FBombs, The Startup Week Panel on Failure

By SUSAN LAHEY
Reporter with Silicon Hills News

In a panel dedicated to failure in starting up a business, the audience seemed to be most focused on one thing—the risks inherent in picking a co-founder.

Panelists shared stories about enormous, botched business deals thanks to people they trusted, horrible lawsuits, embezzlement, and then the more common scenarios of just having to work through a challenging decision with a co-founder…or greet an ex-co-founder amicably when you run into him or her.

Fort Collins, Colorado, entrepreneur, investor and speaker Chris J. Snook moderated the panel that included 9WSearch’s Susan Strausberg, Denver area management consultant Allen W. Duck and Denver entrepreneur Gabriella Krista Morgan, co-founder of P2BInvestor.

The Ugly Breakups

Snook told about a publishing company he started with a co-founder who, one night, sent Snook a drunken email, saying he wanted out of the business. When the co-founder had a change of heart, Snook welcomed him back. Several months later Snook was served with a lawsuit, filed by his co-founder, alleging numerous breaches and illegalities.

Snook felt suddenly under siege. “We had 42 authors,” he said, “I had no idea if any of them were in on it, no idea if he was setting up shop. He didn’t really ask for anything,” but Snook bought his way out of the suit with roughly a quarter of a million dollars. “I was blown away, and it was shocking and hurtful, and it happens.”

Others told of business deals that went awry. Duck told a story about buying a financial planning company and keeping the seller on for the last three years before retirement.

“Within six months it was pretty clear things weren’t going according to plan,” he said. He flew up to the company—which was in Connecticut—and the seller told him he wanted to leave. Next thing he knew, he learned that the seller had been embezzling from the company and had started another company where he was re-signing all his original clients. Ducks company won a judgment against the man but it took three years to bring to trial. The day of the trial, Duck was meeting with the lawyer who was looking over papers and suddenly went white. It turned out the seller had declared bankruptcy.

“For us, it was a pointed battle. We needed to win this,” Duck said. But the company almost went broke doing it. “The judiciary works very well,” he said. “But it works really slowly, and you can go out of money quickly in pursuit of vengeance. You have to be very astute.”

When she ran Edgar Online, Strausberg said, MarketWatch offered the buy the company. Everybody was in favor of the deal and Strausberg empowered her CFO and president to handle it. Meanwhile, as she had amicable phone chats over a bottle of wine with Larry Kramer, founder of MarketWatch, her underlings were unraveling the deal without her knowledge. It died over the terms of the president’s contract. That wasn’t a co-founder issue though. Strausberg’s co-founder has always been her husband, Marc Strausberg.

Even when there’s no malintent, co-founders sometimes have to part ways over differences in vision.

One advantage to having her father as her co-founder, Morgan said, creates a level of trust and also a bond that has to be preserved. So it causes them to work through issues more carefully than they might if they were less connected.

But if things do go wrong, Duck said, “You will never get chastised for holding the moral high ground.” Disparaging previous founders only reflects badly on you.

The Biggest Mistake

Unfortunately, the entrepreneurs said, you rarely see a mistake as it’s happening. It’s only in retrospect. Morgan wishes she had spent less time raising funding and more effort getting to revenue. Duck had taken a subsidiary of a Finnish company from near bankruptcy to such financial success that it was supporting the parent company, by changing the culture and marketing tactics to those that would appeal more to Americans. One day parent company executives called and told him they needed $1 million to pay down debt. Duck believed the returns would be better if they kept the money in the company. When he told them so, they hung up on him.

Several days later, he said, there were six Finns in his office. “Finns don’t leave Finland,” he joked. “Ever. No one wants to see them and they don’t leave.”

Duck was let go and eighteen months later, the company was closed.

“It had become so personal for me…” he said. “If I could take that decision back, if I had humbly sent them the million dollars, that company would still be in Colorado. That haunts me. It was nothing more than ego that precluded me from making the different choice. Thirty five people lost their jobs, and they didn’t need to.”

Ultimately though, he said “The biggest fuckup for any business is to procrastinate. Everybody has seen the S curve of a company’s life cycle. If you procrastinate you limit the creativity of the organization to a point where it stagnates, boils back to inactivity…making a bad decision and then having to change course is better than not making a decision.”