My Biggest Mistake(s)

It’s supposed to be cathartic to talk about our mistakes. Let’s see if that’s the case. I’m pretty consistently reminded of just how big one of mine was. At least I believe it’s a big one. My goal is to do a quick recap on what I believe I did wrong to hopefully impart some wisdom as well as get it off my chest.

In the mid 90s one of the companies I started was Sandbox Entertainment. We started the company with the very loose goal of producing entertainment content for the web. It fairly quickly evolved into a company focused on fantasy sports. We recognized that producing content that did not scale was not the model we wanted, and creating engines that drove the fantasy games would provide endless hours of entertainment as the users essentially created the content. I remember early on in the genesis of the company pitching Draper Fisher for investment capital. Steve Jurvetson had just joined the fund but had not been named as a partner yet. I failed to secure an investment. One of the primary reason given was the team felt it was a ‘hits’ business like the video game industry where you had to be in the top 1% of the producers to make any money. What we failed to recognize was that not only was that not the case but it was completely the opposite. I would like to take credit for the fact that we picked probably the most viral model possible, but that clearly wasn’t the case or I would have pointed it out to Tim and Steve at the time. Over the course of building the business we spent zero dollars on marketing and yet built a user base in the 10s of millions. All you needed was one person to establish a team and they did the marketing for you by pulling their buddies in.  Mistake #1 was not recognizing the underpinnings of client acquisition costs, but the list goes on.

• Culture: What I’ve learned to appreciate the most since my Sandbox days and what I’m most proud of is the cultures I’ve been able to be a part of and help develop. Culture was not something I paid attention to at Sandbox and was this probably one of the biggest contributors to the ultimate failure of the company. We managed to acquire an outside entity (essentially a group of employees that had all worked somewhere else). With these individuals came an existing culture, arguably one that wasn’t built for the start-up environment. In addition, the culture did not carry with it a sense of urgency. These were issues that a leader has to pay attention to.

• Capital raise. We were the “victims” of the heady early Internet days when capital was flowing like tap water. Valuations were crazy and the “new economy” justified it all. I’ve recently posted a piece on being capital efficient. Sandbox was not. We fell into the trap of having cash and a false sense of security. Don’t get me wrong. We were out forging new ground and it takes resources to do that, but we could have been far more prudent. The influx of cash removed the hunger as it was too early. We hadn’t yet figured out the model. We had the amazing user base growth but not a sustainable revenue plan. Those were the days. In hindsight, it was very early and driving revenue from ad models had just begun. I believe strongly that it would take years for the organization to drive big revenue, but we could have easily implemented user pay systems that would mirror what we now call the “freemium” model. This type of model would have curbed some of the mounting costs to maintain the systems, and probably would have made the business cash flow neutral. Without a large bank account, we might have been forced into that conclusion, possibly saving the organization.

• Mission and Vision. The organization had no clear vision that everyone agreed on. This is key. I was rightly fired from the company I had founded years earlier. Soon after, the entity was merged with another company that had far fewer users but had done a much better job at driving revenues. The stage was now set for the combined entity to grow and ideally go public. Bankers surrounded the organization and began spewing their vision of what the company should be. “It’s too narrow in fantasy…it needs to have different entertainment offerings, go broad!” The company had no vision so the void was easily filled. Had we done a better job of painting that picture ourselves to become the world leader in Fantasy Sports, those temptations would have been thwarted. There are still people that mention to me to this day how they used to play Sandbox and how it was the best product going. Those mentions are unsolicited and without knowledge that I was the founder. Had we built a formal vision and stuck to our guns I’m confident that we would have become the largest player in fantasy sports…hands down.

How did the story end? The company didn’t go public, the window slammed shut. The organization began getting desperate and drove revenues in a way that would prove to be it’s ultimate undoing. To this date I believe it’s been sold a couple of times over. I would love to hear from those who might still be involved to fill in the blanks.

Paint a clear vision, stay hungry and avoid pulling in capital based on the “feeling” you need it and attend to culture on a daily basis.

Comments

[Discount Coach Bags]

You may believe these four proverbs:
He who has never hoped can never despair.
Life is measured by thought and action, not by time.
No man is useless in this world who lightens the burden of someone else.
The value of life lies not in the length of days, but in the use we make of them.

[LewisGersh]

Great post Chad and esp agree on "focus", it's the start-up venture equivalent of the three most important things in real estate.