There's a reason so many investors and employees try to promote a culture of transparency at a company... Because to do anything less is a sign of (a) gross incompetence, and (b) greed.
It is often extremely uncomfortable to stand in front of your employees and say "Hey, we've got 3 months left unless we hit this milestone. Let's work together on this and if you can't commit, we'll help you deal with it." It sucks to say and feels terrible, but better than an overnight blow-up.
I prefer to be a leader that promotes respect and care for employees, and assume the former choice is thus a better one.
If your company's in that position, the only ethical thing is for all employees to be well-informed of that, in advance.
1. I am not gonna be transparent because hey, emloyees can bolt.
2. Oh, I effed up.. let's fire them all in cute little email w/o notice.
Yeah, that's great!
In my opinion you should talk to your employees around 6 months left. Just an open and honest talk about 6 months left of runway, here's what I'm doing about it, etc. Then after that, until you gain more than 6 months of runway, you keep employees constantly updated. Yes you risk people jumping ship but many appreciate the honesty and it will help them face the worst case scenario versus not being prepared at all.
I do wonder if VCs need to require first-time founders go through a crash course in Business, Finance, and Ethics 101.
It's important that one of the key lessons here is that the CEO of Zirtual, AND their investors, failed in their responsibilities during this whole fiasco.
The CEO:
Jack Dorsey has a fairly good description of what the CEO's role is - that of an editor (http://www.quora.com/What-is-the-role-of-a-CEO). The CEO should do 3 things:
- Build and nurture the team
- Communicate internally and externally
- Make sure there's money in the bank
It looks like Zirtual's CEO screwed up all three of these - it's inexcusable and ludicrous to think she didn't know how much money was in the bank, and the burn rate. She probably knew exactly what was going to happen, she saw the writing on the wall, and tried her best to figure out an outcome for the company and team.
It could be that the Startups.co acquisition was the perfect thing to do, but to do it after missing payroll, breaking user and employee trust, and in such a ham-handed way is ridiculous. She played chicken with cash flow, and she lost. 400 employees who thought they had a job had to suddenly go through a stressful shake up, and start worrying about bills, insurance, and their livelihood, right before school season starts.
The Investors:
According to Crunchbase, this company raised $5.5M from VCs like Mayfield.
Don't these investors have an obligation/responsibility to their Limited Partners to invest their money wisely? Don't these investors ask the CEO for monthly or quarterly financial statements (or something simpler like - "How much money in the bank? What's your Accounts Receivable? What's your monthly burn rate?").
Why didn't someone say something 6 months ago? Why didn't someone say something 1 month ago, so that there could have been a more orderly pause in the business while trying to sell it?
What's the point in simply investing in deals and not spending any time to advise/help start-ups? The CEO of Zirtual could be super talented, but she's not run a start-up before. Shouldn't investors spend some time with her making sure things don't go off the rails?
It's events like this which erode trust in start-ups, investors and founders.
It was near death yet Musk is now a SV hero?
Even a few weeks out from bankruptcy, they had $9 million in the bank and payroll has seniority.
Personally, there's a huge difference between waking up and finding out my job was lost overnight and getting a week or two notice.
Huh?
http://www.wsj.com/articles/venture-capitalist-sounds-alarm-...
http://www.bothsidesofthetable.com/2014/09/28/what-is-the-ri...
http://avc.com/2014/09/burn-baby-burn/
http://www.businessinsider.com/sam-altman-email-startup-burn...
> And at the end of the day… “burn” is what happened to Zirtual.
This is, for lack of a better word, lame. Burn didn't happen to Zirtual, like it's some sort of disease that lurks in the exposed brick walls of overpriced SoMa startup offices, secretly coming out to infect innocent startups when employees leave for happy hour.
Burn is something people manage and are responsible for. Clearly, Zirtual was run by people who couldn't competently manage the company's burn. To put it another way, incompetent management happened to Zirtual.
> The reason we couldn’t give more notice was that up until the 11th hour, I did everything I could to raise more money and right the ship.
Based on the description of Zirtual's finances (more money going out than coming in) raising more money would not have righted the ship. Unless Zirtual found a way to operate profitably, an infusion of cash would have only delayed the inevitable.
I think a good number of early-stage startups in Silicon Valley are operating with less runway than many of their employees would believe, but waiting until the 11th hour to do right by your employees in the hopes that investors will essentially bail you out to make payroll is in my opinion inexcusable.
In the TWIST podcast she mentions her assistant has an MBA. So thats at least one person in the org with at least 1 semester in accounting. So you should be able to create a statement of cash flows and at least a pro forma budget.
Maybe investors would be wise requiring access to baremetrics dashboards or something similar.
