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Has there ever been an instance of late payroll (as opposed to eg sales commission checks being calculated wrong) where the company actually pulled out of the n

Has there ever been an instance of late payroll (as opposed to eg sales commission checks being calculated wrong) where the company actually pulled out of the nosedive? It seems like it's almost always the death knell.

trcollinson 10y ago
Absolutely yes, though it depends on the transparency of the rest of the team really. I have been involved with three companies in my career which pulled out of this seeming nosedive. One of the companies was going through a really horrible time. They had just got done releasing software that was horribly behind schedule which relieved their customers, but it was still stressful. They were working on settling two law suits. And it was almost Christmas time (first pay check of December, I remember it well). The owner came in and said he couldn't make payroll and that he would be able to as soon as a few customers paid. Everyone was upset. Later that afternoon the CEO's daughter rolled up in a brand new Subaru which he had bought for her over the weekend. I was the head of development, my buddy was the head of operations. We walked the CEO outside and broke the news to his daughter and him that the car was going back. We took the cash and made payroll. We never allowed the CEO to make financial decisions again and about 10 months later closed the sale of the entire business for a windfall profit for him and us. Ultimately everyone got paid well and everything worked out. The second place, the C level executives literally didn't know how to calculate runway and more or less ignored the bank accounts. Checks started to bounce from the bank accounts two days before the payroll was to be cashed. The executives freaked out and honestly felt horrible. Payroll bounced but we warned all of the employees. I was again development manager and the CEO asked me if I knew anyone who could help. We brought in a friend of mine who is a consulting turn around expert. We got one of the existing investors to make payroll, three days late, by signing a personal check. My friend, the turn around expert, wrangled the books (after not sleeping for numerous days to try to figure out the financial situation). We turned the company around, and in a few months had it to a level of profitability it had never seen before. It is possible to turn things around. Really the biggest problems come when people aren't honest with themselves and their employees about the situation they are in. The first CEO in my example had to be honest with himself and realize he had to spend on his employees before he could spend on his family. When he relinquished control of the financial decisions and stuck to what he was good at, the company turned around quickly. The second executive team had to realize that they were young and inexperienced and needed help. When they did and asked for it, the company turned around quickly.
- h4nkoslo 10y ago
  Not trying to pick over semantics, but in both of those cases, payroll was in fact met almost immediately, just via "extraordinary measures". Going a full pay period without a paycheck should be the signal to stop showing up and start seizing assets.
- triplesec 10y ago
  These are great stories, thank you! What about the third company..?
  - trcollinson 10y ago
    I wasn't as involved with the third company's solution as I was with the first two I mentioned. The third company was a real estate software company. The problem was there was a down turn in the market that was rather unexpected (this wasn't the '08-'09 down turn, this was much much smaller than that). The company couldn't absorb the slowing of revenue as much as they wanted to be able to and ultimately they got into trouble. The company was completely bootstrapped, single owner, no investors, as it is to this day. Payday was set for a Friday. On Wednesday the owner knew there would be trouble. He told everyone that payroll wouldn't make it by Friday and to give him the weekend to find the money needed to pay everyone off. By Tuesday he would decide whether the company was still viable or needed to be shuttered. This lead to a number of interesting situations. He did make payroll the next Monday (he literally sold everything he had, went to his elderly parents and begged them for some, and made it happen. Someone had to drive him into work on Monday because he sold his cars). A good percentage of the employees left that day and never returned. Some of us stayed, believing in the business, his honesty and integrity. I was just an engineer but we did turn it around and actually he had some great plans on how to never get into that situation again. He actually did very well after the 08'-09' market downturn and his business is still very profitable to this day.
    - triplesec 10y ago
      That's even more remarkable. If only more had such noblesse oblige and integrity!
cperciva 10y ago
I remember reading a couple years ago about a company where the CEO came in and announced that they weren't going to be able to make payroll so he was going to have to lay everybody off; some of the employees left, but others stuck around working "for free", and the company turned around within a few months. A couple years later they exited and the CEO gave large gifts to the employees who stuck around because they didn't own any stock but he knew that the company would have failed if they had left when he couldn't make payroll. But that was a case of a CEO who was honest with the employees about the state of the company; I don't know of any cases where a company succeeded after a CEO lied about failing to make payroll.
- jsprogrammer 10y ago
  An honest CEO would have awarded stock in lieu of pay.
  - cperciva 10y ago
    IIRC it was a small business which didn't do stock/option grants. Actually I can't remember if it was even incorporated.
  - gotrecruit 10y ago
    as an ex-CEO who offered stock to employees in lieu of pay because my startup was running low on funds, it was all rejected. i later found out when i left the room, some of the employees actually mocked me and made it seem like i was just trying to scam them. one of them said something like "he's offering us stock in a company that is basically worthless, does he think we are idiots?" just to be clear, the company was not worthless. we were actually somewhat breakeven at that point, monthly revenue was around $15k and employee salaries were somewhere around $15-16k. the idea at the time was that if they accepted stock compensation instead of cash, the company could theoretically afford to hire more developers, or launch a more ambitious marketing campaign. i did not factor in the fact that these employees weren't invested in the company, and to them, the fact that we weren't making millions in revenue means we are broke. so they value the stock at zero. just to conclude the story: i ended up selling my company to another large company for a small profit (not headline-making numbers), enough that i can live comfortably and continue pursuing entrepreneurship dreams while not being employed. the employees who would have received stock back when i offered it would have made a profit, although in all honesty it's not Google or Facebook money. just for fun, i did a quick calculation on how much one of the employees who refused the offer would have made in stock - it was roughly about $250,000 worth.
phonon 10y ago
http://blogs.findlaw.com/in_house/2015/04/not-my-jam-pandora-didnt-pay-employees-for-two-years.html http://blogs.findlaw.com/in_house/2015/04/not-my-jam-pandora... "According to Business Insider, Pandora co-founder Tim Westergren admitted at a San Francisco startup conference that, between 2002 and 2004, it didn't pay its 50 employees at all. "

trcollinson 10y ago

Absolutely yes, though it depends on the transparency of the rest of the team really. I have been involved with three companies in my career which pulled out of this seeming nosedive. One of the companies was going through a really horrible time. They had just got done releasing software that was horribly behind schedule which relieved their customers, but it was still stressful. They were working on settling two law suits. And it was almost Christmas time (first pay check of December, I remember it well). The owner came in and said he couldn't make payroll and that he would be able to as soon as a few customers paid. Everyone was upset. Later that afternoon the CEO's daughter rolled up in a brand new Subaru which he had bought for her over the weekend. I was the head of development, my buddy was the head of operations. We walked the CEO outside and broke the news to his daughter and him that the car was going back. We took the cash and made payroll. We never allowed the CEO to make financial decisions again and about 10 months later closed the sale of the entire business for a windfall profit for him and us. Ultimately everyone got paid well and everything worked out. The second place, the C level executives literally didn't know how to calculate runway and more or less ignored the bank accounts. Checks started to bounce from the bank accounts two days before the payroll was to be cashed. The executives freaked out and honestly felt horrible. Payroll bounced but we warned all of the employees. I was again development manager and the CEO asked me if I knew anyone who could help. We brought in a friend of mine who is a consulting turn around expert. We got one of the existing investors to make payroll, three days late, by signing a personal check. My friend, the turn around expert, wrangled the books (after not sleeping for numerous days to try to figure out the financial situation). We turned the company around, and in a few months had it to a level of profitability it had never seen before. It is possible to turn things around. Really the biggest problems come when people aren't honest with themselves and their employees about the situation they are in. The first CEO in my example had to be honest with himself and realize he had to spend on his employees before he could spend on his family. When he relinquished control of the financial decisions and stuck to what he was good at, the company turned around quickly. The second executive team had to realize that they were young and inexperienced and needed help. When they did and asked for it, the company turned around quickly.

h4nkoslo 10y ago
Not trying to pick over semantics, but in both of those cases, payroll was in fact met almost immediately, just via "extraordinary measures". Going a full pay period without a paycheck should be the signal to stop showing up and start seizing assets.
triplesec 10y ago
These are great stories, thank you! What about the third company..?
- trcollinson 10y ago
  I wasn't as involved with the third company's solution as I was with the first two I mentioned. The third company was a real estate software company. The problem was there was a down turn in the market that was rather unexpected (this wasn't the '08-'09 down turn, this was much much smaller than that). The company couldn't absorb the slowing of revenue as much as they wanted to be able to and ultimately they got into trouble. The company was completely bootstrapped, single owner, no investors, as it is to this day. Payday was set for a Friday. On Wednesday the owner knew there would be trouble. He told everyone that payroll wouldn't make it by Friday and to give him the weekend to find the money needed to pay everyone off. By Tuesday he would decide whether the company was still viable or needed to be shuttered. This lead to a number of interesting situations. He did make payroll the next Monday (he literally sold everything he had, went to his elderly parents and begged them for some, and made it happen. Someone had to drive him into work on Monday because he sold his cars). A good percentage of the employees left that day and never returned. Some of us stayed, believing in the business, his honesty and integrity. I was just an engineer but we did turn it around and actually he had some great plans on how to never get into that situation again. He actually did very well after the 08'-09' market downturn and his business is still very profitable to this day.
  - triplesec 10y ago
    That's even more remarkable. If only more had such noblesse oblige and integrity!

cperciva 10y ago

I remember reading a couple years ago about a company where the CEO came in and announced that they weren't going to be able to make payroll so he was going to have to lay everybody off; some of the employees left, but others stuck around working "for free", and the company turned around within a few months. A couple years later they exited and the CEO gave large gifts to the employees who stuck around because they didn't own any stock but he knew that the company would have failed if they had left when he couldn't make payroll. But that was a case of a CEO who was honest with the employees about the state of the company; I don't know of any cases where a company succeeded after a CEO lied about failing to make payroll.

jsprogrammer 10y ago
An honest CEO would have awarded stock in lieu of pay.
- cperciva 10y ago
  IIRC it was a small business which didn't do stock/option grants. Actually I can't remember if it was even incorporated.
- gotrecruit 10y ago
  as an ex-CEO who offered stock to employees in lieu of pay because my startup was running low on funds, it was all rejected. i later found out when i left the room, some of the employees actually mocked me and made it seem like i was just trying to scam them. one of them said something like "he's offering us stock in a company that is basically worthless, does he think we are idiots?" just to be clear, the company was not worthless. we were actually somewhat breakeven at that point, monthly revenue was around $15k and employee salaries were somewhere around $15-16k. the idea at the time was that if they accepted stock compensation instead of cash, the company could theoretically afford to hire more developers, or launch a more ambitious marketing campaign. i did not factor in the fact that these employees weren't invested in the company, and to them, the fact that we weren't making millions in revenue means we are broke. so they value the stock at zero. just to conclude the story: i ended up selling my company to another large company for a small profit (not headline-making numbers), enough that i can live comfortably and continue pursuing entrepreneurship dreams while not being employed. the employees who would have received stock back when i offered it would have made a profit, although in all honesty it's not Google or Facebook money. just for fun, i did a quick calculation on how much one of the employees who refused the offer would have made in stock - it was roughly about $250,000 worth.

phonon 10y ago

http://blogs.findlaw.com/in_house/2015/04/not-my-jam-pandora-didnt-pay-employees-for-two-years.html http://blogs.findlaw.com/in_house/2015/04/not-my-jam-pandora... "According to Business Insider, Pandora co-founder Tim Westergren admitted at a San Francisco startup conference that, between 2002 and 2004, it didn't pay its 50 employees at all. "