Happy 250th!
Here’s the story of a startup. It’s a big one. Based on a radical idea… revolutionary, in fact. It started with small, modest goals but quickly expanded far too quickly. Just over a year in it’s on shaky ground, underfunded, and burning through the capital of its main VCs. The founders never had the time to do more than hastily incorporate. They had lawyers, but they bickered with each other more than provide solid advice. Operating agreements, much less employment agreements, bylaws, or any other legal documents were never enacted.
The competition is old, established, monolithic, slow moving, and rich beyond measure.
The Board of Directors is split—almost evenly—on the startup’s long-term goals. Some of them want to be bought out by the competition. Unsurprisingly, they spend most of the time arguing among themselves. Only two directors took the time to visit the physical plant.
The CEO is tall, aristocratic, smart, taciturn, perfect qualities. He also is inexperienced, prone to tactical errors, listens too much to more experienced managers with no real skin in the game. He is, however, indispensable. The board continuously ties his hands, interferes in day-to-day operations, and withholds funds needed for training. He’s put everything on the line for the company; he’s ruined if it fails. His own duties, responsibilities, even his salary, were never spelled out when he was hastily hired. He is working on an expense account. Only.
Below the CEO are two highly capable officers, a COO and a CTO. They have the same title, diametrically opposed personalities, and are united only in the written-in-stone belief that they are both more qualified than the CEO and the CEO needs to go. They undermine him at every opportunity. The CEO suspects this but has no proof, and even if he decided to act on his hunch and save himself much grief down the road, he can’t fire either of them without board approval. That approval will never come.
Just below the two bickering officers is a key employee who’s brilliant, improvisational, and high-strung. He is devoted to the CEO. He is a darling of the media for his wild adventures in the Maine wilderness, Quebec, and for a mad ride off his sick bed to stop a British raiding party thirty miles away. Almost to a member, the board resents his media coverage.
After a string of highly publicized losses, the Board of Directors announces an IPO… in effect declaring they will never willingly sell out to the competition. It is a statement as much as a strategy. It takes nerve. The company is losing.
A few months later, with the company on the verge of bankruptcy and a hostile takeover, the key employee single-handedly holds off the competition and saves the company for the next six months.
Almost a year later, after several the CEO suffers more devastating losses, the key employee shocks the world. He snatches victory out of the jaws of defeat and corners the Northeast market. New VC money begins to flow in.
Problem: the COO takes the credit. He was on site, did little beyond deferring to the key employee, then failed to mention the key employee in his emails or press releases. The CTO, meanwhile, is caught having dinner with the CEO of the competition’s North American operations.
The key employee—on sick leave due to his exertions—is incensed. He appeals to the CEO for relief. The COO, a political animal, immediately goes over the CEO’s head to the board and moves to have both the CEO and key employee fired for cause.
The board has no mechanism in place to manage the conflict that now threatens to take down the company just as its outlook has changed and foreign investments are flowing in. The CEO, whose functions and responsibilities were never spelled out when he was hastily hired, is buried in day-to-day operations. In any event, he shuns politics. He leaves it to the COO and the board to work it out.
The key employee gets wind of the complaint to the directors, soon followed by notice of a hearing at some indeterminate ‘near future.’ Meanwhile, six other managers are promoted over him.
View from the company’s Bemis Heights Facility
The key employee gets wind of the complaint to the directors, soon followed by notice of a hearing at some indeterminate ‘near future.’ Meanwhile, six other managers are promoted over him.
This is a good place to note the following: this startup spun off from a long-established company that had settled into the doldrums. The spin-off happened virtually overnight. What few documents the founders drew up before launching were knockoffs from the original company. No one had the time (or inclination) to do more than hastily incorporate. Operating agreements, much less employment agreements and guidelines, do not competes and non-disclosures were never enacted.
With the hearing continuously postponed and daily planted leaks to the media about the key employee’s ‘malfeasances,’ he breaks. He’s had it. But he doesn’t resign. He becomes uncharacteristically quiet.
He arranges to sell one of the company’s most sensitive properties to the competition… the original parent company. It will ruin the start-up, virtually insure its demise. At that point, the best it could hope for would be to be bought out by the jilted parent, though heads would roll.
The key employee is stopped only by sheer good luck, moments before the handoff. At the end, the key employee is hired away. The COO subsequently disgraces himself and is fired. The CTO is allowed to retire. The board gets its act together enough to enter into a joint venture that changes everything. The Southern division, previously an almost unmitigated disaster is suddenly brought to profitability by one of the six promoted over the key executive months earlier. The CEO listens to his own council, puts trust in the right managers, and discovers a gift for strategic thinking.
The hostile takeover ends with an agreement signed in Paris. The CEO becomes chairman of the board. It takes another six years to finally produce an operating agreement.
We’re sure you knew early on that the start-up is the United States, circa the Summer of 1776 and moving forward. The CEO is, of course, George Washington. The board is the Continental Congress. The COO is Horatio Gates. The CTO is Charles Lee. The key employee is Benedict Arnold. He bought the Colonies those crucial six months at Valcour Island. The Northeast market he cornered: the relief of Ft. Stanwix and, of course, the Battle(s) of Saratoga. The IPO was the Declaration of Independence.
By the way, one of only two members of Congress to ever travel to the ‘front’ was also the oldest member: Benjamin Franklin.
The three promoted from within: Nathanael Greene, Anthony Wayne, Henry Knox. The three outside hires: Lafayette, von Steuben, Rochambeau. The joint venture that changed everything: the French alliance.
It just goes to show there’s nothing really new. The United States went into business virtually overnight, as few could have anticipated Lexington and Concord and certainly no one could have foreseen the carnage of Bunker Hill cementing the deal.
The United States was a vast undertaking done on the fly and under intense pressure, the kind you only get from ticking off the most powerful nation on the planet. It was hardly planned, and in its early days that lack of planning was almost fatal. Several times.
In the long run—except for the citizens of New London, Connecticut, and Richmond, Virginia which British Brigadier General Arnold burned to the ground in 1781—the lack of planning and the Arnold affair did not have any real long-term effects.
But it could have. Arnold warned General Cornwallis not to base his army in Yorktown. He was, thankfully, ignored.
It ended up working out, this startup with no plan, no funding, no agreements, and a premature IPO. Those things almost always doom a company. In this case, though, it was an historic success.
Most companies don’t get six years to figure it out. Most don’t survive the COO taking credit, the CTO having dinner with the competition, and the key employee going roge all in the same quarter, all without a single enforceable agreement in the file.
Happy Independence Day!
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