On September 4, 1957, the Ford Motor Company unveiled the Ford Edsel. At the time, the Edsel was the most expensive consumer product to develop in history, costing a cool $250 million (roughly $2.1 billion in 2014 dollars). You’ve probably never heard of it, except possibly from stories of spectacular failure. Indeed, the Edsel never lived up to its massive hype. Ford expected to sell over 200,000 Edsels in 1958 alone, but only managed to sell a total of 109,466 of them over the course of the next three years (before mercifully discontinuing the car). For a while, the word ‘Edsel’ was synonymous with failure. A massive company with money, experience, and automotive knowledge had suddenly failed at one of the most important projects in its history. So what happened, and why does this have anything to do with a seed round?
In essence, Ford’s Edsel division was the equivalent of a fabulously well funded start-up. Operating almost as a completely separate entity, the Edsel division had license to operate how it saw fit. Its manager, Richard Krafve, thought of the new car in development as Ford’s magnum opus. Much in the same manner as start-up founders do now, Krafve went all in. He was attempting to produce a completely new car line, something that none of the Big Three automakers had attempted to do in over twenty years. Krafve was attempting to shake up an old, saturnine industry with something completely new and redesigned.
For Krafve and his underlings, disruption was the name of the game. They set out to create a car that would dazzle. The Edsel’s chief designer said that most cars of the era were “peas in a pod” — indistinguishable from one another if glanced at from a distance. He set out to create something unique and the result was the dramatic launch of an ill-fated product. The Edsel was slated to redefine the automotive industry, but instead it flopped in historic fashion.
Nowhere is the Edsel’s tale more revealing than Silicon Valley, which has always had a special place for stories like these. Other spectacular failures like Better Place and Webvan serve as stark reminders of the perils of out-sized expectations and massive capitalization. In a way, Silicon Valley very much epitomizes mid twentieth century America — it’s “go big or go home” mentality pushes companies to either enormous success or dramatic failure. In the same vein, the lessons from Ford’s Edsel disaster can provide insights for founders seeking venture capital today.
So, what can we learn from the Ford Edsel? The main lesson is that great expectations and large amounts of money bring proportionately immense problems:
- Team bloat. If you’re working on a huge project, everyone and their brother wants to get involved. Ford’s Edsel division had a massive number of people devoted to every little detail about the car’s design. However, manpower does not always correlate with great results. In particular, a huge number of people means a huge amount of communication. It also means each person has an ant’s perspective of the final product — very few people have a grand vision of where things are going. When a small percentage of the people who are building a product hold its ultimate vision, things usually become an agglomerated mess. Edsel’s design ultimately seemed like a combination of many different philosophies. One commentator noted that, “From the front, the Edsel seemed, above all, anxious to please, even at the cost of being clownish; from the rear it looked crafty, Oriental, smug, one-up — maybe a little cynical and contemptuous, too. It was as if, somewhere between grille and rear fenders, a sinister personality change had taken place.” Like many start-ups of today, the Edsel team outgrew its product vision. By the time Edsels were rolling off the production line, the vision of the Edsel had been splintered into the heads of the thousands of people working on its launch.
- Over-reliance on money. Money is plentiful with projects like the Edsel. Unfortunately, with money comes the temptation to spend it. Good products come from good ideas and good execution. Money helps, but does not fundamentally make it easier to design great products. The problem is that people often believe that a product will be good if enough money is spent on its design. If you buy the best advertising agency, the best material for your prototypes, the best hotel for the press release gala, then you must have a good product. Unfortunately, money buys things that have measurably little impact on creating great products. Ford’s advertising agency received an unheard of sum to publicize the Edsel. At the official release event, Ford spared no expense — even hiring stunt drivers to demonstrate the superior handling of the Edsel. Giving away hundreds of cars to reporters, Ford surely had made the event a media spectacle. Unfortunately, Ford forgot to make a good car.
- Excessive nearsightedness. Ford engineers and designers spent months discussing every part of the Edsel’s exterior. The division’s director, Krafve, estimated that he and his design team had made over four thousand decisions pertaining to the look and feel of the car. His philosophy was that if every micro-decision came out correctly, then the Edsel would come out “stylistically perfect.” Krafve noted however, that these decisions were time consuming: “You keep modifying, and then modifying your modifications. Finally you have to settle on something, because there isn’t any more time.” Unfortunately, Krafve’s attention to micro-details left the car’s overall design in shambles. It’s the classic case of missing the forest for the trees. The massive expectations on the Edsel division meant that Krafve wanted everything to be perfect and, in turn, he spent too much time attending to minutiae, and not enough time cultivating the car’s gestalt.
- Information overload. The advertising agency assigned to the Edsel famously thought up a list of 18,000 names for the new car. When Ford executives heard about this, they were astonished — they said they only wanted one name. When a project is huge, most things get blown out of proportion, including the research done on a product. With too many pieces of information, it is incredibly hard to make a decision and choose between ideas that have very little variance. By the time the Ford executives were done listing all 18,000 names, they had already forgotten almost all of them. This is where human biases come into play — humans never evolved to make decisions between more than a couple of choices. The Ford executives in charge of naming were overwhelmed by data, a condition which precipitated mental paralysis. After weeks of discussion, the exhausted Ford executives finally decided to retreat to the comfort of familiarity — Edsel had been a placeholder name early in the car’s development.
- Egos. Often, egos get in the way of decision making. A Ford executive, weeks before the Edsel launch, is said to have remarked: “If the company weren’t in so deep, we never would have brought [the Edsel] out now.” In other words, sunk costs had claimed the day. The executives at Ford had already invested so much time, effort, and resources into the Edsel project that cutting it would have meant irreparable damage to their reputations. Many months before the Edsel launch, it was clear that the best move would have been to stop producing the car altogether and save tens of millions of dollars in production and advertising costs. Unfortunately, Ford executives had become trapped in a web of their own hype. Ford’s advertising had blown the Edsel out of proportions, and pulling the plug would have left Ford as the laughing stock of the automotive world.
- Overconfidence. Nobody can claim to be an expert at launching new cars. New car brands launch so infrequently that there simply does not exist enough data for someone to accumulate true expertise. Daniel Kahneman, a Nobel prize winning economist and psychologist, notes that true expertise is only developed when two basic conditions are met: “1. an environment that is sufficiently regular to be predictable [and] 2. an opportunity to learn these regularities through prolonged practice.” In the case of launching new car brands (which happens about once a decade), neither of these conditions are met. Yet, the executives at Ford exuded confidence. Unfortunately, by throwing caution to the wind and pouring ridiculous sums into the development of the Edsel, the Ford executives stoked a flame that burned far brighter than its fuel allowed. Like most start-ups, Ford failed to identify its weaknesses and was unable to take a more reasonable approach to Edsel’s design and development. It is a cautionary tale to every “experienced” entrepreneur — do you really hold the expertise that you believe you have?
- Slowness to market. By the time the Edsel came to market in 1957, the American automotive market simply did not have much of an appetite for massive gas guzzlers. Compact cars had taken the market by force. Unfortunately, Ford’s original user studies had been done in the early 1950s when compact cars still seemed like laughable notions. The sluggishness associated with any large company hindered the Edsel and prevented it from hitting the market at the right time. Big enterprises almost by definition move more slowly than smaller ones due to extra communication and organization costs. The larger than life Edsel fell victim to its own stature — the Edsel division could not move quickly enough to capitalize on the original plan to move the car into the mid-priced segment, and the millions spent on hiring staff and expanding operations may have unwittingly turned into poison.
The Edsel’s tale is not new. You’ve heard it countless times, just in different guises. Its the same story as the extremely successful entrepreneur who couldn’t make it the second time around, even though he had more money, more publicity, and more powerful friends. It’s the same story as the politician who was going to change the world, with media outlets lionizing him as a saint, but who really never amounted to anything. It’s the same story as the factory that was going to bring in thousands of new jobs, lauded by local workers and city councilmen alike as the savior of the city, but which failed to deliver on its promises. It’s the same story as the pop star who released a new album which millions of fans eagerly awaited, only to disappoint with a uninspiring agglomeration of sounds.
The Edsel story is one of broken promises. It’s one of stardom and hype, and the disappointment that inevitably comes with. It’s one of expectations so large that they collapse under their own weight. The Edsel is utterly familiar to American life because we have been conditioned to “put it all on the line.” From sportsmen to politicians, everyone’s got a bit of the Silicon Valley philosophy. But it’s nearly impossible to meet expectations when they are excessively high. Too much fanfare changes the way people think. Everything with the Edsel was on a bigger scale, but that’s not always a good thing.
It’s also why massive seed rounds usually don’t spell success. With more money and expectations come correspondingly more problems. It’s just as Dickens once wrote: “how my great expectations had all dissolved, like our own marsh mists before the sun, I could not understand.”
References
Brooks, John. Business Adventure: Twelve Classic Tales from the World of Wall Street. Open Road. New York, NY. 2014.
Dickens, Charles. Great Expectations. Barnes and Noble Classics. New York, NY. 2003.
Kahneman, Daniel. Thinking, Fast and Slow. Farrar, Staus and Giroux. New York, NY. 2011.
