This is another larger-than-life story of incredibly fast growth and brutal collapse, controversies and lawsuits.
We watched “Big Vape”, the Netflix documentary narrating the improbable rise and fall of Juul, the electronic cigarette company, whose founders ambitioned to “improve the lives of the world's one billion adult smokers by eliminating cigarettes”.
This is not a story of white-collar crime… at least not yet. But it is still a cautionary tale combining the usual ingredients of organizational ethical meltdown: a purpose-driven Silicon Valley start up, a couple of inspired founders, an addictive product, an aggressive marketing campaign, spectacular growth, a big-tobacco company…
As compliance professionals, we were struck by the total absence of any reference to our field of expertise throughout the documentary: did Juul Labs have a compliance officer? How can a company with such an ambitious mission statement not have any executive in charge of ethics or integrity?
This is another excellent documentary from Netflix in which reality is more entertaining than fiction (keep them coming!). The coverage of the stakes is somewhat balanced: some contributors defend the existence of Juul’s products as serving a useful purpose. The main controversy presented resides in the attractivity of the product for non-smoking teenagers and the life-threatening damage suffered by some young users.
We of course recommend you watch this documentary.
Here are our 5 lessons from this fascinating story:
Lesson number 1: Ignoring basic risks won’t make them disappear
Juul Labs founders appear to have been inspired by Steve Jobs’ injunction “stay hungry, stay foolish”.
But the Apple-like design and the glamourous marketing campaigns occulted the crude reality: their products were created to channel chemical products into human lungs and bloodstreams.
Mark Zuckerberg’s famous strategy “move fast and break things” keeps proving to be barely appropriate for a product consisting in computer code… it can’t possibly be relied upon whenever human metabolism is at stake.
This is another example of enthusiastic founders and investors being blinded by their own narrative or to be “high on [their] own supply” (subtle reference in the documentary’s soundtrack).
Lesson number 2: unintended consequences are not unavoidable consequences
The company was severely damaged by an unfortunate set of circumstances:
- its marketing campaign proved to be extremely successful with non-smoking teenagers, who ended up addicted to nicotine.
- a large number of young users suffered from severe lung damage as a result of using Juul’s devices, apparently in combination with other non-Juul products.
Juul argued that their products had been misused and that their marketing campaign was not intentionally targeted at teenagers. In other words, its defence was basically “I did not mean to it.”
These unintended consequences could have been prevented, if only a proper risk assessment had been conducted and a compliance program deployed accordingly. Such compliance program would have included standards ensuring marketing campaigns were strictly targeting adult cigarettes smokers. It could probably also have helped anticipate adverse health consequences of products misuse by thinking through some scenarios and performing self-imposed clinical trials.
But this would have meant delaying the product’s launch and limited its overall reach. It appears that Juul’s founders and investors were not ready to wait or limit their future growth. As we will see below, this case exemplifies a failure of operational executives to manage investors’ expectations.
Lesson number 3: Your partners’ reputation impacts your credibility
Parents and schools were understandably angry at the company for actively selling addictive poison to their children, just when tobacco addiction specialists thought that cigarette smoking was a risk of the past for today’s younger generations. Maybe Juul could have convinced them that these unfortunate consequences were genuinely unintended if it had retained some credibility as a purpose driven organization. But by accepting billions of investment from Altria, Juul associated itself with big tobacco’s reputation for public deception.
It did not take a deep background check on Altria to know about its checkered history. Yet, here again despite an obvious risk of damage of to its reputation, Juul’s founders and initial investors opted for a quick payout rather a slower organic growth. Ironically, Altria also should have made a better assessment of the risks behind the partnership with Juul as it ended up making a complete loss on its colossal investment, due to its own toxic reputation and to the lack of visibility on the side effects of vaping.
Lesson number 4: Accept your product’s limitations
The original ambition of the company was to be a less harmful alternative to cigarette smoking. By its own calculation, its global market was “one billion adult smokers”, which leaves room for some growth… But Juul expanded far beyond such market by reaching, intentionally or not, non-smoking teenagers.
In the same way Purdue Pharma did not want to limit the use of OxyContin to patients suffering from chronic pain, Juul did not limit the sale of its products to cigarettes smokers.
By wilfully ignoring the limitations of its products, Juul ended up creating a “vaping epidemic” similar to Purdue’s “opioid epidemic”.
Also, the lack of regulation surrounding a product is not a license to hurt. Quite the contrary: Juul’s dazzling success also created a responsibility for it to advance with caution and make their success sustainable.
Lesson number 5: Your funding model should fit your ambitions
The typical Silicon Valley narrative is one of an innovative young company whose technology will “make the world a better place”. Many such start-ups have mission statements targeting societal issues that could just as well be addressed by civil society organizations or even government agencies.
Saving cigarette smokers from statistically likely death falls definitively in this category. The goal is quite noble but as we mentioned before, the approach lacked patience, method and reflexion. The main driver for such a rush was not the urgency of the cause, but the pressure from investors, deepening the gap between the company’s actions and its professed mission statement.
While getting rich by saving lives appears to be achievable, with talent and hard work. Making billions in a few years while saving millions of lives is not feasible. The world’s biggest philanthropists made their money in purely commercial ventures, then spent it on good causes. There is an inherent conflict between short term profit (or even medium-term) and addressing societal challenges. Big pharma companies and life science start-ups spend billions of dollars and years of research into molecules and devices with the potential to affect human health.
In the case of Juul, expectations in terms of return on investment appear to have been disconnected with, and ultimately superseded, the mission statement.
It is quite unfortunate, as a longer time horizon for such return on investment might have allowed the company to assess risks and devise mitigation plans accordingly. Accepting Altria’s investment was both the ultimate sell out move and the proverbial last straw.
This documentary clearly illustrates that attempting to make short term profits while pursuing a noble cause generates considerable collateral damage… and, in this case, ultimately fails.
Juul’s story is not quite over yet. The company is still active, but its new mission statement now reads like a health warning on a pack of cigarettes: “The mission of Juul Labs is to transition the world’s billion adult smokers away from combustible cigarettes, eliminate their use, and combat underage usage of our products.”
“Move fast and break things”, “fake it, till you make it”, “ask for forgiveness rather than permission”… Those daring messages meant to embolden aspiring entrepreneurs are inherently risky injunctions. They are getting harder to reconcile with today’s culture of corporate social responsibility.
