Welcome back to another episode of the Startup Therapy Podcast. This is Ryan Rutan, joined as always by Will Schroeder, my friend, the founder, and CEO of Startups.com. Will, founders get fired all the time, right? It happens. But replacing a founder's energy, passion, vision can be extremely difficult. Just ask Ian Crosby, or maybe even better, the investors who fired him.
It's interesting because obviously we're heading into a new year, new era. This is the start of 2025 when we're recording this. Happy New Year, everybody, by the way. And, you know, at the very end. of 2024, there was this big announcement that went out that kind of went all over social and everything else like that. That bench, the accountant as a service business, went out of business overnight. I mean, quite literally went out of business overnight.
Ryan, when you heard that, what's the first thing that came to mind for you? Oh, well, there was a fairly similar story that we lived through about was like nine years ago. It's kind of how we wound up with Zirtual at one. Yeah, like almost verbatim. But what I thought was interesting, you mentioned Ian Crosby, who we worked with as a partner of startups.com. And Ian goes on Twitter, which I was happy to see. I refuse to call it X. He goes on Twitter. He says like.
Okay, here's what actually happened. These guys fired me like two years ago. The investors fired me like two years ago. And I told them this was going to happen. Yep. I told you so. I told you. This is exactly what was going to happen. And they didn't believe it. Ryan, you know, over the past year, specifically this year, because we're like in like a down part of the startup economy, we've seen a lot of founders get fired, not just close their business, but get fired.
We have. I just saw a tweet from you earlier today that said, at this point in the year, I now know more jobless founders than founders who are hiring, which isn't a great sign, right? But it's a sign of the times. It's not. And look. It's part of the process. But what I thought would be pretty cool for us to unpack here is to explain why do investors do this? What is it that causes investors to say, let's get rid of the golden goose?
Because it happens to everybody. It happened to everybody from Steve Jobs to Sam Altman. Yes. Sam Altman, you know, came back in a few days. We still got fired, right? and then again and then back again and then again i've lost track at this point they're playing ping pong with poor guy he was almost a microsoft employee for like nine minutes but
What I think is interesting is like, let's start with what the motivations are. Let's start with what happens. Let's talk about why it's a mistake and it's almost always a mistake. And then we'll finish up with what to do about it. You know, if you're in that position or you've gone through this, you know what to do about it.
Ryan, let's talk a little bit about how it starts. From the investor's perspective, what are they typically seeing? Yeah, look, there's something in terms of performance that they're not happy with. It's either we're underperforming or...
in some cases we've all seen this happen where there's another similar startup or someone else in the space all of a sudden blows up does something else and so they're now comparing yep what could have been to what is so it's not even necessarily a a failure in performance but it's a failure to perform
an expectation that maybe wasn't even originally set but now we're starting to see something in the market that says well we could have done this and you didn't do it so therefore we've got some kind of a problem right it generally starts with with little rumblings right it's not usually some massive thing
It's like you squandered all of the company's cash on a yacht, you're fired, right? Rarely that. I wish it was that more often. Right, right. That sounds awesome. What's interesting about that, and again, I want folks to just for a minute. see things from the investor's eyes. It's easy to say investors are bad, but I think we need to talk about where this comes from. Where does this thought process or expectation originate? Sure.
Well, here's an easy analog. Just imagine just put yourself back in the founder chair and you're looking at any one of your employees. and they're not performing in the way that you expect you want to do some course correction right starts gentle and general right in the beginning and and then there's escalations up into the point until you fire them it's not different for the investors right all right
much bigger decision it feels far far larger and certainly the outcome can be far more stark but it's essentially the same process you're looking at something saying this isn't doing what we want it to do we have to make some level of change Yeah, I agree. And what's interesting is no one really knows what that expectation should have been. There's the problem. Because by default, we made it up. Now, part of the problem is we, the founders made it up.
You know, we showed up with our pitch deck and our pro forma financials. And we said in four years, we'll do this. Now, no one really believes every time. Right. Yeah. No one really believes that's going to happen. And, you know, it's funny. I wonder if there is some way of knowing this. than there is not, of what the percentage accuracy of four-year financials on a pitch deck, especially at the seed or Series A stage, have ever been.
have ever been right if it's a full digit i'd be surprised it's definitely in the single digits but i it may not even be an integer yeah it's it's low it's very low but from the investors mind they put their money in Because they had some level of belief, not a concrete one, but some level of belief and optimism that the business could be what it was. So you can't fault them for that optimism. You can't fault them by saying, hey, how dare you have expectations of the company? It's like.
Dude, that's why I gave you the money. Come out of nowhere. Right. It was an implied contract there. And by the way, you gave me all the metrics we're holding you against right now. In some cases, that's not always true. Correct. Correct. What happens, though, is. These missed expectations or this friction, it doesn't start out of nowhere.
So when I hear a founder say, hey, I got blindsided by the board. You know, I just got let go. Yes. I mean, there is a difference. It's like a couple fighting. And there's always the notion of divorce, but it's not the same as when one person says to the other person, I'm filing for a divorce. So yes, like the actual event is significant. There's a million cracks in the dam before this thing explodes. You know what I mean?
One of the funny signals I've always thought of is like the minute it goes from you, you, you to we. you've probably got a problem right yeah they're saying like you know you could consider this or you could consider that too we need to make some changes or we think that like the minute it goes to we right once that once it becomes the royal we you're
probably should, your ears should perk up at that point and go like, ah, why is it no longer just me? Why are they no longer relying on me, right? There's something going on here. Typically, the board would prefer a course correction. Right. And no board is saying, like, how can I make my life harder by pulling out the most influential person in a company I just invested in? That's like the last idea. Now, that said.
There's a big difference between that being their last idea and it being a good idea. Just because it's their last resort doesn't mean it's a good one. But I think from a founder standpoint, if you hear a couple of cracks in that dam. Assume it's way worse. Assuming you are seeing a fraction of the overall pressure coming. Oh, 100%.
in the scenarios that we've laid out today generally it's this slow burn thing that's happening over time and so again by the time you see it it's been there for a long time so to your point there's a lot of pressure behind that dam at this point any cracks that you're seeing are just a a harbinger of what is about to happen, right? There's far more severity than what it looks like. And those investors, the reason they're in this business of investing in startups is because they want to feel.
Like they have some modicum of control over these outcomes. That's why they join boards. That's why they do what they do. And some of them, not all of them, are founders themselves who have had experience. So the idea of watching something in their minds tank. and not doing something about it is irresponsible to them. So again, their intentions or their position isn't hard to understand. You may not like it, but it ain't hard to understand.
Again, go back to my analog early on, which is if it's an employee that's underperforming, at some point, you got to do something about it. You may not want to. It may not be popular socially within the company, emotionally for the founder. Financially, it may cause all kinds of operational issues in the short term, but at some point.
if that person's underperforming, you have to make some kind of a change. Exactly. And so investors, when you look at what's the single greatest change that you can make to try to right the ship, so to speak, it's always fire the CEO.
It's always fire the CEO, right? It's like in sports, if your team isn't doing well, you fire the head coach, right? The head coach just knows that if he puts up a losing season, he's going to be gone, right? So from a founder standpoint, shit kind of works the same. If you're putting up a losing season, ergo missing sales targets, running out of money, et cetera, you're that coach with a shitty record that's probably going to get replaced. Now, this belief.
if we just replace the ceo that things will turn around doesn't always work as as mr crosby indicated Yeah, I can't think of a single case where removing a founder didn't leave a hand grenade behind, right? There's always a ton of collateral damage that happens because it's not... it doesn't happen in a vacuum right like it's like sounds like okay well we're going to replace the ceo the founder
Sure. But you're not going to instantly replace, you can put a new human there, but you can instantly replace the relationships, the knowledge, the passion, the drive, the understanding, all of it, right? Like it's, it's, we did an entire podcast on this.
You've got compounding layered issues here that are not insignificant. And this is me, again, trying to give you some perspective of the board members of the investors. Not that I agree with them, but it's important to understand them. The first is...
We want to replace this person because we believe that their lack of decision-making experience, all of the above, are tanking this company. And we believe if we bring in XYZ person, it will solve for those problems. Now, this tends to ignore a lot. which is the heart of this debate. Ryan, I'd be curious what some of yours are, but the first thing for me is that replacing the founder is like Iron Man.
taking the power source out of his chest and being like, ah, the rest of it will work out okay. It's taking the heart out of the company. The thing gets pretty heavy without the power source. To me, that is such... a painful surgery it just can't be taken lightly
yeah and i think to your point like it is a very painful surgery and the cost will always be there i think that when we start to wait against the benefits where it becomes problematic is the analysis that was done to determine that this is the root cause right this is the thing that
has to happen. You don't cut off a foot when you have a splinter. You want to make sure that there's a real reason for taking that off. So to me, we want to make sure that we're not talking about something else here. Have we looked to make sure there isn't just an underlying fundamental flaw in something like the business model?
The market size, right? Maybe we just misestimated this and we thought it was much larger than it was. And it turns out we need to just right size those expectations. Like we can't become a $100 million company in a $50 million capped market. So there's so... many other things that could be the root cause or a collection of causes that will not be remedied by ripping the CEO and the founder out.
Ripping the founder out does not change the market size. Ripping the founder out does not make the business model better. That's the whole thing. Think of how many startups, by definition, wound up becoming tiny businesses. Like, big idea. but one just being not that big of a business, right? Happens all the time, okay? It's the nature of it. But every one of those founders was treated as if they were running Uber, right? Or Airbnb, as far as a market size or outcome.
And I think it would be a very unique investor, probably a founder, who would look at the opportunity and say, you know what? To be honest, if you were 10x harder, this is still a $5 million business. Instead, it's more like because you didn't work 10x harder, which is almost always bullshit, you didn't make it a bigger business, which, again, I think overlooks a lot. I just think it does. But if you're the investor, what else are you going to do?
If you put, let's say, $10 million into a business and it's generating $2 million in ARR after four or five years, there's no version where you can't be like, well, let me just change nothing and call it a day. By definition, you're going to be like, my job here is to rescue this thing and create a return. So why wouldn't I do that? And this is what I go back to. From the founder standpoint, you can't look at that writing on the wall and be like, oh, we're good here.
No, you're not. Dude, if you took 10 million and you're generating 2 million, you're not good. That's not okay. I think it's important to see that coming. For sure. I think, you know, again. There are going to be a ton of costs, right? This isn't an a la carte decision where it's like, well, we don't like that founder's decision making. So we're going to pluck the founder out. Right. Don't worry.
the passion, the drive, the understanding, the energy, the learnings, all of that will stay. No, that all goes too. And so again, it has to be really... really well calculated because of the fundamental problems that could also exist? Have we really explored those? And is it really just down to decision making? Is it really just down to execution? Is it just down to personality? Is it down to something else that is completely encapsulated within the founder. Because if it's not,
When you rip that founder out, you're ripping a hell of a lot of other stuff out with it, right? You don't just get to rip out the power source. You rip out the power source and a bunch of the plumbing and the wiring. Some of the roof is coming off, right? It's a lot of stuff's going along with it.
I want to tell two stories where I was personally involved, and one of those you were as well, in the replacement of a founder, how it did not work out. Now, the first one I'm going to tell was my first go around with my first company. A few years in, the company's grown really quickly.
I'm like 22 years old at the time, right? I mean, I could not have had less experience. By the way, I was a failed theater major. I didn't even study business. I had no idea what business was. Regardless, despite me, the business was growing fairly quickly. And we decided...
that we should find a more experienced CEO, right? My business partner, who you know, was four years older than me. So he wasn't exactly super seasoned either, right? Yeah. If you add those two together, they're almost as old as we are, Will.
Fuck you. And so anyway, so we go out and we agree. And this wasn't like a. challenging it was my idea i'm like get me out of here man yeah like this is a bad idea and so we go out and we hire a very experienced executive like checked all the boxes 40 plus has children Yeah, exactly. And so, yeah, had the gray hair, everything, right? He comes in, tanks it.
Right now, the difference in this case is like I moved to what we call the chairman role, which for those that aren't familiar with what a chairman is in a startup company, it's called being put to pasture. Yeah. Except in your case, because you're still so young. it's the opposite it's called the high chair man you're just put into a high chair and you're monitored
In fact, I remember when I got that title as a joke, but not really, my staff gave me an apron when we did barbecues. That was called Charman. There we go. You're spending your time doing from now on. Yeah, it was useless. Anyway, we watched this unfold while writing shotgun in the process, which is pretty unusual. Usually you try to get the founder as far away from it as possible. When he got there.
he said all the right things but he had no passion he had no commitment he didn't really understand why our product was our product he just knew it was a business that did a thing with a thing, right? Staff revolts, customers hated him, product went nowhere, business went nowhere. I mean, like everything failed, right? And not because he wasn't a smart guy. He was a smart guy.
trying to parent someone else's kid. It just didn't work. It's as fun as it sounds. Exactly. And we ended up pulling him out of there like a year later. I come back. We try to find another person to replace me. The whole thing happens again. I come back.
We try to find another person to replace me. This is the third person. Right. And at some point I'm like, dude, we're just going to take what we can get at this point. Cause I didn't want to be there anymore. And it's me. It's like, please don't make it me. Okay. So, so that's one, the second one you're familiar with.
And it goes back to what we talked about at the top of the show was when we bought Zirtual. And I'm talking about Marin, the founder. Here's what I'm going to say. While Zirtual took a very bizarre hard right turn overnight, I'm not going to get into the story, but it was. One of the weirdest stories I've ever seen. Marin was the passion of the business. Marin started a business, virtual.com, at a very kind of innovative time where virtual assistants were a big thing. And she lived the brand.
She lived the culture, et cetera. When we came in, we were that guy. We were that guy that just came in and just treated it as a business. And the culture was never the same. The growth was never the same. The product was never the same because we didn't give a shit. Now, I'm saying that at a high level, right? We owned the business. We owned the outcome. But we just ran it as a business.
right had you and i started it i think it would have been way different completely different right and it was interesting because i think we when we entered into that and it won't go too far down this path when you're into it we did have some aspirations for making some changes to make it a bit more startup and founder friendly focused right like kind of SWAT teams for startups I remember that being bandied about in the conference room quite a bit where and I think what we were actually doing
And we didn't fully execute on it. But I think what we were actually doing was looking for ways to be passionate about it. I think we realized at some point we're like, this is a business that we can run. We understand how to improve it operationally. We know what to do to execute. We know what needs to happen.
happen from a business perspective, but at some point we're all finding a hard time giving a about it in a different way like of course we cared about the people of course we cared about the clients but there wasn't anything in the mission itself that was like this really fits and suits what we're doing i think
it also didn't help that we were already running a business that we were extremely passionate about correct yeah yeah because there was misalignment with that it was like well okay then we'll just run this thing and we're gonna love this one right it became the world's largest side hustle one of them
was a stepchild. Yeah, yeah, yeah. Again, we saw it firsthand. We saw what happens when you try to replace the DNA, right? Where you try to skin graft that, you know, one founder from the next. It doesn't work. It doesn't work because all of the things that Marin did, whether she meant to or not, to make that business unique and special came from her. Now, we might have.
run it operationally better, but it was never the same company again. This is me saying, would the business have been better off with Marin? And I don't want to speculate too much, but maybe at some point, you know, Marin's capabilities ran out and it wasn't about passion. It was about execution.
But what I'm saying is regardless, the moment you took Marin out of it, it was never the same business. It just wasn't. Yeah, for sure. It's a curious point, too, where like we so often see this as the choice. And we said, like, this is the last option. And yet.
Oftentimes, I'd be curious to get your... feelings on this but i feel like very frequently they do skip a step which is to augment that team a little bit further yeah right bring in a chief of staff bring in an operations person bring in somebody else that isn't already there if you really think that the c is making improper decisions or isn't executing well. I feel like very, very frequently they make adjustments to what's already there.
but very rarely maybe it's just the caspers and the companies there's a lot of reasons why it wouldn't happen but i feel like most of the time we don't see like a major augmentation like let's bring in somebody else To your point, having that founder still there can make that tough. They can put them at loggerheads or maybe they're just seen as dead weight at that point. But I can think of at least a few examples where...
someone was brought in to augment the CEO and the founder versus just ripping them out and things have worked out, right? And we certainly have plenty of examples of where the CEO and founder was ripped out and it didn't work and either the company failed or they came right back.
All right. That Steve Jobs, Sam Altman, you. Right. And there's no shortage of examples of that. I don't have a good example of where they ripped the CEO out and it just worked. And look, this isn't one size fits all. There's plenty of examples where you do find a good CEO. Right. It does happen. Dara, who ended up running Uber, was not Travis at Uber. I mean, Travis at Uber was a psychopath at a time where you needed a psychopath. And so it worked.
But there was also a time toward the end there where you didn't need a psychopath anymore. And that was becoming a huge liability. And he needed to go. So again, there's a time and a place where having that transition makes sense. See Zenefits, they would have benefited from a CEO transition, right? Yeah. There's countless examples, but generally what I tend to find is when founders get fired, when founders get pulled from their own company.
I think it does more harm than good more often than not. And I think this is what we're getting at. It solves the wrong problem. So I'll give you some examples. If what we're talking about is sales are down.
Right. We're not in our sales targets. Fire the CEO. It's like, should you be focused on getting somebody that understands sales? It'd be the equivalent of saying our defense sucks. Let's fire the head coach. It's like, well, how about get new players? Yeah. Let's start with the defensive coordinator.
Yeah, this is kind of my point from a few minutes ago, which is like, what can we do to augment this, right? And again, like, can these challenges be isolated to that individual? Because if they can't, then removing the individual... doesn't make a lot of sense correct and for founders that aren't too familiar with this process we've touched on this a couple times we haven't dug in i want to take a moment on this there is a reason
The investors are like, get that person the hell out of here versus just bring in more staff like a COO or a president or something like that. And it's because there's a perception, and it's not always wrong, that the founder will meddle. that the founder will actually be a wall, if you will, that successful people can't get past.
Physically, emotionally, financially. Yeah. 100%. I'll give you an example. A lot of times when founders hear about this, they're like, hey, well, why don't I just like switch to insert role? I always hear, I want to just be chief strategy officer, which is as good as putting yourself out of a job, by the way.
Might as well be chairman at that point. But why don't I just become chief strategy officer, which in your mind implies that you still want to make all the decisions without having any of the responsibility. And we'll bring in a CEO. You've got to understand why investors...
don't think that's a good idea. Number one, think about the candidate they're trying to bring in. Here's the equivalent, Ryan. This is like your wife saying, hey, I want us to get divorced, but I still want to live in the house. And you're like, that's not going to work real well for any other girl that I'd ever meet again. You're telling the person who is just the problem. You want to bring in a new person, have that person sitting there the entire time saying, I told you so, right?
who wants that job you know something that's really funny about everything we talk about here is that none of it is new everything you're dealing with right now has been done a thousand times before you which means the answer already exists may just not know it but that's okay that's kind of what we're here to do we talk about this stuff on the show but we actually solve these problems all day long at groups.startups.com so if any of this sounds familiar stop guessing
about what to do. Let us just give you the answers to the test and be done with it. We see this even with just like acquisitions with the earn out periods, right? Where if there's an acquisition where there's an earn out period. and you got to hang out with that with the acquiring company it's really uncomfortable we've both been through that it's not fun right earn out periods
Awful. It's exactly that. It's hanging out in your college apartment with all your old college roommates and your new girlfriend and your ex-girlfriend. And so from the investor standpoint, the board standpoint, who was ever making this. change there's a very strong argument for why you need to go away even if you're not a bad person right even if you know you're fairly well liked etc the idea is yeah you are
But your presence is a problem, well-meaning or not. Now that doesn't mean you have to go. That doesn't mean it's always that way. I'm saying when it comes up, that's where it's coming from. You are a visible impediment to the new person coming in.
you run the risk whether you intend to or not of basically back channeling right on this person's decision and essentially undermining them of course i mean all those all theoretically at least all those lines of communication were already open right you already have relationships you already have those channels so water will do what it always does it takes the path of least resistance so people if you are the path of least resistance they're going to come to you
And it is absolutely going to undermine the leadership of the new individual. I watched this happen to me from another CEO. The last CEO we hired, who is kind of a... dick. And I'm saying that with reverence, right? I'm kind of glad that he was. I remember being at dinner with him. This is almost like when my tenure was up. And I remember being at dinner with him. He basically said in not that kind of words, get out of my kitchen.
Yeah. He's like, look, you hired me here to do a job, right? I'm here to do the job. You keep getting in the way, whether you intend to or not. I don't think you're a bad guy will, but like you're in the fucking way and you're not doing anybody any favors now.
At the time, my mentality, say going into that dinner, was this guy's just going to high five me for how much I'm helping out and where I'm chipping. I mean, like, I remember when he's saying these words. Boy, I must be making your job easy. Saying these words. I'm like, are we having the same conversation? Like, I'm helpful everywhere. But he was.
very he's like you know old school east coast gruff kind of whatever he's like get out of my kitchen and it was the right answer to be fair i was probably 26 27 time i was way too young to process it i just didn't have any experience to compare it to because at the time i'm like what an asshole and now i get it you know i look back i'm like no that was that was really the right answer you're just telling a kid who didn't understand it all yet got it got to get out of the way so
Where else does it fail? Where else does it fall apart? I can think of another one, which is if we were wrong about why we're replacing this person, right? And if it isn't something executional, then we got challenges, right? Because I think that there's a really small window.
of opportunity both in terms of time and circumstance whereby bringing someone in to manage like startup companies are just they don't need management they need leadership and they're very different things right there is a very small window at which and like you can look at companies like uber right where we no longer needed psychopathic leadership we need grown-up management
Right. And they made that transition at arguably just the right time. It's certainly none too soon and probably not too late. Right. Yeah. Also, Travis didn't go quietly. That wasn't Travis led. Right. So getting that guy to unwind, not easy. He missed part one of this section, which is get out of the kitchen. And so I think that you have this challenge as well, right? Which is that you've got to time this up perfectly if this is going to work. And so it fails most of the time.
Because it's not timed well. You're bringing in someone who can manage, but not someone who can necessarily lead. Again, because they've just shown up on the job. They don't have any relationships. They don't have anything in the bank with any of the people, the customers, the product.
any of it and so it's just it's not what you needed at that point you didn't need someone to come in and operationalize it it was still in a phase where it was growing and becoming what it needs to become let's go back to that virtual example when we come in
Right. And I like using examples where we're not the hero. Right. So you can understand that, you know, we're trying to be pretty objective about how we explain this. When Maren, again, the founder CEO of Zirtual before we bought it, was running it. She, like every other founder like us.
was willing to run this thing into her last breath, right? That's something you can't hire for. We were not. Had Zirtual gone sideways, we would have been disappointed that we paid good money for something and that investment didn't work.
But we wouldn't have taken it to our grave the way a founder would. No, hell no. we i mean it is as we were going through our manic diligence in that several days that we had to do that to figure out if we're going to buy the thing or not we already had formed those plans we were like under what conditions like what is the polar ripcord moment so that we're aware of what it looks like and are we all willing to do that
And we knew that from the beginning, right? Which most founders have no idea. They're like, well, under what circumstances would you stop running this? Like dead, I guess. Right, right, right, right. Come back with your shielder on it, right? Like there's no options here. The way... We look at that as founders, that willingness to take it to the very edge and come back, you can't hire for. You can't.
Hire for that. The person you bring in is fundamentally a mercenary in this virtual circumstance. Even though we owned the business, in my mind, we were the mercenary, right? That came in. When you replace that out, the moment things get tough. They're going to leave the same way they came looking for that next great opportunity. Yes. Now the founder will go 10 years without getting paid, right? Ain't no hired CEO in 10 years without getting paid, right? Their motivation is way different.
The other side of it, and this is not insignificant, and I have countless examples here. When we bring in the mercenary CEO, and I don't mean that to be a bad thing, but the mercenary CEO that comes in to fix problems in almost every case. They're not there to invent a goddamn thing. They're there to operate. Yep. It's Tim Cook. Tim, how many ideas have you had since you got to Apple? Zero, right? I mean, I'm sure he's had a few, maybe.
Tim Cook came in. I mean, to be fair, he's a phenomenal CEO. But Tim Cook came in to operate a business that had someone else's ideas. If it had been Tim Cook and Wozniak, we never would have heard of this company. Exactly, right? The CEO that comes in to fix operational issues, to rehire a team, to rebuild culture, whatever, is almost never.
the DNA that made that company to begin with, that kind of innovative, take chances, I'm all in, etc. And in almost every case, when you see that next person come in, the innovation, the ideation, the willingness to take massive bets goes out the door, which is the heart of a frigging startup.
which is dangerous well stick on dna for a second and let me let me provide an example and this is uh metaphorical yeah but am i overstating this the difference between a founder and a hired ceo is parent to babysitter yeah 100 And I wouldn't even say parent to step parent because step parent would imply too much commitment, right? More commitment than that person has. I think babysitter, which feels temporary hired mercenary. And by the way, if.
If you're listening to this and you are one of these CEOs, this isn't a knock on you of your capabilities of what you can do. You can probably come in and do great things a la Tim Cook. I'm just saying you're not the founder. You probably don't have that gear or the passion or give a shit in the way the founder did. And I think when you rip that out, you can't put it back.
there's no way to hire for that as you said because this is not where this comes from right there's no track record when you're building something that's never been built before how do you hire somebody to do that How could they possibly have a track record for something that's never been done before? It's impossible. All right. So the expectation has to be that the new CEO can come in. They can fix operations. They can fix finance. They can fix hiring. They can fix a lot of things.
They're not going to ideate and envision and grow the company in the same way. Not that they can't grow a company. It's not going to happen the same way that a founder does it. You bet. The other thing that you tear out and you just can't put back is all of those connections, all of those social connections and trust that's been built between the CEO.
or the founder in all of these people in the company, people that were there since day one, fighting back to back with this person that have seen this whole thing the way through. It doesn't matter how many times you say I have an open door and you can come in and chat with me. It doesn't mean.
a goddamn thing because you didn't grow up with this person they're still a stranger it's funny man i saw this this was a comment this is some years ago now it was and i'm not going to remember it was app sumo stack social might have been product hunt but i don't think now it wouldn't have been that it was funny but it was a question about the product somebody answers it the ceo answers it right somebody asked a question somebody answers it the reply to the comment was according to the hired gun
Right. Because this was a replacement CEO. And I just I remember thinking like, God, that's brutal. But it's so spot on. Right. Right. And but the real point there being people notice this. the the the world notices this was over probably a a hundred dollar lifetime deal right and somebody still called it out. They recognize the difference. You're not the founder of this company. You're somebody they hired and brought in to do a job, and that's who I'm talking to now, and that matters to me.
Even over something as trivial as $100 membership. I'll give credit to people who can lead their companies to a massive point. Zuckerberg, for as weird as the guy is, he's kooky as can be, and everybody said the same thing about him. He's had the ability. To lead, I mean, in a very legitimate way, a massive company for a long period of time. Now, what's interesting about that is in that time, he has forged so many.
relationships i was gonna say personal but i'm not sure he's not an androids a parasocial relationship but with so many people right there are so many people that have been with him through a very difficult time in the company's progression that's been like you know what this guy might be a little bit weird but i've seen him through some shit and i'll do it again that is like if they replaced him today
And let's say Sheryl Sandberg came out of retirement and took the helm, who's a phenomenal COO. Just not the same person. Just not. Yeah, that's interesting too, because once this starts, it's kind of like raising money. Once you start raising money. It tends to continue to happen, right? As we see an original founder CEO replaced, the replacement of the next one, the next one, the next one happens significantly faster.
Because now we really are just down to performance at that point. Like we brought you in to do this very specific thing. Whereas the decision to remove the founder is quite difficult because we have some expectations, but in terms of exactly how we get there and how broad those expectations are.
entirely different than when it's like, okay, we got to get EBITDA up by 15% in the next two years or you're out. And that happens all the time, right? They get their two years, they either get it or they don't and they're gone. And we see them replaced when it becomes a revolving door at that point.
Let's agree that up to this point, we've sufficiently terrified everybody that's listening to this podcast about. Yes, you're all getting fired. Happy New Year. Let's talk about what to do with it, how to deal with it, how to see it coming.
what to do if you do see it coming right kind of how to spot things early the the first thing i'd say though just before we even get into it this happens all the time this isn't like like a one-off it is for you the founder because it's probably your only startup And so this is like the first person that didn't want to go to prom with you. Your whole life is exploited. But if you see it from our perspective at startups.com and certainly within our own careers, this is just like another Tuesday.
This happens all the time, mainly because startups generally fail, which means the poor bastard who's at the top of that pyramid, when that outcome is likely going to happen, is going to get pulled in with it. The reason this is common is because these things tend to break. You know what I mean? Yeah, no, I think it's statistical odds that you're going to get fired, whether it's by your investors, by the market, by yourself. Hard to say, but the odds are.
You don't make it. Right. That's just that's the tough reality here. And so I think it is it is important, though, like if you have gone down that funding path to understand that. While every founder's life has a ton of complexities, this adds a new dynamic. And this becomes a very, very likely outcome for you. And to be aware of that, right? To watch for those early warning signs. Correct.
want to maintain your position you have to fight like hell for it steve jobs got fired sam altman got fired right like it can happen and it happens at an epic level Right. So what do we do about it? I think the first thing that we do, even if you think there's a couple cracks that you're not sure about, remember that a couple cracks in the dam.
come from a massive amount of pressure on the other side of that dam, right? So all you're seeing, those little offhanded comments are like, hey, have you thought about, et cetera? Don't take those lightly. Do read into those, right? Because they come from somewhere bigger than you think.
Ryan, if you and I are running the company and our board says to us, hey, have you considered maybe bringing in some more financial expertise because some of this is beyond you? What they're saying is, hey, asshole. Go hire a CFO. You're fucking up the finances. Yeah, you suck at this, right? It won't come across as this, but that's what they're saying. The proactive thing that you can do that's incredibly beneficial is to go to the board and say,
If you guys had to make one key hire in what you feel is a deficient area right now, what would your dream hire look like? What you're really saying are two things. Number one, hey, I'm not completely lost that maybe I don't have all the answers here. So you're being open and coachable, which is an investor's dream. But the second thing you're saying is, hey, what are you going to fire me for? Because I can't sell anything. Okay. But it gives them an opportunity to have a very...
honest conversation even if they're even if we're kind of talking about hey let's hire this other person what we're really talking about is your deficiencies and it gives you an opportunity to go hire that person to solve that problem before the problem that gets solved is you Yeah, it's a great point. I think that is probably where that failure that I was talking about earlier exists, which is that like, why didn't we augment this? That's in the CEO and the founder's hands at some level.
you can be the one who does that right build that wall around yourself figure out where the deficiencies are understand it from the investor's perspective well of course always being careful not to be led by the nose by the investors because at the end of the day you're not building a business to satisfy by the investors.
You're building a business to satisfy the market. So do make sure that it is having a positive impact on the actual business and not just making the investors happy while at the same time, of course, also keeping the investors happy so that you can live long enough to actually accomplish it.
As complicated as it sounds. Also remember to think about what investors know and what they don't know. Investors know there is a problem. That is a fact. Even if it's perceived, right? In their minds, they believe that's true. So it doesn't matter whether you agree. In the case of Ian Crosby, the founder of Bench, the investors felt like the direction he was going at the time was wrong. Now, whether they're right or not doesn't matter. They feel like there's a problem.
If they think the business should be 10x bigger, it doesn't matter if that's actually true. What's true is they believe it. And at which point we say, well, I disagree with you, so it must not be true. That's just shitty management on a founder's behalf. But what they also believe... is that the business must be able to be 10X bigger or the business must have better financial management, et cetera. And the solve is to get rid of you. Now, I tend to find that is a very short-sighted.
It's perhaps the ugliest of the gross oversimplifications that happen in the startup world. You bet. I can't stand the way my wife cooks, so I need a new wife. Okay, yeah, maybe she sucks at that, right? Hire a cook, by the way. Learn to cook yourself. But that doesn't necessarily solve the problem for every other thing that she may do well. So I look at that and I say, you're solving one problem. What expense? Right. So great. You've pulled the CEO. You feel like.
all the company's problems map back to the ceo and of course when you bring the new person in they're always going to sound great Yeah. They're always going to come with fresh ideas. Coolest thing, Mr. Investor, Mrs. Investor, they're going to agree with you because you freaking hired them. So that's going to sound awesome.
Theoretically, I mean, probably not in every single case, but in most cases, they are going to do one thing very specifically, which is whatever that thing, whatever that perceived thing was, the perception is going to be that they're going to solve that. The miss here is that...
what is, is all the intangibles and all the other stuff that you're not thinking about that go away with the CEO. Yeah. So if you hire, you, you hire that chef and fire your wife dinners are great now, but a boy walks along the beach. You're lonely now.
um the kids sure do miss mom yeah yeah yeah right right kids so they're unfortunately in the short term they're willing to overlook those things because it gives them the thing that they were most focused on right they were focused on dinner sucked last night and they throw away the rest of the future of everything else that was around that so they can have a better meal.
And so they're willing to accept it in the short term. It is such a consistent oversight among investors. I almost wish they could call you and I, Ryan, just for a session to be able to say, I get what you're trying to do. I get it. Here's where you're going to fuck this up so badly for everybody. Most importantly, in this case, yourself, investor person. Please rethink this.
And again, I'm not saying investors aren't smart, can't do it. Just I think they get emotional about an outcome. They make a very unilateral decision, which has way more impact than they realize. And it usually ends poorly. Now that said, everything we just discussed, okay, let's say that makes sense. If this happens to you, you know, fellow founder, listen to this, listen to the show. Here's my advice. Here's, and I'll say our advice, right? I'm sure we agree on this.
Go out like a professional. When the time comes, go out like a professional. Meaning, don't go out like a psychopath. trying to burn every possible bridge and tell everyone they're an asshole and being like, you know, fuck you guys, I'm going home. That is the dumbest, childish, least professional way to possibly end this number.
how pissed you are all people are going to remember is how you left right i think we've done full episodes on this yes they're gonna remember how you left they're gonna have two things to remember you were forced to leave in the first place so clearly everything went wrong yep now justified and probably validated by the fact that you acted like a total asshole about it, right? So now you've just stamped this. You have now etched the scarlet letter on your own chest at this point. You bet.
And there's a hundred ways that goes wrong, but just a few of them in case you're thinking about this or going through this number one way it goes wrong. Dude, all of your equity and net worth is tied to this thing. Why would you want to torch this relationship? Yes, I'm sure you are so pissed at that board. I get it. Why wouldn't you be?
But they also hold the keys to all of your hard work and your net worth. And guess what? This sounds bananas. Sometimes you get called back like I did three times. And so you're better off saying, I hate this.
Not telling you guys this, but you're total assholes and you're totally wrong, but I'm going to be a pro about it. I'm going to do what I need to do to get on your side of the table. A very important step to say, I'm going to get on your side of the table. And by the way, I'm going to then think of this as an investor.
not as the founder, which means, and this is an important one that people usually don't think this far ahead to realize, if you're wrong, investor person, I'm going to be around long enough to say, go fuck yourself. I'm going to be on the board, right? I'm going to be watching you like a hawk because it's not my job that's at stake anymore. It's your job, your role, your position, and your opinion, your credibility. And you better be right.
Because I own probably in many cases more of this than you do. And you can be sure as hell that I'm going to make sure that whatever decision we just made is the right one. So I'm not just going to disappear. I'm not going to be an asshole, but I'm not going to disappear. You know what I mean?
yeah for sure now they think and look wait for your ian crosby moment right could write it out do whatever else you're going to do in life and then when they do screw it up if they do screw it up and hopefully they don't because as you said they've got you've got your equity you've still got you know a lot vested in the thing but if that moment comes send your tweet and just stay pro
Yes, always stay a pro. There's no version where, like we said, burning the bridges is the right idea. If we look at this, Ryan, in total. Every single founder has some version of this moment. Sometimes it doesn't escalate to this moment, but there's always going to be friction between stakeholders in the business. There's always going to be friction. It's the nature of what we do.
ignoring the fact that it's real is the dumbest thing we can do. It's typically a sign of immaturity. We haven't done this enough. Pressing back to the point where you make it break more makes it even worse. So if you're going through the situation, if you're seeing the cracks in the dam, you've got to prevent it from the standpoint of saying, what can I do to help? If you are the problem, you got to step aside. Let someone take over. Your day will come, hopefully in a positive way.
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