Foursquare may be challenged, but Crowley's job is not in jeopardy

By Sarah Lacy , written on July 23, 2014

From The News Desk

Foursquare is challenged -- no question. Even Bijan Sabet, one of Foursquare’s earliest investors, acknowledged as much at our last PandoMonthly when he said:

I believe, I gotta tell you. I know there are a lot of haters out there – maybe not in New York, but I know certainly in the San Francisco. I am so committed in pulling for these guys.
Hence a bold “prediction” that landed in the comments section of a Pando post discussing the company’s latest product news: That Dennis Crowley would be replaced or Foursquare would be sold in the next year.

Foursquare may well be sold in the next year, but I hardly think that’s much of a bold prediction. The company has already had a flat equity funding round back in December – following an emergency debt round in April 2013 – and has been struggling to rebrand as more than just check-ins.

But what won’t happen -- and I’ll stake everything I know on startups, Silicon Valley and the venture firms involved in Foursquare on this -- is Dennis Crowley being fired as CEO. That happening would be entirely counter to the way the Valley works – and while Foursquare is in NY, many of its largest investors are in the Valley – and because of the particular type of “failure” that Foursquare is.

To the latter first: Foursquare is mostly considered a failure because its hype was so great. But the company clearly has real value. With 50 million users worldwide and more data on their physical movements and social habits of these users that all but a handful of companies, it’s highly unlikely that Foursquare just goes away. As I wrote at the time of the Waze acquisition:

...the data Foursquare is collecting on where people go and what they do is potentially more varied, rich, valuable and usable for different applications. That’s particularly the case when you factor in Foursquare’s API which is also used by Path, Instagram, Uber, Evernote, Garmin, Vine, Magellan, and – you guessed it! – Waze.
Foursquare was one of the first companies to catalyze the Socio-loco-mobo movement, igniting the imaginations of thousands of mobile-first entrepreneurs. Of the hundreds of “check in” apps out there, Foursquare has trounced them all. Even Facebook couldn’t come close to competing. It just turned out not to be a category with as much mainstream market potential as investors once thought. But that’s not Crowley’s fault. Crowley has built the biggest thing in this space. He is the only reason we are still talking about Foursquare.

Compare it to what Max Levchin did with Slide. It had the highest exit of the early widget economy apps during the Facebook’s platform era when it sold to Google for $182 million -- far bigger than RockYou, iLike, or other analogs. But ultimately Slide was a “failure” because Max’s other act was PayPal and Slide – in part due to this very fact – had been valued as high as $550 million. More to the point: Slide was considered a “failure” because Google ultimately sunsetted most of what it bought and Levchin moved on.

The only reason that Slide sold for as much as it did -- and was ultimately a financial win for investors -- was because of Levchin’s insane, obsessive execution in what ultimately turned out to not be such a great market. I’d say the exact same for Crowley even if the worst-case scenarios ascribed to Foursquare turn out to be true. Crowley has made mistakes, no doubt. But I don’t know anyone close to that company who hasn’t respected the way he’s gone about it. Moreover, I don’t know anyone who thinks someone else could step in and do a better job.

One of the ballsiest calls: He made a tough call not to take an early payday and sell Foursquare when its hype was at a fever pitch. We can’t have it both ways, criticizing entrepreneurs for selling early, and then later turning around and criticizing them when later when things don’t work out perfectly. Selling or not selling is such a brutal decision -- and I commend when entrepreneurs who don’t -- because success even after a huge offer is still so uncertain.

And unlike my analogy with Levchin, Crowley is hugely passionate about what Foursquare is trying to build. He’s been trying to build this in different versions his entire career. As we wrote at the time:

And even as tech blogs were drooling over Foursquare, the service was being ripped apart in the comments section. “If you go back to the TechCrunch comments when we hit a million users, people were like ‘Oh, this is a fad,’” [Crowley] said.

“The press, God bless you guys, puts successful tech companies through a hazing period,” he said. He had to learn to ignore the haters because he believed that his vision — to turn check-in data into world’s best local search engine — would have value beyond check-ins and badges.

Foursquare hasn’t hit the adoption of Twitter or Facebook yet but the core usage of the app is different, Crowley said. “We’re still trying to figure out how many people we need to have in order to be a successful company.”

“It’s not like, if we don’t hit a billion users we don’t make it. It could be 50 million active users, it could be 100 million,” he said. “This is local search, it’s not just social on mobile or social on desktop.” And that brings us to my point about the way the Valley works. The money is already sunk into Foursquare, it’s going to work or not. As recently as December, Microsoft was willing to bet $35 million that the company still had upside – or look at it another way, that an option on the company was worth at least that much. So this is no longer a decision about whether investing in Foursquare is a good idea. It’s about what gets investors the most optimal outcome.

Let’s assume things at Foursquare are horrific. Firing Crowley does nothing for investors. He and his team and his vision would be one of the plum assets a potential acquirer would want, and it would be so distracting and chaotic that it would only make the situation worse. Likewise, what genius is going to suddenly come in and see a solution to the problem that’s obsessed Crowley for his entire adult life that he didn’t see? Look at the devastation of “check in” companies that went nowhere and haven’t remotely built the assets Foursquare has. If anyone is going to make this into a sustainable business it’s Crowley.

But even if that weren’t the case, he wouldn’t be replaced. Simply put: He’s an entrepreneur that investors respect and if he doesn’t do it this time, he’ll do it again the future. Every single VC in the Valley obsesses about being entrepreneur friendly. There’s no reason to put blood on your hands, especially if the entrepreneur has executed well and there’s no indication a major change will lead to another outcome. Rather, investors just chalk such cases up as one of the many investments that didn’t perform as well as hoped.

This conversation isn’t even on the table. This is Crowley’s ship to sell or go down with -- and it should be.

But even if all that hasn’t assured you how wrong this “prediction” is, I’ll add this: Look at who his investors are. There’s Ben Horowitz, who didn’t even move to oust the founder of Rap Genius as he was utterly publicly melting down. Sure, there’s Bijan Sabet and Fred Wilson who were on the board when Twitter ousted Jack Dorsey, but as Sabet explained at PandoMonthly that was a case where the rest of management had lost faith in his ability -- the only time you oust a founder, Sabet says. Contrast that to Tumblr, a company that also didn’t quite live up to the hype, but Sabet noted was magical because founder David Karp was allowed to stay in control and was allowed to be his weird, innovative self the whole time.

I don’t know enough about the inner-workings of Foursquare right now to say who (Microsoft?) or what price the company might fetch if it sells. But I know this for certain: The company still has value and that value is almost entirely tied to Dennis Crowley.

[illustration by Brad Jonas for Pando]