When to let go

This is a cynical one--be warned. I just completed a really tough shareholder meeting for a company I took public where the CEO recently had to be replaced and the chairman didn’t show up for the meeting, so I had to stand in for them.

So, as an entrepreneur, you take great responsibility when you accept the first investor’s check. You get sleepless nights worrying about losing their money, and generally this means you don’t lose it. I remember the first check I ever got was from a retied DEC executive in Boston, and as he handed over the $100k check he looked me in the eye and said in all sincerity “I know you’ll make me money.” It’s a great feeling wining the check, but the sleepless nights aren’t far behind.

Fast forward to the successful exit, the major event that all your investors eagerly anticipated all those years ago when they invested in an idea. So you IPO the company and everyone gets liquid--it’s a Red Letter day! Now, problem, all the IPO investors have expectations of gaining great wealth, too, and you just accepted responsibility to them for this and you get more sleepless nights. Now the bankers should shoulder a lot of this responsibility too, since they diligence the company for the public investors, and underwrite the IPO, but too often they are onto the next deal.

As a founder, you leave the company to do the next startup, and the company goes on, grows and generates maybe a 3-4x return for the IPO investors--this is a stellar result, after all, the VCs expect to get a 10x return on 1 in 10 companies, and a base hit 3-4x on the rest that don’t fail. So imagine your shock when you start hearing the public shareholders talking about a 10x – after the company is public!?! Talk about sleepless nights …

So there I am, up at the podium facing a rabble of angry shareholders, actually I am one too, the difference is I spent years building the company, and making the shares valuable enough to IPO in the first place, and unlike the public shareholders, most of us have a two-year escrow and can’t realize any gain. Just to make it more interesting, the company secretary grabs me just before I go on, and redlines 50% of my speech because “you aren’t allowed to say that.”

So there I am, I was loaded for bear, but not I’m barely loaded for squirrels--and they are hungry ... looking into the eyes of retirees, stock brokers, institutional investors, and, ah yes …. that guy in the front is definitely a lawyer. Funny how there is always a lawyer around when the share price falls, wanting to take a piece, but when it rises, no one is giving you a piece ….

So what’s the point of this Blog? Well, there really is no exit. What you consider liquidity, someone else considers a great investment and unfortunately you carry the responsibility for all those investors going forward, and in some places, you will be blamed for many years after you exit, if things go south. Conversely when things go well, no one will remember your name--success has a hundred generals, failure only you. This is actually the hallmark of a great CEO. The oft misquoted lesson from the Godfather--it's not personal, it's strictly business--is of course opposite to the book’s intention, which was that the Godfather was great because he took everything personally and carried personal responsibility. Great CEOs stand up and take the hit when things go wrong, no matter who caused them--when Kevin Kalkhoven tried to buy Iridex and we were unable to convince the board that we should sell (I’ll cry if I tell you how much money this would have made), it was actually our fault for not being persuasive enough, not the board's for making what was in fact the wrong decision.

As a startup CEO, you are going to turn over a lot of rocks, and often you’ll find wriggly things underneath that you don’t like. Make sure you take the time to scrape them off before putting the rock back in place. Great CEOs shoulder blame personally, and as a result, they tend to fix problems before they result in blame. They also fix the problem, not the blame, in that they never blame their team. But when things go well, the team gets all the credit and this is exactly how it should be. Nothing engenders loyalty in a team as much as knowing they will be allowed to shine.