
Startups.co to Acquire Zirtual, Service to Resume - 7Figures2Commas
https://www.startups.co/articles/acquire-zirtual-service-to-resume
======
dpiers
This is an ideal outcome for a situation where the failure of one person to do
their job resulted in 400 employees losing theirs.

As CEO, it's your responsibility to understand your runway and know whether
your business can afford to be operating in a month or two. If it can't, you
need to reduce your burn. Depending on a last minute cash infusion to avoid
telling your employees things are looking rough means you failed to do your
job and run a sustainable company.

~~~
cl42
Thank you for writing this. As a startup CEO with 12 employees, I have a daily
reminder of how much cash is in the bank. It is absolutely unacceptable and
ridiculous for a CEO to mismanage a company and then write a blog post saying
"Oops, burn!"

~~~
pbreit
Also considering that "burn" is one of the very few things that is wholly
within your control.

~~~
themartorana
At first I thought "this statement is madness!"

Then I thought about our burn, what the spreadsheets look like, how we
estimate runway, and so on, and I realize this is uninformed madness.

If you believe this, then you understand that 400 people losing their jobs is
the definition of the wholly controllable burn.

~~~
pbreit
I'm not sure I follow.

------
wilschroter
This is Wil Schroter @ Startups.co. I was a customer like many who got the
same email and was disappointed. This is a great company that made some bad
moves. I'm not defending that. But I will tell you - it is still a great
business, although obviously with some serious challenges. Will this be an
incredible uphill battle? Of course. But I believe in the company and I think
it's worth it.

~~~
doomspork
Will Maren Kate remain in her role as CEO?

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BinaryIdiot
Whoa; I literally JUST finished listening to her interview on TWiST, which
aired on Friday. It sounded like a growing business even to the point that
Jason claimed it could be another "unicorn". Then for it to simply implode on
Monday?

Absolutely amazing in the worst way, especially with the CEO constantly
talking about the need for being transparent; this obviously wasn't something
that snuck up on them.

Edit: The CEO gives more information here:
[https://medium.com/@marenkate/zirtual-what-happened-and-
what...](https://medium.com/@marenkate/zirtual-what-happened-and-what-s-
next-f9bd493ecc49)

Waiting until the 11th hour to let people know you're out of runway?
Absolutely terrible, in my opinion. Personally I think you need to give people
notice 6 months out. Then constant updates thereafter with what you're doing,
the risks, etc. Springing this on them like this is just incompetence.

~~~
gojomo
6 months' notice would be absurd, and enforcing that (either legally or as an
industry norm) would mean a lot of otherwise promising businesses would have
to die prematurely "out of an abundance of caution".

It's a speculative startup in a new category. Most of them fail. You won't get
6 months' notice when they do.

~~~
BinaryIdiot
> 6 months' notice would be absurd

Why? What's wrong with "here are our numbers; as you can see we're at about 6
months left of runway but we have X, Y and Z that we believe should take care
of it without issue"?

Seems like being transparent in the finances would be a good thing. To me at
least; I know as an employee I feel much more comfortable when I know how the
company is doing. It at least let's me know I have some solid time left should
the worst happen.

~~~
gojomo
Management must of course be honest. And, especially at inflection points like
initial hire, new financings, or major changes in burn/strategy/etc, it should
share with employees an optimistic-yet-plausible projection of the business
prospects. (Attentive employees should ask; management should answer.)

But once that's done – and perhaps in somewhat coarse, conditional,
speculative terms – a running detailed 'soap opera' of the sustaining-funding-
hunt can be destructive. Many employees would honestly _not_ want to be
distracted by a play-by-play: "that prospect fell through but we've got more
meetings next week! drop dead date is still 152 days away! next update
tomorrow morning!" Employees also don't want their most-jittery (but possibly
still key-role) coworkers to depart early: making the worst-case scenario
incrementally more likely.

The balancing will always be tough: is a believed 80%-chance of uninterrupted
operation enough to keep sending a cheery, full-speed-ahead message? Or must
you alert, "20% chance of failure!", to everyone? (Which, of course, causes
some to assume the risk is even worse, and might derail the 80% chance of
success.)

It's the idea of a firm, quite-long threshold – and in a startup domain that's
inherently uncertain – that I find absurd. ("6 months" is three times larger
than the 60-day federal law for notice of mass plant layoffs, by giant well-
capitalized corporations.)

~~~
BinaryIdiot
Hmm, I feel like you took my thought to the most extreme view possible.

I was thinking more along the lines of: notification at 6 month mark, list of
things we're doing to ensure smooth operation. I wouldn't expect issues at
that point especially since everyone joined a start-up, they know it's not
going to have money for years of operation. Then update people when you check
off the items on the list that you said you were working on, good or bad. Not
any more frequent than that. Depending on the amount of money it may be a good
time to start about some minor culling if possible.

At month 3 you probably want to start culling employees so you can stay afloat
longer should things not pan out. This way you can stretch out your life for
far longer than waiting to cull at 2 or 1 month.

At least those are my thoughts. Nothing like "guys we failed, new update
tomorrow morning!". Then again I haven't run a start-up; only have been part
of a few. That just makes sense to me I don't know what works best in
practice.

------
birken
I did a double take at this headline because I just listened to the This Week
In Startups episode [1] about this company yesterday. You wouldn't have gotten
the impression the company could have gone out of business in a week after
listening to that.

1: [http://thisweekinstartups.com/maren-kate-donovan-
zirtual/](http://thisweekinstartups.com/maren-kate-donovan-zirtual/)

------
ThomPete
I have said it before and I will say it again.

I really feel for the 400 employees who lost their job, but I am happy to see
a sense of reality being forced into some of these companies. Building a
business on people rather than tech is a much much tougher thing to do both
execution wise and financially. And so the real innovation if someone wants to
"change the world" without trying to cheat the system is to find a way to make
a profitable business with a huge part of the business being used to pay
salaries. This as we can see is a very hard thing to do. And so I applaud them
for trying.

For many entrepreneurs who are used to thinking about business as something
which is based on software, servers and an internet connection, this is
completely uncharted territory. You don't reap the benefits of scaling your
business as if it's just a matter of adding more servers. The primary
challenges with these kind of business if they are to be built on a solid
foundation is.

1) Patience – It takes a long time to scale an employee based business up to
anything worthwhile and sustainable

2) Selective – You have to be smart about which sectors actually have enough
money and need for your service to make a proper ROI

3) Employee satisfaction. You can't just treat your people as if they are
freelancers without giving them freelance opportunities. Instead you have to
really care about your people and make them want to work for your company and
do a great job.

------
Lazare
[http://www.businessinsider.com.au/zirtual-suddenly-laid-
off-...](http://www.businessinsider.com.au/zirtual-suddenly-laid-
off-400-employees-via-email-2015-8)

This is weird as hell.

~~~
spiffyman
> all of its rounds after seed funding were debt rounds, including one at the
> end of July

This surprised me. They burned through a round in just a few weeks? And
looking at their funding history[1], they closed $2.6M back in June. So that's
$3.25M in less than 60 days.

It looks like the July round was targeting $3M and they only got $650k[2].
Maybe an expected deal didn't go through and it was just as much a shock to
the management as the employees. This could just be a case of unrealistically
high fundraising expectations, with unfortunate consequences for everyone.
OTOH, assuming they hit the end of their runway, they had a burn rate of at
least $1.6M/month, so I don't know how that last round was supposed to help
for long.

Anyway, this is all armchair speculation. I hope their CEO can take some time
and then share her experiences. It would probably serve as a good lesson for
others.

[1]: [https://www.crunchbase.com/organization/zirtual/funding-
roun...](https://www.crunchbase.com/organization/zirtual/funding-rounds) [2]:
[http://www.sec.gov/Archives/edgar/data/1566557/0000897069150...](http://www.sec.gov/Archives/edgar/data/1566557/000089706915000411/xslFormDX01/primary_doc.xml)

------
bruceb
Here is Zirtual's founder Maren Kate post on the situation
[https://news.ycombinator.com/item?id=10045423](https://news.ycombinator.com/item?id=10045423)

------
babababa
It's important that one of the key lessons here is that the CEO of Zirtual,
AND their investors, failed in their responsibilities during this whole
fiasco.

The CEO:

Jack Dorsey has a fairly good description of what the CEO's role is - that of
an editor ([http://www.quora.com/What-is-the-role-of-a-
CEO](http://www.quora.com/What-is-the-role-of-a-CEO)). The CEO should do 3
things:

\- Build and nurture the team

\- Communicate internally and externally

\- Make sure there's money in the bank

It looks like Zirtual's CEO screwed up all three of these - it's inexcusable
and ludicrous to think she didn't know how much money was in the bank, and the
burn rate. She probably knew exactly what was going to happen, she saw the
writing on the wall, and tried her best to figure out an outcome for the
company and team.

It could be that the Startups.co acquisition was the perfect thing to do, but
to do it after missing payroll, breaking user and employee trust, and in such
a ham-handed way is ridiculous. She played chicken with cash flow, and she
lost. 400 employees who thought they had a job had to suddenly go through a
stressful shake up, and start worrying about bills, insurance, and their
livelihood, right before school season starts.

The Investors:

According to Crunchbase, this company raised $5.5M from VCs like Mayfield.

Don't these investors have an obligation/responsibility to their Limited
Partners to invest their money wisely? Don't these investors ask the CEO for
monthly or quarterly financial statements (or something simpler like - "How
much money in the bank? What's your Accounts Receivable? What's your monthly
burn rate?").

Why didn't someone say something 6 months ago? Why didn't someone say
something 1 month ago, so that there could have been a more orderly pause in
the business while trying to sell it?

What's the point in simply investing in deals and not spending any time to
advise/help start-ups? The CEO of Zirtual could be super talented, but she's
not run a start-up before. Shouldn't investors spend some time with her making
sure things don't go off the rails?

It's events like this which erode trust in start-ups, investors and founders.

------
rokhayakebe
Honestly I would refrain from blaming her. There are just too many variables,
many of which we can't talk about, to judge someone.

Perhaps offering support, direction, and a way to rectify what is "seemingly"
a mistake is more helpful.

~~~
adventured
She was the CEO and particularly deserves credit for the abrupt nature of the
shut-down and having not given employees warning. It was an extraordinary
mistake, one that any CEO should get lambasted for.

There are not too many variables when it comes to her responsibilities on that
matter. It's crystal clear that she made the wrong choice in how to deal with
the situation.

~~~
rokhayakebe
How is this different from say Microsoft or Yahoo giving a pink slip to 1,000
employees on a friday afternoon?

------
oldgregg
Acquired all the assets?!? This seems really off, who is left holding the bag
here?

~~~
toomuchtodo
Creditors of the failed company, as is traditionally the case when liquidation
occurs.

------
nhangen
Based on what I've read, clients were charged up until the last minute. I
wonder how this affects them? Will Startups.co help to reimburse them in order
to earn those customers back?

------
rokhayakebe
Consider: how many businesses would be in business tomorrow if they announced
today to all their users and customers how much cash they had left on hand.
How about the ones that are operating in the red, should they all tell
everyone?

In the end I respect that they stop it at the very moment they could no longer
pay instead of owing everyone one hour of work.

Without more information, I would say they handled it okay.

~~~
hipsterelitist
Maybe you wouldn't, but this is why financial reporting is important and often
a requirement. These people bet on someone else's gambit and lost, but
according to all the signs they could see, things were sparkling.

~~~
rokhayakebe
I am not saying I would not. I would have probably acted 180 degrees
differently, but that does not mean she did not make the best decision for
everyone involved.

------
taytus
They should change their name :/

------
7Figures2Commas
> According to Schroter, “We were happy to step up to keep Zirtual in
> operation. So many companies depend on their services to keep their
> businesses running smoothly, _and with over $11 million in earnings in the
> last year alone_ , the acquisition made sense...

"Earnings" is a measure of profit. Zirtual claims it had an $11 million annual
revenue run rate but, as we now know, was not at all profitable.

It's amazing that in startupland folks still can't seem to use basic
accounting terms properly, especially in situations particularly sensitive to
their misuse.

------
beedogs
"Zirtual"? Really scraping the bottom of the barrel for names these days.

Edit: Really, guys? It's a _terrible_ name.

------
bruceb
How is this different than Tesla?
[http://blog.sfgate.com/energy/2014/02/28/tesla-from-the-
brin...](http://blog.sfgate.com/energy/2014/02/28/tesla-from-the-brin..).

It was near death yet Musk is now a SV hero?

~~~
adventured
Tesla didn't fire its workers, and had a plan to keep the business operating
by selling to Google for billions of dollars (which apparently Google was on
board for). When selling proved unnecessary, Musk stopped discussions with
Google. It was a very different situation: Musk didn't cause the business to
shut down, and had a plan for dealing with their runway running out.

