Sometimes you have to jump the Grand Canyon to launch a product

“Is this a gigantic undertaking? The answer is yes.”

Jeffrey Katzenberg, founder of Dreamworks, WndrCo, and Quibi

On August 7th, 2018, two founders announced their first round of funding for a new tech startup that was yet to be launched. Sounds fairly standard right? This could have been just another ordinary occurrence, something that happens every day in the tech press. But this particular announcement was anything but ordinary.

The founders were two of the most accomplished and successful business people in the world in their respective fields: Meg Whitman, bonafide business mogul as former CEO of Fortune 500 companies eBay and Hewlett Packard, and Jeffrey Katzenberg, bonafide media mogul as former head of Walt Disney Studios and DreamWorks. And their startup Quibi, a new premium video subscription service debuting in 2020, had not raised a few million dollars in initial funding. It hadn’t even raised a hundred million dollars. Instead, it’s first round of funding, money Quibi would use to launch a product they had not even started building, totaled $1 billion dollars.

In today’s funding climate, startups are raising more than a billion dollars of capital at record rates. Two companies that have been in the news recently for IPO filings, Lyft and Pinterest, have raised $4.9 billion and $1.5 billion respectively. But Lyft’s first real funding round, money they raised to build their initial ride sharing product, totaled $6 million. Pinterest’s first institutional financing round was for $10 million. It took them both about 6 years before they had raised $1 billion in total funding, totally different than Quibi.

So why did Katzenberg and Whitman go raise $1 billion before they had even launched their video app? Not just because they could. But rather because they actually had to.

Jumping the Grand Canyon

“You can’t say you’re going to jump the Grand Canyon and then jump some other canyon.”

Evel Knievel, famous stunt performer

Legendary motorcycle stuntman Evel Knievel was famous for many daredevil acts, including being in the Guinness Book of World Records for surviving the “most bones broken in a lifetime”. But perhaps what he was best known for was his interest in jumping the Grand Canyon. In Knievel’s own words from an 1968 interview: “I don’t care if they say, ‘Look, kid, you’re going to drive that thing off the edge of the Canyon and die,’ I’m going to do it. I want to be the first.”

Knievel unfortunately never got the necessary government permission to attempt the jump. But as fate would have it, his son Robbie Knievel would become a famous stuntman too and in 1999 received permission from the Hualapai Indian Reservation to jump a narrow part of the canyon stretching over 200 feet. On May 20th, 1999 with a crowd of 500 people cheering him on, Robbie accelerated to 90 miles per hour on his 500cc motorcycle and soared 228 feet through the air, a world record distance, clearing the gap in a single jump.

Because the only way to jump the Grand Canyon is in a single jump.

The physics of jumping over the Grand Canyon are that you accelerate to a sufficient speed on one side and then hope the momentum you’ve built up is enough to carry you over to the other side. There’s no “almost” jumping the Grand Canyon, or “sort of” jumping it, or jumping it in several “stages”. You either have enough momentum to succeed, or you don’t and end up at the bottom of a 2,500 feet hole in the earth.

And sometimes, that’s what product launches are like for startups. If the moment you become airborne is the launch of your product, there are just some product launches that can’t happen in stages, a few features at a time, as they don’t work without the entirety of the product vision realized and available to customers all at once. With these types of products, you have to build enough customer value in your service before its debut, and then hope you have created enough momentum to carry you across the Grand Canyon to success on the other side.

Quibi is a Grand Canyon jump. Their product vision is to offer a catalog of exclusive, original, short form videos that’s compelling enough for users to pay between $5 and $8 per month to subscribe to. With all the other digital media options available these days, Quibi has to stand out with not only great content but a lot of great content. A Netflix, Hulu, Amazon, HBO sized content library. Grand Canyon sized.

By Quibi’s own estimations, they will need 5,000 original videos at launch. And at the Hollywood level production costs they are targeting (more than $100,000 for each minute of content produced), that’s several billion dollars invested over a multiyear period just to create a minimum content library. Back in 2007 when we were preparing to launch Hulu, we had to spend $800 million dollars in equity value to pull together enough video content to launch.

It takes a lot of momentum to jump the Grand Canyon.

The not-so-lean startup

“Customers don’t care how much time something takes to build. They care only if it serves their needs.”

Eric Ries, author of The Lean Startup

The lean startup methodology, which has both been incredibly popular and incredibly effective, has the goal of giving new companies “a better chance of success without requiring large amounts of outside funding, elaborate business plans, or a perfect product”. The method involves iteratively building products, launching things in stages. Grand Canyon jumps are the opposite of that. With Grand Canyon jumps, you need substantial resources, a well thought through business plan, and a near perfect product because the market opportunity can’t be addressed iteratively.

But why is this the case? When are startups unable to take an iterative, staged approach to launch their product? There are a few reasons and conditions when a startup has no choice but to jump the Grand Canyon:

Exceptionally formidable competition

Within some markets, the common solution is bad or limited. The proverbial example is an industry that’s still doing some specific task on pen and paper, and you can offer a software solution as an alternative (think filling out tax forms before TurboTax). That’s an ideal situation for a startup to thrive. But in other markets, the common solution is actually very good, such that simply getting to parody is a hard task.

That’s digital video today. Users love Netflix, they love Amazon Prime Video, they love Hulu. These phenomenal services all spend billions of dollars every year ($8 billion for Netflix, $5 billion for Amazon, $3 billion for Hulu) surrounding customers with a Grand Canyon of content choices that can fill up every last second of free time in their days. To provide a digital video alternative to that content feast is impossibly difficult, but absolutely necessary. A startup can’t test users with a handful of videos and hope they engage when the alternatives are so good. The only option then is to have just as compelling and near perfect a content library as the competition, to be just as good. And in this case, that means you have to be good enough to jump the Grand Canyon.

Exceptionally demanding user expectations

The highly anticipated Tesla Model S launched in the summer of 2012 and was immediately a smash hit. In its first year, it was recognized as the 2013 Motor Trend Car of the Year, 2012 Time Magazine’s Best 25 Inventions of the Year, and became the first electric car to ever top the monthly new car sales ranking in any country. And the impact of this product release to Tesla the company was profound. During the 2 years before the launch of the Model S, Tesla’s stock had peaked at $37. During the 2 years after the launch of the Model S, Tesla’s stock would exceed $246.

One of the biggest consumer adoption hurdles for electric vehicles has always been range anxiety and limitations. Current battery technology provides electric cars with a maximum range of a few hundred miles before owners have to return home to charge their car overnight. Tesla provided a solution to this problem by also launching a proprietary supercharger network at the same time as the Model S, that would allow Model S owners to charge over 50% of their battery in less than 30 minutes. In the past 6 years, Tesla has invested hundreds of millions of dollars and built over 10,000 superchargers around the world, and now 99% of the US population lives within 150 miles of a supercharger. Oh by the way, they also made the superchargers free to their customers for 4 straight years.

Contrast that with a traditional auto company. Do you see any Ford gas stations around? No you don’t, because car makers have never had to build and operate gas stations. There’s instead a trillion dollar oil industry that has created over 120,000 gas stations around the country, and totally eliminated range anxiety for car owners in the process. With a gas car, you can drive anywhere and drive forever because you’ll eventually find a gas station before running out of fuel. That’s simply the expectation now for any car owner, and an incredibly high expectation for an electric car company to meet. A Grand Canyon sized expectation that Tesla had to jump by not just stopping at creating a great car, but creating an entire charging network to support that car.

Exceptionally difficult problem with an unknown solution

The most canonical reason you’re forced to make a Grand Canyon jump is when the customer problem is so challenging, and the solution to that problem so elusive, that any attempted product (much less the perfect product) requires an enormous achievement. Take for example the therapeutics space. A startup creating a CAR T-cell therapy treatment for acute lymphoblastic leukemia can’t launch their product on patients iteratively. The disease (cancer) is the Grand Canyon and you have to prove definitively to entire regulatory agencies that you can jump clear across it before you are allowed to ship your product.

Continuing with the automotive analogies, the autonomous vehicles market is also a similar type of Grand Canyon jump necessitated by an unimaginably challenging problem of how to create a vehicle that can driving itself. Waymo has spent over a billion dollars and nearly a decade to get to the point where their first commercially available product is nearly ready. Anything less and they might have crashed and burned (perhaps literally).

Don’t come up short

Sometimes the necessary approach to a market opportunity is not a lean one. Sometimes the competition is so formidable, the expectations so high, and the problem itself so difficult that the challenge to launch a product looks as vast as the Grand Canyon. In these situations, a company has no choice but to invest as many resources as available, over as long a period as necessary, into as perfect a solution as possible, to build as much momentum as they can.

As a fan of the team at Quibi (many of whom I had the privilege to work with at Hulu), I’m rooting for them and all entrepreneurs brave enough to look at the Grand Canyon and attempt the jump.

And a final word of advice from Evel Knievl: “Whatever you do, don’t come up short