Sharks, snails and starvation - 3 things that destroy founders and their companies

February 9, 2018

Starting a company, especially one born from your own head, can be an intensely lonely business. The hours, the uncertainty, financial precariousness and the pressure (mostly self-applied) to continually be nailing it as well as your peers is an often unhealthy baseline. But it is also a type of pressure many entrepreneurs thrive on.

What destroys them and their companies are in a different league of stress. When I started this blog I was still trying to process and understand how and why I was no longer in the company I founded. Though I started writing for my own sanity, it resonated and soon other people started getting in touch. And so I embraced the roles first of cautionary tale and later of entrepreneur agony aunt. I’ve since talked to lots of founders and entrepreneurs about their positive learnings, but also their darkest moments and absolute worst startup experiences.

 

There are some common themes to their horror stories. I have decided to share my thoughts around some of these so that even if we can’t eradicate them, we can at least all feel more able to talk and ensure others are better informed.

 

The best way to avoid repeating the mistakes of others is for founders and entrepreneurs to be radically open to listening, sharing & learning.

Destroyer one - sharks

Often, though not always, investors, sharks make you and your company bleed. And once the smell of your blood is in the water, they go in for the kill.

Sharks want what you have and when the moment is right they take it all. You’re too busy bleeding to know what hit you. All the little moves along the way, from board seats to picking the lawyers, to ramping up costs, they all lead to the moment when suddenly you don’t have a job or company.

Brutal, bullying and utterly immoral, the most common question the founder on the receiving end tends to ask is “why?” Of course, there’s anger too, but mostly what I have observed is utter incomprehension. The shark will say "it's just business". No wonder the founder is confused. For the founder and entrepreneur, it is never “just business”.

Only this week a founder in the midst of a desperate stitch up of impressive proportions asked me “Is this the worst story you have heard? Does this ever happen to other people? Is it just me?”

The stories are always bad and far too common. Featuring prominently are tricks around board control, dubious terms, back-tracking on committed funds, installing of cronies, stripping of funds, assets and IP, dis-enfranchising one group of shareholders, driving the founder to the brink of financial ruin and tactics from full-on psychological warfare.

If that’s their idea of “just business” no wonder so many of us prefer to work in startups.

Know that you are not alone - most founders have a story to tell about a certain investor or director, even if they've never been eaten by a shark. Talk to us. You’ll find yourself on a call with an appropriate sympathetic ear in no time.

When you raise money, ask about. Do your homework, talk to their ex-founders as well as current ones and trust your instincts.

And if you’ve been bitten, don’t keep it to yourself. Don’t let someone else get bitten. That’s how we show them how we do business and that they have no part in it.

Destroyer two - snails

 

The gardeners know where I’m going with this one - everyone else, please stick with me. This metaphor is worth torturing.

Snails go very slowly and yet still manage to eat everything you treasure. Often small and hard to spot, they get everywhere and there is no escaping from or cleaning up their sticky trails. They are drawn to the signs of fresh young growth. And did I mention they eat everything you treasure? All of it - puff, gone!

You don’t die from snails immediately. You may not even notice their damage until much later. But like the plant whose new green shoots all got eaten down to the ground, recovery - if it comes at all - is a slow process.

So what does a snail look like in a startup? Well, they feed on your time and money. Snails are most typically working in consultant, advisor or day rates roles. They may be being funded or part-funded by a well meaning support body. Their goal will be best achieved by going very slowly (whereas you will run out money that way). Therefore you can expect them to be keen that you think smaller, more incrementally, scale back your ambition, write extensive plans and justification papers and just generally keep paying them for longer.

Because they tend to get everywhere and leave sticky trails, they are often well networked and may come recommended by others. Most people who send you a snail have no idea of the potential harm they are doing, but for a few - the sharks and other snails - they can be very useful allies.

Founders who have been assailed by snails primarily express intense frustration. Frustration at the bad advice, the inaction, the impact on morale - but most of all frustration at the colossal waste of time and money and energy.

As one founder told me “we wasted two years, and the money from an entire investment round, by following their shockingly misleading and inaccurate advice. We had no reason not to believe their competence, we were inexperienced and they were credible and recommended. By the time I realised our mistake, I owned 20% less of the company. We've only just recovered, plus other players have entered the market now - we would have been there first.”

Not the big bang demise that comes with the shark bite, but a destruction of opportunity and potential all the same.

Destroyer three - starvation

Starvation comes in many forms:

 

  • Personal poverty as a result of no salary for prolonged periods

  • Poverty relative to other execs/employees, because the founder is unable or discouraged from drawing a fair salary, while still personally paying costs

  • Chronic stress, poor self-care, illness, mental and emotional exhaustion

  • Being too poor to otherwise marginalised to fully participate

  • Chronic long-term underfunding of the business


I would love to eliminate the entire idea of the starving entrepreneur, living on free pizza, coffee and credit card debt by enabling all founders to be paid a reasonable wage during the first year of their startup. And for that wage to be tied to the founder - not their idea. It's a 60, 70, 80 hour a week a job - why the hell can’t it paid? Sure there are details to wrangle out, but really? Why not? (I actually raised this suggestion when giving evidence in the Scottish Parliament this week).

I particularly hate the idea that starvation is viewed the appropriate state for entrepreneurs to work in until their business is derisked enough to be appealing enough to people with plenty of cash and no taste for hunger. Where on earth did this idea come from, let alone become a celebrated badge of honour? No wonder the sharks smell blood! And no wonder their favourite tactic is driving the founder to the edge of a financial destruction, then "saving" the company on frankly shameful terms.

If we want the social and economic impacts that entrepreneurs bring, and I think we need to start playing a longer game.

A commitment to supporting the development of entrepreneurs over multiple businesses is step one. Short-termism, whether in terms of investment or advice and support, is counter-productive. We now seem more able to recognise that informed failure has value, yet also hang onto a statistically improbable belief that a founder is likely to get it right with the first iteration of their product/business.

“Replace the founder at the first sign of trouble” is short-termism on a par with killing the goose that lays the golden egg. Force them out too soon and all the magic you bought into in the first place goes with them. Can you imagine how much better that founder would perform with a meaningful commitment to developing them past this stage of trouble and the many more that will inevitably follow, not just in this business, but their next?

The best advice I got during the period where it felt like my world was ending (from my lawyer as it happens) was “don’t make today's decisions based on your current business, do the right thing for your next one and the one after that.”

 

The point is that when the founder is developed, not demolished, there is always a next business. 

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