Death With Dignity Or Stupidity?

from the your-call... dept

I didn’t post the story of Kibu going out of business, because there are plenty of other sites that deal with continual failures of companies. However, there was one difference in the Kibu failure as compared to many other dot coms: they gave back some of their money to their investors. So, instead of spending it all, and then shutting down, they gave up early. The article behind that link points out that this was actually a really dumb move, and I think I agree. They claimed that times have changed, but a good management team understands the facts that times do change and your job is to change with the times. I think giving up was a lame move. Yes, there’s a part of me that respects realizing when you’re in over your head, but if these people were good enough to raise $26 million from KP, you would think they would be smart enough to figure out a way to do something with the company rather than just give up. Then again, if the management team was so lame that they knew they wouldn’t be able to change with the times, then I guess it’s just as good that they shut down. I just wonder what they’ll do now. I’m not sure I would trust them with money again.

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Comments on “Death With Dignity Or Stupidity?”

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Mike (profile) says:

Re: Not entirely ethical to take the $,run

No, that’s not what I’m saying. I’m not saying do “anything” with the money, but do something smart with the money. Look, the fact is that conditions change. VCs even say all the time that they fund management teams and not ideas, because things change, and they want to see that mgmt team move with the changes. That’s what a smart management team should do.

Simply “giving up” because market conditions change is a lame excuse. Figure out a way to stay in business. That’s what smart businesses do.

If these guys were so incompetent that they couldn’t change strategy mid-stream then they never should have received venture funding in the first place.

mhh5 says:

Re: Re: Get out while the getting's good...

Hmmm. Given the recent events in my life, I’m loathe to say that “giving up” is always lame. Sometimes you’re just in the wrong business at the wrong time, and you need to get out. How far should you stretch your biz-plan? I personally think an ALL-GIRL advice website isn’t anywhere near a sustainable biz model. And changing that, I think, means changing just about everything. So I don’t blame these folks for wanting to get out. They’re not “lame” — They’re honestly saying that their current idea sucks and to change it would effectively be the same as shutting down and reopening an entirely new company. Businesses do fail. I think it’s smart to cut your losses if you can predict definite failure. Retreat and set up again when you’ve got your sh*t together… I actually respect these guys more for realizing so soon. I think their VC might appreciate it too.

Mike (profile) says:

Re: Re: Re: Get out while the getting's good...

Look, there are definitely times to “give up”. My point is simply that I don’t think this was that point in this case. Here’s why: If this was the time to give up, then the venture capitalists who started this mess fucked up big time. They give this company $52 million or whatever, and then give them only 5 months to make it work? Look, if you’re investing in a business idea and the people behind it, you should be investing in an idea that you know can grow and change with the times. If you don’t think it can (1) you shouldn’t dump $52 million into it (2) you shouldn’t give them only 5 months to make it work.

This is not a situation where people put a lot of thought and effort into this and finally realized that it was an impossible situation. This looks to be the case where someone had a get-rich-quick scheme which didn’t work. If this really was a great idea, then the people behind it would be able to at least have some ideas on how to do *something* with it. If it wasn’t such a great idea and the people weren’t good, they shouldn’t have gotten the funding in the first place.

In business you should invest in people who can make good things happen even in bad situations. These people just gave up. Yes, there is a point at which things can be hopeless, and there is a point at which you can see the writing on the wall, and you make your decisions. I don’t see any evidence however that anyone at Kibu even had a chance to make something happen. Instead, they just realized that this might actually take some thinking, and they gave up because it wasn’t going to make them rich quick.

If you really believe in something, if you really believe in an idea, you can work very hard to make it happen. In this case it seems obvious to me that the people didn’t really believe in the idea, they just wanted the quick money. That’s my point. If they really believe in it, they would have figured out a way to make something happen.

mhh5 says:

Re: Re: Re:2 Get out while the getting's good...

Well, we can only speculate what Kibu actually intended to do. (or at least, *I* don’t know the specifics that well.) But you say yourself “this looks to be the case where someone had a get-rich-quick scheme” — I totally agree! And then they realized the scheme wasn’t going to work. So I guess I’m saying this was just a bad investment from the get-go, and the VC _did_ fuck up “big time.” I think VCs do that now and again… I wish I had that much money to make horribly bad decisions with! 🙂

Ryan says:

Re: Re: Re:4 Totally off topic...

Ha! I’m always listening! I was just dragged away from all internet connections for two days doing one of those corporate activity days! It was fun but of course it meant that I wasn’t here to spice up techdirt with my ranting and ravings. I’d love to hang out with you guys too but the thing that sucks is that I’m out here in London and not back in the Valley (give me time though and I’ll be back!). However, I have to admit that London is alot more fun than the Valley for after hours entertainment.

Ryan says:

Re: Re: Re:5 back on topic...

I have to agree with Mike, if these folks were smart enough to raise 26 million they should have adapted the business to present market conditions. I not only think that the Kibu guys made a bad decision but if I were a VC I’d make sure never to do business with them as they can’t seem to adapt (which is what any good entrepeneur has to do, often painfully to suceed). They thought that it would be an easy ride into a personal fortune and found out that the road was too bumpy for their liking, tough sh*t that’s business. The successful business people I’ve met will do anything to make their company survive, right up until the last minute (i.e. until you run out of money). Losers are the ones who don’t try, not the ones that fail trying!

mhh5 says:

Re: Re: Re:6 back on topic...

Ok, I seem to be in a minority of one now.. 🙂 Let’s not mix issues here.

1) If I were the VC in this case, I’d appreciate them giving the money back if they themselves thought they weren’t going to do anything with it. BUT, I agree, I probably would _not_ do business with them as a team b/c they obviously don’t work well together. (I’m assuming that if they did work well as a team, they would’ve come up with a way to change their business ENTIRELY and work it out with me as the VC.) I’m not sure about how other VCs should view the individual members of the company, b/c I’m not sure that this failure is any worse than any other business failure. “Lameness” for this issue of giving the money back is, in my opinion, not relevant. They made a risk assessment and a decision. It’s not “lame” that the outcome meant to give back the money. In my mind, anytime you sold an investment, then you’d have to admit “lameness” cuz you didn’t stick with it.

2) Where the “lameness” really lies, in my opinion, is the original concept of the venture. Maybe my sense of valuation is screwed up, but I just don’t believe that an internet portal devoted to teenage girls is worth $26M. There’s a reason why their capital market was drying up… The “tulip” market is crashing!

3) But yes, you can argue that they still could’ve done SOMETHING with the money. I agree. That’s what my first post was trying to address. Is it ethical to do ANYTHING? Obviously not. (Although the author of that article seemed to suggest “anything short of robbing a bank” was okay.) So the problem is what’s ethically between anything and something..? If you think Kibu could have survived doing anything short of completely changing their “teenage-girl” focus, then keep buying those tulips… But I think some serious overhaul would’ve been needed. And I’m not sure how ethical a complete business overhaul is…? Any opinions on that? I’m not sure how the relationship with their VC was… Not good, I suspect, so the ethical implications of complete overhaul might’ve been a little more touchy?

In the end, I rarely ever completely disagree with Mike. And I’m not competely disagreeing here. Yes, business is hard; entrepreneurs need to adapt. But entrepreneurs who aren’t insanely devoted to their cause aren’t necessarily _always_ lame. I think entrepreneurs who make objective risk assessments fall into the non-lame category. Both of you mention that “being smart enough to get $XM” somehow implies validation of a good team/idea combo. I disagree. Some companies get a lot of money and don’t deserve it. If you don’t deserve the money, and your company looks DOA, I think it’s fine to return the money especially if you don’t believe in your own company. I don’t think that’s lame, but that may not be the case here. How about: you deserve the money, the company looks DOA, and you don’t believe in the company? I also don’t think that’s lame if you give back the money in that case. And I think that’s the case here. Now: you deserve the money, the company looks DOA, and you DO believe in the company… If you give the money back, then you’re either stupid or lame. The difference is that you’re giving up on your convictions.

But maybe you guys think that if you deserve the money you should be able to force yourself to believe in the company…? I don’t think that’s necessarily true either.

Maybe these guys are losers, I don’t know. But I’m not willing to condemn them….just b/c they failed to try.

Mike (profile) says:

Re: Re: Re:7 back on topic...

Okay, I think we actually agree for the most part (damn you!). My point is really one about the whole industry and the fact that too many companies were getting too much money simply as a get-rich-quick scheme. I honestly believe that if you’re going to found a company and build a team and raise money it had *better* be for a damn good reason that you believe in. So, I give these guys the benefit of the doubt in assuming that (even while I think the idea is stupid) they really believed in it.

Using that as my assumption, I think it’s lame that they gave up. What I was really doing was making a point by setting up unreasonable assumptions. Chances are the people behind Kibu really didn’t believe in it that much and just thought it was a get-rich-quick deal. Thus, when it suddenly became apparent that it might not be such a scheme they gave up (or were pushed into it by the VCs, according to some).

Ryan says:

Re: Re: Re:9 back on topic...

I think agreeing to disagree is probably the best bet. It’s one of those “depending on what was going on in their minds” questions, which can’t be answered by anyone other than the founders. I have to admit mhh5 you did fight your corner well.

P.S. The reason for the lag is of course the 8 hour time difference.

Mike (profile) says:

More on Kibu

Okay, so it’s not the most reliable source (actually, it’s not reliable at all) but’s rumor mill has a story about Kibu where they say the male investors decided to shut down this site that was focused on girls and run by a woman CEO because they just “don’t get it”. Or something to that effect. The claim is that if it had been a male buddy of theirs, they would have given him a shot at doing something.

It does make a good point though on a quote from an employee that five months is not nearly enough time for a company to try to prove itself.

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