

Parting ways with a founder - kamens
http://www.avc.com/a_vc/2010/06/parting-ways-with-a-founding-team-member.html

======
grellas
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.

------
trevelyan
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.

~~~
fredwilson
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

~~~
jseliger
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.

The book has a lot of useful and subtle points and is much recommended:
[http://jseliger.com/2010/01/07/codes-of-the-underworld-
how-c...](http://jseliger.com/2010/01/07/codes-of-the-underworld-how-
criminals-communicate-%E2%80%94%C2%A0diego-gambetta) . I leave it to the
reader to imagine how this aspect of the book might apply to the situations
being discussed.

------
rgrieselhuber
Comment by Chris Dixon:

"My investors know when they invested that I have strong ethical views
including remembering who was there from the beginning.

Not everyone believes in Milton Friedman crap that maximizing shareholder
value is the sole purpose of a company."

Once again, I find myself thinking that I'd love the chance to work with
Chris.

------
wazoox
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.

------
hga
Here's a blog posting inspired by this and the blog's comments that covers
most of the "don't do this" ground: " _Firing Founders: Mostly A Bad Idea_
"[http://technbiz.blogspot.com/2010/06/firing-founders-
mostly-...](http://technbiz.blogspot.com/2010/06/firing-founders-mostly-bad-
idea.html)

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.

------
callmeed
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?

~~~
davidu
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.

------
hga
See also this newer item on the subject for one reason why founders are fired:
<http://news.ycombinator.com/item?id=1425793>

------
edw519
_...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.

~~~
fredwilson
i've been with my wife for thirty years. i know that it takes hard work to
make a relationship last. and i value long relationships.

but i am telling you that many times, this stuff happens. and it can't be
fixed no matter how hard the people involved try

~~~
moolave
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...

