

How to go down with style - alecco

My mentor was the CEO and co-founder of a hundred-strong successful (not-so-tech) company when a strong recession hit. He explored all the options, talked with his top clients and creditors, and did an accurate forecast of the business for the following years. The outlook wasn't good at all.<p>He spoke with all the employees and told them exactly what was going on. He made found other jobs for many of them. And paid everyone full compensation plus some extra benefits (like health insurance.) The employees did a thank you barbecue for him, completely on their own. The price was splitting with the other founder, to sell everything up to his car and some personal assets, and go back to basics in his personal life. His wife left him.<p>Not many years later, after the recession, he decided to set up another very similar company. Getting credit was trivial. Setting up a workforce swift as several key former employees joined in even without discussing salary. Within months the new company almost wiped out the competition. "His word means a lot to us." By then he had a much happier and younger girlfriend.<p>I've seen it with my own eyes as I was a small partner.<p>The competition was hated by knowledgeable people in the trade as they didn't pay salaries for months and then either went bankrupt or just fired most people anyway after many broken promises. They defaulted in their debts so their creditors weren't happy. And the few remaining customers during the recession had a terrible service, in particular they were left in the cold in many cases due to the chaotic situation. There were just too many competitors for only a handful of clients.<p>Think twice before passing forward your pain, be it by inaction or by delusion. Nobody will judge you if you can't kill a gang of Goliaths. But everybody will hate you if you lie and fail them.<p>DISCLAIMER: This story is not related to Silicon Valley and I don't have a company right now (was incorporating.) It is just a lesson to counter-balance some dreadful advice seen here on going on no matter what. It isn't my place to tell anybody they have a chance or not. I'm sure investors, clients, creditors, and experienced entrepreneur gurus (like PG) can advice you on that (just like my mentor was advised in the story.)
======
ghshephard
Truer words never spoken. The valley is an incredibly small place, and your
actions as a CEO, even a decade ago, are remembered and spoken of today. One
CEO (who shall remain nameless) of a classic startup that I worked for 6
months at (so I have no skin/bias - I didn't hit my cliff - went to work for
the next startup before getting there) - ended up not getting traction quickly
enough, and, near the end, sold out to Oracle for $90mm.

The Common Shareholders (all of the employees) had their options completely
wiped out. Totally worthless.

The preferred shareholders got their money out (which is fine, that's they are
called preferred shares) - but the CEO, and a few of the founders who were no
longer with the company, received multi-million dollar handshakes, even though
they were common share holders. This was a Kleiner Company.

Lessons learned from this:

The CEO, regardless of whether he is a Common Shareholder, is not in the same
class as you, and will be given preferential treatment. This particular CEO
will be remembered by roughly 120 employees who have spread through the valley
4 years later, as the asshole that he is.

If you are a founder, you still have leverage in a sale, even if you aren't
with the company. Keep your lawyers close by if a deal takes place for a
company that you helped found.

Worker-Bees - Remember where you are in the feeding chain, and don't trust
Kleiner to recompense you when they are exiting.

~~~
netcan
Watch the

    
    
       formatting
    

It stretches the whole page.

~~~
netcan
thanks

------
blurry
I might get downvoted for this but what the hell. Did you effing _have_ to
mention the younger girlfriend prize while talking about honor of all things?

You just made me and every other female/over 30 reader feel like shit. If you
think we all get worthless as we grow older, have the decency of keeping it to
yourself. Especially if you are going to expound the moral virtues of treating
people right.

 _"Think twice before passing forward your pain, be it by inaction or by
delusion"_ indeed.

~~~
mroman
I think your comment was very immature and unwarranted.

The man's wife was wrong to leave him. The younger and prettier woman was
smart and fortunate enough to have found a worthwhile man.

~~~
trevelyan
I'm male and reacted the same way as blurry. It's a puerile touch. Perhaps we
can avoid this sort of thing in the future?

~~~
mroman
I believe the person was simply reporting on the facts, and I think that
pointing out that fact (that the new wife was young and pretty) was valid, as
it illustrated one of the ways that the man's efforts paid off, how life
rewarded his honesty, integrity, and commitment to do the right thing.

It made me feel good actually, some woman leaves him FOR DOING THE RIGHT THING
. . . but then, eventually, why, he meets a great woman who is in many ways
(including young and pretty) better than the other one. How wonderful! Good
for him! Good for her!

I love it when someone who does the right thing is rewarded.

Would it have been better you think if he had remained single, or if he had
ended up with a wife that was not as great as the one that left him?

~~~
Hexstream
"Would it have been better you think if he had remained single, or if he had
ended up with a wife that was not as great as the one that left him?"

I think it wouldn't have been mentionned in the story then. Still a valid, if
rethoric, question.

~~~
mroman
I agree.

I like that story, wish there were more like it!

------
ozanonay
As an interesting side note, this sort of thing (selling off assets to pay
employees prior to liquidation) is illegal in most circumstances in the UK and
Australia (and likely in other Common Law jurisdictions) thanks to a Chancery
case Parke v Daily News Ltd [1962] Ch 927.

In the case, all of the company's assets were sold and the balance paid to
workers made redundant by the closure of the company's plant. The court found
in favor of the plaintiff, a minor shareholder.

Put simply, Directors must act in the best interests of the company, even if
doing so is to the detriment of employees.

Can't speak for California or other US jurisdictions, but it's certainly
illegal here in Australia.

~~~
netcan
I thought that shareholders were supposed to be the last to get paid.

~~~
mixmax
Yes, but the managements sole responsibility is to make money for the
shareholders. Not for the employees.

~~~
netcan
Yes, but that wouldn't mean they're expected to murder & steal on behalf of
shareholders if opportunity presented itself.

That money is owed to employees by shareholders.

~~~
mixmax
Within the law obviously ;-)

~~~
netcan
Sorry, that sounded like a left rant. What I meant is 'isn't that outside the
law?' The law says debts get paid, then shareholders can split what's left. I
believe bankruptcy court is supposed to handle what debts go first. But it
shouldn't theoretically make any difference to shareholders what debts go
first.

Obviously the trick is to make sure your friends (the employees) get paid
first by settling that debt before declaring. I can see how that might be
legally troublesome. But it's the vendors, lenders, etc. that should be
complaining, not shareholders.

------
maxklein
If you're nice and honourable to people, they will be with you for years. It's
not about being friendly ("Hey Dave, GREAT to talk to you again"), it's about
just being genuinely nice and giving people good deals. It's good to be fair.

------
niels_olson
Alfred Pease, one of the guys behind Perceptron (PRCP), and the father of a
classmate, had similar advice for some of us a decade ago: knowing when to get
out is at least as important as knowing when to stay in. He got out of the
operating system market with dignity when MSFT was coming on strong and was
able to help build Perceptron.

------
jdavid
when i closed the doors on one of my business ventures i did the same for the
employees that were honest with me. the other ones just left before hand
anyways. today we still talk and one day my friend and former employee says he
will repay me. i think our choices are for eternity even if we never get
punished or rewareded. i just want to know i contributed good to the world.

------
saint
You have very good mentor. And I liked the part about "younger girlfriend" ;-)

------
abijlani
Great story, thanks for sharing.

------
vlad
Great post, thanks!

