Dear SaaStr: How Can I Make Sure My Board Doesn’t Fire Me?
Founders are often guarded toward most VCs. Perhaps they should be. That’s a different, and longer conversation. And one thing founders tend to worry about is — can I be fired by my investors?
First, it’s tough to be truly fired if you control the majority of the board, voting shares, etc. So the more rounds you raise, the less it’s really up to you who the CEO is. With more rounds of venture capital come more board seats, and after a few rounds, the founders often don’t control the board. And the board decides who the CEO is.
Even if you control the board, contractual terms alone don’t eliminate all drama and stress in high stakes situations. We saw this live with Uber. Even with Travis Kalanick controlling the board, in the end, he was still pushed out. It wasn’t easy, but the investors did push him out. We also saw it live in a crazy way with WeWork. The investors paid a crazy amount to push the CEO out.
The thing is, the last thing 98% of boards want to do is fire a CEO, and most especially in an earlier-stage startup. It’s simply way too much work, and way too risky, to try to find someone new to come in. That won’t know the business, the customers, the codebase, etc.
And everyone knows startups are tough, and have ups-and-down. Especially seasoned VCs.
But this concern weighs on a lot of founders nevertheless. What’s the answer? Some simple advice: transparency + not running out of money mean you shouldn’t have to worry, not 99% of the time.
- Where boards get so nervous as to want a fire a CEO is when the bad news is a big surprise. After another big surprise. Really, the Third Big Surprise. Missing a quarter is tough. It happens all the time, though. But when a CEO tells you everything is Daisies and Unicorns, going great, and then you get an email later saying the quarter was missed hard … that creates some panic.
- Hiding bad news repeatedly also freaks investors out. Many founders hide from bad news. They stop sending out investor updates for a while. They hunker down. That’s natural. And a terrible idea. Investors are prepared for bad news. Share it as soon as you have it. Actually, share it as soon as you sense it.
- Finally, the worst bad news to hide is that you are running out of money at a much faster rate than anticipated. Don’t hide the burn rate. Share your “Zero Cash Date” every month. More on that here: Knowing — and Sharing — Your Zero Cash Date – SaaStr Don’t run out of cash a lot faster than you’ve led your investors to believe. That freaks everyone out. Then, they feel like they have to make a change. Even if that’s a bad choice — there’s no better choice. And here’s the key: almost all VCs save some extra money for a second check. As long as they know when you’re out of money, and you’ve shared that well ahead of time, they can prepare themselves to decide whether or not to write that second check.
So my quick tips:
- Send out a monthly investor update, every monthly, ideally the first week of each month. It’s OK to send a “Flash” update that is draft, and then follow with the final numbers later. Better to send a 95% complete update on Jan 1 on the the last year, than a 100% accurate update on March 31 …
- Share your top 2-3 concerns in each board meeting, along with the top 3 highlights. Just put them out there, so everyone’s tracking them.
- Share bad news quickly, and really, before it happens. As a founder, you know. You know when you’re over your skis. You know when the burn is too high. You know when that fancy VP of Sales you hired isn’t going to work out. You know. So share it early, before anyone else can even see it. That builds more trust than you can imagine.
- You can re-forecast once a year, max. After that, it’s just a miss, and accept it. That’s your job. Some founders endlessly reforecast when things get tough. That helps no one. It just undermines confidence.
- No surprises to your board and investors. This basically ensures no one makes a CEO change. Try to live by this creed, if you can. Share the important surprises when they happen, and ideally really, before they happen. Even when every day and week brings a new one.
Most importantly, remember how VCs work. Most VCs can afford to lose the first check they invest in you. The second, the stress level starts to go up (unless you are a true rocketship). And “forcing” a VC to write a third check, when they don’t want to? That’s when even the best VCs start to freak out. That’s when you cross the line of losing too much money, over too many rounds, too many times.