5 ms·

you usually don't have the luxury to pay your bills, pay your employees in full etc, let alone do stuff orderly. Make not mistake about it: paying your bills a

by edw519 15y ago

you usually don't have the luxury to pay your bills, pay your employees in full etc, let alone do stuff orderly. Make not mistake about it: paying your bills and paying your employees in full are not luxuries, they are requirements. Grandparent didn't say you have to do it now, just that you have to do it. Anyone who hides behind "market conditions", "the bank", "unrecoverable errors in judgment", or old faithful "bankruptcy" in order to escape their obligations doesn't deserve a second chance from the same investor. OTOH, someone who finds a way to do the right thing, not matter how difficult, probably moves right to the top of that investor's list.

true_religion 15y ago
There's no escape from obligations. If your company goes bankrupt without cash to pay off its obligations... its simply impossible to fulfill them. You are essentially saying as a hard-and-fast rule: do not invest in people who ran companies that declared bankruptcy, even once. I do not thing that kind of absolutist stigma should be associated with bankruptcy.
- tptacek 15y ago
  BKs happen and are factored into the price for a lot of business-to-business services. But no, I wouldn't invest in anyone who stiffed their employees. Ed is exactly right about that. And you wouldn't want to anyways. The kind of person who keeps employees on staff after they stop being certain they can make the next payroll isn't a good investment anyways.
  - tluyben2 15y ago
    I see your point, but you have a lot of real-life experience? In Europe bankruptcy is a much bigger stigma than it is in the US; it haunts you forever and it's noted as one of the biggest reasons EU startups are less gutsy than US ones; if you go broke, you are screwed for life here. But it goes very very fast; I know a few product companies at least that went from going well to complete misery in a few months. Those are trains going to the wall with necessary burn rates of $1M+ / month; what I mean by that is, the only way to have a chance at survival is actually servicing the few clients (we're talking big contracts) you have left and during that trying to reinvent your business. This is a win or lose fight; sometimes you win, but if you lose, you have a good chance to be millions in debt in no time. We are still talking startups here, so no $15M war chest in the bank. Probably some of that money was investor or bank money as well. Other reasons can include a business partner screwing you or just both events at the same time :) For the same token I have seen companies get out of this predicament and they are doing extremely well now. So should they have thought; 'I'm not taking the risk, i'm paying everyone and closing the doors'? There was no in-between here; it's all or nothing in these cases. Sure you can say the growth rate was too high; doesn't that go for most invested startup companies in SV? I'm not sure it's as clear cut as you make it out to be especially if you make good on your employees with your next venture; i've seen cases were this was actually better for the employees as well. I feel that stiffing your employees is deliberately going for BK to not have to pay wages etc; standing with your arms up high, he yeah sucks, but we're BK and fuck you very much for your support! At least here that's an official crime and you will pay the price if the curator can prove you 'went for bankruptcy' for reasons of not paying employees and other (notably tax) bills. But I can see enough reasons where this can happen outside your control as well.
    - tptacek 15y ago
      Back to back startups, all funded except my current one, since 1996. Pay your employees. There is no way around this. You should be RIF'ing well in advance of payroll looking dubious. The terrible thing about this thread is that it's conflating 3 separate obligations: * Payroll, which is inviolate * Contracts * Free users There are different judgement calls to be made on all three of these (for instance, your office lease or a telco contract might have been set up for a year or more, and can't be dialed back on no notice). But the judgement call on paying your employees is crystal clear. It is so clear that there are large US states where payroll obligations can pierce the corporate liability shield and attach to officers. Don't fuck around with this. If you're not sure you make your next two payroll cycles, you lay people off (ideally, you lay people off well in advance of that).
      - tluyben2 15y ago
        Well, I guess that's also kind of different in the US than here in EU; you cannot 'lay off' people here like that. You need to give them 2-3 months of pay. And yes, there are economical reasons to be able to lay-off people, but those are really strict; you are really almost broke before you can fire people for those reasons here.
  - Daniel_Newby 15y ago
    But no, I wouldn't invest in anyone who stiffed their employees. Dunno. In an early-stage start-up, I would rather be an employee who takes on a little risk in exchange for not distracting the founders with bean counting. Frankly the financial and lifestyle costs are already so great that two week's is just rounding error on my losses.
    - tptacek 15y ago
      The companies we are alluding to aren't giving you that option; they're shoving the risk down your throat by not making it clear, when you receive your last full paycheck, that there may not be a next one.
      - Daniel_Newby 15y ago
        Thanks. I wasn't thinking about the surprise implosions where employees have to put a five-fingered lien on the office equipment.
  - ams6110 15y ago
    I've known folks who were told, "things are looking bad, and absent a miracle we will not be able to pay you after X date. If you want to leave, we understand; or you can stay and help us try to pull off the miracle but you might not get paid." I personally would not stick around in a scenario like that, but some people do and very occasionally it does work out. However this all needs to be very open and above board.
- SystemOut 15y ago
  If you can't see the writing on the wall early enough to wind down then you really have no business running a business. Yeah, I could come up with some pretty out there exceptions to that statement but they are pretty out there exceptions. Let's take an example. Your current revenue/expense ratio has you running out of cash in two-three months and short of a miracle or users all of a sudden finding your product indispensable you are toast. At this point a responsible business manager would say "we're not viable" and begin discussions with vendors, investors, banks and progress to talking to employees and customers. Now, the opposite of waking up one Monday and saying "@#$# I don't have enough money for next payroll - we gotta shutdown" is pretty lame and not the mark of someone I would want to invest in.
  - tluyben2 15y ago
    Yes, that's possible in some cases. I did forget to think about the fact that in EU (where I live) it is hard to fire people, even if you are facing problems in '2-3 months'. Also you say "and short of a miracle or users all of a sudden finding your product indispensable you are toast" ; that happens, but it also happens quite a lot that it's not a miracle; it's just hard and smart work and you'll make it; you pivot your marketing, your start running a bit harder, you hire different kind of sales people or all of the above. So it's not always based on luck and miracles; often it is not. I think you are seeing it oversimplified; The Last Stand of a company can really be very tense and even sudden and can actually make the come back bigger and healthier than before. If you quit (fire your employees, you can no longer deliver anything, so you die) you might actually be much worse of than if you continued with the risk of not being able to pay. Of course, as I said before, I do believe you need to do the correct thing for your employees, even over the event (bankrupt) horizon; they stuck in there even when you told it's not going well. But I, as much as I loathe him, like Bob Parson's first rule; 'security is for cadavers'. It is. And I don't want that from my employees either.

by edw519 15y ago

true_religion 15y ago

There's no escape from obligations. If your company goes bankrupt without cash to pay off its obligations... its simply impossible to fulfill them. You are essentially saying as a hard-and-fast rule: do not invest in people who ran companies that declared bankruptcy, even once. I do not thing that kind of absolutist stigma should be associated with bankruptcy.

tptacek 15y ago
BKs happen and are factored into the price for a lot of business-to-business services. But no, I wouldn't invest in anyone who stiffed their employees. Ed is exactly right about that. And you wouldn't want to anyways. The kind of person who keeps employees on staff after they stop being certain they can make the next payroll isn't a good investment anyways.
- tluyben2 15y ago
  I see your point, but you have a lot of real-life experience? In Europe bankruptcy is a much bigger stigma than it is in the US; it haunts you forever and it's noted as one of the biggest reasons EU startups are less gutsy than US ones; if you go broke, you are screwed for life here. But it goes very very fast; I know a few product companies at least that went from going well to complete misery in a few months. Those are trains going to the wall with necessary burn rates of $1M+ / month; what I mean by that is, the only way to have a chance at survival is actually servicing the few clients (we're talking big contracts) you have left and during that trying to reinvent your business. This is a win or lose fight; sometimes you win, but if you lose, you have a good chance to be millions in debt in no time. We are still talking startups here, so no $15M war chest in the bank. Probably some of that money was investor or bank money as well. Other reasons can include a business partner screwing you or just both events at the same time :) For the same token I have seen companies get out of this predicament and they are doing extremely well now. So should they have thought; 'I'm not taking the risk, i'm paying everyone and closing the doors'? There was no in-between here; it's all or nothing in these cases. Sure you can say the growth rate was too high; doesn't that go for most invested startup companies in SV? I'm not sure it's as clear cut as you make it out to be especially if you make good on your employees with your next venture; i've seen cases were this was actually better for the employees as well. I feel that stiffing your employees is deliberately going for BK to not have to pay wages etc; standing with your arms up high, he yeah sucks, but we're BK and fuck you very much for your support! At least here that's an official crime and you will pay the price if the curator can prove you 'went for bankruptcy' for reasons of not paying employees and other (notably tax) bills. But I can see enough reasons where this can happen outside your control as well.
  - tptacek 15y ago
    Back to back startups, all funded except my current one, since 1996. Pay your employees. There is no way around this. You should be RIF'ing well in advance of payroll looking dubious. The terrible thing about this thread is that it's conflating 3 separate obligations: * Payroll, which is inviolate * Contracts * Free users There are different judgement calls to be made on all three of these (for instance, your office lease or a telco contract might have been set up for a year or more, and can't be dialed back on no notice). But the judgement call on paying your employees is crystal clear. It is so clear that there are large US states where payroll obligations can pierce the corporate liability shield and attach to officers. Don't fuck around with this. If you're not sure you make your next two payroll cycles, you lay people off (ideally, you lay people off well in advance of that).
    - tluyben2 15y ago
      Well, I guess that's also kind of different in the US than here in EU; you cannot 'lay off' people here like that. You need to give them 2-3 months of pay. And yes, there are economical reasons to be able to lay-off people, but those are really strict; you are really almost broke before you can fire people for those reasons here.
- Daniel_Newby 15y ago
  But no, I wouldn't invest in anyone who stiffed their employees. Dunno. In an early-stage start-up, I would rather be an employee who takes on a little risk in exchange for not distracting the founders with bean counting. Frankly the financial and lifestyle costs are already so great that two week's is just rounding error on my losses.
  - tptacek 15y ago
    The companies we are alluding to aren't giving you that option; they're shoving the risk down your throat by not making it clear, when you receive your last full paycheck, that there may not be a next one.
    - Daniel_Newby 15y ago
      Thanks. I wasn't thinking about the surprise implosions where employees have to put a five-fingered lien on the office equipment.
- ams6110 15y ago
  I've known folks who were told, "things are looking bad, and absent a miracle we will not be able to pay you after X date. If you want to leave, we understand; or you can stay and help us try to pull off the miracle but you might not get paid." I personally would not stick around in a scenario like that, but some people do and very occasionally it does work out. However this all needs to be very open and above board.
SystemOut 15y ago
If you can't see the writing on the wall early enough to wind down then you really have no business running a business. Yeah, I could come up with some pretty out there exceptions to that statement but they are pretty out there exceptions. Let's take an example. Your current revenue/expense ratio has you running out of cash in two-three months and short of a miracle or users all of a sudden finding your product indispensable you are toast. At this point a responsible business manager would say "we're not viable" and begin discussions with vendors, investors, banks and progress to talking to employees and customers. Now, the opposite of waking up one Monday and saying "@#$# I don't have enough money for next payroll - we gotta shutdown" is pretty lame and not the mark of someone I would want to invest in.
- tluyben2 15y ago
  Yes, that's possible in some cases. I did forget to think about the fact that in EU (where I live) it is hard to fire people, even if you are facing problems in '2-3 months'. Also you say "and short of a miracle or users all of a sudden finding your product indispensable you are toast" ; that happens, but it also happens quite a lot that it's not a miracle; it's just hard and smart work and you'll make it; you pivot your marketing, your start running a bit harder, you hire different kind of sales people or all of the above. So it's not always based on luck and miracles; often it is not. I think you are seeing it oversimplified; The Last Stand of a company can really be very tense and even sudden and can actually make the come back bigger and healthier than before. If you quit (fire your employees, you can no longer deliver anything, so you die) you might actually be much worse of than if you continued with the risk of not being able to pay. Of course, as I said before, I do believe you need to do the correct thing for your employees, even over the event (bankrupt) horizon; they stuck in there even when you told it's not going well. But I, as much as I loathe him, like Bob Parson's first rule; 'security is for cadavers'. It is. And I don't want that from my employees either.