The Fridge (YC S10) Is Going Dark
zachbaker.com
zachbaker.com
Similarly to Ron Conway's "if you have to shut down your company, that's fine, but do it properly -- pay your bills, pay your employees in full, do it in an orderly fashion -- if you do, I'll invest in you again, otherwise I won't."
There should be a "responsible startup code of practice" for winding down operations where customers might depend on it. Especially in the summer, when people could be on vacation, providing 3-6mo of notice for a shutdown would be good. Exceptions if it is really arterial bleeding of cash, or some legal problems which expose you to ongoing civil or criminal liability, but if it's just the cost of a few EC2 instances, there is no excuse for not keeping it running until users have all comfortably migrated away. Otherwise, people will be less likely to trust cloud services in the future, which pisses in the pool for everyone.
This is for externally funded startups, not bootstrapped. If it is bootstrapped, I think it is ok to dig deeper (but not actually committing major crimes or putting your health or safety St risk), but for a funded company, you should probably either wind things down in an orderly way, or at least fire everyone and pay all all salaries, pay vendors, and then switch back to bootstrap mode.
If every company planned ahead and kept a buffer, then no companies would go bankrupt. They would simply terminate services, and everyone would get paid what they were owed.
You can make your payroll obligation, then declare bankruptcy in the face of creditors. That's usually what happens--people take on short term debt to keep afloat, and use it to pay off their employees as they wait for the "big contract" to clear. The contract doesn't clear in time, and everything collapses.
At this point, they're bankrupt and though some creditors might get paid from the sale of office furniture and computers----not all of them will see all of their money.
The Op suggested that even these companies should never be given a second chance.
There should be an explicit seniority in debt or other liabilities. Even when there isn't, I think there is some clear standard of fairness (individuals get paid first, including refunding prepaid customer funds, and convertible notes get paid last. Vendors who have already provided service should probably get paid before continuing to pay on things like the balance of long-term leases; there are legal standards and best practice for all of this, although it probably varies by jurisdiction).
The only really bad thing is burning unknowing employees, especially after misleading them about finances.
Make not mistake about it: paying your bills and paying your employees in full are not luxuries, they are requirements.
Grandparent didn't say you have to do it now, just that you have to do it.
Anyone who hides behind "market conditions", "the bank", "unrecoverable errors in judgment", or old faithful "bankruptcy" in order to escape their obligations doesn't deserve a second chance from the same investor.
OTOH, someone who finds a way to do the right thing, not matter how difficult, probably moves right to the top of that investor's list.
You are essentially saying as a hard-and-fast rule: do not invest in people who ran companies that declared bankruptcy, even once.
I do not thing that kind of absolutist stigma should be associated with bankruptcy.
And you wouldn't want to anyways. The kind of person who keeps employees on staff after they stop being certain they can make the next payroll isn't a good investment anyways.
For the same token I have seen companies get out of this predicament and they are doing extremely well now. So should they have thought; 'I'm not taking the risk, i'm paying everyone and closing the doors'? There was no in-between here; it's all or nothing in these cases. Sure you can say the growth rate was too high; doesn't that go for most invested startup companies in SV? I'm not sure it's as clear cut as you make it out to be especially if you make good on your employees with your next venture; i've seen cases were this was actually better for the employees as well.
I feel that stiffing your employees is deliberately going for BK to not have to pay wages etc; standing with your arms up high, he yeah sucks, but we're BK and fuck you very much for your support! At least here that's an official crime and you will pay the price if the curator can prove you 'went for bankruptcy' for reasons of not paying employees and other (notably tax) bills. But I can see enough reasons where this can happen outside your control as well.
The terrible thing about this thread is that it's conflating 3 separate obligations:
* Payroll, which is inviolate
* Contracts
* Free users
There are different judgement calls to be made on all three of these (for instance, your office lease or a telco contract might have been set up for a year or more, and can't be dialed back on no notice).
But the judgement call on paying your employees is crystal clear. It is so clear that there are large US states where payroll obligations can pierce the corporate liability shield and attach to officers. Don't fuck around with this. If you're not sure you make your next two payroll cycles, you lay people off (ideally, you lay people off well in advance of that).
I personally would not stick around in a scenario like that, but some people do and very occasionally it does work out. However this all needs to be very open and above board.
Dunno. In an early-stage start-up, I would rather be an employee who takes on a little risk in exchange for not distracting the founders with bean counting. Frankly the financial and lifestyle costs are already so great that two week's is just rounding error on my losses.
Let's take an example. Your current revenue/expense ratio has you running out of cash in two-three months and short of a miracle or users all of a sudden finding your product indispensable you are toast. At this point a responsible business manager would say "we're not viable" and begin discussions with vendors, investors, banks and progress to talking to employees and customers.
Now, the opposite of waking up one Monday and saying "@#$# I don't have enough money for next payroll - we gotta shutdown" is pretty lame and not the mark of someone I would want to invest in.
Also you say "and short of a miracle or users all of a sudden finding your product indispensable you are toast" ; that happens, but it also happens quite a lot that it's not a miracle; it's just hard and smart work and you'll make it; you pivot your marketing, your start running a bit harder, you hire different kind of sales people or all of the above. So it's not always based on luck and miracles; often it is not. I think you are seeing it oversimplified; The Last Stand of a company can really be very tense and even sudden and can actually make the come back bigger and healthier than before. If you quit (fire your employees, you can no longer deliver anything, so you die) you might actually be much worse of than if you continued with the risk of not being able to pay. Of course, as I said before, I do believe you need to do the correct thing for your employees, even over the event (bankrupt) horizon; they stuck in there even when you told it's not going well. But I, as much as I loathe him, like Bob Parson's first rule; 'security is for cadavers'. It is. And I don't want that from my employees either.
We remain dedicated to building great products and hopefully things will become more clear after the dust settles.
Again, sorry for the sudden notice...
Probably the best time to think about continuity for users is when the service has just been set up. I think it matters a lot more for things like Geocities, Vox, etc. than for a more realtime communications service.
I saw it about 30min ago and glossed over it since I interpreted that as "Fridge updates w/ new features, one of which is called 'Save Your Data!'".
Given all that's been written about the importance of user feedback, most founders are very responsive now when they start - what with stalking visitors with Olark accounts, replying to emails and tweets within seconds, answering questions on social news sites. All is great when they want to benefit from the users' comments. But as soon as that's no longer the case, they treat users like a commodity and don't seem to care about telling them what's going on or what to expect next.
It doesn't bode well for their future projects.
TechCrunch on them in 2010: http://techcrunch.com/2010/08/23/the-fridge-facebook-sharing...
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