In 1994 Mr. Sundby founded PowerAgent, a company that he claimed would change the face of Internet advertising. Today PowerAgent is finished, but in a surreal bid to create a return on investment by any means necessary, Mr. Sundby is suing Electronic Data Systems for $3 billion for reneging on what he says was its promise to invest in PowerAgent. For the sheer size and spectacle of his flameout, as well as for his novel postfailure business strategy--"If at first you don't succeed, sue 'em"--the Red Herring names Mr. Sundby the Antientrepreneur of the Year.

PowerAgent's premise was simple. Most direct-mail advertising is essentially spam. As Mr. Sundby told the Herring last year, direct-mail advertisers "buy and sell my name, and I get a hernia carrying the mail in."
His company proposed a way for consumers to receive only the advertisements that interested them and to get paid for looking at them. The company claimed that its advertisements--delivered as email updates, desktop banners, and interstitial ads--would include special offers and would be more lively and enticing than typical banner ads.

PowerAgent received a good deal of attention from the press last year. But behind the scenes, all was not well. Mr. Sundby had problems managing other people's money: specifically, the $22 million invested in PowerAgent by St. Paul Venture Capital, Draper Fisher Jurvetson (then Draper Fisher Associates), ITV Ventures, Peregrine Investment Holdings, EDS, and Houston billionaire Fayez Sarofim.

A former IBM executive and head of a San Diego law firm, Mr. Sundby is famously profligate: industry insiders still joke about his expensive taste in travel accommodations and PowerAgent's opulent offices. Mr. Sundby also arranged for PowerAgent to develop its software by using two separate vendors in two locations, which sped up development but cost the company almost twice as much as building its offering in-house would have.

Perhaps Mr. Sundby's biggest mistake, however, was allowing a culture of arrogance to flourish at his company. When we interviewed PowerAgent executives last year, they predicted that the company would generate revenues of $40 million to $60 million in its first year. (One of the company's marketing executives went so far as to predict the extraordinary sum of $100 million.)

It never happened. Media buyers were unimpressed by PowerAgent's service. PowerAgent maintained that offering consumers special offers and cash rewards would attract the kind of scale required by major advertisers. But advertisers were reluctant to sign on until PowerAgent acquired a large audience, perhaps thinking that a reward-based system would attract chiefly the penny-pinching consumers they loathe.

Mr. Sundby has said that a $10 million cash infusion from EDS would have pushed his company over the hump and motivated other investors to jump on board. When EDS balked at investing and instead offered to take over the company, PowerAgent was done for.

Mr. Sundby is busy pursuing his lawsuit (he did not respond to our request for an interview), in which he claims that EDS was contractually bound to invest and that its refusal to do so was part of a plot to acquire PowerAgent at a rock-bottom price. But PowerAgent didn't fail because of anything EDS did or didn't do. It failed because it was badly managed. And no lawsuit will change that fact.
 
 

Source: Redherring, Issue 56