

Zirtual: What Happened and What’s Next - brianmwang
https://medium.com/@marenkate/zirtual-what-happened-and-what-s-next-f9bd493ecc49

======
cl42
"Oops, burn!" is not an excuse. Keeping silent without telling your employees
is not an excuse, either.

There's a reason so many investors and employees try to promote a culture of
transparency at a company... Because to do anything less is a sign of (a)
gross incompetence, and (b) greed.

It is often extremely uncomfortable to stand in front of your employees and
say "Hey, we've got 3 months left unless we hit this milestone. Let's work
together on this and if you can't commit, we'll help you deal with it." It
sucks to say and feels terrible, but better than an overnight blow-up.

~~~
harryh
This is an easy thing to say, but I can understand why a leader would choose
to do otherwise. The risk that employees will give up and bolt thus turning
failure from a likelyhood to a certainty are very real. You can't just ignore
that.

~~~
cl42
Do you warn employees and possibly risk losing those with a low risk
tolerance? Or do you hide this from them and lay them off with the legally
minimum notice and possibly no safety net?

I prefer to be a leader that promotes respect and care for employees, and
assume the former choice is thus a better one.

~~~
harryh
Have you every actually been a leader in this situation? I dunno, maybe you
have and you followed through. If that's the case, then all the high fives to
you.

But I sure haven't. And I look at it and I see a 10 out of 10 management
challenge. You've got the weight of the world on your shoulders as a leader
here. The lives of your employees, the faith of your investors, the very life
of a company you've put your all into for years. And in this case the CEO was
a first time founder with (rumor has it at least) not a lot of support from
her board.

Maybe she did the wrong thing. Maybe she didn't. But this shit ain't easy, and
I'm not one to judge too harshly.

~~~
cl42
I will say that I have actually been in this situation and have chosen to be
transparent with our employees. It was really, really hard but it was also the
right thing to do, in my mind.

Thanks for the comment about board support, harryh. There is another angle to
this, which is that the investors / board should also be there to provide
support / help as necessary. If they didn't do so, that is also very
unfortunate.

------
BinaryIdiot
I'm glad it was explained what happened and that startup.co may be getting a
lot of these jobs back but it's unacceptable for a founder to explain that
they didn't tell anyone about this because they had HOPED fund raising would
work.

In my opinion you should talk to your employees around 6 months left. Just an
open and honest talk about 6 months left of runway, here's what I'm doing
about it, etc. Then after that, until you gain more than 6 months of runway,
you keep employees constantly updated. Yes you risk people jumping ship but
many appreciate the honesty and it will help them face the worst case scenario
versus not being prepared at all.

------
blizkreeg
How is it acceptable under any circumstance to not let your employees know
until the final hour when you need to shut the doors that the company is
facing financial trouble? This isn't a simple 'shit I screwed up'. It shows a
fundamental lack of respect and empathy for your employees who expected to
show up to work Monday for _your_ company and get paid. Even a simple, 'we are
running low on money and be here at your risk' a month out would have been
sufficient.

I do wonder if VCs need to require first-time founders go through a crash
course in Business, Finance, and Ethics 101.

------
babababa
Posted this on another thread as well.

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.

------
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-brink-of-
bankruptcy-to-auto-pilot-cars/)

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

~~~
gkoberger
Near death and dead are very different.

~~~
harryh
Only in hindsight.

------
ratfacemcgee
"the loss of your first startup will always live with you..." why is this the
culture now? that failing is okay and fucking over employees and customers is
fine cause "lol startups"?

------
7Figures2Commas
> Burn is that tricky thing that isn’t discussed much in the Silicon Valley
> community because access to capital, in good times, seems so easy.

Huh?

[http://www.wsj.com/articles/venture-capitalist-sounds-
alarm-...](http://www.wsj.com/articles/venture-capitalist-sounds-alarm-on-
silicon-valley-risk-1410740054)

[http://www.bothsidesofthetable.com/2014/09/28/what-is-the-
ri...](http://www.bothsidesofthetable.com/2014/09/28/what-is-the-right-burn-
rate-at-a-startup-company/)

[http://avc.com/2014/09/burn-baby-burn/](http://avc.com/2014/09/burn-baby-
burn/)

[http://www.businessinsider.com/sam-altman-email-startup-
burn...](http://www.businessinsider.com/sam-altman-email-startup-burn-rates-
are-frightening-2015-4)

> And at the end of the day… “burn” is what happened to Zirtual.

This is, for lack of a better word, lame. Burn didn't happen to Zirtual, like
it's some sort of disease that lurks in the exposed brick walls of overpriced
SoMa startup offices, secretly coming out to infect innocent startups when
employees leave for happy hour.

Burn is something people manage and are responsible for. Clearly, Zirtual was
run by people who couldn't competently manage the company's burn. To put it
another way, incompetent management happened to Zirtual.

> The reason we couldn’t give more notice was that up until the 11th hour, I
> did everything I could to raise more money and right the ship.

Based on the description of Zirtual's finances (more money going out than
coming in) raising more money would not have righted the ship. Unless Zirtual
found a way to operate profitably, an infusion of cash would have only delayed
the inevitable.

I think a good number of early-stage startups in Silicon Valley are operating
with less runway than many of their employees would believe, but waiting until
the 11th hour to do right by your employees in the hopes that investors will
essentially bail you out to make payroll is in my opinion inexcusable.

~~~
harryh
I know basically nothing about Zirtual but it's worth pointing out that not
all failure comes from incompetent management. Building a business is hard.
Success is guaranteed to no one.

