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How to go down with style
117 points by alecco on Oct 13, 2008 | hide | past | favorite | 32 comments
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.

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.

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.

I've seen it with my own eyes as I was a small partner.

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.

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.

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.)




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.


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thanks


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.


Sorry about that. My point was the greedy wife left him when he most needed her.

The girlfriend was a successful entrepreneur all by herself. And she was 40. Far from a young trophy girlfriend.

And I think it's wrong to measure how much you are worth by looks in the first place. My mistake was mentioning age, but note I didn't say she was prettier (she wasn't.)

(And you got my up vote, you are right.)


but note I didn't say she was prettier (she wasn't.)

now you did.

just sayin'


Where exactly did this get mentioned in his post? If you think we all get worthless as we grow older.


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.


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?


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?


"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.


I agree.

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


I think what's wrong is the approach that a partner in life is some sort of trophy to be had. That's why his wife left him - she wasn't really in it for him, she was playing her role.

To succeed in love, find the one that loves you at your worst. That's my two cents.


> To succeed in love, find the one that loves you at your worst. > That's my two cents.

Absolutely.

Been through that BTW, so I know how that works.

Doesn't the Judeo-Christian wedding ceremony include the vow (paraphrasing) that people stick together in good and bad times?

Finding out that your worth as a mate to someone depends on the current bank balance is one HELL of a rude awakening. Great learning experience though, I would not have it any other way.


"His wife left him."

Hahaha, over 30 isn't old, women are just to wrapped up in appearence, because hey, if your husband can't make money, you gotta find one that does right?


Over 30 could be considered "old" from a child-bearing perspective. Risks of mis-carriage and birth defects start to skyrocket after ~33 for women. Still, I agree that the age comment only detracts from the core message of the post.


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.


In general, in bankruptcy or "winding up" the unpaid salaries of employees come first, then creditors, and shareholders last. In spite of this general principle, I am sure many of us know of cases where employees worked for months without pay, and vendors or even investors got paid first, from the last dot-com bust.

The post uses the phrase "And paid everyone full compensation plus some extra benefits (like health insurance)" which I interpreted to simply mean that the employees correctly got their salaries and at least some of their benefits (they should receive all salary and benefits before investors get anything), which is often (illegally) not the case.

I googled the case you cited, but it doesn't seem to apply to back pay, but instead applies to the proceeds of a winding up being given to laid-off employees as a "bonus" instead of to the shareholders.

In startups, the issue is often complecated, because the same people are often employees, investors, and company officers, and I think the courts have some sense that anyone working for a startup knew it was risky, and treat those people differently from an employee at a big, well-established corporation.


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


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


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.


Within the law obviously ;-)


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.


When the employees benefit, the shareholders often do as well.

http://www.businesspundit.com/good-work-environment-higher-r...

I don't know if the data is significant, but it's certainly worth nothing.


Welcome to Capitalism! Bend over!

To clarify: I think it's really a sad state of affairs when the people who commit most of their waking hours to a company and depend on their salary for day-to-day living aren't the ones who are paid first.

Everyone knows: Bros (employees) before 'hos (shareholders).


Ok. Here's a hypothetical (actually no longer such a hypothetical scenario). The shareholders are the tax payers in a financial institution where the employees have been quite handsomely paid till now. Who gets paid first - employees or shareholders ?


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.


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.


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.


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


Great story, thanks for sharing.


Great post, thanks!




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