

Startup War Story: When The Team Falls Apart (Profitably) - acslater00
http://venturebeat.com/2012/03/23/exclusive-new-york-startup-profitably-loses-all-but-one-employee-ceo-adam-neary/2/

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droithomme
Taking a look at the timeline.

In November they fired a key employee, then the CEO demanded a loyalty oath of
all remaining members that they would stay for 6 months or get out. They had
48 hours to accept the loyalty oath or leave. All accepted.

It seems it was then that they began the total rewrite of the front _and_ back
end of the system.

On this last Monday, after 5 months of an unpaid overtime, they finished that
complete rewrite death march. On Tuesday they had a token pizza party.

There is no other reward for completion of this death march or the roughly six
months of loyalty.

On Wednesday they are back to the grind. A co-founder, having fulfilled his
vow to stay through the six month rewrite, resigns. The rest of the employees
are told by the CEO they must take another loyalty oath and this time be
willing to work without pay because there is no income. This time they get 24
hours not 48 to answer. The entire team chooses to reject the new loyalty oath
and thus "resigns", but it is also possible they were basically forced out for
refusing the oath.

Even without the oath, mass resignations are quite common at the end of a
death march. So far this story is straight predictable right out of Edward
Yourdon. Yourdon is also correct that death marches are the rule not the
exception with start ups. Given how many products and start ups are destroyed
because of management driving death marches, they may in fact even be
responsible for the largest waste of capital in the industry today. Business
as usual though.

Now we get to the strange parts of the story.

During all this going on, the same CEO only the week before was emailing
journalists and telling them that the company was doing well and picking up
several hundred new customers per week.

The CEO then writes a letter to investors blaming the co-founder for not being
loyal, doesn't mention the new loyalty oath, and goes on to say the company is
in excellent shape with new customers coming in every day.

This is all quite strange with a number of unaddressed questions. Among them:

With all these new customers why was the team told to accept no pay or get
out?

The team spent the last six months sacrificing their lives and successfully
rebuilt the entire product. They succeeded. The CEO during that time period
has successfully extracted only 50% of the loyalty oaths he demanded. This
seems his major accomplishment. He completely failed to secure financing
needed to keep the company afloat. What exactly has he been doing during this
time while others sacrificed? It is clear what the developers have been doing,
but him not so much.

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mcao
They offer a free product and a $50 paid product. I don't think it was
mentioned anywhere that those hundreds of new customers were paying customers.
Maybe they just signed up to try the product then never came back.

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leftnode
That title made it sound like a startup profitably fell apart. As in, the team
dissolved, but they all made a lot of money doing it.

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cienrak
Agreed. Can the mods change the title so its clear?

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brown9-2
Seems to me like the last sentence explains it all:

 _The part that Neary left out in his letter? According to sources after Pugh
departed he gave employees an ultimatum: 24 hours to decide if they were in or
out for the long haul, even if that meant no more salary without a new
fundraise, which seemed unlikely. Given that binary choice, they elected to
abandon ship._

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blakeeb
Sounds like less of a war story and more of a fatal leadership mistake. There
was no "war" - Rather than inspiring his team, he gave a frantic ultimatum.

Sadly ironic name, hopefully he can pull it together.

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rdl
It sounds like the CEO wasn't very good at communicating with his team OR his
investors (or presumably customers), which was the fundamental problem.

However, when the money runs out, all sorts of bad things happen. Asking
people to continue without pay, advancing expenses to the company, etc. are
not things you'd do starting from the start, but it's at least understandable
why people do this after investing a lot into a project, and why people feel
some kind of personal betrayal when they are willing to go on and do that kind
of thing but other people aren't.

The lesson is to not get to that point :)

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arctangent
The link goes to page 2 of the article. The correct link is this one:

[http://venturebeat.com/2012/03/23/exclusive-new-york-
startup...](http://venturebeat.com/2012/03/23/exclusive-new-york-startup-
profitably-loses-all-but-one-employee-ceo-adam-neary/)

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budu3
He paints a bad picture of the fist guy who left but it looks like the first
guy stuck around and help finish the re-write so he can't be the villain that
he's portrayed to be.

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willvarfar
Its like when my pub raft-racing team called itself "In First Place" just to
wind the commentators up.

Later we called our raft "two pints of lager and a packet of crisps please".
Such is English humour.

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brooknam
Sounds like there is more to this story. If they are adding hundreds of new
clients, why are folks heading for the door?

~~~
cedsav
not clients, free users.

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debacle
Free users are still users, and 1k users per week is nothing to scoff at when
you're dealing with the B2B arena.

~~~
griffordson
Can you name a single profitable company in the "B2B arena" with only free
users?

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debacle
Mint started out as not profitable in any way, and I believe at their IPO
(which was ~18 months later) they had an ARPU of something like 35-40$ per
annum.

You need to reach a critical mass in users before you can take action on
certain potential profit centers. It's different for every industry and every
business, but there's some things that would be more trouble than they're
worth at 25k users but start making you a lot of money at 100k users.

~~~
d2vid
Mint was acquired by Intuit, they did not IPO:
<https://www.mint.com/press/intuit-to-acquire-mint-com/>

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debacle
Sorry, it has been a while. I remembered them as IPOing for ~190 million, but
apparently that was not the case.

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ilamont
_If Chad and Eric were out, we wouldn’t be able to raise funds, and that’s
that._

On the other hand, he also said the company has a rebuilt product and is
signing up hundreds of new companies every week. Is it entirely a lost cause?

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debacle
I think he was trying to explain the other employee's reasoning for leaving,
not conveying his own feelings.

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motoford
Sounds like they lost one guy and ran the rest off.

