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.
