There are approximately two weeks to go for nominations to the Cringely (NOT in Silicon Valley) Startup Tour. With just under 400 companies nominated so far, both in the open and in stealth mode, my goal for the next two weeks is to break 400, making it that much harder to decide on a final 24.
Our model for the tour is evolving slightly. I have venture capitalists and angel investors now asking to tag along, guessing that what I find worth writing about they may find worth investing in. This is small but serious money, by which I mean that while I can’t lay direct claim to the zillions these participating outfits manage, if the right opportunity presents itself — if your company has everything other than money for a great success — I have a good chance of putting you together with an amount in the range of $10K-$10M.
Yes, $10M.
Mind-boggling, isn’t it? And to think all Mrs. Cringely wanted was a new-er (not even new) RV.
Startups run on good ideas, hard work, luck, and money, with often too much emphasis on the latter. Founders seem to be always raising money or trying to find ways to not spend it. This latter aspect of startups was obscured, I think, by the dot-com shenanigans of the late 1990s, when companies with half an idea and no business model could adorn themselves with foosball tables and Herman Miller desk chairs. Those days are past, I’m afraid. Today’s startups tend to be pretty lean and mean, with an emphasis on the mean.
The point is conserving cash, keeping what VCs sometimes refer to as “dry powder.” The historical basis of the term refers to gunpowder that was dry enough to explode. Don’t have enough dry power (run out of cash) and when something comes along worth shooting at or buying, well you are out of luck or maybe dead.
So the careful startup CEO goes without as much as possible, conserving cash. He/she doesn’t take a salary, that’s a given, but often the penury extends to the rest of the company and even to suppliers. Sometimes it gets nasty.
Understnad that I have worked for and with a lot of startups, even managing one of them into the ground all by myself. so I have seen a broad range of behaviors. I once worked for a startup CEO, for example, who pretty much wouldn’t spend company money on anything. No computers (workers were supposed to provide their own notebooks); no employees (almost everyone was working for stock and of course there were no benefits); even outside suppliers were shafted. This latter trend was especially galling because the CEO would get us to use our friends for some purpose or other at a special low price, then simply refuse to pay the bill… ever. He’d claim not to have authorized the purchase or he’d claim that the quality was unacceptable (though they’d still use the work, of course). It was all BS and bad news, but succeeded in maintaining enough dry powder, in this case, for the company to survive long enough to be acquired. Did that make it worth the pain? For some, though not for me.
This breaking of one’s word that seems unusual when you think about companies that have to function in the real world isn’t unusual at all. Just look at the millions of people preparing to walk away from their homes, handing them back to the banks. Look at commercial real estate owners doing the same. Everything is calculated, not obligated.
My good friend Ira Hata from Japan has suffered through this sort of experience with startups more than once. A few years ago, for example, he was working for a company called Microvision from Bothell, WA, helping them with business development in Asia. Microvision makes head-mounted displays and just introduced a cute little battery-powered laser projector that’s gettng great reviews. Ira had a contract with the company but one day they simply stopped paying him, failed to reimburse him for some business expenses, and refused to pay him anything more including commissions due on deals in progress with major Japanese companies. According to Ira his losses were at least $30,000 and were probably substantially higher dependent on those lost commissions.
From my experience this happens all the time. Some companies feel it is cheaper to walk away and risk litigation than to comply with their legal agreements.
I asked Microvision to comment on this situation. Here’s what Microvision spokesman Matt Nichols said last night: “Regarding Mr. Hata’s broad claims, we can confirm that Mr. Hata’s services were terminated sometime before 2006. His contract and services were reviewed and it was determined that all compensation due to Mr. Hata was paid. Mr. Willey was one the people at Microvision who assisted in making this determination.”
That’s a pretty arms-length response, but not surprising for a company where much of the management has changed since Ira was let go. Though it appears that the current CFO was then the controller and should have known the score when it comes to what was owed and what wasn’t.
Mr. Willey, mentioned in the Microvision statement, was the guy who originally recruited Ira to Microvision. They came to Ira. He, too, is no longer with the company, but recently asked to connect with Ira through LinkedIn, which led to this column:
“Just came across your contact info on LinkedIn. Seems you are as active as ever! It has been many years since we spoke. Sorry our relationship through Microvision met a fairly abrupt ending. Part of the risk with under-funded and early stage efforts. I was sorry to see the relationship end as I very much respected your abilities…”
Who do you think is telling the truth?
Never been moved to comment on one of these before- though I”ve been reading you for years- but I just had to say: comparing the behavior of businesses (refusing to pay employees, shafting suppliers, etc.) with people walking away from their homes is complete horseshit.
Home loans are secured, right? The bank ends up with the house. Their loss- assuming there wasn’t a bubble in valuation pumped up by – who did that again?- is pretty much nothing, except the expected interest on the loan. Boo hoo.
I have no skin in this game- never owned a house, don’t particularly care to- but it still makes me angry to hear people talk about the situation this way. A housing loan is a contract, yeah- and part of the terms of the deal is you can walk away. You lose your equity, the poor downtrodden bank… gets to sell the house to some other sucker.
It’s got pretty much nothing in common with any kind of CEO misbehavior, and pretending it does just plays into the hands of the *real* villains out there. You shouldn’t do it.
Oh, come on! Walking away from your home is no different (from an accounting standpoint) than a business filing chapter 11. The balance sheet just isn’t nearly as complicated when a homeowner is involved. The homeowner is the debtor and the bank is the claimant. If you default on your loan, they’re entitled to your equity up to the point that your debt is paid off.
What Bob is referring to is the common situation following the housing bubble where the value of the homes has fallen so much that the market value of the owner’s equity in the home is less than 0. This is the so-called “underwater” state that many have found themselves in. Walking away from this is rational if the homeowner has no future expectations about the value of the home and is wiling to put up with the inconvenience of bankruptcy.
Is this wrong? I’m not going to make a moral judgement. I’m also not going to make a moral judgement about “CEO misbehavior,” except to say that some of the behavior Bob described above is fraud (a criminal offense), while some is just default (which in the US is a civil matter). Bankruptcy is a civil matter and shouldn’t be vilified as such. When you engage in a business transaction, you always face credit risk unless both parties hold up their end of the deal up front. Startups and home ownership tend to be a bit more personal than say a big faceless bank, so it’s easier to confuse business matters with personal ones.
Notorious,
You are fukll of s$!t.
Eo is correct.
The bank is secured, it might look like a chapter 7, but it is never an 11.
Basically, the bank gets to keep all of the principal and interest it has collected over the life of the loan, and it gets the real property too.
I’ve had the mispleasure of dealing with a company who never intended on paying their debts – yet they had no qualms using the software I developed and implemented for them.
They rightfully calculated that I wasn’t going to sue for $15k and create questions in the minds of my other clients. $15k is an annoyance and wasn’t going to bankrupt me – fortunately I knew when to walk away. Unfortunately another developer lost $65k before he learned his lesson.
I wish there was a way we could teach these people a lesson they won’t soon forget. Perhaps a little revenge is in order. Nothing illegal of course.
One of the several ways is to burn them in a forum thread. These corporations might be faceless, but they needn’t be nameless. C’mon; who’s ‘they’?
Understand is miss-spelled: Understnad?
I know the warning signs when companies lose contacts. They can hit the road or they can innovate. Walmart still exists for now, but my former employer at the airport lost a multimillion dollar contract over vehicle ownership and personality conflicts. Walmart is likely to die when home fabricators get mass produced.
@Andrew: You are a moron. First, enough with the spelling police bit. Get a life. Second, “Walmart is likely to die when home fabricators get mass produced”? What. The. Fuck.
I think he meant “replicators” … as in, clearly, he is watching too much Star Trek
WTF
I think he’s talking about http://en.wikipedia.org/wiki/Rapid_prototyping
Rapid prototyping eventually will be able to replace manufacturing with raw materials. It’s really pretty cool. There are a number of open source projects with various aims to perfect the technology and make it available. The cheap to build projects have limited capability, but 3d printers can be sourced for under 100k and one company is trying to offer them for 5k in the near future.
talk about star trek, this is cool technology along the lines of CNC machines. Very real and coming soon. It will probably not kill walmart, walmart will probably buy these machines and kill manufacturers by manufacturing on-site.
I could see Walmart teaming up with a replicator manufacturing group and trying to arrange a locked down lease only setup.
eo misses (at least some of) the point about the homes – we’re selling ours and may end up with nothing out of the deal after paying off the various credit cards and lines of credit I ran up trying due to exactly the same circumstance you outline – not once but twice.
I’m supposed to be a business admin/marketing person – and probably should have known better – but the tech side of me got the better of me when presented with a couple of products that should have been world-shattering (wireless CLEC in the late 90’s and internet connected vending machines in the early 00’s). The problem is that the guys who were putting the deal together (I’m not a money man) were far from competent (one has now been convicted by local SEC for his scamming)
Some of us believe in the product to the point of blinders to the people involved.
Nuf said.
There are many text editing applications that will fix “Understnad” for you. That fact that you use one that does not support the ability to fix “Understnad” is surprising.
It’s called “a brain” and yes, unfortunately it doesn’t come with perfect spellcheck. But I hear it can make up for it in other ways.
Perhaps Bob is using this blogging platform. It doesn’t provide the commenters with spellcheck; it doesn’t have “preview” or “modify” buttons either.
Guys, a typo is not a spelling mistake – God knows there’re enough of those round the Web. Not in ‘I, Cringely’, though – literate columnists/bloggers don’t need spell checkers.
If a business (in one case a bank) can walk away from a mortgage, why not a home owner? If, as many people think, you buy a home for an investment, then walking away from that investment sometimes makes sense.
If you got sucked into buying a house that you really can’t afford, then go back and take math 101 and don’t cry about it. Not everyone NEEDS a 4-5 bedroom house, maybe it’s good that kids have to share a room, my parents did and they turned fine.
Let’s get away from the Mc mansions and get back to basics of a small house on a small lot with small bills.
If Mr. Willey had truly recruited Hata-san and Hata-san performed his job as specified by the company then the parting should have been handled much differently. Mr. Willey could have simply call Hata-san and explained due to financial constraits they would have to terminate the relationship and settle up.
Doing what the company did opened them to legal issues and long term damage in the Japanese market (the Japanese have a very long memory). Terminating the contract in a honorable fashion would salvage reputation and good-will previously built up.
If I were Hata-san I would let Mr. Willey know where to stick the LinkedIn invite. Its where the sun doesn’t shine.
10k – 10 mil? That’s quite a range, lol. I have a startup plan, but this sounds about as good as a shitty angel investor gig–risk getting your business plan stolen for the promise of a fraction of what it would take to get it off the ground. You are sounding less and less like an analyst and more and more like a scam artist, cringley.
I think it’s safe to say we can all ignore any comments that include an “lol”.
:-/
It’s also safe to say that we can ignore any comments that include an emoticon.
@Tom Weymes: I hate to be the bearer of bad news, but a typo *is* a spelling mistake. It is not, however, a grammar mistake, which is what distinguishes the Cringely blog from any number of other blogs and “news providers” who apparently employ a large staff of eight-year-old writers and editors to produce, proofread, and edit their content.
‘….a typo *is* a spelling mistake’.
No it ain’t. One is a mere slip of the finger, the other evidence of ignorance. I’m willing to bet Bob can spell ‘understand’. I’m with you, though, on the eight-year-old writers and editors.
To the complainers: Why shouldn’t we pedants have a look-in now and again? Bob’s a hospitable fellow.
It goes without saying that startups are risky.
I have been associated with five in my twenty plus IT career. None ever paid out
on stock options. The worst of the lot went very badly with me threatening litigation just to get my last paycheck.
Note to anyone signing on with a startup, if you ever have to abandon ship before it completely sinks just walk away without the courtesy of two weeks notice, preferably on payday.
Also very important for consideration prior to signing on is, you cannot eat equity.
It should also be noted that I had some of the best times in my career working in these ventures, but the fun never lasts.
Walking away from a house, at least in Canada, doesn’t mean walking away from the debt. Sure the bank can take your house in lieu of payment, but if they sell it for less than you owe, they can still come after you for the difference. Perhaps it’s different in the US . . .
Same story in the US. The lender can levy any costs associated with collecting the debt. Personal bankruptcy in the past could purge all debt but that is not the case anymore.
The next wave of defaults will be student loans. The debt students are assuming is
quite alarming especially for graduates of the for profit diploma mills. These schools assume no risk. Their business is to enroll as many bodies as possible with no concern for the prospects of their graduates being able to repay.
“Startups run on good ideas, hard work, luck, and money, with often too much emphasis on the latter. ”
Bob, I truly mean to be helpful, not snide.
“Former” and “latter” are comparative; use them only with a list of two items. A longer list requires superlatives “first” and “last”.
Re: “Former” and “latter” are comparative; use them only with a list of two items.
Sorry, but Merriam-Webster says “of, relating to, or being the second of two groups or things or the last of several groups or things referred to.”
Didn’t Ira’s printer/scanner project for Microvison & Epson simply fail to pan out?
[…] I, Cringely » Dry Powder – display company Microvision gets called out. Good cautionary tale about working with start-ups […]
It was nice of you to do this for a friend.
This is victimia, a disease prevalent in larger populations, sometimes in pandemic proportions.
We believe the disease is propagated from parents, teachers and other leaders to their children and followers. The disease has a number of vectors. It can spread through physical contact, like slapping, hand-cuffing, confinement. It also spread through verbal contact, with magic spells, like “you a moron”. It can even spread by observing symptoms exhibited by inflicted persons, especially by role-models and by leaders.
The US founding fathers left England to escape an epidemic of victimia. Not properly understanding the disease vectors, they inadvertently brought the disease with them.
Like HIV, victimia is extremely difficult to managed but surprisingly easy to prevent.
Mild symptoms include fawning, obsequiousness, obesity, anti-social behavior, and wearing a cloth chain around your neck. Sever symptoms including killing other people, blowing things up, and casting spells like “… for all Americans!”.
It’s now thought that punishment plays a significant role. Rewards that are either unearned or are promised but not delivered can also play a role. Scientists are now starting to believe that the ancient “carrot and stick” theory is a fallacy, like perpetual motion and blood-letting, that is actually causing the disease to spread.
New research with animals is leading to a new theory, that the stick doesn’t work and usually backfires, while the carrot only works if the donkey sometimes gets to eat the carrot, and then only after the donkey has made an effort.
The theory is supported by evidence that the disease is not prevalent in every population. In small, isolated populations, like New Zealand, victimia is extremely rare. These populations also practice rituals that include obscure behaviors like getting children to make their own sandwiches for school in the morning, and casting spells like “well done!” and “you put a lot of effort into that!”.
Science believe these two phenomena might be related
Sounds like your point is victimia is caused by punishment. But I’m sure punishment is needed regardless. New Zealand has laws and punishment for violating those laws. Abuse and punishment are not the same thing.
Appears to me that a completely different group of folks commented on this column compared to other columns (less constructive criticism in general – the petty grammar/spelling stuff should have no place here).
It’s unfortunate that businesses and individuals don’t regard their word and honour to be of much value. Everything seems to be a decision centered around cash flow. It’s a degradation in society. Self serving and self interest are paramount; thus in their mind the end justifies the means. Were I the one that received that LinkedIn message, I would have been inclined to respond… “I don’t know you.” or just ignored the request. There’s no benefit to associating with individuals that will knife your back when it’s convenient for them.
Your first paragraph is unnecessary but I understand it’s your opinion. Personally, I appreciate the chance to learn about grammar. The dialog about “latter” taught me that Bob’s usage was ultimately correct even though the proponent of “last” sounded like he had a good point. Language elvolves and sometimes it’s hard to keep up.
I like to use a 4 letter word (last) instead of a 6 letter word (latter), usually. But then again, 4 letter words can get you into trouble too.
Lost in the chatter about spell checkers and relative moral positions of various debt non-payment schemes is that fact that 24 lucky startups out of perhaps 400 nominations are going to get a huge public relations bump and, even better, the attention of serious, well funded investors.
That’s 1 out of 17 odds. Pretty good odds when you think about it.
Where else are you going to get a 6% chance of bobbing for such a juicy apple?
Joe J.
Hey, Bob – I nominated our startup for the tour, but never received a link to the questionnaire. Does this mean we didn’t make the first cut?
I really don’t care for all this start-up tour horseplay, your space rocket ambitions, or any of the other crack-pot schemes you’re involved in at the moment, Bob. I just like your social commentary on the state of play in the IT industry. Leave the other stuff to the experts.
Thank you for an informative and perceptive column. I will take seriously the two week termination rule and wonder if anyone has any experience with negotiating a contract that specifies that work will cease if payment is more than two weeks late and will resume once payment is received.
Anyone that quits paying you doesn’t have the qualities that would lead you to believe they care about contracts. I have stopped work on projects, as a contractor, when payments fell behind. The two weeks doesn’t work out always. Sometimes you work a while, submit a bill, wait a while for payment and that all ends up being more than two weeks. You just have to watch for the payments starting to stretch out.
A late comment among the many, and a question.
Bob, how do you reckon or gain the rights to use the Johnny Depp out-take from his pirate movie?
It’s a great shot, and effective here — just wondering how to be secure in using such a thing?
Or is there security to be had…;)
Best,
rl
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Hi, where did you get this information can you please support this with some proof or you may say some good reference as I and others will really appreciate. This information is really good and I will say will always be helpful if we try it risk free. So if you can back it up. That will really help us all. And this might bring some good repute to you.Nearly every post makes me lol, ponder, and learn something.
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Your first paragraph is unnecessary but I understand it’s your opinion. Personally, I appreciate the chance to learn about grammar. The dialog about “latter” taught me that Bob’s usage was ultimately correct even though the proponent of “last” sounded like he had a good point. Language elvolves and sometimes it’s hard to keep up.
Thank you man…
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