The Ooch Strategy
Pets.com has become synonymous with a dot-com era of failed internet companies. It launched in 1998. The concept was simple, sell pet accessories and supplies directly to consumers over the Internet. Like many other companies, Pets.com copied Amazon, but with the focus on pets. At that point in time, Amazon had become successful selling books online. There was no reason that pets accessories shouldn’t become just as popular an item. Pets.com launched their website to much fanfare, built several distribution centres and watched it’s stock price soar for a day or too. Then it all came crashing down. They company bet too much on how comfortable people were purchasing things online, spent its investor cash too quickly and ultimately failed spectacularly. The idea of selling pet supplies online seemed to be a faulty one. Pets.com closed its doors in November of 2000.
In the late 90s the Internet usage across United States had increased at a dizzying pace. Many investors saw an opportunity to make money and invested heavily in a multitude of dot-com startups. During the rush, it seemed that anyone with a half-decent idea could receive some seed capital to develop a product. In hindsight, the most surprising thing about the period was how incredibly bad some of these ideas were. Flooz.com, for example, tried to sell virtual internet currency to be used on other websites. Companies like Cisco, Barnes and Nobles, and Delta signed up with the start up. After burning through $35 million of investor seed capital, Flooz.com went bankrupt in 2001. Other, companies like WebVan and Boo.com spent millions of investors cash before going bankrupt in the 2000 stock market crash.
The premise behind Pets.com, however, wasn’t bad. There was a real need and a real physical market. Pet owners bought their supplies at pet stores and big box stores. In order to entice customers the company needed to gain a competitive advantage. The only way it could do that was by offering free shipping and lower prices. This turned out to be unfeasible. The e-tailer, as they were called, was losing money because it was selling goods and services below cost. An IPO in February of 2000 raised over $80 million but it was not enough to keep the company afloat. By the fall of that year Pets.com was well on its way to becoming one of the greatest failures of the dot-com era.
Selling products online would become one of the most successful ventures in the next decade, what caused Pets.com to fail in such a spectacular fashion? A brief analysis of the business leaves little doubt as to what the answer is. Pets.com tried to become an online retailer, a pet store and a major distributor all the at the same time. The company expanded too quickly and wasted millions on dollars on creating a country wide distribution system. There was a need for the product but their customers just weren’t ready to buy this type of product online yet.
How can one work around this issue? Having a good strategy can help guide the company toward success. Yet in the case of Pets.com, their strategy was missing some initial analysis. For example, timing was an issue. Besides asking the right question, strategists need to figure out if the time is right for a particular undertaking. How can we know if its the right time to launch a project? This question must be answered at the very beginning of the strategy planning process. And although it is impossible to know for sure, we can always make some assumptions and test our theories first.
In their 2013 book Decisive, Dan and Chip Heath introduced a concept to test out theories. They called it Ooch. The word ooch has many definitions. It usually refers to moving something or someone a small amount, but it can also mean working towards a goal using small, low risk steps. This is the definition that the authors of Decisive had in mind when they told a story of John Hanks, a vice president at National Instruments.
The company, which makes scientific instruments, was in the process of deciding whether to focus their effort on developing wireless sensors. These sensors could be used for a variety of purposes, most often to send back real time data from a piece of equipment to a monitoring station. Naturally, National Instrument’s customers had concerns. As with any new technology, there will always be some push back. Cost, reliability, and securing information were some of the issues mentioned. Investing in a new technology is a risky challenge. How can one test the concept before committing millions of dollars to the project? John Hanks decided to use the ooch strategy.
Bill Kaiser, an electrical engineering professor at UCLA was working on developing sensors to measure CO2 in the jungles of Costa Rica. The harsh, remote environment of the Costa Rican jungle was perfect to ooch the wireless sensors project. The sensors would be installed in remote places, without access to electricity. They would have to withstand the elements, all the while sending reliable measurement data back to a monitoring station. Hanks contacted Kaiser and the deal was struck for National Instruments to provide the wireless sensors.
The project turned out to be a success. The sensors reliably handled the demanding conditions of the jungle. Hanks ooch strategy provided a degree of confidence in the new technology and he was able to present a compelling case to the board. The company developed a successful strategy for wireless sensor component business.
Another, smaller scale example of the ooch strategy was Netflix. Founded at the beginning of a dot-com boom, it followed the path many dot-com startups, by taking a product to an online market. The founders of the company were impressed by Amazon’s success in online book retail market and wanted to find something that could be sold on line and was easy and cheap to ship. They decided on the DVD, a hot new technology.
Just like National Instruments, deciding if this new challenge would be the right one to pursue required an ooch strategy. So the founders decided to ooch their idea by mailing a DVD to themselves. The disc came arrive undamaged and the founders knew their idea would work. Netflix was born. Throughout its existence, the company successfully oohed every new endeavour before committing fully to the project.
In the late 90s, many start ups like Pets.com should have used the ooch strategy to validate their initial ideas and test market need. Many would have failed and millions of dollars would have been saved in the process. However, companies who’s ooch experiments were successful developed good business strategies and had gone one to create successful businesses. So remember, before you commit to your idea, ooch it first.
