Lessons from Joost

I am not going to rehash Om Malik's excellent summary of "What went wrong with Joost" but I did want to dive deeper into a few points.  As I have always said, raising too much money can be a curse and not a blessing.  Here is an excerpt from my post in 2006

Trust me, I love having well capitalized companies.  However, having too much money can be a curse, not a blessing.  More often than not, I see management lose financial discipline and avoid making hard decisions when capital is abundant and not scarce.  To many executives, money does solve all problems.  And yes, having money allows an entrepreneur to do many things with his business like hire more talent, scale the back-end infrastructure, and ramp up sales and marketing.  On the other hand, when an entrepreneur has too much money, the tendency is to throw more money to fix a problem.  Sales are not ramping up quickly enough so let's hire more sales people.  Marketing is not generating enough leads so let's spend more money on lead generation.  Engineering keeps missing its product release date so let's hire more engineers.  And what happens is that more money gets poured in and that only exacerbates the problem as management never really spends the time to dig deep to understand what the underlying issue is and to fix it at the source rather than layer on more resources.  In other words, an entrepreneur only hastens his downward spiral by spending more money on an inefficient business strategy.

This to me can kill a company before it even gets off of the ground.  Expectations are too high too early, companies will ramp up too quickly, and any misstep is seen as a failure.  Secondly, companies that have too much capital usually try to do too many things and lack focus.  It sounds like Joost was building a client, negotiating with media partners, and building out its own ad serving technology and had its own ad sales staff.  It sure sounds like a big operation. 

Another point to add is that companies founded and led by rockstar entrepreneurs are not enough to drive success.  Rock star founders and CEOs will definitely open a ton of doors and drive lots of media attention, but the company still has to execute.  In addition you want your rock star driving much of the execution rather than hiring a huge staff with layers of bureaucracy.  Many of these famous entrepreneurs will typically have their hands in a number of different projects at once.  Finally, having been successful before, you really need to assess how hungry these rock stars are for success.  Hunger and passion do play a huge role in driving company DNA and creating a winner.  I have had just as much success funding entrepreneurs who have had modest wins but were still seeking the big exit.  Bottom line is that Joost had a ton of promise but may have been better served by raising much less money at the start and staying highly focused on the task at hand with a much leaner operation.

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This post was written by who has written 358 posts on BeyondVC.

7 Responses to “Lessons from Joost”

  1. Seb Haigh Jul 2, 2009 at 6:41 am #

    Ed, good post. I agree. As an early Joost Beta user, I thought it had a good promise. Having a load of money in the bank (a situation many entrepreneurs dream of), may tame the lust for cashflow…

  2. JoostInsider Jul 5, 2009 at 9:41 pm #

    This is exactly what happened. There were hungry smart people there. But ultimately the “rock stars” thought they knew better.

  3. Karl Foxley Jul 26, 2009 at 11:29 am #

    A good article that summarises some of the businesses I have worked with, ‘sales are not ramping up quickly enough so let’s hire more sales people. Marketing is not generating enough leads so let’s spend more money on lead generation.’ The quick fix solution just isn’t scalable.

    Karl

  4. Tahir Zaimoglu Jul 28, 2009 at 11:32 am #

    I was also an early Joost beta user (I still keep my Venice Project tee somewhere).

    Om’s summary is really nice for anyone in the online video market.

    I think that the expectation was too high…We were all waiting for the next YouTube or Hulu and because of the architecture that Joost first build on that never happened.

    White-label video business…45M is pretty much for that…Seqoia invested around 12M on YouTube…

  5. Business Money Today Aug 2, 2009 at 9:15 am #

    Have to agree. Too much money can make managers complacent. It takes conflict or need to drive innovation. The right amount of funding can keep everyone in the business hungry – which creates drive.

  6. Rob Weber Aug 15, 2009 at 2:23 pm #

    I agree that focus is one of the biggest problems for well-capitalized start-ups. I’ve been an early angel investor in a couple of ad tech businesses that went on to score large venture rounds and hire sizable staffs. The problem is that many of these well-funded new companies don’t make changes once they start missing their plan. They hold on to the staff they’ve built up until it is too late. I’d rather see a new company shed the bottom performers in its staff as it misses plan, and take some time to figure out how to right the ship with a modified plan.

  7. Keven Oct 10, 2009 at 9:09 pm #

    I think the reason this might also be happening is b/c VC are pressuring start-up to start making money. Entrepreneur and CEO are making decisions without thinking them through.

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