SURPRISE YOUR INVESTORS! - 17 Dumb Ways to Kill Your Startup

Shortly after I accepted the job as CEO of early-stage online video startup Revision3 - but a few weeks before starting during the summer of 2007 - I showed up at very first board meeting.?And that's where I discovered this very important way to screw up your startup - it wasn't really my mistake, but I had to live with the consequences for more than five years.

Let me set the table. As CEO you may think you have no bosses, and you can rule as lord of all you survey.?You would be wrong.?Instead of one boss, you typically have four to eight.?That’s your Board of Directors.?Typically, you’ll end up with two or three investors, perhaps another senior executive from your company, and maybe an outsider to add context and experience.?In my case I had a board of four – Two from Greylock Partners (the money guys), and Kevin Rose and Jay Adelson (founders, but no longer involved day to day). and me – the CEO.?

Board meetings involve (of course) the board members, but you also typically include your senior staff for most of the meeting.?You certainly want to bring along your head of finance (if you have one) and you’ll need your corporate counsel as well.???I eventually made it a point of inviting my entire senior team to board meetings, but for this first one I had no idea what was right or customary, or even who all these people were.?

Typically, during the early part of the board meeting your finance person walks everyone through the balance sheet, income statement and other financial matters.?As this was the first board meeting after Greylock invested 8 million dollars, David and James were very interested in how my new team had managed that cash.?Turns out not so well.?8 million of cash had somehow turned into 6.5 million on the balance sheet.

Suddenly an apoplectic and red-faced Greylock Partner 1 turned to me and started yelling, “WHAT HAPPENED TO OUR MONEY!!?WHAT DID YOU DO WITH IT???”???The disappearance of 1.5 million dollars was suddenly all my fault.

“Um, Er, Uhhh, I haven’t even started yet”, I stammered.?And that’s when our finance person – who was really just an accountant –started detailing what happened.?

“Well, we had to pay back some loans” – these were primarily to the founders who’d lent a bunch of money to the company while they were fundraising.

“And there were some deal expenses” – when you raise money you have to pay off lawyers, advisors and others.?There’s a lot of paperwork involved.

“And, er, we spent almost a million dollars to build a studio.”

And that’s when the VC1 really hit the roof.?He could hardly talk he was so mad and he was spitting all over everyone.?In fact, I’ve never actually seen anyone be spitting mad, but there it was.?After some mostly unintelligible and guttural exclamations, he finally said something intelligible: “how could you spend so much money and not tell us!”

At this point the chairman of the board, stepped in and said “we told you we were going to build a studio”.?“Yes”, countered VC1, “but not a million dollar one”.?

Well, what was spent was spent.?And at that point, I was spent and (not for the first time) started reconsidering this whole CEO business.?

VC1 then turned to me and in no uncertain terms demanded: “No Surprises” – one of the best lessons I’ve learned in business so far.???

Your board is there to help you, and to guide the company, and the last thing they want is to be surprised in a board meeting.?Whether the news is good or bad, don’t wait until that monthly or quarterly meeting to drop the bomb.?Get it out to your board as soon as possible.?A good board will actually help you figure out how to address the problem – or capitalize on your success.?

I eventually learned to take that lesson one step further.?The best board meeting is a boring board meeting, where every issue has already been discussed and chewed over in advance.?I’ll share some great advice on how to do that down the road.?But suffice to say my first lesson was one I quickly took to heart and still use to this day.?No Surprises.?It works.

Each one of my "17 Dumb Ways" stories has a companion video - watch it here.