Bad Sign for a Startup: When the Founder Bails

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The last big tech boom – eleven years ago – had collars and handcuffs wrapped around founders and early hires.

Apart from the joy, challenge and excitement in creating something from nothing (btw – something not to be ignored or underestimated) the big financial upside was in stock. Stock which in many cases couldn’t be cashed out until the startup went public or got bought.

Kathleen Pender from the San Francisco Chronicle noted, “It used to be easy to tell the difference between public and private companies. But the advent of new trading platforms for private-company shares and deals like the one struck between Facebook and Goldman Sachs over the weekend are blurring the lines between them.”

What that means is that if the startup has enough buzz and interest, founders and early hires can swap vested stock options for stock with a buyer at hand, just like most publicly traded companies. Just check out the roster of early hire executives (all 20 of them) at Facebook who have already left from this May 2009 SAI Business Insider post. Hunch is that some were able to walk away with cash from their efforts.

No big surprise perhaps that Digg founder Kevin Rose has bailed from the firm and is preparing to launch a new start-up. It’s impossible to know (at least for me) if Rose held or sold his Digg shares. What we know is that Digg soared in popularity after its founding in 2004, and apparently came close to being sold for $200M to Google in 2008. Rose was on the cover of BusinessWeek, and the bloom was all over both founder and firm. Since the dalliance with Google, the glow has come off the firm, and from afar it appears Digg has struggled, including a change of CEOs. The ascendance of firms like Facebook, Twitter, Yelp, and Zynga has tucked Digg into the mid-to-back of the pack mindshare for the San Francisco / Silicon Valley technorati. And like anyone, there comes a time to pull the trigger and move on; more power and good wishes for whatever he does next.

Investment observer Paul Kedrosky has noted that the new boom – likely to be followed by a bust – is full on again. His list eerily IDs the same signs that preceded the bust 11 years ago. With the boom on, entrepreneurs such as Kevin Rose have a narrow window of time to come up with an idea, launch, get some traction, and exit before valuations – and cash to be made – crash. As All Thing Digital wrote, “Is There a Second Act for Kevin Rose?”

There are times when it is best that founders move on; times when their talents are tapped out and it’s best for leadership with different experiences and skills to pick up the quest. Twitter seems to be in that spot; the gifts of inspiration, heart, and audacity that Biz Stone, Jack Dorsey, and Evan Williams put Twitter in a leading market position. Biz Stone has moved on to AOL, Dorsey has a started up mobile payments company Square, and Evan Williams has stepped aside to pass the CEO stick to more business-experienced Dick Costello. Twitter still leads its market and now has over 300 employees.

It’s still a bad sign for the folks who remain when the founder leaves in the type of situation in which Digg finds itself. My experience working in and with startups is that though there are folks that do it just for the money, there are lots of good people who are doing it for the magic of building something special. Without a clear path to execution of that dream, something special won’t likely be coming soon if ever.

So when the founder(s) bail and the startup is adrift, it’s a clear sign that it’s time for other employees to either find their own lifeboat, or begin looking for life jackets. As TechCrunch piles on – and as Louis Gray observed – the epitaphs are already starting.

 

Life Back West is an occasional set of writings focused on ways people, teams and organizations can be both more effective (doing the right thing) and more efficient (doing the right thing well). More about executive, new role, career and team / leadership coaching services can be found at the “About J. Mike Smith and Back West, Inc.” sidebar or the “Hire Me” tab above. You can also read an online interview with me at WhoHub, as well as participate in my learning community courtesy of KnowledgeCrush.