The Loser’s Curse

I had lunch with my friend Jonathan yesterday and he explained the winner’s and loser’s curses to me.

The winner’s curse is Microsoft (my assertion not Jonathan’s). It happens when a company is so good at one thing that they win big. But when its time to change, they just can’t stop doing the things that made them so successful in the past that no longer work.

The loser’s curse is when you fail at something so badly that you never want to try it again even if there are other and better ways to do it that may result in a better outcome.

I certainly suffer from the loser’s curse. There are things that I am not going to try again even though the outcome may be very different if I did.

I was reminded of this today when I got an email from someone who is working in the fantasy sports area. At Flatiron we backed a company called Smallworld Sports which was one of the leading fantasy sports services in 1999.

The year before we invested they had done something like a million in revenue and made money. We invested a lot of money in them, I can’t remember exactly how much but it was between $5mm and $10mm.

The year after we invested, they did about the same amount of revenue and lost well over $5mm. Venture capital killed that company and it was sold for pennies on the diollar to The Sporting News.

Never again.

I realize that times have changed. Games and sports on the web are bigger than ever. Social networking brings an important new component to the fantasy sports equation. A different management team and business model might make a big difference.

Doesn’t matter. Been there. Not going back.

The loser’s curse.