#10: Freedom to Grow
(This is the tenth post in a series of posts that address and demystify startup related issues using references from HBO’s popular TV Show, Silicon Valley. If you haven’t already, I urge you to read the first post for the context and background for these posts available at https://bit.ly/3mWEDSu)?
This post attempts to mesh multiple concerns usually faced in a startup’s early stages of growth, with practical (albeit fictional) guidance from our friends over at Pied Piper.
Season 2 Episodes 4-8
Pied Piper is under tremendous pressure to perform after Gavin Belson’s Hooli (Pied Piper’s major competitor in the compression algorithm space) has sued Pied Piper.
Hooli also utilized its clout to force cloud computing companies to restrict doing business with Pied Piper (presumably, as a pressure tactic and to ‘flex its might’).
Even at an individual level, the episodes also highlight the personal stress that Richard undergoes (night sweats).
The conundrum facing Pied Piper, which has lost its access to cloud computing services, is one where it has to choose between a larger (and more productive workspace) or set up its own server to host its service. This problem is compounded as Pied Piper’s brash and arrogant investor, Russ Hanneman, refuses to offer any runway funding.
Separately, Gavin tries to up the ante by rushing through with an announcement of its own platform without any prior testing. This leads to a serious faux pas and tanks Hooli’s reputation, forcing Gavin to answer to his board. For the first time, the audience realises that even as the CEO of Hooli, Gavin is answerable and accountable to his board of directors.
TAKEAWAYS
1. Business refusal: A refusal by cloud computing companies to deal with Pied Piper highlights a pertinent issue. As startups compete with large companies, they must prepare to face challenges (such as restriction of access to key utilities or markets) from such companies. Yet, startups should take solace that in most jurisdictions (including India), they can challenge an agreement between two entities that requires one of them to not deal with a third company, under the antitrust/competition law of that jurisdiction as an anti-competitive agreement. Granted, some conditions must be fulfilled to mount a successful challenge but startups should not worry that such a situation renders them remedyless.
2. Bridge funding – milestones with investors: The situation that Pied Piper faces is not very different from what a lot of other startups may face. This is a good reason for startups to discuss urgent or critical funding requirements with investors, and agree to a framework for emergency funding. Such funding can be through simple instruments such as a convertible note or even short term debt. The sheer selfishness of Russ Hanneman further underscores the importance of startups to screen investors with the same standard of diligence that investors apply before investing in the startups.
3. Board Management: There is no denying the importance of maintaining operational and governance control over a startup in its early stages of growth. Board seats and board control dictate the path and progress of the company, especially early on. Diluting control introduces an element of risk and could shackle a startup’s progress. Thus, carefully consider the ramifications of diluting control early on. As we move along with Pied Piper’s journey, this problem will rear its ugly head again.
4. Stress Management: Often, entrepreneurs forget that they too are humans. Like all humans, they need to manage their physical and mental health. This takes more precedence when your body shows signs of wear and tear (aka, night sweats in Richard’s case). No matter how much the business demands, remember that you would be doing the business disservice if you do not provide it with your attention. This is critical to function at an optimum level. Thus, taking care of one’s health is akin to taking care of one’s business.
CONCLUSION:
A lot of entreprenuers give time to consider business challenges and obstacles. However, if they can give legal and operational issues some thought, the journey to sustainable and healthy growth becomes more exciting. A myopic short-term view of the benefits of immediate actions may impede the long term prospects and flexibility for business owners. A good way to consider mitigating such challenges is to speak to experts, advisors, and professionals who have experience in helping others.
Disclaimer: Nothing in this post constitutes legal advice. All posts are my personal views and commentaries on my understanding of the world and a take on the show.
Please feel free to reach out to your attorney or legal advisor for specific issues, since the posts are contextual to the show and even though the issues may appear similar, there are likely to be certain distinctions that one may have to consider.