Subscribe
Share
Share
Embed
The "No BS" version of how startups are really built, taught by actual startup Founders who have lived through all of it. Hosts Wil Schroter and Ryan Rutan talk candidly about the intense struggles Founders face both personally and professionally as they try to turn their idea into something that will change the world.
TST EP281_Why Do Investors Fire Founders
===
Speaker: [00:00:00] Welcome back to the episode of the startup therapy podcast. This is Ryan Rutan joined as always by Will Schroeder, my friend, the founder and CEO of startups. com. Well, founders get fired all the time, right? It happens, but replacing a founder's energy, passion, vision, Can be extremely difficult. Just ask Ian Crosby or maybe even better, the investors who fired him.
Speaker 2: It's interesting because obviously we're heading into a new year, new era. This is the start of 2025 when we're recording this, uh, happy new year, everybody, by the way. And you know, at the very end of 2024, there was this big announcement that went out that kind of went all over, you know, social and everything else like that, that bench, the accountant as a service business went out of business overnight.
I mean, quite literally went out of business overnight. Ryan, when you heard that, what's the first thing that came to mind for you?
Speaker: Oh, well, there was a fairly similar story that we lived through about, was that eight, nine years ago? It's kind of how we wound up with [00:01:00] virtual at one point.
Speaker 2: Like almost verbatim.
But what I thought was interesting, you mentioned Ian Crosby, uh, who we worked with as a partner of startups. com. Yeah. And Ian goes on Twitter, which I was happy to see. I refuse to call it X. Uh, he goes on Twitter. He says, like, Okay. Here's what actually happened. These guys fired me like two years ago. The investors fired me like two years ago.
And I told them this was going to happen. I told you, this is exactly what was going to happen. And they didn't believe it. Right. And you know, over the past year, specifically this year, because we're like in like a down part of the startup economy, we've seen a lot of founders get fired, not just close their business.
Speaker: We have, I just saw a tweet from you earlier today that said I, at this point in the year, I now know more jobless founders than founders who are hiring, uh, which isn't a great, which isn't a great sign, right? But it's a sign of the times. It's not, and look, it's part
Speaker 2: of the process, but what I thought would be pretty cool for us to unpack here is to explain why do [00:02:00] investors do this?
What is it that causes investors to say, let's get rid of the golden goose? So Because it happens to everybody. It happened to everybody from Steve Jobs to Sam Altman. Yes. Sam Altman, you know, came back in a
Speaker: few days, but he still got fired. And then again, and then back again, and then again. I've lost track at this point.
They're playing ping pong with the poor guy.
Speaker 2: He was almost a Microsoft employee for like nine minutes. What I think is interesting is like, let's start with what the motivations are. Let's start with, with what happens. Let's talk about why it's a mistake. And it's almost always a mistake. And then we'll finish up with what to do about, you know, if you're in that position or you've gone through this, you know, what to do about Ryan, let's talk a little bit about how it starts from the investor's perspective.
What are they typically seeing?
Speaker: Yeah, look, there there's, there's something in terms of performance that they're not happy with. It's either we're underperforming or In some cases, we've all seen this happen where there's another similar startup or someone else in the space, all of a sudden blows up, does something else.
And [00:03:00] so they're now comparing what could have been to what is. So it's not even necessarily a failure in performance, but it's a failure to perform to an expectation that maybe it wasn't even originally set, but now we're starting to see something in the market that says, well, we could have done this and you didn't do it.
So therefore we've got some kind of a problem, right? And it generally starts with little rumblings. Right. It's not usually some massive thing where it's like you squandered all of the company's cash on a yacht. Uh, you're fired, right? Rarely that. I wish it was that more often.
Speaker 2: Right, right. Uh, that sounds awesome.
What's interesting about that. And again, I want folks to just for a minute, see things from the investor's eyes, you know, it's easy to say investors are bad, but I think we need to talk about where this comes from. Where does this, uh, thought process or, or, uh, expectation originate?
Speaker: Sure. Well, here's an easy analog.
Just imagine, just put yourself back in the founder chair and you're looking at any one of your employees. And they're not performing in the way that you expect. You want to do some course correction, right? [00:04:00] Starts gentle in general, right? In the beginning. And, and then there's escalations up into the point.
What do you fire them? It's not different for the investors, right? Right. It's a much bigger decision. It feels far, far larger. And certainly the outcome can be far more stark, but it's essentially the same process. You're looking at something saying this isn't doing what we want it to do. We have to make some level of change.
Speaker 2: Yeah, I agree. And what's interesting is no one really knows what that expectation should have been. There's the problem because by default, we made it up. Now, part of the problem is we, the founders made it up. You know, we showed up with our pitch deck and our pro forma financials. And we said in four years, we'll do this.
Now, no one really believes
Speaker: every time.
Speaker 2: Right. Yeah. No one really believes that's going to happen. And you know, it's funny. I wonder if there was some way of knowing this. And there is not of what the percentage accuracy of four year financials on a pitch deck, especially at like the seed or series a stage have ever [00:05:00] been, have ever been
Speaker: right.
If it's a full digit, I'd be surprised. It's definitely in the single digits, but I, it may not even be an integer. Yeah. It's, it's low. It's very low.
Speaker 2: But from the investor's mind, they put their money in because they had some level of belief, not a concrete one, but some level of belief and optimism that the business could be what it was.
So you can't fault them for that optimism. You can't fault them by saying, Hey, how dare you have expectations of the company? It's like, dude, that's why I gave you the money
Speaker: out of nowhere. Contract there. And by the way, you gave me all the metrics we're holding you against right now. In some cases, that's not always true, correct?
Speaker 2: Correct. What happens though, is these missed expectations or this friction, it doesn't start out of nowhere. So when I hear a founder say, Hey, I got blindsided by the board, you know, I just got let go. Yes. I mean, there is a difference. It's, it's like a couple fighting and there's always the, the [00:06:00] notion of divorce.
But it's not the same as when one person says the other person, I'm filing for a divorce. So yes, like the actual event is significant. There's a million cracks in the dam before this thing explodes. You know what I mean?
Speaker: One of the funny signals I've always thought of is like, the minute it goes from you, you, you, to we, you've probably got a problem, right?
At the moment they're saying like, You know, you could consider this or you could consider that too. We need to make some changes or we think that like the minute it goes to we, right, once the, once it becomes the Royal, we, you're probably should, your ears should perk up at that point and go like, ah, why is it no longer just me?
Why are they no longer relying on me? Right. There's something, something going on here. Typically the board
Speaker 2: would prefer a course correction, right? And no board is saying like, how can I make my life harder by pulling out the most influential person in a company I just invested in? That's like, yep. The last idea.
Now that said, there's a big difference between that being their last idea and it being a good idea, just because it's their last resort doesn't mean it's a good [00:07:00] one. But I think from a founder standpoint, if you hear a couple of cracks in that dam, assume it's way worse. Assuming you are seeing a fraction.
Of the overall pressure coming.
Speaker: Oh, a hundred percent in the scenarios that we've laid out today. Generally it's this slow burn thing that's happening over time. And so again, by the time you see it, it's been there for a long time. So to your point, there's a lot of pressure behind that dam. At this point, any cracks that you're seeing are just a, a harbinger of what is about to happen, right?
There's far more severity than what it looks like.
Speaker 2: And those investors, the reason they're in this business of investing in startups is because they want to feel like they have some modicum of control over these outcomes. That's why they join boards. That's why they do what they do. And some of them, not all of them are founders themselves who have had experience.
So the idea of watching something in their minds tank and not doing something about it is irresponsible to them. So again, their intentions or their, their position isn't [00:08:00] hard to understand. You may not like it, but it ain't hard to understand.
Speaker: Again, go back to my analog early on, which is if it's an employee that's underperforming, at some point you got to do something about it.
You may not want to, it may not be popular socially within the company, emotionally for the founder, financially, it may cause all kinds of operational issues in the short term, but at some point, if that person's underperforming, you have to make some kind of a change. Exactly. And
Speaker 2: so. Investors, when you look at what's the single greatest change that you can make to try to right the ship, so to speak, it's always fire the CEO.
It's always fire the CEO, right? It's like in, in sports, if your team isn't doing well, you fire the head coach, right? The head coach just knows that if he puts up a losing season, he's gonna be gone. So from a founder standpoint, shit kind of works the same. If you're putting up a losing season, ergo missing sales targets, running out of money, etc.
You're that coach with a shitty record that's probably going to get replaced. Now, this belief If we just replace the CEO that things [00:09:00] will turn around doesn't always work as, as Mr. Crosby indicated.
Speaker: Yeah, I can't think of a single case where removing a founder didn't leave a hand grenade behind, right?
There's, there's always a ton of collateral damage that happens because it's not, it doesn't happen in a vacuum, right? Like, it's like, sounds like, okay, well, we're going to replace the CEO. Sure. But you're not going to instantly replace it. You can put a new human there, but you can instantly replace the relationships, the knowledge, the passion, the, the drive, uh, the understanding, all of it, right?
Like it's, it's our, we did an entire podcast on this.
Speaker 2: You've got compounding layered issues here that are, they're not insignificant. And this is me again, trying to give you some perspective of the board members of the investors. Not that I agree with them, but it's important to understand them. The first is we want to replace this person because we believe that their lack of decision making experience, you know, all the above are tanking this company.
And we believe if we bring in XYZ person, it will solve for those problems. [00:10:00] Now, This tends to ignore a lot, which is the heart of this debate. Ryan, I'd be curious what, you know, what, what some of yours are, but the first thing for me is that replacing the founder is like Iron Man taking the power source out of his chest and being like, ah, the rest of it will work out.
Okay. Right. Like it's taking the heart out of the company. The thing gets pretty heavy without the power source, but like it to me, that is such a painful surgery. It just can't be taken lightly.
Speaker: Yeah. And I think to your point, like it is a very painful surgery and the cost will always be there. I think that when we start to wait against the benefits, where it becomes problematic is the analysis that was done to determine that this is the root cause, right, that this is the thing that has to happen, you don't cut off a foot when you have a splinter, right?
You want to make sure that there's a real reason for taking that off. Right. So to me, we want to make sure that we're not talking about something else here, right? Have we looked to make sure there isn't just an underlying factor Fundamental flaw in something like the [00:11:00] business model, the market size, right?
Maybe we just misestimated this and, and we thought it was much larger than it was, and it turns out where we need to just write sizes, expectations. Like we can't become a hundred million dollar company in a 50 million capped market. So there's so many other things that could be the root cause or a collection of causes that will not be remedied by ripping the CEO and the founder out.
Ripping the founder out does not change the market size. Ripping the founder out does not make the business model better.
Speaker 2: That's the whole thing. Think of how many startups, by definition, wound up becoming tiny businesses. Like big idea, but wound up just being not that big of a business, right? Happens all the time.
Okay. It's the nature of it. But every one of those founders was treated as if they were running Uber, right? Yeah. Or, you know, or, or Airbnb as far as a market size or outcome. And I think it would be a very unique investor, probably a founder who would look at the [00:12:00] opportunity and say, you know what, to be honest, if you work 10 X harder, this is still a 5 million business.
Instead, it's more like, because you didn't work 10 X harder, which is almost always bullshit. You didn't make it that a bigger business, which again, I think overlooks a lot. I just think it does. But if you're the investor, what else are you going to do? Right? Like if, if you put, let's say 10 million into a business and it's generating 2 million in ARR after four or five years, There's no version where you can't be like, well, let me just change nothing and call it a day.
Right. Again, like by definition, you're going to be like, my job here is to rescue this thing and create a return. So why wouldn't I do that? And this is what I go back to from the founder standpoint. You can't look at that writing on the wall and be like, Oh, we're good here. No, you're not dude. If you took 10 million and you're generating 2 million, you're not good.
That's, that's not okay. I think it's important to see that coming.
Speaker: For sure. I think, you know, [00:13:00] again, there are going to be a ton of costs, right? This isn't an a la carte decision where it's like, well, we don't like that founder's decision making. So we're going to pluck the founder out. Right. Don't worry the passion, the drive, the understanding, the energy, the, the learnings, all of that will stay.
No, that all goes to, and so again, it has to be really, Really well calculated because of the fundamental problems that could also exist. Have we really explored those? And is it really just down to decision making? Right. Is it really just down to execution? Is it just down to personalities down to something else that is completely encapsulated within the founder?
Because if it's not, when you rip that founder out, you're ripping a hell of a lot of other stuff out with it, right? You don't just get to rip out the power source. You rip out the power source and a bunch of the plumbing and the wiring. Some of the roof is coming off, right? It's a lot of stuff's going along with it.
Speaker 2: I want to tell two stories where I was personally involved in one of those you were as well in the replacement of a founder, how it did not work out. Now, the first one I'm going to [00:14:00] tell was, was my first go around with my first New Year's in the company has grown really quickly. I'm like 22 years old at the time, right?
I mean, I could not have had less experience by the way. I was a failed theater majors. I didn't even study business. I had no idea what business was regardless. Despite me, the business was growing fairly quickly and we decided that we should find a more experienced CEO, right? My business partner, who you know, was four years older than me.
So he wasn't exactly super seasoned either.
Speaker: Right. Yeah. If you add those two together, they're almost as old as we are. Will. Fuck you and so .
Speaker 2: Anyway, so we go out and, and we agree. I mean, this wasn't like a, a challenging it. It was my idea. I'm like, get me outta here, man. . Yeah, yeah. Like this is a bad idea.
And so we go out and we hire a very experienced executive, like checked all the boxes.
Speaker: 40 plus has children. Yeah. Some gray hair. Exactly right.
Speaker 2: Exactly. And so, uh, yeah, had the gray hair, everything, right? He comes in [00:15:00] tanks, it. Right now, the difference in this case is like, I moved to what we called a chairman role, which for those that aren't familiar with what a chairman is in a startup company, it's called being put to pasture.
Speaker: Yeah. Except in your case, because you're still so young, it's the opposite. It's called the high chair, man. You're just put into a high chair and you're, you're monitored.
Speaker 2: Uh, in fact, I remember when, when I got that title as a joke, uh, but not really, my staff gave me a, um, an apron when we did barbecues.
That was called char man. I guess there we go. You're good at
Speaker: spending your time doing from now on.
Speaker 2: Yeah, it was useless. Anyway, we watched this unfold while writing shotgun in the process, which is pretty unusual. Usually you try to get the founder as far away from it as possible. When he got there, he said all the right things.
But he had no passion. He had no commitment. He didn't really understand why our product was our product. He just knew it was a business that did a thing with a thing, [00:16:00] right? Staff revolts. Customers hated him. Product went nowhere. Business went nowhere. I mean, like everything failed, right? And not because he wasn't a smart guy.
He was a smart guy trying to parent someone else's kid, right? It just didn't work. It's as fun as it sounds. Exactly. And we ended up pulling him out of there. Like a year later, I come back. We try to find another person to replace me. The whole thing happens again. I come back, we try and find another person to replace me.
This is the third person. And at some point I'm like, dude, we're just going to take what we can get at this point. Cause I didn't want to be there anymore. Um, and it's me. Please don't make it me. Okay. So, so that's one, the second one, uh, you're familiar with, and it goes back to what we talked about at the top of the show, uh, was when we bought Zirtual and I'm talking about Marin, the founder.
Here's what I'm going to say. While Zirtual took a very bizarre hard right turn overnight, I'm not going to get into the story, but it was one of the weirdest stories I've ever seen. Marin was the passion of the business. Marin started a [00:17:00] business zirtual. com at a very kind of innovative time where virtual assistants were a big thing.
And she lived the brand. She lived the culture, et cetera. When we came in. We were that guy. We were that guy that just came in and just treated it as a business. And the culture was never the same, the growth was never the same, the product was never the same, because we didn't give a shit. Now, I'm saying that, you know, at a high level, right?
We owned the business, we owned the outcome, but we just ran it as a business. Ryan, had you and I started it, I think it would have been
Speaker: way different. Completely different. Right. And it was interesting because I think we, when we entered into that and we won't go too far down this path, but when you're into it, we did have some aspirations for making some changes to make it a bit more startup and founder friendly focused, right?
Like kind of SWAT teams for startups. I remember that being bandied about in the conference room quite a bit where, and I think what we were actually doing. And, and we didn't fully execute on it, but I think what we were actually doing was looking for ways to be passionate about it. I think we realized at some point, we're like, this is a business that we [00:18:00] can run.
We understand how to improve it operationally. We know what to do to execute. We know what needs to happen from a business perspective, but. At some point, we're all finding a hard time giving a shit about it in a different way. Like, of course we cared about the people. Of course we cared about the clients, but there wasn't anything in the mission itself.
That was like, this really fits and suits what we're doing. I think it also didn't help that we were already running a business that we were extremely passionate about.
Speaker 2: Correct. Yeah, yeah. Because
Speaker: there was misalignment with that. It was like, well, okay, then we'll just run this thing and we're going to love this one.
Right. Became the world's largest
Speaker 2: side hustle.
Speaker: One of them was a stepchild.
Speaker 2: Yeah, yeah, yeah. Again, we saw it firsthand. We saw what happens when you try to replace the DNA, right? Where you try to skin graft that, you know, one founder from the next, it doesn't work. It doesn't work because all of the things that Maren did, whether she meant to or not to make that business unique and special came from her.
Now, we might have run it [00:19:00] operationally better, but it was never the same company again. This is me saying, would the business have been better off with Marin? And I'm not, I don't want to speculate too much, but maybe at some point, you know, Marin's capabilities ran out and it wasn't about passion. It was about execution.
But what I'm saying is regardless, the moment you took Marin out of it, it was never the same business. It just wasn't.
Speaker: Yeah, for sure. It's a curious point too. We're like, We so often see this as the choice, right? And we said, like, this is the last option. And yet, oftentimes, I'd be curious to get your, your feelings on this, but I feel like very frequently they do skip a step, which is to augment that team a little bit further.
Yeah. Right. Bring in a chief of staff, bring in an operations person, bring in somebody else that isn't already there. If you really think that the CEO is making improper decisions or isn't executing well, I feel like very, very frequently. They make adjustments to what's already there, but very rarely, maybe it's just the casters in the companies.
There's a lot of reasons why it wouldn't happen, but I, I feel like most of the time we don't see like a major augmentation, like let's [00:20:00] bring in somebody else to your point, having that founder still there can make that tough. Like there could, they could, they could put them at loggerheads or, you know, they can just, or maybe they just seen as dead weight at that point.
But I can think of at least a few examples. Where someone was brought in to augment the CEO and the founder versus just ripping them out and things have worked out, right? And we certainly have plenty of examples of where the CEO and founder was ripped out and it didn't work. And either the company failed or they came right back, right?
That Steve Jobs, Sam Altman, you, right? And there's no shortage of examples of that. I don't have a good example of where they ripped the CEO out and it just worked.
Speaker 2: And look, this isn't one size fits all. There's plenty of examples where you do find a good CEO, right? It does happen. Uh, Dara, who ended up running Uber was not Travis at Uber.
I mean, Travis at Uber was a psychopath at a time where you needed a psychopath. And so it worked, but there was also a time toward the end there where you didn't need a psychopath anymore. And that was becoming a huge liability [00:21:00] and he needed to go. So again, there's a time and a place where, you know, having that transition makes sense.
Seize
Speaker: benefits. They would have benefited from a CEO transition,
Speaker 2: right? There's countless examples, but generally what I tend to find is when founders get fired, when founders get pulled from their own company. I think it does more harm than good more often than not. And I think this is what we were getting at.
It solves the wrong problem. So I'll give you some examples. If what we're talking about is sales are down. Right. We're not in our sales targets. Fire the CEO. It's like, shouldn't you be focused on getting somebody that understands sales? It'd be the equivalent of saying our defense sucks. Let's fire the head coach.
It's like, well, how about get new players? Yeah.
Speaker: First, we start with the defensive coordinator. Yeah. This is kind of my point from a few minutes ago, which is like, what can we do to augment this? Right. And again, like, can these challenges be isolated to that individual? Because if they can't, then removing the individual [00:22:00] doesn't make a lot of sense.
Speaker 2: Correct. Correct. Correct. And for founders that aren't too familiar with this process, we've touched on this a couple of times, but we haven't dug in. I want to take a moment on this. There is a reason the investors are like, get that person the hell out of here versus just bring in more staff, like a COO or a president or something like that.
And it's because there's a perception. And it's not always wrong that the founder will meddle, that the founder will actually be a wall, if you will. Yeah. That they'll hinder, don't add friction past.
Speaker: physically, emotionally, financially.
Speaker 2: Yeah. 100%. I'll give you an example. A lot of times when founders hear about this, they're like, Hey, well, why don't I just like, um, switch to insert role?
I always hear, I want to just be chief strategy officer, which is as good as putting yourself out of a job, by the way, might as well be chairman at that point. But why don't I just become chief strategy officer, which in your mind implies that you still want to make all the decisions without having any responsibility.
And we'll bring in a CEO. You've got to understand why investors don't think that's a good idea. [00:23:00] Okay. Right. One, think about the candidate they're trying to bring in, right? Here's the equivalent, right? This is like your wife saying, Hey, I want us to get divorced, but I still want to live in the house. And you're like, that's not going to work real well for any other girl that I'd ever meet again, right?
You're telling the person who is just the problem, you want to bring in a new person, have that person sitting there the entire time saying, I told you so. Right. Who wants that job? You know, something that's really funny. Funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done a thousand times before you, which means the answer already exists.
You may just not know it, but that's okay. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups. startups. com. So if Any of this sounds familiar. Stop guessing about what to do. Let us just give you the answers to the test and be done with [00:24:00] it.
Speaker: We see this even with just like acquisitions with the earn out periods, right? Where if there's an aqua, not necessarily an aqua hire, but just an acquisition where there's an earn out period and you got to hang out with that, with the acquiring company, it's really uncomfortable. We've both been through that.
It's not fun, right? Or not periods. Awful. It's exactly that. It's hanging out in your college apartment with all your old college roommates and your new girlfriend and your ex girlfriend. No,
Speaker 2: no, not awesome. And so from the investor standpoint, the board standpoint, who was ever making this change, there is a very strong argument for why you need to go away.
Even if you're not a bad person. Right? Even if you're fairly well liked, etc. The idea is, yeah, you are, but your presence is a problem, well meaning or not. Now, that doesn't mean you have to go. That doesn't mean it's always that way. I'm saying when it comes up, that's where it's coming from. You are a visible impediment to the new person coming in.
You run the risk, whether you intend to or not, [00:25:00] of basically back channeling, right, on this person's decision and essentially undermining them.
Speaker: Of course. I mean, all those, all theoretically, at least all those lines of communication were already open, right? You already have relationships. You already have those channels.
So water will do what it always does. It takes the path of least resistance. So people, if you are the path of least resistance, they're going to come to you. Right. And it is absolutely going to undermine the, the leadership of, of the new individual. I watched this happen
Speaker 2: to me from another CEO. The last CEO we hired, who was kind of a dick, and I'm saying that with reverence, right?
I'm saying that like, I was kind of glad that he was, I remember being at dinner with him. This is almost like when my tenure was up and I remember being at dinner with him. He basically said, and not that kind of words, get out of my kitchen. Yeah. He's like, look, you hired me here to do a job. Right. I'm here to do the job.
You keep getting in the way, whether you intend to or not, I don't think you're a bad guy will, but like you're in the fucking way and you're not doing anybody any favors. Now at the time, my [00:26:00] mentality say going into that dinner was this guy's just going to high five me for how much I'm helping out and where I'm chipping.
I mean like I remember when he's saying these words, I must be making your job easy.
Speaker 4: Yeah.
Speaker 2: I'd say these words. I'm like, are we having the same conversation? Like, I'm there. I'm helpful everywhere. But he was very, he's like, you know, old school, East coast, gruff, kind of whatever, he's like, get out of my kitchen.
And it was the right answer. To be fair, I was. By 26, 27 time, I was way too young to process it. I just didn't have any experience to compare it to. Cause at the time I'm like, what an asshole. And now I get it. You know, I look back and I'm like, no, that was, that was really the right answer. You're just telling a kid who didn't understand it all yet.
Speaker: Got it. Got to get out of the way. So. Where else does it fail? Where does it fall apart? I can think of another one, which is if we were wrong about why we're replacing this person, right? And if it isn't something executional, then we've got challenges, right? Because I think that there's a really small window of opportunity, both in terms of time and circumstance, [00:27:00] whereby bringing someone into manage like a startup companies are just, they don't need management.
They need leadership and they're very different things. All right. There is a very small window at which, and like, you can look at companies like Uber, right, where we no longer needed psychopathic leadership. We need a grownup management. Right. And they made that transition at arguably just the right time.
Certainly none too soon and probably not too late. Right.
Speaker 2: Yeah. Also, Travis didn't go quietly. Like that, that wasn't Travis led. Right. So getting that guy to unwind,
Speaker: not easy. Yeah. He missed part one of this section, which is get out of the kitchen. And so I think that you, you have this challenge as well, right?
Which is that you've got to time this up perfectly if this is going to work. And so it fails most of the time because it's not time. Well, you're, you're bringing in someone who can manage, but not someone who can necessarily lead again, because they've just shown up on the job. They don't have any relationships.
They don't have anything in the bank with any of the people, the customers, the product, any of it. And so it's just, it's not what you needed at that point. You didn't need someone to [00:28:00] come in and operationalize it. It was still in a phase where it was growing and becoming what it needs to become. Let's go back to that
Speaker 2: virtual example where we come in.
Right. And I like using examples where we're not the hero, right? So you can understand that, you know, we're trying to be pretty objective about how we explain this. When Marin, again, the founder CEO of Zirtual before we bought it was running it. She, like every other founder, like us, was willing to run this thing into her last breath, right?
That's, that's something you can't hire for. We were not. Had Zirtual gone sideways, we would have been disappointed that we paid good money for something and that investment didn't work, but we wouldn't have taken it to our grave the way a founder would. Oh, hell
Speaker: no. We, I mean, it is, as we were going through our manic diligence in that several days that we had to do that to figure out if we're going to buy the thing or not, we already had formed those plans.
We were like, under what conditions, like what is the polar ripcord moment so that we're aware of what it looks like? And are we all willing to do that? And we, we knew that from the beginning, right? Which most founders have no idea. They're like, well, [00:29:00] Under what circumstances would you stop running this?
Like dead, I guess. Right,
Speaker 2: right, right, right, right. Come back with your shielder on it. Right. Like there's no options here. The way we look at that as founders, that, that willingness to take it to the very edge and come back, you can't hire for, you can't hire for that. The person you bring in is fundamentally a mercenary in the virtual circumstance, even though we own the business, in my mind, we were the mercenary, right.
That came in. When you replace that out, the moment things get tough, they're going to leave the same way they came looking for that next great opportunity. Yes. Now the founder will go 10 years without getting paid, right? Ain't no hired CEO in 10 years without getting paid, right? Their motivation is way different.
The other side of it, and this is not insignificant. And I have countless examples here. When we bring in, like, the mercenary CEO, and I don't mean that to be a bad thing, but the mercenary CEO that comes in to fix problems, [00:30:00] in almost every case, they're not there to invent a goddamn thing. Do they operate?
Yep. It's Tim cook, Tim. How many ideas have you had since you got to apple zero, right? I mean, I'm sure he's had a few, maybe Tim cook came in. I mean, to be fair, he's a phenomenal CEO, but Tim cook came in to operate a business that had someone else's ideas.
Speaker: If it had been Tim Cook and Wozniak, we never would have heard of this company.
Yeah, exactly.
Speaker 2: Right, exactly. The CEO that comes in to fix operational issues, to rehire team, to, to rebuild culture, whatever, is almost never. The DNA that made that company to begin with that kind of innovative take chances. I'm all in, et cetera. And in almost every case, when you see that next person come in the innovation, the ideation, the willingness to take massive bets goes out the door, which is the heart of a frigging startup.
Speaker: Well, stick on DNA for a second and let me, let me provide an example and this is a [00:31:00] metaphorical, but am I overstating this? The difference between a founder and a hired CEO is parent to babysitter.
Speaker 2: 100 percent And I wouldn't even say parent to stepparent because stepparent would imply too much commitment, right?
More commitment than that person has. I think babysitter, which feels temporary hired mercenary. And by the way, if If you're listening to this and you are one of these CEOs, this isn't a knock on you of your capabilities of what you can do. You can probably come in and do great things, a la Tim Cook. I'm just saying you're not the founder, right?
Probably not. You probably don't have that gear or the passion or give a shit in the way the founder did. And I think when you rip that
Speaker: out, you can't put it back. There's no way to hire for that, as you said, because this is not where this comes from, right? There's no track record when you're building something that's never been built before.
How do you hire somebody to do that? How could they possibly have a track record for something that's never been done before? It's impossible. All right. So [00:32:00] the expectation has to be that the new CEO can come in, they can fix operations, they can fix fines, they can fix hiring, they can fix a lot of things.
But They're not going to ideate and envision and grow the company in the same, in the same way. Not that they can't grow a company. It's not going to happen the same way that the founder does it. You bet. The other thing that
Speaker 2: you, you tear out when you can't, you just can't put back is all of those connections, all of those social connections and trust that's been built between the CEO.
And, or, you know, the founder in all of these people in the company, people that were there since day one, you know, fighting back to back to the, with this person that have seen this whole thing, the way through, it doesn't matter how many times you say, I have an open door and you can come in and chat with me.
It doesn't mean a goddamn thing because you didn't grow up with this person. They're still a stranger.
Speaker: It's funny, man. I saw this, this was a comment. This is some years ago now it was, and I, I'm not going to remember. It was. Absolute most stack social might've been product on it, but I don't think so. Now it wouldn't have been that it was funny, but it was a question about the product.
Somebody answers [00:33:00] it. The CEO answers it, right? Somebody asks a question, somebody answers it. The reply to the comment was according to the hired gun, right? Because this was a replacement CEO. And I just, I remember thinking like, God, that's brutal, but it's, it's so spot on. Right. Right. And, but the real point there being people notice this.
The, the, the world notices this was over probably a hundred dollar lifetime deal. Right. And somebody still called it out. They're like, they recognize the difference. You're not the founder of this company. Yep. You're somebody they hired and brought in to do a job. And that's who I'm talking to now. And that matters to me, right.
Even over something as trivial as a hundred dollar membership.
Speaker 2: I'll give credit to people who can lead their companies to a massive point. A Zuckerberg, For as weird as the guy is, right, cookies can be and everybody said the same thing about him. He's had the ability to lead, I mean, in a very legitimate way, a massive company for a long period of time.
Now, what's interesting about that is in that time, he has forged [00:34:00] so many Relationships. I was going to say personal, but I'm not sure he's not an Androids, a parasocial religion, but with so many people, right? There are so many people that have been with him through a very difficult time in the company's progression.
That's been like, you know what? This guy might be a little bit weird, but I've seen him through some shit. And I'll do it again. That is like, if they replaced him today and let's say Sheryl Sandberg came out of retirement and, you know, took, took the helm, who's a phenomenal COO, just not the same person, just not.
Speaker: Yeah. I think that's interesting too, because once this starts, right, it's, it's kind of like raising money. Once you start raising money, it tends to continue to happen, right? As we see CEO replaced the replacement of the next one, the next one, the next one happens significantly faster. Yep. Because now we really are just down to performance at that point.
Like we brought you in to do this very specific thing, whereas the decision to remove the founder is quite difficult because we have some expectations, but in terms of exactly how we get [00:35:00] there and how broad those expectations are entirely different than when it's like, okay, we've got to get up by 15 percent in the next two years.
Uh, or you're out. Right. And that happens all the time. Right? They get their two years. They either get it or they don't and they're gone. And we see them replaced one after the other. It becomes a revolving door at that point.
Speaker 2: Let's agree that up to this point we've sufficiently terrified everybody that's listening to this podcast about Yes, you're all getting fired.
Happy New Year. Let's talk about what to do with it. How to deal with it. How to see it coming. What to do if you do see it coming. Right? Kind of how to spot things early. The first thing I'd say though, just before we even get into it, This happens all the time. This isn't like a one off. It is for you, the founder, because it's probably your only startup.
And so this is like the first person that didn't want to go to prom with your whole life is exploiting. You think is the only thing, but if you see it from our perspective at startups. com and certainly within our own careers, this is just like another Tuesday, right? Right. Like this happens all the time.
Yep. Mainly. Because startups generally [00:36:00] fail, which means the poor bastard who's at the top of that pyramid, when that, that outcome is likely going to happen is going to get pulled in with it. The reason this is common is because these things tend to break. You know what I mean?
Speaker: Yeah. No, I think that's statistical odds are you're going to get fired, whether it's by your investors, by the market, by yourself, hard to say, but the, the, the odds are you don't make it right.
That's just, that's the tough reality here. And so I think it is, it is important though. Like if you have gone down that funding path, To understand that while every founder's life has a ton of complexities, this adds a new dynamic and this becomes a very, very likely outcome for you. And, and to be aware of that, right?
To watch for those early warning signs and you want to maintain your position. You have to fight like hell for it. Steve Jobs got
Speaker 2: fired. Sam Altman got fired, right? Like it can happen and it happens at an epic level, right? So what do we do about it? I think the first thing that we do, even if you think there's a couple cracks that you're not sure about, remember that a couple cracks in the dam come from a massive amount of pressure [00:37:00] on the other side of that dam.
Yes. Right. So all you're seeing, those little offhanded comments are like, Hey, have you thought about et cetera? Don't take those lightly. Do read into those. Right. Because they come from somewhere bigger than you think. Right. And if you and I are running the company and our board says to us, Hey, have you considered maybe bringing in like some more financial expertise because you know, some of this is, is beyond you.
What they're saying is, Hey, asshole, go hire a CFO or like up the finances. Yeah. You suck at this, right? It won't come across at this, but as this, but that's what they're saying. The proactive thing that you can do that it's incredibly beneficial is to go to the board and say, If you guys had to make one key hire, you know, in what you feel as a deficient area right now, what would your dream hire look like?
What you're really saying are two things. Number one, Hey, I'm not completely lost that maybe I don't have all the answers here. Right? So you're being open and coachable, which is an investor's dream. But the second thing you're saying is, Hey, what are you going to fire me for? [00:38:00] Oh, cause I can't sell anything.
Okay. But it gives them an opportunity to have a very honest conversation. Even if they're, even if we're kind of talking about, Hey, let's hire this other person. What we're really talking about is your deficiencies. And it gives you an opportunity to go hire that person to solve that problem before the problem that gets solved is you.
Speaker: Yeah, it's a great point. I think that is probably where that failure that I was talking about earlier exists, which is that, like, why didn't we augment this? That's in the CEO and the founders hands at some level. You can be the one who does that, right? Build that wall around yourself, figure out where the deficiencies are, understand it from the investors perspective.
Well, of course, always being careful not to be led by the nose by the investors, because at the end of the day, you're not building a business to satisfy the investors. Yep. Yep. You're building a business to satisfy the market. So do make sure that it is, it is having a positive impact on the actual business and not just making the investors happy while at the same time, of course, also keeping the investors happy so that you can live long enough to actually accomplish it.
Speaker 2: [00:39:00] As
Speaker: complicated as it sounds.
Speaker 2: Also, remember to think about what investors know and what they don't know. Investors know there is a problem. That is a fact, even if it's perceived, right? In their minds, they believe that's true. So it doesn't matter whether you agree in the case of Ian Crosby, the founder of Bench, the investors felt like the direction he was going at the time was wrong.
Now, whether they're right or not, doesn't matter. They feel like there's a problem. If they think the business should be 10 X bigger, it doesn't matter if that's actually true. What's true is they believe it. And at which point we say, well, I disagree with you. So it must not be true. That's just shitty management, right?
You know, I'm, I'm a founder, but what they also believe is that the business must be able to be 10 X bigger, or the business must have better financial management, et cetera, in the solve is to get rid of you. Now I tend to find that is a very short sighted.
Speaker: It's perhaps the ugliest of the gross oversimplifications that happen in the [00:40:00] startup world.
Speaker 2: You bet. I can't stand the way my wife cooks. So I need a new wife. Okay. Yeah, maybe she sucks at that, right? Hire a cook, by the way, but learn to cook yourself. But that doesn't necessarily solve the problem for Every other thing that she may do well. So I look at that and I say, you're solving one problem.
What expense, right? So great. You've pulled the CEO. You feel like all the company's problems map back to the CEO. And of course, when you bring the new person in, they're always going to sound great. Yeah. We're always going to come with a, with fresh ideas. Coolest thing, Mr. Investor, Mrs. Investor, they're going to agree with you because you frigging hired them.
So that's going to sound awesome.
Speaker: It's theoretically, I mean, it probably not in every single case, but in most cases, they are going to do one thing very specifically, which was whatever that thing, whatever that perceived thing was, they are, the perception is going to be that they're going to solve that.
The miss here is that what. Is, is all the intangibles and all the other stuff that you're not thinking about that go [00:41:00] away with the CEO. Yes. So if you hire, you, you hire that chef and fire your wife, dinners are great now, but, uh, boy walks along the beach. You're lonely now. Um, the kids sure do miss mom.
Yeah, yeah, yeah. Great. Right. Kids. So they're. Unfortunately in the short term, they're willing to overlook those things because it gives them the thing that they were most focused on, right? They were focused on dinner sucked last night, and they throw away the rest of the future of everything else that was around that so they can have a better meal.
All right. And so they're willing to accept it in the short term.
Speaker 2: It is a, such a consistent oversight among investors. I, I almost wish like, like they could call you and I Ryan, just for like a session to be able to say, I get what you're trying to do. I get it. Here's where you're going to fuck this up so badly for everybody.
You're most importantly, in this case, yourself, investor person, please rethink this. And again, I'm not saying investors aren't smart, can't do it. Just, I think they get emotional about an outcome. They make a very [00:42:00] unilateral decision, which has way more impact than they realize. And, and it usually ends poorly.
Now that said. Everything we just discussed. Okay. Let's say that makes sense. If this happens to you, you know, fellow founder, uh, listen to this, listen to the show. Here's my advice. Here's I, you know, I'll say our advice, right? And say, I'm sure we agree on this. Go out like a professional. When the time comes, go out like a professional, meaning don't go out like a psychopath, trying to burn every possible bridge and tell everyone they're an asshole and being like, you know, fuck you guys.
I'm going home. That is the dumbest. Childish, least professional way to possibly, and it's no matter how pissed you are. All people are going to remember is how you left, right? I think we've done full episodes on this.
Speaker: Yes. They're going to remember how you left. They're going to have two things to remember.
You were forced to leave in the first place. So clearly everything went wrong now justified and probably validated by the fact that you acted like a total asshole about it. Right? [00:43:00] So now you've just stamped this. You have now etched the scarlet letter on your own chest at this point. Thank you.
Speaker 2: You bet.
And there's a hundred ways that goes wrong, but just a few of them, in case you're thinking about this or going through this, number one way it goes wrong. Dude, all of your equity and net worth is tied to this thing. Why would you want to torch this relationship? Yes, I'm sure you are so pissed at that board.
I get it. Why wouldn't you be? But they also hold the keys to all of your hard work and your net worth. And guess what? This sounds bananas. Sometimes you get called back. Like I did three times. Yeah. And so you're better off saying, I hate this, not telling you guys this, but you're total assholes and you're totally wrong, but I'm going to be a pro about it.
I'm going to do what I need to do to get on your side of the table. A very important step to say, I'm going to get on your side of the table. And by the way, I'm going to then think of this as an investor. Not as the founder, which means, and this is, this is an important one that people usually don't think this far ahead to realize if you're wrong, investor person, I'm going to [00:44:00] be around long enough to say, go fuck yourself.
I'm going to be on the board, right? I'm going to be watching you like a hawk. Cause it's not my job. That's at stake anymore. It's your job, your role, your, your position in your opinion, your credibility, and you better be right. Because I own, probably in many cases, more of this than you do. And you can be sure as hell that I'm going to make sure that whatever decision we just made is the right one.
So, so I'm not just going to disappear. I'm not going to be an asshole. But I'm not going to disappear. You know what I mean?
Speaker: Yeah, for sure. No, I, they think, and look, wait for your Ian Crosby moment, right? Could write it out, do whatever else you're going to do in life. And then when they do screw it up, if they do screw it up and hopefully they don't, because as you said, they've got, you've got your equity.
You've still got, you know, a lot vested in the thing, but if that moment comes, send your tweet, send your tweet. And just stay pro.
Speaker 2: Yes. Always stay a pro there's no version where, like we said, burning the bridges is the right idea. If we look at this, Ryan, in total, every single founder has some version of this moment.
Sometimes it doesn't escalate to this moment, but there's always going to be friction between stakeholders in the business. [00:45:00] There's always going to be friction. It's the nature of what we do. Ignoring the fact that it's real is the dumbest thing we can do. It's typically a sign of immaturity. We haven't done this enough.
Pressing back to the point where you make it break more makes it even worse. So if you're going through this situation, if you're seeing the cracks in the dam, you've got to prevent it from the standpoint of saying, what can I do to help? If you are the problem, you got to step aside, let someone take over.
Your day will come. Hopefully in a positive way.
Speaker 3: Overthinking your startup because you're going it alone. You don't have to. And honestly, you shouldn't because instead you can learn directly from peers who've been in your shoes. Connect with bootstrap founders and the advisors helping them win in the startups.
com community. Check out the startups. com community at www. startups. com to see if it's for you. Could be just the thing you need. I hope to see you inside.