The value of positive advisors
April 13, 2009
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.
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!