Ryan Howard - Dysfunctional Start-up

2. Protecting Yourself as the Founder The Price of Being an Entrepreneur Sequoia's founder says 45% of founding CEOs of their investments fired in 18 months Founders of Twitter, Paypal, Cisco, Telsa, were all exited

3. Incorporating your company ‒ Allocate 3-4 common seats to maintain control ‒ Have clear vesting for founders and rules for termination ‒ Issue FF class shares to yourself for early partial liquidity ‒ Consider a B corp structure; community outweigh shareholders Protecting Yourself as the Founder

4. Your employment agreement ‒ Always be thinking about your downside ‒ If this ends today ‒ What do I have in my bank account? ‒ Can I liquidate my equity? ‒ California is at-will, even for founders Protecting Yourself as the Founder

5. Your employment agreement ‒ Always be thinking about your downside ‒ If this ends today ‒ What do I have in my bank account? ‒ Can I liquidate my equity? ‒ California is at-will, even for founders Protecting Yourself as the Founder

6. Your employment agreement ‒ Get a great employment attorney unassociated with the company ‒ A cure provision: timetable for making things right ‒ Severance ‒ Cash:6-12 months if you have closed Series A ‒ Accelerated vesting ‒ Extended exercising* Protecting Yourself as the Founder

7. Your employment agreement ‒ Get a great employment attorney unassociated with the company ‒ A cure provision: timetable for making things right ‒ Severance ‒ Cash:6-12 months if you have closed Series A ‒ Accelerated vesting ‒ Extended exercising Protecting Yourself as the Founder

8. Corporate Counsel ‒ The majority of large firms will work on contingency upfront ‒ Incorporate, founder/employment agreements, convertible note ‒ You don’t pay until you are funded ‒ If they want equity, just say, “no” ‒ Instead, ask them to invest :) Protecting Yourself as the Founder

9. Corporate Counsel ‒ A great lawyer can assist in managing your board ‒ Many larger firms also represent investors (conflict of interest) ‒ If you don’t like your attorney, simply cut them loose Protecting Yourself as the Founder

10. Your teams Three teams you want to be constantly focused on ‒ Your management team ‒ Your board team ‒ Your personal support team Protecting Yourself as the Founder

11. Management team Exceptional management team members will be force multipliers ‒ Free up your time to be more strategic ‒ Have a network to recruit from to rapidly build a team ‒ Deliver much better results for their function that you can Protecting Yourself as the Founder

12. The wrong leader The wrong leader can greatly harm your organization ‒ Can set functions back by a year (sales) ‒ Put the company behind company plan ‒ Be the reason you to get fired ‒ Enough wrong leaders will cause the company to fail ‒ Ruin culture, cause dysfunction, fighting, people to quit Protecting Yourself as the Founder

13. Interviewing Your ability to assess during an interview is critical ‒ Group interviews result in more data and consensus ‒ Candidates should explain how every part of a problem was solved ‒ Test everyone (A day in the life) ‒ Check references that the candidate didn't give you ‒ Must be a culture fit (Tolerating assholes will ruin your culture) Protecting Yourself as the Founder

14. Your board team The biggest single mistake founder's make is assembling their board ‒ Allocate 3-4 common board seats ‒ Spend more time on vetting these candidates versus all others ‒ Avoid bloated boards so you can run your company ‒ Do not add board members unless you absolutely have to Protecting Yourself as the Founder

15. Investor board members Overtime, the majority of your board members will be investors ‒ Interview them ‒ Ask when the last time they fired a CEO was, and why ‒ Explain your expectations of them ‒ Explain how your run the board meetings ‒ Watch for dysfunctional behaviors ‒ Check references ‒ Call CEOs in their portfolio companies ‒ Check their reputation on ‘The Funded’ Protecting Yourself as the Founder

16. Board member pitfalls ‒ Operators > MBAs ‒ Partners > Associates ‒ Never rush filling a board seat ‒ Common seats: find someone you trust implicitly (advisor first) ‒ Board observers can have undue influence in meetings Protecting Yourself as the Founder

17. Your personal team Think of yourself as an athlete ‒ A great athlete has ‒ Coaches ‒ Trainers ‒ Advisors ‒ Therapists Protecting Yourself as the Founder

18. Your personal team ‒ Great coaches, advisors, and success models ‒ People who have been in your shoes ‒ Therapists ‒ Someone to vent to, that’s always on your side ‒ Hire a professional, not your spouse ‒ Personal Assistant ‒ To keep your life together, while you work ‒ Build strategies to your routine to relax ‒ Meditation, message, social time Protecting Yourself as the Founder

19. Your personal team ‒ Great coaches, advisors, and success models ‒ People who have been in your shoes ‒ Therapists ‒ Someone to vent to, that’s always on your side ‒ Hire a professional, not your spouse ‒ Personal Assistant ‒ To keep your life together, while you work ‒ Build strategies to your routine to relax ‒ Meditation, message, social time Protecting Yourself as the Founder

20. Don’t give up your life for a company Protecting Yourself as the Founder

21. Don’t give up your life for a company Protecting Yourself as the Founder

22. Thank you Ryan Howard howard.ryan@outlook.com

Hinweis der Redaktion

Thank Bambi and the Vator team for having me here How many founders / how many people are thinking about starting a company (raise) Founded Practice Fusion in 2002 I learned running PF - the challenge is that you are alone You will make most of your hard decisions by yourself with little to no data You will eff up a lot of them You will be accountable for all of them -'and you will make mistakes Other founder’s have been through this (not the first) Much of this knowledge isn’t shared or centralized because when these mistakes are made, people usually get fired. And from there, they sign confidentiality agreements and they are no longer allowed to discuss these items openly. I am here today to help you avoid some of the fatal mistakes avoid the pitfalls that so many other founders run into As a side note, I am not selling anything, I don't want to be a paid coach, advisor or board member-I am simply here to share with you, be in service to you, and help you avoid some of these pitfalls
Being a founder is an incredibly challenging hard job -macro concerns are building a great product, team, and fundraising to make payroll The last thing you want to do during this time is worry about getting fired from a company you created Sequoia's founder says 45% of founding CEOs of their investments fired in 18 months -This isn't a binary statistic, meaning, once you make it past 18 months your likelihood gets better at maintaining the position; it doesn't. The pressure will be on your entire tenure (capital + board members) Founders of Twitter, Paypal, Cisco, Telsa, were all exited Pragmatic steps into insulating yourself if you’re starting or running a company
To dig right in, there are ways to insulate yourself Incorporating your company Allocate 3-4 common seats upfront This is critical – maintain control of your company as long as you possibly can Many founders lose control of their company after their first round of funding Have clear vesting for founders and rules for termination -if you have a co-founder that is only working part-time, but owns half of the company -have something in writing about if someone’s not performing, how they will be exited Founder’s leave with half of company after a year – then you’re stuck doing the work alone Issue FF class shares to yourself for early partial liquidity -Won’t have to wait for an IPO to get partial liquidity – during a financing, you can sell some equity to investors Consider a B corp structure The governance of a B Corporation makes decisions that best benefit the community versus the investors and shareholders - Helpful when making decisions about IPO timing, etc
Your Employment Agreement Between inc and series A Like Prenup agreement -tenture will be longer than most personal relationships -breakup Always be thinking about your downside -If this ends today, what do I have left? -What do I have in my bank account? -Can I get any liquidity from my equity?
When you start and have nothing, it’s not a big deal –if you lose it all - inconsequential But that changes as time goes on After a few rounds of financing: Great – you’re worth $50M in equity on paper, but if this ends today, what do I tangibly have? Can I pay my rent? Start-ups and founders are constantly in a temporary state– never know what’s gonna happen the next day Keep on mind that California is at will -When you Inc, you’re an employee of your company -if a board or co-founders wants you gone, they don't need a reason; leverage in board vote – common seats
Key items you want are: Get a great employment attorney unassociated with the company (Don’t use company counsel) A cure provision - this means if the board wants to fire you, they must inform you of the issue, and then you have a period of time to remedy it Severance -Cash - If you've closed a series A financing somewhere 6-12 months ---company may not have an abundancy of cash will be moot; not your problem. ---Look out for what's best for you; feed yourself -Equity - meaningful vesting accelerating; no exact formula; attorney should have idea -Extended exercising – fired; exercise them within 90 days of leaving the company. ---Paying for the options + taxes - owing the IRS millions in taxes ---Autonomy to see how the company performs, then buy
Negotiate for yourself, because no one else will -Investors will have preferences and rights in investors agreement -Executives CIC, severances -founders don't look out for their best interests -I believe this is because they are simply naïve, unaware and overloaded Lastly, you might get along with your board and co-founders now, trust that they will do the right thing, but when things go sideways people tend to show their ugly sides; always amplified when there is money involved. Always Protect yourself and your interests
Your Attorney The majority of large firms will work on contingency upfront -DLA, Wilson Sonsini, Orrick -Incorporate the company, founder agreements, Employment and consultant templates -Don’t pay until you are funded – series a (not seed) ---you will drive them millions if you are successful If they want equity, just say, “no” :) --no additional value ask for them to invest – most have funds
Things I have learned along the way Attorneys attend more board meetings than *anyone*; A strategic one can assist you in managing your board -pulse on how they are feeling -what strategies work -if the board is unhappy, they should be giving you a heads-up Many larger firms also represent investors (conflict of interest) -Series A financing, the venture capitalist investing used Gunderson. During our Series D the investor used Fenwick. -Critical: *If your firm represents one of your investors, -they are brining other companies in your investor’s portfolio public (they are likely making millions in billable hours from your investor) who do you think they are beholden to? You want someone with no conflict, who is on your side. Lastly, If you don’t like your attorney, simply cut them loose -Their services are standardized and commoditized, and there are many in the valley
There are three key teams that you consistently want to build and develop Your management team (CFO, Head of Marketing, Operations) Your board team (Board members you recruit for common seats, as well, as the ones that come with investors) Your personal support team (coaches, assistants, behavioral therapists) People spend a ton of time on the first, a little on the second, and the least on the third
Management Team When you hire the right senior leaders you will see a tectonic shift in your organization. -most founders are intimidated by older, tenured people, which ultimately slows them down They will be force multipliers for the following reasons: -Your time will be greatly freed up, especially if you were managing that function (and its team) -The new leader should have a network that will make that team stronger -The new leader should will likely be better at the function than you were, and therefore deliver much better results Which is always invigorating (more valuable because of this hire)
The wrong leader Choosing the wrong senior leader can set your company back by a year -Take sales for example -3-6 months to hire, a few months to get up to speed when they are off track, the entire team is generally off track, which means the company is behind goal (missed goal rolls into next year) If you need Sales to hit to make payroll – life or death --Be the reason you to get fired Enough wrong leaders will cause the company to fail in its entirety --The #1 reason companies go out of business Ruin culture, cause dysfunction, fighting, people to quit Always have a low tolerance for underperformers and culture misfits; hire slow, fire fast (courage) Side note – wrong leader is really expensive -$500k to exit when you are at scale -Execs usually get a point or two of the company -plus the company being behind
Interviewing Your ability to assess a candidate with the limited time during an interview is critical; eliminate risks I mentioned Group interviews 1:1 -start, stop, formalities, no depth more efficient, more depth, group has same data, Consensus A great candidate should be able to explain every part of how a particular problem was solved in their last role (Elon Musk's litmus test for hiring) Test everyone - we would have senior leaders in for a full day (a day in the life) ---You will know if they are smart, Will work well with the team, can execute at the level you need them to --If someone won’t do it, don’t hire them, move on Check references that the candidate didn't give you -any reference a candidate gives you will be good; why check it; do you dd Must be a culture fit You’re gonna spend more time with this person than your spouse – you should like them Tolerating assholes will ruin your culture - people quit
Your board team The biggest single mistake founder's make is assembling their board 3-4 common board seats to protect your interests (balance out bad board members) -I lost control of my company after the first round of funding – stupid mistake The board's primary function is hiring and firing the CEO Therefore, spend more time on vetting these candidates versus all others -once a board member is on board, it’s nearly impossible to get them off (vegas) Avoid bloated boards, so you can run your company ---I see this all the time; seed stage startups with 5 board members? ---Why hire more people to control your company and be your boss? ---Make these people your advisors if they really want to participate Do not add board members, unless you have to ---The board’s role is hiring and firing the CEO, so why create additional risk and overhead for yourself ---They can create a lot of overhead for you and the team, as well ---Again, maintain control of your board
Investor board members The majority of your board members will come with an investment when you close a round of funding Ask who the person is going to be during investor meetings Interview them –until you’re comfortable -- at least three meetings ---Ask when was the last time you fired a CEO and why? ---Explain what your expectations of a board member are ---Explain how you run your board meetings (don't wait for them to tell you this; it's the CEO's role) ---Ask what works well for them – this is a partnership Dial in your EQ - watch for subtle, dysfunctional behaviors (fast talkers, anxieties, twitches, germphobes**) ---handshaking ---don’t get so excited that you’re getting money and throw out the baby with the bath water ---Take a lower valuation to maintain more control References ---call CEOs in their portfolio companies (not references they gave you) ---Check The Funded for their reputation
Board member pitfalls Operators > MBAs ---you want people who have been in a high growth startups and understand the stresses and challenges, not an analyst at P&G Partners > Associates --Junior associates will be under a ton of pressure to perform, and will not have significant experience if you hit a roadblock) --partner more stature experience --if you hit a major issue (ex. money) a partner will have more clout to get the fund to cut you a check --partner who was an operator is the best combination Common/Independent seats: Don't be rushed into bringing on a board member, ever (especially outside a financing) ---never, ever bringing on someone you just met or haven't worked with (my biggest mistake) ---Have the person serve on your advisory board for a year; attend board meetings (build trust) ---once you trust them, offer them a board (biggest mistake – didn’t know them well enough, weren’t aligned) Board observers are generally pains in the asses --Distractions and undue influence in meetings – they may not have a vote, but they can talk --no one ever said build a bigger board / smaller boards are more efficient, effective in serving you
Your personal team -One thing I constantly see being overlooked are founder’s personal teams. -I’m not referring to your VP of Finance, product and marketing -I’m talking about the people you need in your personal circle to make you successful. -Think about yourself just like an athlete. A great athlete has: ---Exceptional Coaches ---Trainers ---Advisors ---Therapists Get to extreme levels of success
-You will break down – the pace of a startup is simply not sustainable long term without maintenance Model yourself like a professional athlete -Great coaches - Advisors and success models around you ---bounce issues off people that are thoughtful and wise ---this is what Great leaders do – build great counsels to support them -Therapists – emotional Someone to simply vent to and that’s always on your side. -Not friends, not your spouse; come home every night and complain and they’ll divorce you -Hire a professional – who gets paid to listen -Personal assistant to help keep your life on track when you are managing chaos Food, dry cleaning - lead to the ability to better manage stress Personal wellness plan - Build strategies into your routine to relax Plan time for Meditation, message, time with friends
When I was running PF (2013) I had massive adrenal fatigue Couldn’t sleep, anxious all the time from the stress of running company, hyper growth Took time to fix this / could have prevented it -you only have one body – be sure to take care of yourself – its not worth dying for your startup
Lastly, someone once told me that life is a balance of health, wealth and love ---Health from food and exercise ---Love from friends, family and intimate relationships ---And wealth, obviously from your work
These three are always competing, because we all have limited time If you spend too much time on any one of them, the others will suffer When I started PF, I was so focused on the company, the I inadvertently neglected my friends, family and personal relationships I can tell you from experience that it wasn’t worth it (cant make up) For most starting a company, you will spend the best years of your life on your project Be sure it’s truly something you’re passionate about / something you can see yourself doing in 10 years / that’s how long it takes to build real value Be sure to enjoy your life during this process ---because life is short ---and I can assure you that no matter how successful you are, ---you’ll wish you always spent more time on your health, friends and family With that - Thank you.
Thank you all for being here today

Ryan Howard - Dysfunctional Start-up

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