Entrepreviews #8   ( for SME Insight Magazine) –

If you are a regular internet user, you probably have heard of MySpace.com, and lately Facebook.com, two of the most popular social networking sites.  MySpace was bought by Fox Media for over half a billion dollars in 2005, and have since grown to over 100 million members.  Facebook is the new kid in the block.  Although its membership is currently at around 50 million, it is signing up new members fast, and just not so long ago, about 1.5% of its stake was bought by Microsoft for over 250 million dollars, effectively valuing the company at over $15 billlion dollars.

All these craze about social networking makes us think back that once in 2003, the original social networking site was Friendster.   Although Friendster continues to be apparently leading in the Philippines , it was about 13^th place worldwide in this analysis from Inc Magazine, which can be accessed here (http://www.inc.com/magazine/20070601/features-how-to-kill-a-great-idea.html).

Friendster was once called the hottest invention in 2003 by Time Magazine, and at that time, Jonathan Abrams, its founder was called by Entertainment Weekly was called by Entertainment Weekly as the “Friendliest man of the Year”. 

Friendster opened in March 2003, and by June, it had already 835,000 members, and scarecely four months later, it had over 2 million members, generating over 10 million page views per day.  For a while, Friendster was touted to be the harbinger of the dot com renaissance after it crashed in 2001.

From hottest startup to probably biggest disappointment in Internet history, its story can be a good lesson to read on what could potentially go wrong on a startup despite it having the best in publicity, management, technology, and venture capital.

This is something a start-up entrepreneur needs to know as having been to various entrepreneurship forums, the number 1 lament of an entrepreneur (unless in Silicon Valley or some other place) you most often hear is the lack of venture capitalists – those people who focus on investing in other people’s businesses instead of their own.

There are a number of venture capitalists I know, and they themselves lament that there is a lack of new or original ventures — ideas that can potentially become a leader in its industry segment, and therefore turn for its investors a big return.

For sure, the reason why both sides seldom connect is that there is a differing idea on what a business is, and it is important that such understanding should be understood at the start.  For an entrepreneur, using his own hard earned money, and potentially starting what would be his only business endeavor in his whole life, wants also to invest in something that is probably conservative, and have good chances of success.   After all, business failure is still something of a stigma iin many countries, and few entrepreneurs can still afford the financial, and social costs of a business failure.  A venture capitalist on the other hand, is paid to take risks – and they are normally looking for 10 or 20 businesses to invest in, or probably more.  They don’t’ expect more than 2 or 3 businesses to succeed, but they do expect that the successful ones will earn enough to make for the others failure.

In short, a businessman wants to grow his business slowly, and have close 100% chance of it being able to be a 10 million  business.  A venture capital may want higher stakes, and would rather go for a business which has a 10-20% chance of hitting a 100 million business in 2 years.

In its analysis, that was probably what happened to Friendster. Instead of making it grow slowly, the people backing the project started to hire the best technical and management teams ( again, these professional managers are paid well to take risks which will give astronomical returns). 

Evidently, the too aggressive stance taken the company resulted in a lot of conflicts, and tension.  After all, even if you can afford it, it may not be the best course to hire the best players to a team unless they know how to work and team together.  Otherwise, it would only be each trying to outdo the other, with super egos having to be managed and massaged.

Apparently, all these spectacular success you see in Silicon Valley  mostly in the ICT industry is creating greater expectations to grow a company ever so faster.  But lest we be tempted always, we need to remind ourselves that there is still value in entrepreneurship of being able to focus on building the right service for the customers, maintaining the right relationship with its suppliers, maintaining good life and work balance for its workers, plus finding great ways to contribute to the community not only through better products and services, but through corporate social programs.