Death of an online grocer

It was springtime 1997. My wife and I were in Paris where I was attending Andersen Worldwide’s (AW) annual partners meeting. What a beautiful setting for what would turn out to be the last joint meeting between the partners of AW’s two strategic business units – Arthur Andersen (AA, where I was then a partner) and Andersen Consulting (AC, now called Accenture, where I had spent six memorable years in its Chicago office). This was an extraordinary meeting, because we were supposed to elect a new CEO for AW. These were great times for the Firm; it had just doubled its size yet again in a matter of a few years to well over $10 billion, and it was also the largest of the Big 5 Accounting Firms.

But these were also particularly challenging times, as the Firm grappled with building a unified strategy to move itself into even greater heights. I must admit, tensions were high between the partner camps of AA and AC. I won’t get into any more of the intimate details of this or the succeeding events (or I might receive a phone call from AA Philippines Managing Partner Cesar Purisima). This introduction serves as a backdrop for my one and only personal encounter with George Shaheen, then the Managing Partner of AC. George was one of the leading candidates for our CEO position, having steered AC to where it became the largest global consulting firm, with fees then of $6 billion (today, fees are around $10 billion). George was a true leader and a brilliant visionary, leading close to 65,000 employees globally. I remember when he spoke to the high-powered partners in the meeting hall, he electrified and inspired. When the time came for me to cast my vote for CEO, I cast it in Shaheen’s favor. Deep down, I felt he was the guy who could lead us down the right path.

Fast forward to September 1999. The news hit me like a bolt of lightning: George Shaheen was resigning his position as CEO of AC to take on the leadership of a start-up Internet grocer called Webvan. He was leaving behind a 30-year career and his powerful position as the head of the largest consulting juggernaut, he was giving up his close to $5 million annual salary to join the Internet economy. In an interview late last year, Shaheen said he joined Webvan because he was excited about the chance to use technology to make over the grocery industry. "Coming over here was never about getting filthy rich," he said. And Shaheen had deep roots in this sector – if I recall correctly, his father managed a grocery store while Shaheen was growing up.

But others speculated that George was getting increasingly restless seeing all these young turks entering the dotcom world and zooming past his own net worth by orders of magnitude. And maybe he was just plain tired of the internal politics within the Firm. He took a huge pay cut when he joined Webvan (i.e., $500K/year plus a $250K bonus kicker). But then there were those stock options – he received an option to purchase 15 million shares at $8/share, plus a $13.5 million bonus to purchase an additional 1.25 million shares. If I recall correctly, Webvan IPO’d in October 1999 and hit a high of $34, valuing his options in excess of $500 million! He sure was riding the "filthy rich wave." But as sure as the stock went up, it went down even more quickly to below its IPO price, then below $10, then below $1, then below $0.10 and a threat of a delisting.

Fast forward again to April 2001. George Shaheen resigns as CEO of Webvan. A spokesman for the company says Webvan planned to look for a CEO with more operational experience. Wow, what a statement – and this was the same guy who ruled a global consulting empire of 65,000!

Finally fast forward to today. Webvan files for Chapter 11 bankruptcy protection, setting the sale of its remaining assets. Webvan pulled the plug on its two-year-old grocery delivery business which served 750,000 customers in seven metropolitan markets: San Francisco (its home-base), Los Angeles, Orange County, San Diego, Seattle, Chicago and Portland. The last snapshot of the company’s woes came in its first quarter financial statement. As of March 31, Webvan listed $96.5 million in liabilities. At this time, it only has about $40 million left in the bank.

Webvan was one of the biggest and boldest bets of the Internet economy. The company raised $1.2 billion, more than any online retailer, except Amazon.com. It embarked on an ambitious plan to build 26 massively automated warehouses around the country. The plan never materialized as the dramatic turnaround in market sentiment and capital available for Internet companies thwarted this costly delivery plan. The company’s eventual collapse ranks among the worst breakdowns in the Internet economy, or any economy for that matter. Webvan burned through $830 million in its brief history and let go just under 4,500 workers as its business unraveled this year.

Part of the problem was that while the company’s service was popular with its customers, not many incorporated it into the routine of their lives. It takes time for people’s behaviors to change, and getting folks to order online instead of touching and smelling the produce sure takes time. And time was something Webvan (and many other dotcoms) did not have on its side. In Shaheen’s words, "Webvan is an innovative business model which redefines the future of retailing and the way people shop. Unfortunately, changes in the capital markets have altered the timetable and operating approach to the achievement of the model as originally envisioned."

Shaheen, now 57, plans to take some time off to evaluate his future and pursue personal objectives. He never exercised any of his Webvan options. He was once a true force to reckon with, a man whose predictions that technology-driven change would alter the playing field of the corporate world shook big business everywhere. Late last year, Shaheen spoke at Goldman Sachs’ Internet Conference in Carlsbad, California (Goldman was one of the big investors of Webvan). The man who once commanded the attention of thousands worldwide drew a crowd of about 30, mostly Goldman employees who wanted to avoid the embarrassment of a near empty room.

But don’t count George out just yet. Somehow, deep down in my gut, I have this hunch Shaheen will be back.