Banned for Life: Catching Up With Entrepreneur Noah Kagan, Facebook Exile

Eighteen months ago, Noah Kagan’s life took an unexpected turn. Just weeks after the “Scamville” controversy erupted in the fall of 2009 —  it called out numerous offer networks for ads that didn’t disclose hidden fees or obligations — Kagan’s offers company Gambit found itself banned from Facebook.

It practically killed Gambit. “We lost 95 percent of our business” nearly overnight, says Kagan. The roughly $17,000 the company in profit it had been enjoying every day? Gone – poof.

The ban was also widely considered a surprise, because Gambit was viewed as one of the “good guys,” as well as a small fry compared with the likes of its then-giant competitors, including OfferPal Media. Kagan had even worked at Facebook as a product manager for eight months beginning in late 2005.

Gambit has survived, but Kagan has since moved on and out of the Bay Area, to Austin, where he has founded another company. To find out more about his new startup, the “ban,” and whether he’ll ever “like” Facebook again, peHUB talked with Kagan yesterday. Part of our conversation, edited for length, follows:

A couple of weeks ago, Facebook blocked, which sells celebrity endorsements over social media, soon after telling it was violating its terms of service.  You’ve been in that position. Does Facebook handles these violations fairly?

I think Facebook works to protects its brand and its users above all else. But it’s kind of an immature company. It’s like, “Go use our platform,” then it gives you a ticket. You say, “A ticket? There aren’t any signs that say I can’t do this particular thing.” And Facebook says, “We just put them up.”

What happened to Gambit, exactly?

We were the number one game developer on Facebook for some time. We later moved it off the platform because it’s their turf, so you have to play by their rules. But that didn’t work out so well, so we decided to go into the business of offering payment options, which was a very fast-growing industry at the time.

Why were you banned?

Because some of the offers were inappropriate. Facebook said ‘No gambling and no cigarettes’ where previously there were no rules. And they did a decent job of letting us know what rules were changing, and we were abiding by their rules. I have very long chat logs about everything, including by what day everything had to be compliant. And we did have noncompliant offers accidentally show after the deadline, but everyone else did, too, and everyone else kept doing it even after we got dinged for it. So not everyone who speeds gets a speeding ticket.

So you think you were treated unjustly?

Hell, yes. I definitely think we were a scapegoat. We were unfunded, so we didn’t have the resources to fight back, but we were large enough that we were a significant example.

Just curious: after you get the boot, is there any negotiation?

For us, there was no recourse. I called everyone I knew at Facebook, including Mark [Zuckerberg]. We sent appeals. We tried to get our lawyers talking with their lawyers, but we just got nothing. It was like, “You’re done.”

And today you run AppSumo. What does it do and do you have any employees?

I founded AppSumo in April 2010, and it does daily deals on digital tools, like specials on Linkedin Premium, Freshbooks, and Evernote. Basically, people think of us as the for digital goods. We have 7 [people working with the company] and almost 100,000 customers.

What’s the business model?

AppSumo takes a percentage of the sales of each deal. It’s completely free to our partners who get free exposure, new customers and cash from the sales.

You’ve bootstrapped the company so far. Will you look to raise a seed round, and if so, how much?

We’ll consider raising if we can guarantee our formula on the advertising model generates predictable profit. In other words, if every $1 we spend on ads returns $2, then it makes sense to raise as much as possible to reach everyone within our target market.

Do you have, gulp, a Facebook Page?

We have a Facebook Page and we advertise within Facebook. Ultimately, we’re at a point where we want to find large enough pools of tech entrepreneurs, and Facebook has been a good source for that.

Could you see a day in which you try to work with the company again?

Maybe. I’m not sure Zuck and I will get along or that he’ll even remember me at this point. Where we are today, I love the customers we have, and the partners we get to work with, and if Facebook was interested we’d be open to exploring ways to work together.

In the end, what was the hardest lesson about your experience with Facebook?

Well, the hardest part of the Facebook experience while I worked there was realizing after I got let go how dispensable people are. We had a person die who worked there and people mourned for a few minutes and went back to work.

As for a the hardest lesson working with Facebook [as an entrepreneur], it’s that playing on other people’s playgrounds is risky. You either have to diversify or become so significant that they can’t remove you.

I’d also say that as a business you must be careful of not pushing all your customers to be Facebook fans, as you lose control of that direct and guaranteed contact with them. It still baffles me a bit that companies are so willing to be at Facebook’s mercy to communicate with their audiences through FB pages.