Why You Shouldn’t Judge A Business By Its Model

In this tell-all from a former lead engineer at Facebook and Silicon Valley angel investor, we learn why there’s often more to a startup than meets the eye.

Why You Shouldn’t Judge A Business By Its Model
[Image via Shutterstock]

Yun-Fang Juan has seen some questionable ideas turn into gold–you may have heard of Facebook and WhatsApp–and it’s made her stop judging a company by its business model.


Back in 2010, the Silicon Valley insider, angel investor, and former lead engineer for Facebook Ads was at a Mountain View taqueria with her husband Keith Chiem. The high-powered couple was sharing a meal with Brian Acton, a long-time friend, former Yahoo colleague, and the best man at the couple’s wedding.

Acton was working on a new messaging app on iOS that he said he could turn into a billion dollar business. The new app had a couple thousand users, a steadily growing user base, and the company wanted to hire more engineers. Acton was trying to recruit Chiem, and Chiem was interested.

With a background in statistics, Juan ran the numbers for her husband, doing a back-of-the-envelope analysis. Maybe Acton would be able to build a $100 million company, but she gave his chance of turning it into a billion dollar company a 0.1.% chance. After taxes, she estimated, her husband’s equity in the company might be $1 or $2 million.

That might sound like a lot of money to most of us, but not for Juan and her husband, who had already cleaned up with Yahoo stock and would do so with Facebook holdings. So Juan told her husband: “If you want to work with Brian because he is a brilliant guy, do it. But it makes no sense to do it for the financial rewards.”

Juan’s husband passed on the offer.

Lessons in seizing opportunities

Two months ago, Acton’s little messaging app, WhatsApp, sold to Facebook for $19 billion.


Juan called it an “expensive and humbling lesson.” It reminded her of times in the past when she had seen other business models with what, at the time, seemed to be limited potential go on to become multi-billion dollar companies–companies like Facebook itself.

In 2006, Juan felt she needed a change, so she joined Facebook. Aside from the change of scenery, Juan made the move because she liked the people who worked there. She felt they were hardworking and smart.

But Juan didn’t have a lot of hope for Facebook, believing that, “This college social network thing sounds like a really bad idea.” Pictures of drunken people and pokes? Juan didn’t get it. She figured MySpace would bury them and they’d soon join Friendster in the social network graveyard. But Juan watched as Facebook made some genius moves: Allowing anyone to sign up; adding a News Feed; creating a platform so that developers could write applications using users’ friend connections.

According to Juan, a niche college social network never should have become a public utility with over a billion daily users, but it did. Who could have guessed? Not Juan. With her holdings she felt like she “won the lottery,” Why? She says, “Dumb luck.”


Juan told us that WhatsApp’s success (and her misread of it) has only strengthened her belief in angel investing. What she’s learned is that it’s really hard, if not impossible, to use a data-driven approach to angel investing. Business models that seem to be headed nowhere sometimes take off, and companies with all the advantages like Yahoo can completely miss the boat.

“There’s no way I could have recognized that WhatsApp would become a $19 billion company,” she says. “The signal to noise ratio is too low.”


Instead, Juan has found another metric of success. It’s something that Facebook and WhatsApp had in common from the start. People. Smart people. Hardworking people. People who will doggedly stick with their startup even when there seems no way forward.

“When making an investment, the single most important question to ask is: ‘Who is working on this?’” says Juan. “It’s like horse racing: Bet on the jockey, not the horse.”

But there is more to the people metric than how brilliant they are.

“In order to invest I want to know: Are they going to keep their passion? Are they going to stick it out for two years?”

And finally, when it comes to people, Juan is a firm believer in the multiplier effect. “I haven’t seen a lot of successful startups with a single founder,” she says. “Without a cofounder, it’s easier to quit. You need cofounders as brilliant as you. One smart person is not enough.”