
You’re Just the Founder - icey
http://steveblank.com/2010/05/20/you%e2%80%99re-just-the-founder/
======
grellas
Relationships matter in business and how you treat people will redound to you
in time for good or for bad. There would be no good reason normally for Mr.
Blank not to refer good prospects to a particular world-class VC firm with
which he had dealt except for this bad experience with one of its
representatives. And I don't blame him. It is a classic case of reaping what
you sow - the big-name partner for his condescending ways and the junior guy
for his arrogance.

It works the other way too. People can and do remember kindnesses and gracious
acts from those who do them out of sincerity because they care about the
people involved, even in a business context. It is just such acts that inspire
the best of relationships that can last for decades.

~~~
ErrantX
_People can and do remember kindnesses and gracious acts from those who do
them out of sincerity_

Some people just don't realise how many doors this opens.

~~~
rdtsc
That is why it is good to never act condescending or disrespectful towards
anyone. That kid that you made fun of during the interview for not knowing
some obscure feature from C could be buying your company in 10 years and you
could end up working for him.

This is even more true in a relatively niche markets with a limited number of
companies. Eventually everyones ends up knowing everyone, perhaps by meeting
at trade shows or just word of mouth, and reputation and networking becomes
very important.

The same goodwill goes for customers as well. Our company is loved because we
go out of our way to please the customer. Even the customers that are fussy,
mean and ignorant. We work weekends and evening on site to get them up and
they always put in a good word for us. Aside from having a good product that
is the only reason we've been around for 17+ years.

~~~
jacquesm
> That kid that you made fun of during the interview for not knowing some
> obscure feature from C could be buying your company in 10 years and you
> could end up working for him.

That actually more or less happened to me, my former boss worked for me for a
bit. Great guy by the way, so it wasn't that he made fun of me, and as a boss
he was pretty good too. I hope I was just as good a boss to him as he was for
me.

The reverse _also_ happened to me, a former employee struck it big and I did
some contract work for him.

It really is a much smaller world than most people think and if you burn your
bridges behind you or are nasty to people it will definitely come back to you.
It may take a while, but it always does.

------
btilly
None of the names were given, but I was curious how easy it would be to figure
out which vulture capital firm left a bad taste. Because that's going to be a
big question for any entrepreneur who reads this story.

From <http://steveblank.com/about/> I find out that his last company,
E.piphany, was founded in 1996. The time periods match, and the fact that
<http://steveblank.com/category/epiphany/> says that this story falls in
category epiphany confirms it.

According to [http://www.fundinguniverse.com/company-histories/Epiphany-
In...](http://www.fundinguniverse.com/company-histories/Epiphany-Inc-Company-
History.html) the company had 2 rounds of venture capital, one in March 1997
and the other in January 1998. Then in May 1998 Roger Siboni joined E.piphany
as president and CEO. So that would be the negotiation described. And the
January 1998 round would be the one with the bad VC.

Looking at [http://ssb.brand.edgar-
online.com/EFX_dll/EDGARpro.dll?Fetch...](http://ssb.brand.edgar-
online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?SessionID=nUbKWN0wLt94Sbh&ID=1342320)
I see that Douglas J. Mackenzie joined the board in January 1998 and was a
member of Kleiner Perkins Caufield & Byers. He also had only been at the VC
firm for a few years at that point, so he'd fit the description of "junior
partner".

I therefore believe that the VC firm that left the bad taste was Kleiner
Perkins Caufield & Byers, and the man in the dealership very likely was
Douglas J. Mackenzie.

This took me less than 10 minutes to figure out.

~~~
sgrove
I'm not sure if you're expecting a congratulatory note or not. I'm sure Steve
Blank knew that people could find the identity if they really wanted to, and
yet he chose not to share it. Having even a small hurdle to overcome means
that the vast majority of people (most of whom don't need to know) would never
really find out the identity of the bad VC.

Thus he can tell his story, and retain some civility...until someone comes
along and is a bit too eager to show off his google-fu.

~~~
kragen
You know, almost everybody who reads Hacker News would benefit from knowing
how Kleiner treats founders. This very much meshes with my experience with
them at KnowNow, where I wasn't a founder but was a pre-funding employee.
Ben's de-anonymization of Steve's story is a public service.

~~~
sgrove
Perhaps, but I think a slight disservice to Blank. I understand the argument
and see its merit, but I also think that anyone who would be involved with
them could just as easily have done it themselves.

~~~
btilly
Could, yes. But would they?

People get busy. If someone reading this starts looking at VC in a month, will
they find this story again? If they do will they have time to go back and
search for it? I'm betting not. And so they won't draw the connection.

Their odds of drawing the connection in a month are much, much better if
they've seen the name instead.

------
raganwald
Two thoughts:

1\. "Seasoned" CEOs with ridiculous packages are a little like wearing a dark
suit to work. Everyone knows it doesn't matter, but it's a way of signaling
that you're willing to play the game. That doesn't matter a whit when you're
trying to sell products to customers, but it matters a great deal when your
game plan is to create a certain illusion that someone else can flip to a
third party. This is known as "Banking on the Greater Fool Theory." It's a
game, and the other players want to know you're playing along.

2\. You are just the founder. The VC's model is that they take your company,
put their money into it, and then they decide how to spend their money. What's
in it for them to spend their money on you personally? Be sure you have an
amazingly persuasive argument before asking them to take their money and give
you some of it. Never think of it as your company compensating you for value
you put into it. Sorry, but even though those are the words everyone uses,
that's not what is actually going on.

Sorry for the gloom and doom, I'm off to have my first coffee of the day.
Here's an old chuckle, I hope it makes up for my mouthful of lemons:

<http://news.ycombinator.com/item?id=10054>

~~~
dasil003
Nice counterpoints, but I think #2 isn't quite the whole story.

Economically it makes sense for an investor to minimize expenditures. If the
founders are willing to work for peanuts, then it's the investors prerogative
to keep them that way. No foul there.

However for any VC to _ever_ utter the words "just the founder" in the
founder's presence is a massive managerial fail. Founders are not the people
who you want to "put in their place", they are the ones who make the company
succeed. Even if you think you don't need them anymore, why would so blithely
burn a connection with a talented entrepreneur?

~~~
raganwald
_Economically it makes sense for an investor to minimize expenditures. If the
founders are willing to work for peanuts, then it's the investors prerogative
to keep them that way. No foul there._

We agree.

 _However for any VC to ever utter the words "just the founder" in the
founder's presence is a massive managerial fail._

So this VC is guilty of "What You Can't Say?" I'd rather have a VC look me in
the eye and tell me the deal than have a VC tell me how wonderful I am but
there just isn't enough cash in the kitty to feed my family after paying for
the new CEO.

If the VC ends up paying the CEO to eat Sushi while I eat Ramen, I don't care
how I'm spoken to, there's a deal there I have to take or leave.

~~~
dasil003
_If the VC ends up paying the CEO to eat Sushi while I eat Ramen, I don't care
how I'm spoken to, there's a deal there I have to take or leave._

It's unwise for a VC (or anyone) to assume the person they are talking to is
this objective.

Calling the founder "just a founder" is a recipe for resentment, and it's
totally unnecessary. There are about a million ways to tell the founder that
they can't get paid the same amount as the CEO, and this is pretty close to
the most potentially damaging way I can think of.

~~~
raganwald
> It's unwise for a VC (or anyone) to assume the person they are talking to is
> this objective.

I never said I was objective: It's really a question of which circumstance I
dislike the least. :-)

~~~
dasil003
Fair enough, I just thought you were talking past my main point...

------
megamark16
I think a big part of wanting to start my own company is so that I can call
the shots, or at least have some say in how things will be run. I'd rather
bootstrap and build it slow and steady than have people push me around and
treat me like dirt. If I wanted that I'd just keep working for other people.

~~~
patio11
I'm more a fan of phrasing things as "freedom to X" rather than "freedom from
X", at least as it regards entrepreneurship. Day jobs put food on the table
and a roof over the head, and they're an honorable occupational choice, so I
won't rag on them too badly.

That said, having "freedom to be selective in whose advice I take to heart" is
way up there on the things I like about this job. Taking money would mean
having to be a wee bit less selective.

~~~
megamark16
That's an excellent point, it really is about what you get, as apposed to what
you are getting away from. I'm still at the day job myself (with a project on
the side). In the end I suppose I'll always be trying to please someone (boss,
investor, customer), so I'll just keep working towards having more freedom to
do what I want.

~~~
zackattack
If you REALLY dedicate to pleasing ONLY yourself, you will end up pleasing a
lot of people as well (and make money doing it).

------
holdenc
America has an ongoing corporate love affair with the "seasoned ceo." It's
visible in the way that seasoned ceos hop from company to company leaving a
wake of failures behind them. It's championed by advisory boards, venture
capitalists and business schools. How this culture came to be I'll never know.
I can only say that nearly every seasoned ceo and advisory board I have
encountered lack the imagination, resourcefulness and depth of insight to grow
a very small company.

~~~
hga
I think you're using the word "America" more than a little too broadly.

The inability to "grow a very small company" is hardly limited to small
companies. E.g. look at the HP board starting a bit before they hired Carly.
Or read _Optical Illusions_ , a book on the failed spinoff of Lucent. AT&T
insisted on putting a "seasoned CEO" of a diesel engine company in charge and
the board was cut from much the same gray haired cloth.

They knew how to handle the "being a public company" bit of things (talent
which inside AT&T wasn't jumping to Lucent) but they were totally unable to
provide adult supervision here it really counted. (I could go on, and am
particularly interested in this having worked for Lucent in 2001; when I
started out they had 106,000 employees, when I left they were targeting
35,000....)

------
shin_lao
As soon as the company is making money, there's no reason for the founders to
stay in a starvation budget.

Bad investors expect everybody to work for free.

~~~
gizmo
The company had growing revenue, but it wasn't clear from the article the
company had already become profitable. So most likely they were still burning
through their VC investment and so keeping costs low is the responsible thing
to do.

People also tend to have very different views on what a starvation budget is.
Some people will assume a starvation budget is $10.000/yr, others will assume
it's $50.000.

So we don't really have the information needed to draw any conclusion.

~~~
angelbob
A starvation budget _is_ different for different people. If you have a
mortgage, for instance, or Silicon Valley rent, it makes a huge difference in
how much you have to make before you can even afford ramen :-)

------
erikstarck
There's an interesting question in this post, namely when should you as a
founder expect to get paid after an investment and how much?

If you get money from the three Fs (friends, family, fools) as much as
possible would go in to the development of the business. In this case probably
your salary would be low if not non-existent.

But for larger investments soon you reach a point where it's OK for you to
take out even a decent salary and start living of the invested money.

What's your opinion on where the thresholds are for different levels of
salaries?

For example, watching the BBC show Dragons Den, the investors always assume
the founders will not use the invested money to pay themselves. These are
investments in the $100K-$1M area.

~~~
gyardley
This depends on how much money you already have lying around and what you
decide in conjunction with your investors - but in general, you should have
these discussions with your investors in advance, before you take their money.

One tiny data point - my co-founder and I were personally strapped for cash
when we raised seed. We paid ourselves $70K which for me was about half of my
market rate at the time. After a Series A, we paid ourselves $100K, which our
investors still said was 'below market'. After a Series B, I was no longer
CEO, but I got paid market.

In general, don't be a martyr. You're raising money to pay salaries, and that
should include yours.

~~~
cmelbye
This is probably the wrong place to ask this, but why do founders often give
up the position of CEO after the startup is established and up and running?

~~~
hga
Traditionally the conventional wisdom, as told by people who I'll note had a
stake in this type of outcome, was that the founders by definition didn't have
what it takes to grow the company.

Sometimes this certainly true. Maybe even most of the time. But then there's
the question, can the founders learn what they need to learn about growing the
company more easily than Mr. New CEO learn what's essential to its success
that he doesn't understand and probably has no background, no intuitive
feeling about.

The CEO in theory has the character necessary to do the big(er) company things
and this is no small matter, a lot of people just don't have that (management
and leadership are _HARD_ ). Whereas the character of the founders in this
role is generally untested or often in the process of being tested and found
wanting.

I've seen both sides, there's no hard and fast rule here.

------
char
I completely feel where this guy is coming from. My first startup had a small
seed round of funding, in which the investors took less than 10%. They claimed
to be investing in us (the founders), because they trusted us to do what it
took to succeed.

However, the "you're just founders" attitude kicked in shortly thereafter.
When we wanted to launch our MVP, they wouldn't let us, for example. They
wanted to run things "their way", despite the fact that we had the majority of
shares (and they threatened us when we brought this up). It turns out that
these people didn't actually trust us at all, and actually looked down on us
for being young adults trying to build an idea. (If you haven't guessed
already, the project failed).

If they had only given us the respect we should have earned from the start
from our previous hard work, we just might have succeeded doing things our
way.

~~~
dedward
Is there some reason a proper contract couldn't have prevented this in the
beginning?

If you sold off 10% to investors, then it's your fault, is it not, that you
did not get the financial control you required out of the deal, allowing the
VC to disproportionately influence the company in your eyes?

~~~
hga
While I too would be interested in more details, there are certain types of
people who if you let them get a toe hold in your company can effectively
preclude future success.

E.g.:

They may be investing in tranches and you need future ones to launch.

If you have a bad/impossible relationship with them, future or alternative
investors will steer clear.

They may be sufficiently nasty and wealthy that if you're successful, they'll
sue you, or are at least making a credible threat to do so. It doesn't matter
if you'd win if you don't have enough money to fight it.

The contract may have specified certain milestones, which they then prevent
you from hitting.

Anyway, by and large contracts won't really protect you in a situation that
gets ugly, their major purpose is to memorialize an agreement so that "but you
said..." friction doesn't arise after an agreement has been made. Imagine how
you might try to word a clause that starts with "In case of bad faith...",
starting with the definition of that.

------
kevinelliott
I never will understand why any VC or hired-gun-big-name-CEO would actually
expect founders to stay at a suffrage level and insist on dangled carrots of
"big payout later when the IPO drops." It may never happen, and in fact,
there's a huge chance it won't, and it's not always the founders fault. Sure,
founders should make sacrifices, but as the author of this article said, when
the payscales are adjusted due to an influx in capital or revenue, they should
get some kind of raise.

~~~
Tamerlin
The compensation should have been skewed the other way. The founders had
proven themselves, the CEO had not. Ergo, the salaries should have worked the
other way around.

Besides, the founders were hiring the CEO; his job was to work FOR THEM.

Then again, if you look rationally at how companies work, all management is
overhead by the nature of the job. Why should the OVERHEAD staff have the
power to fire the people who actually earn the company money? The people who
create the products or who bill their time to clients are obviously the people
who matter the most to the company, yet those are the same people that most
companies consider expendable.

That's obviously backward, and not sustainable -- but it's probably also why
the state of IT hasn't actually improved over the years. The best developers
are either working to go independent or leave the field entirely. In some
cases, both.

That of course means that the companies that treat their staff that badly are
ending up with exactly what they deserve: the leftovers. The ones that only
got CS degrees because the universities lowered the bar for getting degrees.

~~~
gyardley
Actually, the board of directors hires the CEO, the CEO reports to the board,
and the employees report to the CEO.

The CEO can only be said to 'work for the founders' if the founders control
the board. If the founders lose control of the board, then founder status
itself means nothing.

------
plinkplonk
"so we got another younger partner in his firm with seemingly the right
pedigree – engineering degree, MBA, lots of boards, etc. But as we would find
out the hard way – zero experience as an entrepreneur."

Do most (or even a majority of) venture capitalists have _any_ experience as
an entrepreneur? In India there are tonnes of VCs with just MBAs and no
entrepreneurial experience at all. They fund mostly outsourcing companies so
not much harm done. Still, makes me wonder..

------
klochner
Anticipating a downvote on this one, but someone has to say it . . .

Almost as an aside, he mentions "Luckily the company did go public". That's
not an aside, that's the punchline.

An alternative way of summarizing the anecdote would be:

"I had an encounter with a dickish VC, but with his help I had an exit for
tens of millions of dollars, so I'm not holding any grudges."

~~~
hga
You're reading too much into the aside.

Perhaps the greater context is "Luckily we retained the essential founders and
despite what the new CEO did we went public and everyone succeeded in the
short term".

~~~
dagw
There seems to be a very important detail missing from the story. How good was
the CEO and how vital was he in getting the company public and the making the
founders and ton of cash? Sometimes those hired CEOs actually do work hard and
more than earn their paycheck.

------
eande
As Steve said there are good investors and bad one. It is good to have a
website like TheFunded.com where you can collect information if the VCs you
are targeting or talk to is the right one or not.

------
cmykgrayscale
very sad to read all these cases where the VCs despotize the founders. People
with money always make the calls.

On an side note, is there a place where founders/developers discuss VCs and
their experiences?

~~~
daniel-cussen
Thefunded.com

------
aneth
Maybe just to be devils advocate, but:

1) It sounds like the CEO did in fact build a company that could go public and
result in a cash-out for you, putting some of the cash you felt you deserved
as a founder to good use and returning it to you many-fold.

2) You were in fact lucky to be making a "founder's salary." Many founder's
don't make anything.

While you may have been handled badly by a gruff VC, you also ended up with a
smashing multi-million dollar exit, at least to a significant extent because
of him and the CEO he brought in. I should think you would be at least a
little grateful. To me it sounds like whining.

Bottom line is, you were either naive enough to hire someone you didn't need
for more than you needed to, or you were knowledgeable of critical deficits in
your execution capabilities and you filled those, and gave up what it took to
get there. Either way, the VC may have been right.

------
adamilardi
That ceo probably spent all the money on cars and fancy vacations. So you both
had parity in the end. Sorry to hear you had a bad experience. Have you seen
this happen post internet bubble?

~~~
nailer
> That ceo probably spent all the money on cars and fancy vacations. So you
> both had parity in the end.

How so? Have spent money having a great time and having not received money are
different things.

