The value of positive advisors

When you create a startup there are many people to discourage you. The most common refrain is “this idea will never work”. It was by far the most common thing I heard when creating Aucland and Zingy.

For Aucland, the French online auction site, their theory was as follows:

“Online auctions will never work in France. We don’t trade beanie babies like those crazy Americans. We don’t have a garage sale culture like you do in the US. Here people would not trust each other to send the right item. Besides, the Internet will never take off in France, we have the Minitel. Even if all of these barriers were miraculously removed, you could never make money because no one would ever pay by credit card online.”

For Zingy, it was similar: “Only those crazy Europeans and Asians buy ringtones. I can’t conceive of anyone using a ringtone, let alone paying for one.”

In both cases, the ideas panned out – with local variations. The categories that truly took off on Aucland were somewhat different than those which succeeded in the US – wine for instance was much more popular than beanie babies 🙂 For ringtones, the idea also succeeded in the US, however a B2B approach (providing content to the carriers) ended up being the dominant approach for lack of premium SMS in the early stages of the market. In Europe, the B2C players dominated the market.

My friend Marc Simoncini faced similar concerns when he created Meetic, the Match.com equivalent of Europe. In 2001 people kept telling him: “online dating is for losers. I would never be caught dead on a dating site.” A few years later over a third of French singles were on the site.

And all three examples were ideas that had already been proven to work in other countries! Imagine what it must have been like for Sergei and Larry back in 1998: “Does the world need another search engine, we already have Yahoo and Alta Vista?” or for Steve and Chad: “There is no market for short form video” or even for Mark: “Social networks are useless – why would I want to be on one?”

The reality is that we humans have a hard time imagining circumstances or things we are not familiar with. As such we are not very good at predicting how we will react to new product or service. Given how inexpensive it has become to create a startup these days (both direct costs and opportunity costs have fallen), ignore the negative advice and just do it. Throw it on the wall and see if it sticks! Worse comes to worse, you will have had fun, tried something you wanted to do and learned a lot.

While it is key to mostly ignore negative advisors, it might be just as important to have and to listen to positive advisors. As entrepreneurs, we are often so busy dealing with the day to day operations, that we can miss the big picture. That’s why it’s great to have smart advisors to help you out with strategic decisions. They may be part of a formal structure – by being on your board or advisory board – or just friends or mentors whose opinion you value.

In 2003, after 2 years of toiling at Zingy, I considered selling it for $8 million. With Aucland, I had been working 100+ hours a week for 5 years in a row. I had 100% of my wealth tied up in the company – I could barely pay my personal rent. I was exhausted from dealing with stubborn music companies and cell phone operators who did not even understand it was in their best interest to sell ringtones. I had doubts about how defensible margins would be for intermediaries in the business. I had over 50% of the company and figured that making $4 million was not bad at 28.

It would have been a huge mistake. The company was on the verge of explosive growth, but after years of fighting in the trenches, I could not see it. Fortunately, my dad had kept abreast of our developments enough to see our progress and was far enough removed from the operations not to be bogged down by the operational difficulties we faced. He implored me not to sell the company. He went as far as to call my lawyer to tell him to delay the paperwork. His strategy worked. As I took a step back to look at things from his perspective, new buyout offers kept coming in. Ultimately I put all of them on hold until, 6 months later, an offer too large to refuse came along. I sold Zingy for $80 million. I was 29.

Thanks dad!

More recently, our board members at OLX, also urged Alec and I to take step back. The entire board meeting had been about what we had done in the past few months and what we planned to do in the coming months with all the glorious execution details. It only took one sentence to get us in the proper frame of mind: “Take all of the execution as granted. What will be the true driver of value?” The discussion that ensued might yet be the most valuable conversation we ever had.

Over the years, I have seen many great companies fail, while lesser ones were sold successfully. The difference between the two often came down to smart strategic decisions by those who were sold successfully. They read the market well, prepared themselves accordingly and timed their exit perfectly. By no means does this mean you should ignore execution. Executing well is both the single hardest thing for entrepreneurs to do and the greatest creator of competitive differentiation. However, make sure you have smart advisors to help you out on strategic decisions. They may make the difference between a good exit and a great exit!

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  • Hey Fabrice,

    Awesome post, thanks for sharing it. I am also having trouble seeing the big picture through all these damn details, and the sentence your advisers told you — “Take all of the execution as granted. What will be the true driver of value?” — just put the wind back in my sails.

    Hope all’s well.

  • The key is to judge the story behind what the advisors are telling you, regardless of whether they’re positive or negative. Whichever side of the story makes more sense is most likely going to be right. Any attempt to bias your interpretation of positive or negative feedback will screw you up as many times as it succeeds. Thus, I would strongly caution you against the line of thinking presented in your posting.

    You should also calibrate appropriately. A lukewarm response from someone with an overall critical slant shouldn’t be a deal breaker, but a very strong negative response with a good explanation should give you significant pause. Btw, you should check your email archives regarding my responses on aucland, zingy, that online backup company, and olx. You should also consider that olx is a “transplant” story like aucland and zingy, copying success in one geographic area into others, whereas the online backup company (whose name I’ve forgotten) would have forged new territory (much more fraught with peril). It’s a lesson on your strengths and weaknesses you should take to heart.

  • I agree even though subtlety is harder to communicate effectively in the form of a blog post. However, the bulk of the reaction one gets when creating a startup is “this will never work”. Smart advisors might have valid concerns about the business model, the target market, etc. and I would recommend one heeds that advice. It’s more the blanket “this idea will never work” that I would ignore.

    Positive advisors could have been called “strategic advisors” instead. The point is having someone smart, strategic and detached to talk to is helpful.

    You were definitely right in your OLX vs Allmydata analysis and OLX is doing much better. I would dispute that OLX is a mere copycat. We definitely copied the concept, but I would like to believe we are improving it. We have a different business model, distribution strategy and ultimately hopefully a different and much better product than Craigslist.

    OLX’s success relative to Allmydata’s might also be due not to the fact that it is a copycat, but because:
    * I work full time on it and never spent more than a few hours / week on Allmydata.
    * I understand online marketplaces reasonably well – arguably OLX is just a simpler, free version of Aucland – and I have all the mistakes from that experience to draw upon.
    * OLX has a full team of amazing people experienced in online auctions and marketplaces with some great people from eBay, Aucland, Deremate, various classified acquisitions and Meetic as senior members of the team.

  • […] Another very motivating post from Frabrice Grinda, founder of OLX: The value of positive advisors. […]

  • As the post telling the story of your first ventures, again a great motivating post!

    You say you’ve seen “many great companies fail, while lesser ones were sold successfully” thanks to “smart strategic decisions”. I think that there are no bad products, only poor sales reps. Placing OLX through distribution channels to get classifieds and traffic, pushing the product in developing countries with double figures internet population growth rates,… is just what makes OLX in 2 years what Craigslist took 10 to achieve.

    Also, while your Dad was urging you to wait to sell Zingy, I would be curious to know who (at the same moment) was pushing you to sell, and what their role was reg. Zingy ? Board advisors? board members? stakeholders?

  • Laurent:

    No one was pushing me to sell Zingy. I had no board or real investors – not through intelligent foresight, but because I could not raise any money for Zingy. Imagine raising money in 2001 for a B2C, telecom project. I don’t thing I had finished the sentence that VCs had hung up on me 🙂

  • If it were huge success why the hell today zingy is no more along with the acquired vindigo. Something was not revealed yet?

  • Zafari:

    Long story. Sales went from $1 million in 2002, to $5 million in 2003, to $50 million in 2004 and $200 million in 2005. I sold the company in May 2004 and stayed as CEO until December 2005.

    Unfortunately the Japanese company I sold it to was impossible to work with. They did not speak English. They did not understand the business. They did not let me invest in diversifying our revenues and expanding into conjoint businesses. Instead they took our profits and sent them to Japan.

    As a result, when, after I left, the margin compression and disintermediation I had told them would happen started happening, they were caught unprepared. Moreover, they managed to alienate pretty much the entire management team which left.

    Ultimately, they realized they could not manage the company and having lost most of their clients, they merely closed the business down. It was very sad.

    I definitely sold the company to the wrong buyer.

  • It was a pleasure to deal with you and the Japanese… Excellent entrepreneurial experience! YES we STILL can!! Let’s do IT again 😉

  • Fabrice, what a brilliant piece, I totally agree with you. The last paragraph tells it all, you are 100% spot on and most people who have not build startup would never understand. We had the same experience at mondus, and all the numerous companies I have been building since. If IBX / Portum (on demand sourcing software), or OB10 (e-invoicing network), ((truphone)) http://www.truphone.com, the truely global mobile phone operator or now PIXSTA and its first implementation of Visual Search in the Fashion Field with Empora http://www.empora.com

    Smart strategic decision can make huge difference and I am in constant search for people joining my boards to add to the value of our companies at Straub Ventures.

    All the best,
    Alexander Straub