential consumers. As a result, the stocks of “.com” companies (internet/e-commerce start-ups) were overpriced by several folds and numerous companies caused their stock prices increase by simply adding “e-“prefix or “.com” to the end of their names. Due to the rapidly increasing stock prices and an unreasonable market confidence that these dot com companies would turn huge profits and the widely available venture capital, the investors started overlooking the traditional metrics like P/E ratio while making investment decisions. Many of these dot com companies engaged in extravagant business practices just to dominate the market. Most of them assumed that their profits would rise automatically, if they built up their customer base. Hundreds of companies were founded weekly, especially in Silicon Valley.

Here I am going to point out one particular startup that appeared to be making it big in the market but collapsed in the end due to many internal conflicts, “govworks”. Govworks aimed at providing a convenient and an efficient way to pay parking tickets and other government services for the public.  Although it is the story of a failed startup, the founders did right such as identifying a need rather than merely introducing a technology in an era where many startups were founded on a “build it and they will come” fashion many things.  Although they made quite a few strategic mistakes such as following ezGov’s strategic plan instead of their own plan and not getting buy-in from senior management on strategic plan, they had come up with a good strategy by identifying a mass problem with a scalable solution.This exemplifies the pseudo adjacency siren as mentioned in the article which happens when companies over estimate the transferability of their core capabilities.

What led to their failure?

Kaleil, the founder of “govworks” gave an excellent elevated pitch and this coupled with his prior investment banking experience helped them raise huge capital quickly and cheaply but they did not spend the money carefully which is why they couldn’t sustain their capital and they went bankrupt even before the website even gained momentum among the public. There were many reasons that attributed to the failure of such an innovative and a unique idea, such as demand for capital, speed to market and a lack of proper service, but the most important reason was the internal dynamics among its founders and employees. The synergy mirage which results when culture interferes with the dynamics of the organization which is exactly what happened at govworks. The govworks team seemed to be the most interesting element that contributed to their failure. Kaleil, founder of seemed to have a love/hate relationship with his best friend and partner Tom. He felt some of the things Tom would say to investors were completely wrong and it made his company and his opportunity appear to be not focused. In addition to Tom, there were at least 2 other team members who we the viewer didn’t really get to see much of except for the very beginning when they were debating what the name of their company should be. Lastly, the most drama causing team member, Key had made a sudden decision to move out. Kaleil and Tom were forced to decide how much money to give Key in order to buy out his shares of the company because Key no longer wanted to be a member of their team. Key wanted nearly double the amount Kaleil and Tom was offering and thus forced Kaleil and Tom to have to dig into their own pockets to pay off their one time friend for his shares of the company. Kaleil and Tom took this to be a personal slap in the face and were devastated by Key’s unethical decision. In addition, towards the end of the film we see how Tom is asked to no longer work for the company because he was not the best person for the job in regards to the technology aspect of the company. With the firing of Tom, and all other resources quickly diminishing, it was easy to conclude that would quickly fail.
Tom, their CTO did all what he could to implement the best technology available for their website. However, it did have some flaws which cost them huge. Many times, their systems crashed and in one instance they also lost certain important files which attributed to the causes that led to their failure. As mentioned in the article, wrong technology bets and overlying too much on one particular technology can be a cause of a potential disaster for your organization which happened in the case of govworks.

The bottom line

Developing a strategy for an established firm goes through a streamlined process and needs subsequent approvals and is put into a detailed scrutiny. However, when it comes to startup, strategy development becomes a more challenging process as most of the times, they do not have well defined goal or objective just as in the case of govworks. So how can a startup overcome this hurdle and formulate an efficient strategy? How do we measure it? Based on the article and the inputs it provides on a number of ways in which a strategy can fail, Can organizations especially startups be prepared and make a robust strategy? These are some points that would help us build an efficient strategy.

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