Posted in Business Development

The Problems of Start-Up Tyrants - by L. Burke Files

President of Financial Examinations & Evaluations, Inc.

 

 

I was asked this question and my heart went out to the inquisitor.

 

I have been promised for 2 years an equity contract with this company.  I took a 40% cut in pay, 30% increase in workload, with no benefits, and went contractor status on the handshake and verbal agreement for 10% equity in the company.  When the time came to sign the agreement to backup the handshake, every scheduled meeting has been postponed or cancelled by the CEO for reasons such as: I have a soccer game, double booked, lunch appointment, don't have the paperwork with me, lawyers red-lined contacts, lawyers approved, but I don't have copies with me, though he did not say 'the dog ate the contracts'. I am not alone; everyone involved in this project has been put off and stalled when it comes to getting agreements signed as promised and in place.  We are all committed to the project and the company.  We all have years of sweat equity including the ole burning midnight oil, and working extra hours, holidays, etc, on promises that look to be now meaningless.  This is the only source of income I have to feed my family, and I have invested a lot of my life for promises of an upside, though it seems that one person is doing everything possible to keep equity and the upside for himself.

 

 

So, please, tell me...what would YOU do in this situation?  I am trying to find a way to exit without involving everyone in litigation.  For one thing, I don't have the money or resources that the CEO of this company does.

 

 

My answer…

 

 

Good news – the answer is simple – you have a loser that is the CEO. In the military, this type of leader got fragged by his own men. In short, it does not matter what you get signed – it will not be worth the paper it is written on. He is gaming you and everyone else. Has he put the guilt trip on – like everyone here is family, or shared out some cash every so often? I have seen these guys 100 times before. They have leased cars, expense offices and the projects are not moving forward as the money is spent on show and overhead and not productivity… Am I missing anything or being too pejorative?

 

 

If the project has outside investors – maybe, maybe you should warn them of the growing dissatisfaction, and get others to share their frustration with the investors? May be…

 

 

Without a doubt it is time to prepare to move on. Circulate your resume, when you get a real offer, use that as leverage to either get what you want, which would include getting rid of the CEO (that is a must) or move on.

 

 

You are in a tough situation – one I learned about from the inside of a company run by a similar person 25 years ago and have seen again and again since then. My first experience with this type of CEO lead me to work for myself and set up my own company. I may have overreacted.

 

 

Inquisitor’s response

 

 

Oh my god – you hit everything. He has two big leased SUVs paid by the company, a huge expensive corner office in a very expensive and nice office building while we have cubbyholes and are now subcontractors. He gave us all $300 each at Christmas and everyone was so happy – that was about a days pay in cash – big deal. OK I get it – I have been taken advantage of. I have seen the books and we are making a profit, there is so much talent here and we have none of the equity promised. The CEO has all of the equity; all the rest of us have are wish certificates back by failed promises.

 

 

As you might imagine I have seen this before, and it is nothing unique. The CEO is gaming the talent and stringing out their wishes. The company will get the talent and intellectual property and in time the people will quit and walk away and the CEO keeps the technology and the equity. That is the theory – more often than not – the talent defects and sets up competing business that often crush the weak mined and inauthentic Start-Up Tyrant.

 

 

How, as an investor, do you avoid this? Look for the warning signs and speak to as many employees as you can before and after you invest.

 

Mr. Files is a published author of five books, in particular "Due Diligence for the Financial Professional, 2nd edition 2010" and "Money and Budgets." Other writing and material can be found at  https://www.feeinc.com/media.php.  Mr. Files is an international speaker on these topics. 

FE&E, Inc. is an international investigative firm specializing in fraud prevention, asset recovery, due diligence, anti-money laundering and intellectual property. 

As a financial industry insider for over 30 years, he is keenly aware of the type, and accuracy of the information required to make decisions. Mr. Files has been the case manager on fraud investigations ranging from tens of thousands of dollars to over $3 billion.   As an international expert on due diligence and Intellectual Property and Critical Information (IPCI), he is regularly sought for those cases that bedevil the desktop practitioners. 

This article is courtesy of the Top 1% Club and the Top 1% Club Mentor Gail Kasper. For additional information on Gail Kasper, her television appearances and speaking engagements, please visit gailkasper.com.