I walked into the office space, and there was no one there. It was just a bunch of empty cubicles. The space was dimly lit, and the ceilings were low.
“My god, this space is depressing,” I said to my co-founder “Randy”. “No wonder they failed.”
Randy nodded his head in agreement. We had signed a term sheet for our initial funding $12 million the previous week, and we were looking for office space.
We told Chris, the real estate agent who was helping us look for office space, to drive us to the next office park.
I wondered, as we drove to the next potential site. “Who worked here? Why did this company fail? Why did the founders choose such a depressing place to work?”
The rent wasn’t cheap compared to other sites. I knew I didn’t want that to be us. I wanted everything to be right for our company. And, as crazy as it sounded, I felt the wrong office space could be a fatal decision.
Little did I know that I’d already made the most fatal decision of all for an early stage start up. I’ll get back to this later.
Fatal decision #2: Having the wrong co-founders.
And, little did I know, as Randy and I drove around looking at office space, that nine months later I would be firing Randy. I was grateful that Randy had joined the company. Indeed, his addition certainly helped us raise our funding.
However, Randy kept getting into fights with the rest of our team, especially our engineering VP, Jeroen. I tried, man did I try, to get Randy to be a better corporate citizen, but he was defiant.
It seemed to me that Randy was almost daring me to fire him. So, despite all his skill and ability, I knew that Randy had to go.
It would have been anarchy if I kept Randy. The fights would have kept getting worse, and our ability to execute would be diminished.
Fatal decision #3: Not prioritizing your company culture.
Randy’s termination was directly related to our company culture. I had been thinking about our company culture even before I decided to start the company.
I hadn’t read the Stanford University study about how your company culture is the most important indicator of a successful startup. However, I had very strong opinions on the type of culture we wanted to have.
So, I spend a lot of time talking about culture with my co-founders including Randy. Then, as we started building our founding team (the employees that you hire after you get funding), we spent a large amount of time talking with them about our culture too.
Disagreement and debate was encouraged, but, once a decision was made, we wanted everyone moving forward together. The result was we had a cohesive team that marched in the same direction. Our employee turnover was minimal.
Fatal decision #4: Spending way too much money.
“Are you signing every check?” My friend, Bill, asked at dinner.
“Yes, I am,” I said.
“That’s good,” he responded. “That’s how you keep control of the money.”
You’re approving all spending when you sign every check. It’s a great way to make sure, especially early on, that you don’t spend money on unnecessary things.
Indeed, I’ve seen too many startups where the CEO gives his team sign off authority, and the result is an increase in spending at the wrong time. And it’s really difficult to take away someone’s signing authority once they have it.
The better solution is for you to sign off on everything. Your team might not like it, but it could be the difference is in you having enough financial runway to make it to the next funding round.
Fatal decision #5: You choose a bad investor.
When we were looking for our office space all those years ago, little did I know I had made the most fatal decision of all. I had chosen to work with the wrong investor.
“Donald Ventures” managing partner (the head of the venture fund), Donald, never believed in us. He had supported the investment because “Raul”, a new partner Donald had just added to the fund, wanted to invest in us.
Raul had been a VC for years, previously at another very well-known Silicon Valley venture firm. He was a legend, and Donald wanted to support him.
However, Donald and Raul fought constantly, and eventually Donald had enough of Raul, so Donald asked Raul to leave Donald Ventures. Raul was asked to liquidate all his investments.
We were raising our next round of funding. We had multiple term sheets, and Donald Ventures blocked them all in an effort to force us to sell the company.
Fortunately, we had a loan with Silicon Valley Bank, and they were not too excited about losing their money for no good reason. So. literally when we were having an emergency board meeting to wind down the company, Donald Ventures backed down.
The moral of this story is simple: You can recover from most fatal decisions, but it’s nearly impossible to recover from a bad investor.
The warning signs that Donald Ventures might be a problem were there before we closed our funding. Raul was difficult to work with, he wasn’t going to take a board seat (yes, this is a red flag), and we had a tranche.
However, in our defense, we didn’t have a choice. Donald Ventures gave us a term sheet during the Great Recession when no one else would step up. It was them our bust.