Zirtual: What Happened and What’s Next | Hacker News Reader

Zirtual: What Happened and What’s Next

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32 pointsbrianmwang21 comments

"Oops, burn!" is not an excuse. Keeping silent without telling your employees is not an excuse, either.

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.

This is an easy thing to say, but I can understand why a leader would choose to do otherwise. The risk that employees will give up and bolt thus turning failure from a likelyhood to a certainty are very real. You can't just ignore that.

Do you warn employees and possibly risk losing those with a low risk tolerance? Or do you hide this from them and lay them off with the legally minimum notice and possibly no safety net?

I prefer to be a leader that promotes respect and care for employees, and assume the former choice is thus a better one.

While I totally agree with you, I want to bring up that many successful leaders have no respect for their employees. (Jobs with the collusion, Armstrong with public and humiliating firings, etc.)

Of course, that is not to absolve these startup founders for all their wrongs, I just think we really should hold the big folks like Jobs et al. accountable for the shit they do before we start piling up on these young and inexperienced founders.

Have you every actually been a leader in this situation? I dunno, maybe you have and you followed through. If that's the case, then all the high fives to you.

But I sure haven't. And I look at it and I see a 10 out of 10 management challenge. You've got the weight of the world on your shoulders as a leader here. The lives of your employees, the faith of your investors, the very life of a company you've put your all into for years. And in this case the CEO was a first time founder with (rumor has it at least) not a lot of support from her board.

Maybe she did the wrong thing. Maybe she didn't. But this shit ain't easy, and I'm not one to judge too harshly.

I will say that I have actually been in this situation and have chosen to be transparent with our employees. It was really, really hard but it was also the right thing to do, in my mind.

Thanks for the comment about board support, harryh. There is another angle to this, which is that the investors / board should also be there to provide support / help as necessary. If they didn't do so, that is also very unfortunate.

You see:

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!

I am very (twice) familiar with getting screwed because founders don't want employees to bolt while there is still a chance of recovery. The good thing was that they had the good sense to let me go before all the money totally ran out, so I was able to bridge my way to the next job, which I really appreciated.

If your company's in that position, the only ethical thing is for all employees to be well-informed of that, in advance.

I'm glad it was explained what happened and that startup.co may be getting a lot of these jobs back but it's unacceptable for a founder to explain that they didn't tell anyone about this because they had HOPED fund raising would work.

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.

How is it acceptable under any circumstance to not let your employees know until the final hour when you need to shut the doors that the company is facing financial trouble? This isn't a simple 'shit I screwed up'. It shows a fundamental lack of respect and empathy for your employees who expected to show up to work Monday for _your_ company and get paid. Even a simple, 'we are running low on money and be here at your risk' a month out would have been sufficient.

I do wonder if VCs need to require first-time founders go through a crash course in Business, Finance, and Ethics 101.

Posted this on another thread as well.

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.

How is this different than Tesla? http://blog.sfgate.com/energy/2014/02/28/tesla-from-the-brin...

It was near death yet Musk is now a SV hero?

Near death and dead are very different.

Only in hindsight.

Tesla survived. That's the difference. If Tesla would have failed you would have seen the same amount of criticism because it's, for the lack of a better term, a dick move. Though from what I hear at least some people at Tesla knew about it.

Didn't GM et. al. go bankrupt the same year Telsa nearly did?

Tesla was never a few days from having to lay off the entire staff.

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.

"the loss of your first startup will always live with you..." why is this the culture now? that failing is okay and fucking over employees and customers is fine cause "lol startups"?

> Burn is that tricky thing that isn’t discussed much in the Silicon Valley community because access to capital, in good times, seems so easy.

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.

I know basically nothing about Zirtual but it's worth pointing out that not all failure comes from incompetent management. Building a business is hard. Success is guaranteed to no one.

yeah, that 'isnt talked about' line caught me as well. plus mention of the 'Horrible CFO firm' sounds like an excuse. I think id have taken the 'lessons learned' approach.

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.

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