Happy Fourth of July


We’re headed into the long July 4th weekend . . . what better time to talk about a startup.

It’s a big startup, based on a radical idea, revolutionary in fact. It started out with small, modest goals but quickly expanded – far too quickly, it’s on shaky ground, underfunded, and burning up the capital of its main VC. The founders never had the time to do more than hastily incorporate. Operating agreements, much less employment agreements and guidelines, do not competes and non-disclosures were never enacted.

The competition is old, established, monolithic, and slow moving – but rich beyond measure.

The board of directors are split – almost evenly – on the startup’s long-term goals. Some of them want to be bought out by the competition. Unsurprisingly, they spend most of the time arguing among themselves. Only two directors took the time to visit the physical plant.

The CEO is tall, aristocratic, smart, taciturn – the perfect qualities, he is indispensable. The board, however, continuously tie his hands, interfere in day-to-day operations, and withhold funds needed for training. He’s put everything on the line for the company to succeed on its own, the alternative would be personally ruinous.

Below the CEO are two highly capable officers, a COO and CTO. They do not get along and have the most incompatible of incompatible personalities. The only thing they agree on is that they are both more qualified than the CEO. They undermine him at every opportunity, The CEO suspects this but he can’t fire either of them without board approval. That approval will never come.

The key employee is brilliant, improvisational, but high strung. He is devoted to the CEO.

With the company on the verge of bankruptcy and a takeover, the key employee single-handedly holds off the competition and the company is saved for the next six months.

After a string of highly publicized losses, the board of directors announce an IPO, in effect declaring they will never willingly sell-out to the competition.

Two months later, after several devastating losses, the key employee shocks the world when he snatches victory out of the jaws of defeat and corners the Northeast market. New VC money begins to flow in.

Problem: the COO takes all the credit. He was on site, did nothing, and failed to mention the manager in emails or press releases.

Meanwhile, the CTO is caught on video having dinner with the CEO of the competition’s North American operations.

The key employee, out sick due to his exertions, is incensed. He appeals to the CEO. The COO, a political animal, goes over the CEOs head to the Board to have both the CEO and key employee fired for cause.

The Board has no mechanism in place to manage the conflict that threatens to take down the company just as its outlook has changed and foreign investments are flowing in. The CEO, whose functions and responsibilities were never spelled out when he was hastily hired, is buried under day to day operations (and shuns politics) leaves it to them to the COO and the Board to work it out.

It ends the way one would expect without any corporate structure – six managers are promoted over the key employee. He bolts to the competition. He tries to bring proprietary intellectual property with him but, luckily, it’s recovered.

It takes time, but eventually, after unnecessary losses, new key employees step up – three are promoted from within, three are outside hires. The Board pulls off an unexpected, successful, joint venture.

The company survived and slowly flourished. It took another six years for them to finally produce an operating agreement.

It ended up working out, this start up with no plan, no funding, no agreements, and a premature IPO. That almost always doom a company. In this case, though, it was an historic success.

Happy Independence Day!