The sale of social-media pioneer Digg at a fraction of its previous value holds some important lessons for small businesses.
Lessons from Digg
Technology and business headlines were recently dominated by the somewhat shocking story that social media pioneer Digg had been sold for the paltry sum of $500,000. That headline wasn’t entirely accurate, since it only represented the sale of some assets. The total price was closer to $16 million, which is still only a fraction of the $100 to $200 million the company was valued at just a few short years ago and a rounding error compared to the valuations of Facebook, LinkedIn, Twitter, Pandora and others. Small-business owners can learn several valuable lessons from this story and hopefully avoid a similar fate.
Digg was founded in 2004 by entrepreneur Kevin Rose. The service allows users to post interesting news stories from around the Web. Other Digg users then have the option of voting for stories they agree are valuable and interesting. The stories with the most votes get promoted to the front page. This may not sound like a big deal, but in 2004 it certainly was. Then—and for several years following—Digg was an efficient way for like-minded users to find, sort and rank relevant news from among the billions of pages of content available on the Web. The company raised $45 million in capital, had a board of drectors filled with brand-name business leaders and a significant first-mover advantage.
Despite all of this, the company ultimately failed. Competition from new entrants, changing user preferences and an inability to manage rapid growth are reasons that are typically given for business failures, and while the company had to deal with these issues, I don’t believe they are what led to Digg’s demise. Instead the factors were greed, pride and a lack of discipline. The lessons we can all take away are:
Be realistic when it comes to valuation, not greedy. While Digg was an innovative service, it was basically a one-trick pony with a limited ability to grow beyond its core service of aggregating and promoting news among its audience. The company’s business model had limited revenue potential. Despite this reality, it’s reported that the company turned down a $100 million acquisition offer in the hopes of holding out for 50 percent more. At that point the company had only been in business a few short years.
