I receive a ton of emails every week and by far the biggest question I am asked is why Microworkz failed. The answer I am afraid is complicated and although I'd love to say it was only one thing, in reality it was a combination of factors that led to our downfall:
- First off we were too small and got way too much national attention. When we appeared on the front page of the Wall Street Journal in Feb 1999 we had 10 employees and occupied 2100 sq feet of primarily retail space. VC's ran in with money, we rented 125,000 sq ft of manufacturing space and tried to hire over 200 people. In 3 months we attempted to build infrastructure, train technicians and sales people, secure parts relationships overseas and handle the over 1000 phone calls a day we were receiving. Remember this was the dot com days, VC's told us anything was possible if we thought like billionaires. They were wrong and our task was impossible
- Microsoft played a huge part in our failure as Bill Gates and Company made sure we were distracted by audits, awful licensing terms, huge deposits (over $250,000) and negative press from MSNBC early on about how our systems were not reliable (of course we won "best buy" from PC World 2 times in a row)
- Peter Lewis of the Seattle Times wrote articles every week about us and it became a self fulfilling problem. Once the articles were written, customers canceled orders and demanded refunds in huge quantities. At one point over 20% of our order load was canceled due to his panicking the public. Further the negative press in Washington lead to the Attorney General action (even though the FTC cleared us of any wrongdoing) and the subsequent shutdown. His unethical and dishonest reporting was a major factor in us losing lucrative sponsorship deals for the iToaster and many, many distribution deals. I have no doubt that if Peter Lewis was not making a career of reporting on us nobody would have lost a penny and we'd still be in business today. In all my experience with the media (9000 articles, 700 interviews and over 50 television appearances) he was the ONLY one who wrote about us and me this way.
- Production was a huge nightmare and we just couldn't get it right fast enough. Remember Microworkz grew from nothing to a huge operation literally overnight. We had to learn as we went and it was much more difficult that we expected.
- Technical support was another area that we did not excel at or accurately predict the volume of. We mistakenly planned that these systems were easy to use, so when the calls flooded in from users that were novices and first-time buyers we were woefully unprepared. It drained our resources, resulted in returned units that were not defective and helped fuel Peter Lewis and his vendetta.
- Promotion was one area that we excelled in and we just sold too many units. In hindsight, quoting long lead times would have allowed managed growth and time to build out our infrastructure. My mistake was making all sales people commission and letting them sell to their hearts content.
- Not realizing we were going down was one of the biggest mistakes of all. When one of our investors, Sterling Crum, brought in a professional COO I should have allowed him more control. In those days everybody had a young, inexperienced CEO and for months the VC's had told me how great I was. I believed them and my lack of experience led to critical damage control errors that eventually cost me the company
I will write more as time permits about the lessons learned and give you more details about the issues we faced. It's hard to believe that this company was really only on the national stage for about 8 months and created so many positive and negative legacies. We did do many things well and next time I'll tell you about how we got the publicity and why Microworkz became a household name for tens of thousands of happy customers.
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