CEO Shuts Down StartUp In Middle Of Night, 400 Employees Lose Jobs

The risks of taking that pie in the sky job at a startup so that you can make millions on the stock options are greater than most think.  Do we consider the fact a CEO shuts down their startup in the middle of the night? How about being one of the 400 employees that woke up on Monday and had no job.  No, because we are always thinking about the 22 year old who just graduated took a job at a startup and 6 months later cashed in on $5 million worth of stock as the company was bought by Google.  While these stories exist, they are not the norm by any means.  There are many more cases of people who walked away with nothing and even worse lost all that time and opportunity. 

  Opportunity risk is something that is big in the world of trading.  Holding on to one investment versus another is opportunity risk.  Today you take that job at a startup that looks like it is going to be the next Snapchat and all of the sudden things begin to go sideways.  The longer you hold on to that false dream the more opportunity risk you take.

A company does not have to go out of business to be a flop on the stock options side.  I wrote about the “Big Lie Behind Startup Equity For Employees” a week ago, and it holds true.  I was re-acquainted with a friend of mine, and we were talking about our career paths and he was telling me about the three startups he has worked for and that each went public.  I was fascinated at the fact he was still working as I would have thought he cashed in for $5 to $10 million over the three exits.  What I found out was at each stop while he got equity it was at a much higher valuations and as the market dropped his options were underwater therefore as he left one company to go to another he lost his options as they made no sense to exercise at that point.  Now this is not to say he didn’t make anything but this was 3 in a row.  Sure we can say bad luck but it is what it is, and it does not always work out like the fairy tales we are told.

In these cases the companies we successful so he had a job and made some money on the equity and is still with one of the companies today getting more options.  What about the companies that fail and leave you nothing.  Or even better how about waking up one morning and out of the blue being told your company does not exist.  Meet Zirtual and CEO Maren Kate Donovan.  I don't normally do what I am about to but this is so wrong and evil to the core that I can not stand by as I watch this.

  They have even altered their website stating “pausing operations."
  • Facebook
  • Twitter
  • Google+
  • LinkedIn
This all went down at 1:34 a.m. PST on Monday, as they sent an email to all of its employees saying it had ceased operations, effective immediately.  Who does this for one.  This was obviously in the works, and they did not even share a whisper of this with their employees.  This is one of the most blatant disregard for others I have ever seen.  Talk about a lack of leadership.

Oh wait, I am sorry they did make a statement 48 hours after they destroyed many people’s lives and wreaked havoc for their now former employees as well as their “paying customers”.  Did I mention there were 400 employees counting on the CEO? This gem is founder and CEO was kind enough to surface to apologize and rationalize the decision. The company grew too big, too quick and failed to raise a new round of funding.

So they shut down the company cut emails eliminated all social media and with no warning dump 400 employees and gave them no warning at all.  I am writing this and getting more pissed each word I write.

To add salt to the wound, she announced that Zirtual was being acquired by, a startup launch platform. Service would relaunch by Monday, August 17. Zirtual employees could reapply for their jobs -- but as contract workers, not employees, as they had been at Zirtual.  Are you kidding me?  She sold the company and wiped out their employees and then basically kicked them in the stomach.  What a piece of work.

A couple quotes about this scenario I thought were priceless.

"If she really didn't see it coming, she doesn't deserve to be the CEO of any company," Brandon Eley, an entrepreneur and Zirtual client told CNNMoney. "[Over 400 people's] livelihoods depended on her knowing the financials of the business."

"Taking money from customers you know you won't be able to serve is out-and-out fraud," wrote entrepreneur Matt Hoffman also in response to Donovan's post.

Zirtual was still accepting sign ups as well as money less than 13 hours prior to their closing.  And Donovan, the company's CEO and co-founder, had just written three weeks ago in Fortune about the need for transparency during a company shift, saying employees needed time to adjust:

“Because what my employees don't know could ultimately hurt the entire business. The sooner your team knows about upcoming shifts in the company — the better.  Additionally, give your employees ample time to adjust, as change in a company can often lead to people feeling unstable in their positions. And be transparent.”

Can you believe she wrote this?  Three weeks prior she knew already the direction the company was going and still wrote a piece that was outright lies.  She didn’t give anyone any warning and simply said see ya.  ."

Former employees told Business Insider the company had been on a rapid hiring spree during the past 18 months, ballooning its numbers from around 150 to the 400 employees it laid off Monday.

In an interview on Friday with Jason Calacanis — who is also an investor in the company — on "This Week in Startups," Donovan said the hardest part of scaling Zirtual was "growth capital."

"Since we're employees versus contractors, it's hiring ahead, building out this stuff," Donovan said of the challenges, just three days before the startup shut down. "It's seeing the future and playing the game right now."

OMG, she went on an interview knowingly and made these statements.  How can someone do this and think it is ok?  I can not imagine her getting another Silicon Valley gig ever.  If she does I would be shocked, who would ever work for her again.

Leadership is not about making money it is about how you lead your employees and the people that count on you.  True leaders don’t ever run for cover, and they would never do something so underhanded wrecking so many lives all at once.  While the company would have gone out of business anyway, they should have made plans so that the employees could be more prepared and not be blindsided by this.  True leadership would have helped not hidden.

Share This

Share This

Share this post with your friends!