Startup Chronicles: Why I Finally Walked Away from My First Company

My first startup was a software company based out of Los Angeles. I joined them fresh out of college, after packing a rented minivan with all of my possessions (and my cat), and driving down from Berkeley. It was eerily similar to HBO’s Silicon Valley (which is, to this day, the most accurate depiction of #StartupLife I’ve seen), even down to living and working out of a small ranch-style house with 8-12 of my coworkers.

I loved that company, and I loved the team. Although the concept of work-life balance didn’t exist, it was invigorating to see your efforts directly impact something larger than yourself, hopefully making those stock options worth something someday. I got to help build the team from a group of 10 to 50 at one point, and was proud of everything they were able to accomplish. I loved working with them, and felt we were building something of serious value – and I don’t just mean the software.

I was with my first startup for 3 years, and probably would have never left, if not for a devastating blow. But one came.

The Setup

This was kind of a perfect-storm scenario. Ever since I joined, the CEO promised that a Series A (a round of investor funding) was just around the corner. She would use this to justify us living together and working out of the house (can’t change that until we have our next round of investing!) or our wages being too low to technically be considered wages (the term “stipend” was liberally applied). Still, these things did gradually improve, even though the funding didn’t come. Instead, the customers did, slowly but surely.

That said, 3 years later we were still told that Series A was just around the corner. Every few months, the CEO would share a quick update: “meeting with some very exciting VCs up in San Francisco this week,” or “going out to dinner with [insert high-profile investor here] tonight to close our Series A!” Three years and she never yielded – Series A would come. But tangible timelines would not.

About 5 months before I decided to leave, I asked the CEO to hold an open forum discussion with team members who were looking for answers. The team was starting to understand that Series A was not coming as easily to us as we were led to believe. She agreed, and once again publicly promised that Series A was moments away. No new news outside of that, and a few more high-profile names to share.

We were growing – new hires were coming in every month, new clients every couple of days. I found myself with extra enthusiasm, spurred on by the growth of our customer base, and offered to tackle the first-ever department budgets – which in 3+ years still hadn’t been developed.

Our COO was ecstatic about the idea, the CEO not so much. Yes, I could see the expenses, but no – I couldn’t see the bank account. I don’t have a real finance background (outside of the personal variety), so I didn’t think that was all that strange.

The Problem

I wasn’t the only person not looking at the bank accounts. Out of roughly 35 team members, only 4 had access to our finances – only two of whom were actually watching them. Our CEO had her eyes on the soon-to-be-drained account, and didn’t share with the rest of the group. Instead, she insisted that Series A would come.

And we were growing. Our revenue was up, but we weren’t at that cashflow-positive sweet spot. Instead, I was told to hire another marketer, another engineer, another body with another salary that had to be paid. The managers asking for more bodies were not directly thinking about how those bodies would affect profits (or lack thereof). All they knew was that they were drowning in work, and needed the extra help. That was enough.

I remember asking the COO months earlier whether these new additions were the best call for the company, and he told me that I had to trust that the leadership team kept their eyes on everything, and that their judgment was sound. He told me it wasn’t my business.

Led on by the idea that funding was just a few days or a few weeks away, managers felt good bringing on extra people, bringing our spend even higher. On top of that, our COO decided to go out of town for a few weeks – meaning the only person with eyes on the bank accounts was our CEO, who was either unaware or too proud to admit that we were running out of runway.

The Scramble

It wasn’t until the end was pretty much nigh that anyone caught on, and by that point it was too late. The team stakeholders gathered around in my apartment’s living room to discuss options (of which there were very few). It was revealed that we had enough in the bank to cover less than one full month of payroll and expenses, and people had to be told now.

The CEO still affirmed that funding would come, even going so far as to say she’d ask her dad for an additional $100,000 to keep the company afloat. As commendable as it may be to sacrifice her father’s life savings, the rest of the team wasn’t willing to do that. We were going try and save the company without ruining a man’s retirement plans, or not at all.

After looking at expenses for the departments the past month or so, there were some areas that could be trimmed. Rent was the highest cost to the company, outside of salaries. Did we need to continue to keep the company house AND the office? Probably not. But the team wasn’t willing to sacrifice either rental. Instead, they agreed to cut down on little things like groceries or office perks – nothing that extended our runway by any meaningful amount.

Which left the one worst option: cut the team. This was a team that I’d poured my heart and soul into. As a recruiter, I brought them onboard because I truly believed this company took care of its people, and built what they loved. I was devastated when the startup’s leadership team went around a circle, sitting cross-legged on my living room floor, and decided whom we could afford to keep and whom we had to remove from the team. But after some arguments, they came to an agreement on that list.

What nobody wanted to agree on was how much notice to give the team. We had about three days left in that pay period, and I firmly believed (and still believe) we needed to tell them as soon as possible, so they could have at least a bit of warning before starting to look for their next companies.

The leadership team, however, disagreed. They wanted the last two or three days of the pay period to vet out their next step, and not make waves with the team that would potentially stay. They wanted to have a better formed plan.

We came to somewhat of a compromise: we’d have one day to plan, but I insisted we tell them before the week was out. Give the team the weekend to start their job search.

The next day, most of the leadership team didn’t come in. I, and one or two other managers, had the unfortunate duty of explaining the company’s situation to the rest of the team, and letting about half of the team I’d helped build go.

It broke my heart.

The Aftermath

To the CEO’s credit, she was able to get a small bridge investment, just a few weeks after we let go of half the team. It wasn’t a Series A, and it wasn’t enough to keep the company running for longer than another month or two.

A lot of questions came from the remaining team members. How did we get to this point? What does this mean for the future? How can we prevent this from happening again?

Emotions ran high, and I asked the CEO and leadership team to have an open forum again. We were down to maybe 12 individuals and needed their buy-in and help to keep the company running. She and I worked to go through a rough outline of steps to rebuild while reducing expenses, and I charted out exactly when customers would pay what, vs. when we had to pay our expenses. Even with that bridge funding, it wasn’t looking great long-term.

A lot of the ideas tossed around were not pretty.

My boyfriend at the time, who was also on the team, suggested that the leadership and founding team reduce the workforce down to just the bare bones required to service current customers, and stop progress. His logic was we’d bring in (and disperse among the 5-10 remaining team members) about $100,000 each month, and when customers canceled, we’d let the company slowly peter out. I’ve never really forgiven him for being so selfish when the rest of the team’s livelihoods were at stake.

The COO and co-founder at one point texted me demanding I find a way to allocate $10,000 to him from the company’s last $100,000, and threatened to sue me if I didn’t comply, saying that he should have earned more throughout the four or so years he’d worked with the company, and it was somehow my responsibility to get it to him. I told him it wasn’t in the company’s best interest, but if he was in a dire situation, he could discuss with the rest of the leadership team, and we’d try to find a way to make things work. When I asked him what he needed this money for, he told me that he regretted “not traveling more,” and that was it. He later insisted that he should take on the CEO position, as he considered the current CEO to be unfit to lead the company.

The CTO wanted to protect the engineering team, rightly so, but went about it by insulting other departments and questioning everyone else’s value, including my own.

The CEO focused primarily on protecting the company image, as well as her own. She was less concerned about the customers, the team, or the tech. She wanted to retain the CEO title, and prevent the word “downsize” from getting to any of her contacts.

These were people that I’d not only worked alongside for 3 years, but literally lived with. Every single one of them. The rose tinted glasses were off. The wizard was just an old man, and the team leadership devolved into wild animals, backed into a cage and lashing out. Everyone’s true colors were revealed, and the illusion was shattered.

***

I gave the team my 6 weeks’ notice. Most of the team that was asked to stay had given their 2-4 weeks’ notice, and I wanted to ensure that everyone’s offboarding and stock options were handled correctly. As team members left, more and more of the work fell to those who were still questioning their own commitment to the company. I focused on running models to show when exactly runway would run out, and tried to help close superfluous expenses, but again was rebuffed.

The CEO asked me to stay on, even part-time, to help the team. I couldn’t do it. I didn’t believe in the leadership team anymore, and resented them for their lack of judgment and compassion. I was upset at myself for not pushing more when I felt something was wrong. I should have known so much earlier that the company was spiraling.

Exactly 6 weeks after the chaos, I joined my next startup, and left the first company for good. I still see some of my former team members occasionally, and am happy to hear that the company is still in business. I hope they’re truly successful one day (and I’ll get to cash in my stock options). That said, I haven’t looked back.

Despite everything, I’m thankful to have experienced a true startup. I would never have learned so much in such a relatively short amount of time in any other situation. That said, it surprised me how much work could affect me, mentally and emotionally, and I’m glad to retire those rose-tinted glasses. I’m still on the startup train, but I no longer believe that leadership will always have the team’s best interest at heart. They have to prove themselves, just like the rest of us.

Leave a Reply