...almost every single one of them has seen a founder or critical founding team member shown the door as the company scaled. It's almost inevitable.
That's like saying divorce is almost inevitable.
Come on, Fred, did they really need to show a founding team member the door or did they just take the easy way out? In businesses, like marriages, sometimes you just gotta work on it.
One of the few lessons I remember from business school was a consulting engagement we did as an internship. One of our recommendations was to let the office manager go. This was such a gross violation of acceptable business practice, that the project didn't even merit an "F". We were forced to redo to recommendations without letting anyone go before we could submit the project. Needless to say, this wasn't easy. It took a lot of work to find an acceptable solution.
Looking back many years later, this was one of the most valuable lessons I've ever learned. I have never fired anyone and I have vehemently protested the firing of anyone in any of my related work. And my complaint has always been the same, "You're not trying hard enough to solve the problem while keeping the people intact."
Same thing here. I wonder how many business/employment relationships and marriages would survive (and even thrive) if people just took the time and effort to make it work. But all too often, short term thinking wins and we take the easy way out. What a pity.
As much as I like your approach, I have this feeling that not everything is butterflies and unicorns. Sometimes, you have to find a way, and the way is clearly a "split-up".
However, I dob't agree with Fred's either. This kind of things is something that should be prepared: founding and growing a business are not the same thing. I think it's very important to have this kind of discussion with other co-founders in the very early days : what are everybody's limits : do we all agree that at some point we may have to step down from our roles and let someone more experienced/appropriate lead whatever we're working on. This doesn't mean we have to leave the company, but maybe find a role that fits us more.
Look at GOOG. Larry and Sergey didn't quit, they just put the best person in their shoes and took on something they could do better.
I trust that everybody knows their limits, and don't enjoy working 'in the red zone' forever. It just has to be very clear for all the co-founders what these limits exists, and that at some point, co-founders may not be the most appropriate person to run whatever they run.
A marriage is an excellent metaphor for a startup. But as the startup scales, the metaphor changes - I think the pro sports team metaphor is a good one (if clichéd).
If you accept that, then seeing a founder leave or be shown the door is like accepting there may be an original player who was good enough (or even excellent) in "C division" won't cut it if the team advances. The team manager has a responsibility to help a player improve if possible, but she has a greater responsibility to create the best team possible.
And no matter how long your commitment is to maintain that ideal (corporate or personal) relationship, there will be times that drastic changes have to be made. But we all try; and keep on trying...
It can be a very harsh outcome when you take a founder who had to restructure his equity grant (as a condition of the company's taking VC funding) by making the vast bulk of it subject to vesting and terminate him so as to cause the forfeiture of most of that equity. I believe Mr. Wilson's heart is in the right place in how he proposes that such situations be handled (accelerate some of the vesting, etc.), but this falls pretty heavily on any founder who has made valuable early-stage contributions at a time when the risks were at their highest and presumably for no pay or other reward besides that equity of which he will now be largely deprived.
While such situations can potentially be handled fairly for all concerned, I have seen all too many instances where the motives of the persons handling the termination were less than pure, leading to harsh outcomes for founders who deserved better.
I post regularly promoting single-founder businesses, and think it's useful to see this sort of post from someone who is generally respected among early founders. But the core lesson is not what Fred thinks it is. It's that most managers have no idea how to value technical work (either development or management). And funders who view the business from the distance are notoriously bad at it.
I've seen this play out few times now and have been personally affected once. In the worst case a non-technical manager replaced his CTO and doubled the size of the tech team on getting funding, only to end up firing the entire new team for non-performance about eight months and several hundred thousand dollars later. The business has yet to recover and probably never will.
I'm sure Union Square Ventures serves a purpose in helping some companies grow, But I hope those considering taking funding from them will read Fred's post and realize that when push comes to shove, Fred thinks he knows how to run and manage their business better than they do.
i don't know how to run a business at all. i've never done it and have no desire to do it. i think what allows me to build healthy and constructive relationships with entrepreneurs is that i know that i can't run a business and don't pretend that i can
This is interesting to me because Diego Gambetta wrote a book called Codes of the Underworld about how mobsters and mafia members often depict themselves as utterly incompetent and incapable at doing anything other than being a mobster.
Their purpose: to signal that they have no desire to take over businesses because they lack the capability to run them. As long as you, the business owner, pay the mobster, you know that the mobster will not eventually take 100% of the profit because the mobster can't run the business effectively. And if the mobster tries to extort 100% of the profit, he knows that you'll quit or do something extreme, like go to the police or fight back or find another mobster.
I personally went through the opposite problem last year : one of my two co-founders left when the business tanked due to economic crisis.
He always felt like he did more than his share of work and received less than his share of money (he had half the share of capital, 20%, but as a compensation he always had a higher salary).
I stepped down from technical manager so that he could build the team at his will. Later, I sold him 10% of the shares for a tenth of the price (so we both had 30%) but he still felt like he was cheated.
I think that the hard times during crisis broke him down finally. I'm pretty sure it was a bad move financially for him (he wouldn't work for anyone else, and by himself he can't earn that much), he even tried to "steal" our biggest customer...
We had quite a hard time, particularly because the whole team left after him (unsurprising, it was his team after all) but we got through and everything's fine again now (though on product development we've lost 6 months at the very least).
What else? If we hadn't full coffers at the time crisis hit, the company couldn't have survived such bad times.
One major point people have been making is that "All the top tech companies of today have had their founders intact." as the author puts it, and he later discusses examples. I'd be interested in any counterexamples; no one has come up with any except possibly Bob Miner at Oracle, who people are asserting wasn't fired.
My take on this is that firing a co-founder may be necessary but very few companies will become big hits if it comes to that. Which argues that you want to do a really good job on selecting your co-founders and early key hires.
I assume this is in the context of a VC-backed startup where the person who "has to go" can't stop the action. Even still, how is he/she actually forced out of his position and shares? Is this a board move based on term sheet rules?
And, how would this work with a bootstrapped startup where there are simply 2-4 founders with equal shares?
Often times the person shown the door leaves with far more equity than they should. That's unfortunately the last concern the board has.
And if it's early enough in the process, the board, if required for the success of the company, can recapitalize the entire structure of the company and wash out any previous employees. You have to be careful not to single out any individual when you do this, but if you do it and have good reason, it can solve these issues too.
Anyways, people are not forced out because they own too much, they are forced out because they become an immovable impediment to success.
Jack Dorsey at Twitter is a good example. And he got more equity when he quit. And he quit in a nice fashion, allowing the company to start fixing their issues and scale much faster with more experienced leadership.
That's like saying divorce is almost inevitable.
Come on, Fred, did they really need to show a founding team member the door or did they just take the easy way out? In businesses, like marriages, sometimes you just gotta work on it.
One of the few lessons I remember from business school was a consulting engagement we did as an internship. One of our recommendations was to let the office manager go. This was such a gross violation of acceptable business practice, that the project didn't even merit an "F". We were forced to redo to recommendations without letting anyone go before we could submit the project. Needless to say, this wasn't easy. It took a lot of work to find an acceptable solution.
Looking back many years later, this was one of the most valuable lessons I've ever learned. I have never fired anyone and I have vehemently protested the firing of anyone in any of my related work. And my complaint has always been the same, "You're not trying hard enough to solve the problem while keeping the people intact."
Same thing here. I wonder how many business/employment relationships and marriages would survive (and even thrive) if people just took the time and effort to make it work. But all too often, short term thinking wins and we take the easy way out. What a pity.