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Comment by rdl | Hacker News Reader

I'd never even heard of this company, but IMO they really should provide a much longer wind-down period.

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.

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Quite. Case in point - BackType announced they were terminating their API (after being acquired by Twitter) and gave less than 7 days notice.

Yeah that was just lame.

In fairness, I doubt The Fridge is mission critical for anyone. Probably one of the reasons they're shutting it down.

"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." => sometimes you don't have this luxury; this is easy if you are bought out and the new company wants to kill (a part of) your bought business, but if the bank is just pulling the rug from under you, you usually don't have the luxury to pay your bills, pay your employees in full etc, let alone do stuff orderly.

Right, that is why you plan ahead and keep a buffer. You shut down when there is enough cash left to meet obligations, not after you've spent every last cent.

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.

> Right, that is why you plan ahead and keep a buffer.

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.

Wouldn't that be nice?

In most of the companies you've heard of going bankrupt, the company made payroll. Obviously, they then laid off a crap-ton of people. But what we're talking about here --- in a huge digression from what's happening with The Fridge, by the way --- is the notion of startups that run past their ability to meet payroll obligations, say "oh well we tried, good thing the valley is so tolerant of failure", and bounce checks to employees.

That by the way isn't what I was talking about.

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.

It's more important that the founders (or executives) conduct an orderly shutdown (vs. just locking the doors and not responding to email), than that every possible creditor be paid in full.

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.

you usually don't have the luxury to pay your bills, pay your employees in full etc, let alone do stuff orderly.

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.

There's no escape from obligations. If your company goes bankrupt without cash to pay off its obligations... its simply impossible to fulfill them.

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.

BKs happen and are factored into the price for a lot of business-to-business services. But no, I wouldn't invest in anyone who stiffed their employees. Ed is exactly right about that.

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.

I see your point, but you have a lot of real-life experience? In Europe bankruptcy is a much bigger stigma than it is in the US; it haunts you forever and it's noted as one of the biggest reasons EU startups are less gutsy than US ones; if you go broke, you are screwed for life here. But it goes very very fast; I know a few product companies at least that went from going well to complete misery in a few months. Those are trains going to the wall with necessary burn rates of $1M+ / month; what I mean by that is, the only way to have a chance at survival is actually servicing the few clients (we're talking big contracts) you have left and during that trying to reinvent your business. This is a win or lose fight; sometimes you win, but if you lose, you have a good chance to be millions in debt in no time. We are still talking startups here, so no $15M war chest in the bank. Probably some of that money was investor or bank money as well. Other reasons can include a business partner screwing you or just both events at the same time :)

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.

Back to back startups, all funded except my current one, since 1996. Pay your employees. There is no way around this. You should be RIF'ing well in advance of payroll looking dubious.

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).

Well, I guess that's also kind of different in the US than here in EU; you cannot 'lay off' people here like that. You need to give them 2-3 months of pay. And yes, there are economical reasons to be able to lay-off people, but those are really strict; you are really almost broke before you can fire people for those reasons here.

But no, I wouldn't invest in anyone who stiffed their employees.

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.

The companies we are alluding to aren't giving you that option; they're shoving the risk down your throat by not making it clear, when you receive your last full paycheck, that there may not be a next one.

Thanks. I wasn't thinking about the surprise implosions where employees have to put a five-fingered lien on the office equipment.

I've known folks who were told, "things are looking bad, and absent a miracle we will not be able to pay you after X date. If you want to leave, we understand; or you can stay and help us try to pull off the miracle but you might not get paid."

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.

If you can't see the writing on the wall early enough to wind down then you really have no business running a business. Yeah, I could come up with some pretty out there exceptions to that statement but they are pretty out there exceptions.

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.

Yes, that's possible in some cases. I did forget to think about the fact that in EU (where I live) it is hard to fire people, even if you are facing problems in '2-3 months'.

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.

Agreed, 2 days is ridiculous. If the timeframe to shutdown is that fast, surely they could send a compressed version of the userdata with the email?

And you know they haven't already done this because...?

Because they announced a 1mo (er, 4 day actually! I forgot it was July) period until the service shuts down and all data is deleted, as per the blog post which is the link in this article.

The date on this post is July 15th, and the email says they're shutting down on the 19th. Giving customers 4 days notice is less than ideal.

And a weekend at that.

Well, may be there are simply no customers to begin with...

Because grandparent can read.

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