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How To Avoid Getting Fired From Your Own Company (techcrunch.com)
109 points by chrisyeh 2215 days ago | hide | past | web | 45 comments | favorite

Answer: Re-evaluate what the meaning of "yours" is. This should be obvious to anyone. Once you start selling off ownership of your company to others, it's not just "yours" anymore.

Is it possible to draw up an employment contract for yourself that has steep penalties if you're terminated? That way, even if you lose control of the board there's still a strong disincentive to getting rid of you.

That is what is normally called either a "Golden Parachute" or a "Poison Pill". Management at large firms do it all the time, especially if they suspect that their firm is about to be acquired. While they still control the company, they write themselves contracts with fat, juicy termination clauses. Then, when their company gets taken over, they get huge money if they are fired. It works out well for them either way - the new owners either keep them or give them a hell of a lot of money.

You certainly can. The real question is: if you do, will you be able to attract any investors at all?

Josh makes a good point. VCs are in the business of making money. One of the most important factors in making an investment successful is the management team. If the founder can't deliver, they need to be able to find someone who can.

I would never invest in a company where the founder had a no-fire contract.

I think the most you can hope for is to have some portion of your vesting accelerated on termination without cause. The problem is that they can drum up "cause". I think the best you can do to solve that is specify very clearly what cause is (conviction of a major crime, etc).

The best way to do this is to set your vesting date as early as possible. Once your stock is vested, they can't take it away from you without your consent.

During a sale can't the company just dilute everyones stock and redivide the new stock amongst whoever is still at the company? That way anyone who is not present at sale time gets a very diluted stock. I think this is why if you leave the company and your vested you still get much less percentage of a company than you theoretically should have. I would think this is the norm?

No, but they can create new stock. Or give some sort of bonus/better conversion ratio only to holders of preferred stock (VCs), with bonuses for current employees. Or...

All of these are possible. But open the company up to lawsuit.

Why would anyone even want investors that didn't believe in the founder sufficiently to agree not to displace him for X years, or else pay founder lots and lots of money? While it may turn many investors away, I know I wouldn't want a group of investors that didn't believe in my ability to run the company and were just trying to get away with a coup that will allow them to control the IP.

If that is important to you, you can make it clear to the investors before they come in, and get them to agree to limit their ability to remove you from the board and from your position running the company. This can be done in a shareholders agreement. The problem is (a) if you need the investors more than they need you, they will not agree to this, and (b) people often think of this only when they are on the verge of getting the boot, when it is too late to work something out. Investments usually always begin with everyone singing "kumbaya" in harmony, and every investor always says they invest in founders, but when things don't go according to plan, the founder who's sold control is often going to be the first to go.

It's about leverage. Big companies try to attract "superstar" CXOs who have bargaining power to get "golden parachutes". Most startup founders don't have that kind of leverage.

I think that under some circumstances, getting fired from one's own company could be cause for celebration. If the company is at least reasonably successful, it means that someone else has grown to feel a sufficient sense of ownership and responsibility about it that they're willing to put themselves on the line. And it sets you free to start the next one. Isn't that what you really want to do anyway?

-- Not always, I know. But thinking about various businesses I can imagine trying to start, most of them I wouldn't be so attached to that I'd want to keep doing them forever. And I can easily imagine that once I got over the shock of getting fired, I could come to appreciate the opportunity to move on, particularly if I got a little cash in the bargain.

A few more tips, if I may be permitted to leverage my own experience and the experience of my friends and acquaintances:

* Avoid personal drama. I suspect that in more cases than we realize, management-level changes happen simply because people stop working productively with each other. In particular, you need to be prepared to DISAGREE AND COMMIT; to be able to signal that even in cases where you disagree about the direction of a decision, you aren't plotting behind the scenes for its failure.

* Stay close to the money. Most of you are tech people. As a tech person in a moving company, you can basically be doing three things and still be perceived as someone who is executing: you can be shipping product improvements, you can be doing "marketing engineering" (ask Patrick what this means, but, briefly: "things that improve customer acquisition or customer LTV"), or you can be talking to customers/the market. There seems to be a huge trap for techs in startups in the "CTO" and "Chief Scientist" and "Architect" roles; AVOID THEM.

* Be strategic about roles and hiring. This stuff about palling around with the board may be important, but from what I can tell, the game is won or lost on the org chart. Don't hire people who are going to ladder-climb around you. This is one aspect of Startup Soap Opera Drama that is not overhyped: the market is lousy with people who, for good reasons or bad, have a primary goal of being one of the key people on the m-team. A simple trap to avoid: if you're the Dir/E, be very careful about who the VP/E is; if she can't be you, aim for your kid's godmother. Similarly, if you're in Product Management, even as VP/PM, be very careful about VP/Marketing.

* Be careful about demotion. Clarifying special case of the previous note: in a lot of biz cultures, there's basically no such thing as a "demotion"; usually there's only termination, lateral moves, or "constructive" demotion (hiring SVP/M to oversee and eventually consume raw the VP/M, then EVP/M for the SVP/M, etc). If you allow yourself to be demoted, and your m-team is a bunch of assholes (not an infrequent occurrance), you can be perceived as weak.

* Keep zeroes out of the m-team. Human resources doesn't belong in the m-team. The Dir/M in a single-product company where a VP/PM handles 99% of marketing doesn't need a seat at the table just to represent "Marketing". The less vital a role is, the more likely they are to be a magnet for bullshit politics.

* Be customer facing. I think I said this already: if you aren't committing code that the company will sink without, you should be meeting customers or partners constantly. Be very careful about getting sucked into the conference circuit. It's easy to convince yourself that a particular conference is important to your business but be perceived by everyone else in your company as a tourist.

* Be on the same page with your board. In two of the cases I've been directly involved in, the conflict underlying a planned coup was at the level of "are we going to grow the business or are we going to position the company to get bought". It seems like you need to have an eye for the kinds of decisions that involve liquidity. Early on, your board may be worried that you're tilting the game for an early exit; later on, especially if you aren't on the original founding team, you may be perceived as an obstacle to bizdev when your VC just wants to get rid of a board seat gracefully. You don't have to agree on every decision, but it seems like you really do have to be perceived as having aligned interests.

* Be extremely cautious with metrics. Anyone who's ever managed a sales team knows about "sandbagging", where the guy running a region lowballs the numbers so he can sail over them and collect bonus accelerators. A lot of devs have a natural habit of being optimistic --- about schedule, about product adoption, about support costs, about COGS --- all of which gives the management team ammunition down the road.

Just wow. There are people who would write a book instead of this, and yet, that book might not have as much content.

How do you know this / did you learn this?

I'm constantly trying to counteract know-it-all syndrome. Studying other fields where I'm not an expert has been very eye-opening, but examples like your post are even more interesting.

I'm (probably) significantly older than you, have spent my whole career in startups, and so have many of my friends.

Most of the article reads like Power and Politics 101; I was relieved to discover this part at the end:

You should also bear in mind that sometimes, the coup plotters are right.

If this is a big concern to you, get your money from VCs and angels that aren't in the habit of firing founders. The Founders Fund, as I understand it, has an explicit policy of not funding anyone they think they might need to fire, because they expect that if you have to fire the founders the company is probably going to tank anyway.

VCs rarely go into a deal expecting to fire the founder. The only way that would make sense is if A) the business is red hot and B) the investors see the founder as a lucky fool rather than as the person responsible for the business' success.

That's a pretty rare combination.

Step 1: Don't give up a significant portion of your company.

That's not enough. Under most corporate bylaws the board has the ultimate power. You could own 90% of the shares and still get fired.

But if you own 90% of the shares, can't you just fire the board?

depends on the voting rights of the shares.

My understanding is that unless you have provision (in a shareholder's agreement for example) that gives you that power the answer is no. I believe that if you sued the company a judge would likely intervene on your behalf though.

Ultimately the directors are always elected by the shares, and unless there is something really strange about the voting rights, someone owning a controlling interest in the shares should be able to control election to the board, which in turn would allow that person to control the board. Controlling the shares + controlling the board = controlling the company.

The shares do elect, but the owner of the shares can be required to vote a certain way. You could sell 90% of your shares and add a "ELECTION OF BOARD DIRECTORS" clause to the agreement.

This is the same way drag along rights work.

If you own 90% of the shares, you are the board.

While witty, this is incorrect.

If you own 90% of the stock you should be able to remove or replace all the directors, and once you do that your new directors can rehire you. There may be a lag if the company's charter prohibits shareholders from acting by written consent or calling special meetings, but even if that were the case, anyone owning 90% should not be out in the cold for long.

It depends on the agreement.

For instance you may retain the stock, but have explicit agreements where specific investors get to have a specified representation on the board. Then no matter how much stock you own, you can't get rid of those investors.

"The only way to be totally fireproof is to own a controlling stake in your company"

I wish the article was on 'how to own, keep and maintain controlling stake no matter how many rounds of funding you do' ...

That would be "don't take much money." To avoid losing a controlling stake in your company, don't sell one.

There will never be an article like that-- because the only way to do it is to have nearly infinite leverage when raising money (see Facebook and, likely, Twitter).

Sounds like a really good argument for doing everything possible to go solo.

This article just covers the downsides of selling equity to raise money. Obviously there's an upside - having money in the bank with which to grow your business. Some projects need a team of people and that costs.

I'm both the author of the post and an investor. If everyone bootstrapped, I'd be out of business. But I want entrepreneurs to know the risks they face.

Plan your career so that you can retire by 40.

this is yet another reason why I want to always bootstrap and retain 100% equity (or at least controlling share if I give out grants). So much pain, hassle, risk avoided. You might have to grow slower, maybe, depending on the particulars. But I think it's worth it.

I sympathize, but this can be the difference between flying around in your own jet or just paying off your mortgage.

Of course, whether that shot at 10^8 wealth is worth the hassle versus "just" 10^6 wealth is a personal choice.

Fear is a bad reason.

caution. prudence. applying the wisdom that you want to have as few moving parts as possible to reduce complications. not fear.

i don't play with dynamite because the upside doesn't interest me and the downside bites hard. same for playing on highways, jumping out of planes, juggling swords, etc. is it possible to do all these things and come out undamaged/unhurt/unhassled? sure. but there are alernatives available to me that have similar upsides or better, with less downside. YMMV

It is hard to dominate a market when your competition has x million dollars. Even if they last only a few years they have sucked up market that is hard to take back.

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