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Selling vs. Going Pro

October 15, 2006

Jonathan Abrams decided to ‘go pro’ and turn down a $30MM offer to sell his year-old website (Friendster) to Google.  He opted instead to raise $13MM from one of the world’s best venture capital firms, Kleiner Perkins Caufield & Byers.  He took a ’success’ and with lots of help from the pros they managed to drive it into the ground (they might still pull something out of the fire, but it is an uphill battle).  What went wrong?  Harvard Professor, Mikolaj Jan Piskorski points out,

This was a company that had the talent and had the connections. They had this great idea that people really took to.  There is no single reason that explains Friendster’s failures, which is what makes it academic fodder. It’s a power story. It’s a status story. It’s an ego story. But largely, Friendster is a very Silicon Valley story that tells us a lot about how the Valley operates.

Before I started LayerOne I had a chance to work with a small company here in Dallas that was making money hand over fist.  They had a great little business that was positioned to grow by 10-20% per year with very little risk.  More than anything, they wanted to raise venture capital.  I think it was more about validation than anything else.  It made no sense to me and I said so.  The best case scenario would be the eventual replacement of the two owners with more experienced managers.  Or they could stay the course and get rich.  The picked the former raising tens of millions of dollars, eventually getting replaced and finally losing everything.

Most entrepreneurs are good at starting businesses, but very few of us are good at taking them to the next level.  For some of us we simply lack the experience, while others lack the focus.  Running a small, profitable business is lots of fun.  It is fairly easy and can be very rewarding.  I will leave ‘next level’ to guys like my Dad.

Written by Alexander Muse · Filed Under Blog 

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  1. webvapors » The Moral of Frienster Says:
    October 15th, 2006 at 10:23 pm

    [...] Nevertheless, it was a really good read and it will be interesting to see if Friendster can rise again. More on this here, here and here. These icons link to social bookmarking sites where readers can share and discover new web pages. [...]

  2. Jason McMinn Says:
    October 16th, 2006 at 3:45 pm

    Sometimes it is better to singles and doubles than to swing for the fence everytime but that doesn’t seem to be the VC way.

    37signals goes to show that focus and simplicity can make for a great business model. I have seen many a VC funded company take money and hire a bunch of MBA’s and have a great management roster but don’t have nearly enough focus on their customers or products.

  3. Alexander Muse Says:
    October 17th, 2006 at 1:39 pm

    We had a fairly well known VC show up in our offices yesterday. He didn’t have an appointment and just “wanted to find out what was going on.” I met with him and we chatted about our business (something I rarely tire of). It was clear he had never read this blog as he began explaining how his firm might be able to help us grow faster. He suggested that his contacts could help us get more customers and better employees (what is wrong with Fox and our current employees?). He suggested that he wanted to begin diligence and that he needed a 90 day no-shop period. Hm… Can you guess what I told him?

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