Picking co-founders and early employees will always be one of the scariest things you do. Even as you are doing it for your 3rd, 4th, 5th of 15th time, you never feel like you are getting better at it, you just start to get a bit more paranoid and careful. There is however a certain breed of entrepreneur out there who have a little more grit in their teeth. Their wrinkles are a little deeper, and their eyes just have that look of intensity that not everybody has.
Who are these people? These are the battle hardened fighters who have been through the wringer and they have survived. They are the ones who have learned to get burned.
Getting burned can come in many different forms, but a few stick out in my mind:
- The useless co-founder
Smart, fun, caring, prompt. They have all sorts of good qualities and it seems like all of the elements of a great co-founder are there, but when it is time to focus and execute, they start to flake. It isn’t a straightforward flakiness either, it is an awkward, confused and maddening unreliability that makes it even worse. Not only are they not delivering, but the excuses are insulting. They still talk a pretty good game at times, but under the surface you are getting angry.
- The over-sold employee
You are a startup but you are growing. You are hitting that stride (10-20 employees) where you need a few great managers. You need someone who is seasoned enough to navigate the ins and outs of a growing employee base without having to come to you all the time. The truth is that you are still running pretty lean though, and these folks cost a lot of money, so you end up with someone ambitious but inexperienced. Sales managers, biz dev, marketing, wherever you put them the result is the same: They oversold their skills as a manager and you’ve been burned.
- The big team
You came up with a killer product with a few friends and it seems like all the right people came to the table at the right time. Before you know it you have a founding team or 4, 5 or 6 people. You love them all and it kinda feels like college all over again. Everything just works at first and you get off to a pretty good start. You’ve been burned. Big founding teams become unwieldy and as time goes by different personalities start to accentuate. If you get the mix just right then big teams have some potential, but that usually means getting at least one person out of the mix. If you are starting up with a big team then you have to be ready to get burned, or to recognize when you are the one doing the burning.
- The “operational investor”
“I spent 10 years as a CEO before I became a VC” “we only do strategic investments where we can help move the company to the next level for a win-win and synergies with our portfoliotized group of investments” “I am an angel investor because I like to stay close to the company”. Most investors will try to sell themselves to you with some promise of value-add. You’ve seen The Dragon’s Den, Kevin O’Leary would be ready to promise his expertise to an oven mitt knitting startup in exchange for “50% of the action”. Most of these guys are full of crap and the ones who aren’t are golden. If value-add is part of their pitch to you, then make them prove it will happen.
Both sides lose
When you hear about someone getting burned you have to remember that the story is never what it seems. There are two sides to what is going on and there will always be a bit of truth to each story. Like in any relationship things get messy during a divorce. People say things they shouldn’t, and it is easy to try to hurt eachother. A “I have to win” mentality can take over and it is hard to shake. If you are on the other side of a vindictive co-founder or employee then it can be hard to look past it.
You can try to win all you want, but everyone loses. What makes the difference is that some people pick up and focus on what’s next, while others sit and stew. I have done both and believe me, you don’t want to be doing the latter. Those who sit and stew once rarely do it again however, because it is just as painful for them as it is for everyone else.
Avoid the inevitable
I asked Rob Hyndman, a Toronto based lawyer who works with a lot of startups, what you can do when you are forming your company to help prepare for getting burned. It might feel overly pessimistic, but the more seasoned you are, the more willing you will be to plan ahead.
It’s very hard to deal with relationship problems if you don’t have the right structure set up in advance, and you burn a lot of cycles trying to nudge people in the right direction if you don’t have the means to force them to it when you are ready to act.
Having your energy drained by an ugly divorce is one of the surest ways to sap your enthusiasm for your mission and keep you too distracted to tend to what needs to get done. These relationship problems are one of the biggest early risks that you can minimize with proper care in advance.
Shareholders agreement provisions like founder stock vesting, and provisions that ensure that founder disputes can be resolved, including with the departure of people who aren’t “working out”, are useful approaches to resolving relationship problems.
Don’t waste time
Learning to get burned isn’t about getting burned over and over again, it is about seeing it coming before it happens and heading it off in advance. You need to pick carefully and have a backup plan in place. When it does come time to break it off with a bad partner you need to make it clean. Specifically
- Be up front: No letters. No emails. No phonecalls. Don’t hide behind a lawyer. This is face-to-face stuff. If it means flying halfway across the country on a Saturday to do it, then you do it.
- Be sure and be clear: Assuming you have done more than enough to give them a chance to either find a role that works for them, or to do the quitting themselves, then it is time for you to do the hard work for them. When you are being “up front” you also have to be clear: It’s over. It’s over and this is why. State your reasons clearly but don’t talk down to them.
- Be humble: Like it or not, you screwed up as much as they did, and you are going to be the one left holding the bag of crap. You are not righteous. Take responsibility for what you got wrong.
- Work together: Especially with co-founders and early employees. You asked them to buy in to something that you wanted to create. Like it or not at some point you sold them on this and they bought in (I know that is true, because you are the one doing the firing now). Work equally as hard to find a way out that makes sense for them and does the minimum amount of harm to their future (and in turn, yours).
- Work for eachother: In every case it will be a net-benefit to both sides if both sides have a bright future. Work hard to make sure that eachother are successful. This takes an incredible amount of maturity and foresight, but as long as you are building something of your own, you won’t feel like you are missing out on what your former partner, employee or employer have gone on to build.
It sucks, but it is going to happen to you at some point. Learn to get burned.