In flush economic times the company may get two or three iterations around a failed launch and
bad sales numbers. In tougher times investors are tighter with their wallets and are making the
“tossing good money after bad” calculations with a frugal eye. A startup might simply not get a next
round of funding and have to shut down.
In Webvan’s case, the death spiral was public and messy, since none of this was occurring in the
intimate enclosure of a private company. The consequence of going public was that the sea of red ink
was printed quarterly for all to see. Rather than realize that the model was unrealistic and scale
back, the company continued to invest heavily in marketing and promotion (to get more customers
and keep the ones they had) and distribution facilities (building new ones in new parts of the country
to reach more customers). By the end of 2000 Webvan had accumulated a deficit of $612.7 million
and was hemorrhaging cash. Seven months later, it was bankrupt.