Sometimes
it is uncertainty that prevents us from taking advantage of our circumstances.
Being unable to quantify the risk underlying a seemingly golden opportunity can
give us pause. For this post on hold up and opportunism, I will share my
husband's experiences leaving the corporate world to work for a start up, and
going back again.
Several
years ago, my husband left his position as a software engineer at Wolfram
Research to work for a friend at a small Chicago-based start up. He went from
working in a 9-to-6, brick-and-mortar environment for decent pay and benefits
to working as a contractor remotely from home, being on call 24/7, and
traveling frequently. This dramatic change to our lifestyle was rather
stressful, but at the time he felt as though the substantial bump in pay more
than compensated.
Software
start up ventures tend to either fizzle out or get acquired by a larger company
within a few years of forming. Very rarely do giants like Google or Facebook
emerge. This particular start up had been limping along for almost a decade
when my husband joined. The company specialized in cryptography and provided
customers with a zero-knowledge secure data backup service. Because of some
infrastructure decisions made early on in the development of their platform, it
was difficult, if not impossible, to scale up product. So, the organization's
growth potential was limited. Over the years, they had received and a few
acquisition offers but declined them all, the CEO holding out in hopes of a
better offer.
After
working at the company for around a year, business started to pick up and my
husband helped secure contracts with some larger clients including the US Navy
and the Belgian government. Around that time, the company received some
unexpected publicity from Edward Snowden in an interview where he railed
against Dropbox, their major competitor, and gave them a glowing review. This
generated a lot of interest and several discussions on buying out the
company.
My
husband flew out to San Francisco with the company executives to meet with
Sales Force to supposedly accept their acquisition offer. In addition to buying
out the company and its service (for significantly more than they were probably
worth), Sales Force offered to absorb the engineering team and hire them at
competitive Bay Area wages with generous signing bonuses. Much to the dismay of
everyone else, the CEO declined once again. It's possible he had an inflated
sense of the value of the product, leading him to pass up on the opportunity,
but more likely I think his decision may have been motivated by greed. Later it
was revealed the CEO had been doing some creative accounting and had helped
himself to a much larger salary than agreed upon by the board (and as a result
the company was worse off than most of the employees were led to believe).
This
was when my husband began to regret working for the startup. He put in his two
week notice and was met with resistance, as he had become a prominent member of
the company and had solved some substantial challenges on the engineering side.
The CTO offered him a 35% increase in pay to stay with the promise that the
company was on the brink of becoming acquired. Though offer was extremely
tempting, my husband passed and returned to his former position at Wolfram. The
stress of working from home and lack of healthcare benefits were a
consideration, but I believe the uncertainty surrounding the future of the
company and the quality of the leadership ultimately motivated the decision. It
is impossible to know how things might have panned out if he stayed at the
startup, however, as of today they have yet to either make it big or get
acquired.
It is an interesting story. The temptation to work at a startup, the long odds notwithstanding, is to help shape the destiny of the organization, with some realistic sense that one's own efforts do matter that way and perhaps influence the odds of success as well. In a larger organization the inertia is much greater so nudging the organization in a slightly different direction is much harder. Someone who wants express their won creativity at work might become frustrated by that, even if the pay and benefits are quite good. I don't know how it is at Wolfram that way, but I do remember when they were a startup, around the time I got started as an administrator.
ReplyDeleteSkimming off the top is definitely a form of opportunism and I'm sure your husband became angry and frustrated when he learned that was happening. It's hard to imagine how the company can continue, once word of that got out. But at issue here, it seems to me, is how other employees were compensated. If they received shares in the company as part of their package, so a successful acquisition would produce a hefty capital gain for them, then the CEOs behavior amounts to fraud, where I'm not talking legally but only considering it from the perception of the employees. If there was no share of ownership as part of compensation, however, then while the employees may still feel they were gypped, it's less clear that they were. The way you told the story, there was some expectation of improvement in the job once the company was acquired. But you didn't spell out what that expectation was and whether it was sensible to hold that, given the nature of the business. If even after the company was acquired the product couldn't scale up well, where would the revenues to provides additional reward come from?
Since last year, the company has undergone major changes in leadership. The CEO was essentially forced out and the CTO took over the role of CEO. They hired some new staff to "pay off technical debt" and fix some of those scalability issues. They started offering new enterprise cloud solutions where instead of storing the customer data on their servers, they provide the front end services and enterprises take care of the hardware costs. Reducing costs with buying hard drives and running the server farms has definitely helped.
ReplyDeleteMy understanding is that the value in acquiring the startup for the bigger companies was not really about the product itself, but about reputation. With the events surrounding the NSA and privacy of data, customers are much more concerned about what happens to their data. Absorbing the startup whose whole schtick is "zero-knowledge" may help the public perception of the larger company who already offers similar service.