Wow Air shut down yesterday resulting in thousands of stranded passengers. The saga of this low-cost airline has been playing for more than a year in Iceland with all the twists and turns that one can imagine without the happy ending. Skuli Mogensen bravely fought a valiant battle reminiscent of the Story of Don Quixote. As always there are those who are going to say I told you so, but I am not one of them. Skuli is a friend and a number of us cheered and supported his efforts to save Wow Air.
Skuli was the keynote speaker in Startup Iceland 2018 where he positioned Wow Air as a Startup on Steroids and he was actually building a technology company. I thought that he was onto something, I was not close enough to the company or the operations to see if that was true. My personal experience with Wow Air was always pleasant and the price was unbeatable. I think Wow Air played a pivotal role in the development of the Tourism industry in Iceland and to bring some form of competition to Icelandair the incumbent.
In business, money is either an important thing or it is EVERYTHING. Unless you are building a business that has one of the four moats as defined in my favourite book, you are bound to face the inevitable truth that eventually competition will kill you. Entrepreneurs are always biased to understate the scale of competition, but that is the biggest mistake a startup can make.
Airlines are notoriously competitive businesses although they create hundreds of billions of dollars of value each year. It was especially deceptive in Iceland as the market was growing and given the lack of competition in the early days, Wow Air was able to capture the growth in the industry. You can see how this probably gave Skuli and a number of people a false sense of a unique business, if you watched the presentation that Skuli gave in Startup Iceland, the margin was close to 22% which is incredible but unfortunately in a perfectly competitive market those margins don’t mean a thing as they can get wiped out by fluctuations in the Oil price, a competitor dropping their price, demand falling for the service etc. In Wow Air’s case it was the perfect storm where all of those things happened at the same time in 2018, which resulted in the company losing close to $40million which is a death blow if you really think about it.
I know there is some learning from this as well, Wow Air had built a great brand, noticed the gap in the market, had clever marketing but it could not beat the gravity of competition and market dynamics. Large Billion Dollar markets are always a brutal place to be. I take my hats off to Skuli and his team at Wow Air for venturing and for actually showing the next generation of Entrepreneurs and Founders to dream big and go after their dream. I am sure Skuli will be back with a new venture and I am looking forward to inviting him again to Startup Iceland and learn from this experience first hand.
I would like to close this blog post from Zero to One:
The lesson for business is that we need founders. If anything, we should be more tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism.
The lesson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at any moment – so be careful.
Above all, don’t overestimate your own power as an individual. Founders are important not because they are the only ones whose work has value, but rather because a great founder can bring out the best work from everybody at his company. That we need individual founders in all their peculiarity does not mean that we are called to worship Ayn Randian “prime movers” who claim to be independent of everyone around them. In this respect Rand was a merely half-great writer: her villains were real, but her heroes were fake. There is no Galt’s Gulch. There is no secession from society. To believe yourself invested with divine self-sufficiency is not the mark of a strong individual, but of a person who has mistaken the crowd’s workship – or jeering – for the truth.– The Founder’s Paradox from Zero to One, by Peter Thiel with Blake Masters
The single greatest danger for a founder is to become so certain of his own myth that he loses his mind. But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom.