Why The CEO Got Fired – Screwed Up The Story

The VC Funded Startup – Where The Story Is EVERYTHING

There comes a time in most VC backed companies when the future is clear, stark, bleak and inexorable. 

The realization sets in there is no way to sell your way to a wet exit (liquid, monetized). 

The company is growing at 20% – 40% but remains unprofitable after 7 – 10 years of life.

There have been 4 -7 Sales VPs and several CEOs.

There is over $70 million of invested VC capital.

Those VC partners, the same ones who told you at the first meeting when they sent in the junior partner after the funding to tell you how much they love you – well they want to dump the place as fast as they can.  And fast means in a year or less.  And they want 3X to 5X out of the deal.

You may have heard a VC wants 10X but, not for you. 

Your DevOps or revenue platform company has so much invested, 10X would be more money than the city fathers spend on the homeless in San Fran every year.

The board is comprised of a bunch of VCs nobody ever heard of who never hit it big and your parents never read their Managing Partner in Forbes.

You know them in DevOps.  They are Chef, Puppet, XebiaLabs, about every browser testing company except Browserstack.  In the revenue platform category, they are Outreach.io, LucidWhatever and 20 others.

These are the companies who are still not profitable after years of selling a platform to make your revenue explode.

The world has passed these companies by because they never created lightning when their category was hot.  DevOps was hot once.  It was going to save the world from long, interminable dev cycles via faster testing.

Sure, testing got faster.  Unfortunately, it took so long for DevOps to gestate that the interest in the category just passed.  Nobody cares about DevOps today except the over 50 year old Agile/Scrum/not waterfall types who have 12 capital initials behind their names on LinkedIn. 

And they are pretty clearly looking for work.

Within their companies, they are still trying to explain exactly what it is they do.

One of these testing companies just fired its CEO.  Actually, several of them recently did.  In one case he or she is now spending more time with their family.  In another, a bit more agile of foot, he or she took a CEO job at an equally hopeless backup company.

How can a CEO get fired if there is no scandal, (expensing stripper stuff), there is 40% growth, the company closes a funding round, lots of stories about the company being one of the 500 fastest growing companies in Anytown, displays happy employees with balloons in the office and dogs running around the floor?

This should be VC-backed nirvana, no?

Apparently not.

Here is where it all goes wrong.

The first job of a VC backed CEO is to get the company sold, at a very high multiple, as fast as possible.  Part of that job is having lots of press about how cool the technology is, why it will change the world with the VCs picture on the Investor section of the About page on the web site.

You have all seen these, dear reader. 

One only has to remember WeWork.  That is the glorious example of this play.  There, the CEO, Adam Neuman torqued that office space company to valuation heights that made any local real estate agent air sick.

It did not work out so well because when they tried to do an IPO, they had to write down stuff.  That is a real problem when you are selling air.  When real investors, not VCs, read about the crazy stuff going on in the company, there was a revaluation in the $7 billion range – something like that.

Now don’t get me wrong here.  Neuman is the kind of guy who gets it right.  He is still walking out a billionaire, or almost so. 

Our hapless DevOps fired CEO is in a coffee shop in San Francisco hoping to work his friends’ network from 20 years ago.  He is hoping to get lunch with people who used to call him and now ghost him.

Adam Neuman didn’t screw up.  He did not do his stuff in secret.  He just missed the exit window.

It’s not like everyone in the story did not know the guy bought office buildings, filled old industrial space with bean bag chairs, painted it up, rented the space to vastly over funded VC startups who believed that is what office space looked like.

Neuman sold the story and his investors were all in on the story, nonsensical as it now appears.

Buying a tulip bulb for the price of a home seems preposterous today as well; the Adam Neuman of late Medieval Holland pulled that off too.

It’s all about the model, people.  And the model is the STORY.

The model is to pump up the category, pump up the company, and get it sold to unsuspecting investors and get the VCs out whole.  Adam would have been fine if he had not missed the happy days window and would actually be a hero today rather than a wealthy, quite happy, former CEO who never has to work again and people are doing a movie on him.

Back to our CEO sitting at the Starbucks, every day, sending out emails to former friends looking for that next gig.

Why is he there when the other guy, who also got fired, has a gig?  Why is he toxic when the guy who replaced him, with as many or fewer qualifications, is not.

Again, it’s all about the story, never forget that.

Our CEO pal went through several Sales VPs.  Their results were pretty much the same.  He fell into the trap that he could buy a few more quarters with a new Sales VP.  Never works.

He fell into the bigger trap that Sales VP 2 could make an appreciable difference in the revenue line that Sales VP 1 could not.  Also never works.

Sales VPs are pretty much all the same.  If the first guy sold new logos, the next one moves to selling existing accounts.  If the first one sold transaction level deals, the new one sells major accounts.  Never changes.  Ever.

Whatever the last person did was wrong; the new person will get it right.  The “do the opposite” strategy.

The new Sales VP, as they all do, brings in his pals from his last failure.  Pals are part of the “new wave” he is bringing in for his story.  Remember where we are people, it is all about the story.

The new Sales VP at this account went all in for the “transaction sale.”  Nothing wrong with transaction selling, particularly in a transactional company like DevOps or revenue platform where transactions pretty much make up the revenue line.

One major problem with transaction selling.

No story.

Try this:  we are now selling 75% more deals at $23,500 per year than last year.

Who wants to buy this company and own this story?  Apparently, nobody.

Try this:

We are supporting ourselves with transaction sales.  We are close to cash flow positive. 

We get your digital apps into the customer’s hand, fast and perfect every time.  The future of digital apps rests on testing and nobody gets it done like we do.

The new Sales VP then focuses on selling some major accounts who will tell that story.  Does not have to be hundreds, just a few will do.

A story is beginning here. 

The marketing department stops telling the world it is selling at the speed of REALLY FAST, which no CMO cares much about, and they get on board with stories about the “perfect digital app.”  Or something like that.

There people, is the start of a story. 

The CEO’s job is to find this dog a home and any home with a 3X multiple will do.

Our hapless friend, sitting in Starbucks, is still wondering why his transaction Sales VP couldn’t have squeezed a few more transactions into that last quarter.  Maybe it would have saved the CEO’s gig.

The transaction Sales VP took the company away from selling large, luminary logos because they could not be forecast into his quarterly mindset.  Thus, if a deal was out more than two quarters, it could not be real.

Well, the former CEO delivered much better forecasting.  As he sips that third latte at Starbucks, with no return emails, he can think through how different his life would be now if he just went with a great story.

Even if he still got fired, he would have a story to tell about how he went strategic but the VCs wanted their guy.  Instead, he can tell about he got the quarterly forecast right.

Who cares?