CRASHING AND BURNING

ln 2000, I was the first employee at a promising startup that wanted to help Fortune 500 companies deploy e-commerce platforms in Latin America. I moved to Buenos Aires, Argentina, to set up the office there. It was a dream job. I was 23 years old, and I’d been given an enormous opportunity. The entire world needed to move to digital sales, but most companies helping industries make this shift were focused on the United States. This job was a chance to get in early and have massive impact across an entire region.

But it soon became apparent the startup had serious problems. First, we had no strategic plan. There was no sales team, so instead of methodically building up a pipeline of business, we lurched from contract to contract. Internally, our culture was divided between “the Americans” and everyone else. One of the two cofounders, my good friend Benton Moyer, did his best to keep things afloat. But the other cofounder, the CEO, didn’t communicate much. We always felt unsure of where the company stood.

Then things got worse. The dot-com collapse of 2000 followed by the attacks of 9/11 took the air out of Fortune 500 spending, the very companies we’d been targeting. Then in December 2001, Argentina exploded into riots. The government collapsed, and the financial sector imploded. After banks limited how much money any company could withdraw, I had to go to an ATM every morning to take out enough cash just to be able to pay our programmers for that day’s work. I finally decided I couldn’t run through the protest-filled streets every morning ferrying a backpack full of dollars. I hung my head in defeat, apologized to Ben, and gave my notice.

A stronger company with better leadership and a more robust culture might have survived.

Many new founders think building a startup is a straight line: You spend time in the “discovery phase,” tinkering with your product and business model. Then, once you nail that, it’s just a matter of growing, growing, growing.

The truth is that most companies have at least one near-death experience. Sometimes many. For example, you might get hit by external factors beyond your control: 9/11, a government collapse, a pandemic. Or perhaps you’ve based your strategy on a third-party platform (like Facebook or Google) that suddenly changes its algorithm to deprioritize businesses like yours. Or maybe you realize that you have the right product, but you’ve been targeting the wrong customers. (That’s the story of Okta and of Udacity, both of which I’ll tell you about in this chapter.) Or maybe you’re on the verge of running out of money, and there’s no way to get more. (That’s Loudcloud’s story, also in this chapter.) Or you realize that you’ve spent the last couple of years building something that customers love but that has no sustainable business model. (That’s the Tiny Speck story, also told here.)

The industry often calls these existential crises “pivots.” It’s a gentle word that masks the chaos, terror, and frantic activity that takes place as a company tries to right its sinking ship. And there’s an even worse experience to be had: one where you, as the founder, must face the fact that you’re no longer the right person to helm your company. Fred Luddy, of ServiceNow, went through that, and I’ll tell you his story as well.

The truth is that most companies have at least one near-death experience.

Ironically, it’s the very qualities that make someone a great entrepreneur that can lead them into the hole. Entrepreneurs’ natural self-confidence and ruthless determination enable them to go up against odds that would terrify other people. They develop the habit of tuning out naysayers. As a result, they sometimes don’t process that their company really is heading off course, until it’s (almost) too late.

Couple that with the very human desire to avoid the extremely powerful emotions that come with acknowledging that you’ve made a terrible mistake: the shame of failure, the hurt you’ll cause your employees and investors, and the pain of people being angry at you. To avoid this, many entrepreneurs keep barreling forward long after it becomes clear change is needed.

When you do end up in the middle of one of these crises (and the chances are good that you will), know that they’re one of the most emotionally painful experiences you’ll ever go through:

•   You’re going to wonder if the company can make it to the other side. Do you have enough money to carry you through the shift in direction? Will you be able to convince investors to give you more money after you’ve just admitted your previous “brilliant vision” was off base? Will you be able to build up enough revenue from your new direction before the bank account runs dry?

•   You’ll worry that everyone is going to hate you. Some probably will. Your employees will wonder why you made them work so hard on a product you’re now telling them will never work. If they took a salary cut to join your startup in the hopes of an equity-powered upside, they’re going to be furious when the company’s value plummets. And your investors? If you chose the right ones, they’ll stick with you and help you figure out a way through. But a lot of them will be pissed. Be prepared to be taken to the woodshed—a lot.*

•   You’ll be terrified that you’re going to look like an idiot. And you probably will. Before he succeeded spectacularly with Slack, Stewart Butterfield failed equally spectacularly with Tiny Speck. “I made all these claims to the press that we were going to do all this stuff,” he remembers—and then he had to admit to the world that he was wrong. Fun? Not at all.

It’s during this period when your critical entrepreneurship qualities come into play. Anyone can be a great leader when the sun is shining. But the only way a founder can make it through these hundred-foot waves and gale-force winds is if they have those critical traits we talked about at the beginning of this book: resilience, innate drive, the ability to thrive in ambiguity, discipline, and self-confidence.

The best way to prepare for crashing and burning is to be psychologically prepared. First, by knowing that it’s common and that it’s not necessarily a referendum on you as an entrepreneur. Then, when the crisis hits, the best thing you can do is accept that this period in your startup’s life is simply a part of the journey. Switch gears, stay focused, and keep going.

The Only Unforgivable Sin in Business

Hint: It’s about the *#&%! money.

As a founder, you might think you have multiple jobs: Develop an amazing product. Find a great business model. Hire rock star employees. Build a well-run company.

In reality, however, you have one job above all. One job that, if you fail at it, nothing else matters. And that job is: don’t run out of money. Harold Geneen, legendary CEO of ITT, who was one of the most significant business leaders of the 1960s and 1970s, and who some have compared to General George Patton and Napoleon, put it best: “The only unforgivable sin in business is to run out of cash.”

Later in this chapter, I’ll tell you about Ben Horowitz’s stint as cofounder and CEO of Loudcloud in the early 2000s. You’ll hear about how, as the company was running out of money and failing to find new investors, the only path to raising cash seemed to be to go public. Which seemed ridiculous to Ben. A company as riddled with holes as his shouldn’t be positioning itself to Wall Street as a great investment. And Ben said that to his board. He told me what happened next:

“My friend Bill Campbell, who was on the board, says, ‘Ben, it’s not about the money.’”

“And I said, ‘Oh, OK.’”

“And then he says, ‘It’s about the f**king money.’”

By which he meant: If you don’t have money, you don’t have anything. Who cares if you look like an ass for trying to go public? If there aren’t any other options, play the cards you have. What’s the worst that could happen?

I’m not advising you to drive yourself into the ground and then take crazy shots in the hopes they’ll work. The point is this: Your number-one job, as the founder and CEO, is to make sure you never run out of money. Prioritize and make decisions accordingly. Just don’t run out of money.

CRASHING CHRONICLE 1

The Udacity Pivot

Going after the wrong customer.

In 2019, Udacity decided to dramatically change directions. For eight years, it had been known as a pioneer in democratizing high-quality education and making it available to the masses. Founder Sebastian Thrun had been inspired by Khan Academy, and after getting a resounding response to putting his Stanford University artificial intelligence course online, he decided to create a startup that would give people a top-shelf education at a fraction of the Stanford price.

But his original vision didn’t pan out. “I was so idealistic,” Sebastian says. A year in, Udacity had to switch to an on-demand vocational-training model after universities and faculty balked at giving students college credit practically for free. The new approach got traction among early adopters, but eventually consumer interest plateaued. Meanwhile, interest was picking up from companies that paid Udacity to develop training for their workforces. “It took us a while to realize that the enterprise space made for a much better business,” says Sebastian, who, while remaining at Udacity as executive chairman, eventually ceded the CEO slot to focus on his flying car company, Kittyhawk.

Udacity began a massive project to retool the company so they could go after that enterprise business. The move made headlines, especially since Udacity had to lay off 20 percent of its workforce as part of the shift. But it turned out to be the right choice. By 2020, the company was finally profitable. Five out of the seven telecom giants use Udacity. Half of the top 200 US companies are customers. Governments like Egypt’s pay Udacity to train tens of thousands of students in tech skills. Among consumers, Udacity saw graduation rates of around 35 percent. But among enterprise customers, it’s 80 percent. “I wanted to help people be able to get better jobs,” Sebastian says. “It’s easier to get students’ commitment when we reach them inside corporations.”

Pivots are common among startups, simply because you’re never going to know where your opportunities lie until you get out into the market. In the business world and at conferences, pivots are discussed clinically, as if they were just a matter of tweaking this and rejiggering that. But they actually cause massive upheaval and heartache. You have to reengineer your entire company and often must let go of numerous employees so you can reposition the company for the new direction. There’s no roadmap for making a pivot, but here are seven things Sebastian learned in doing his:

•   The market isn’t logical, so listen to your customers. “It’s very easy to talk yourself into believing that the market will want the perfect product you build,” Sebastian says. But that’s not the case. “Udacity cost about $1,000—significantly less than community college. Our data showed you had an 88 percent chance of finding a new job, and you’d be making an average $24,000 more,” Sebastian adds. And yet, most students still chose to go to community college. “Math doesn’t dictate consumer behavior,” he explains. So you need to stay obsessively focused on your customers. They’ll steer you to the path you need to take.

•   It usually takes longer than you think to recognize the need to pivot. “In hindsight, the switch became obvious,” Sebastian says. “But in the middle of it, it’s like being in the stock market. It’s hard to decide which stock to pick.” Udacity’s new CEO had been discussing a switch to enterprise with the company’s board for about a year before they finally pulled the trigger. “Every company will say they could have been faster at pivoting.”

•   Hiring more people won’t fix a market problem. “When we saw consumer interest drop, we tried hiring more salespeople,” Sebastian says. “But our problem wasn’t an execution problem. It was a market response. More salespeople weren’t going to fix that.”

•   The need to fundraise can be a forcing function. In 2017, Udacity was getting ready to take another swing at the capital markets. “When you fundraise, you have to explain yourself to investors, and the best way to explain yourself is to have a rapidly growing, profitable business,” Sebastian says. That forced the leadership team to take a hard look at where future growth would really come from.

•   You will probably have to revamp your entire organization. Pivoting doesn’t mean just rejiggering your product or service. Big chunks of your company will have to reset as well. Your marketing strategy will change, as will your approach to selling. Be prepared to do a massive overhaul.

•   You should be transparent with your employees. Lawyers who advise startups on layoffs usually tell CEOs to keep everything secret until the changes are announced. That’s what Sebastian did at Udacity, and he regrets it. “It created a lot of bitterness. People came to work one day and learned they’d lost their jobs,” he says. Later, when Sebastian had to do layoffs at Kittyhawk, he took the opposite approach. “I looped in the entire staff from day one. I told them, ‘The board made this decision, and I want you to know because it might affect your life,’” he says. “If people trust you, you need to trust them. If you treat them like partners, they’ll act like partners.”

•   Many people will leave—even of their own volition. People who might be a good fit for the company’s new direction might still decide to leave. Two years after the changes at Udacity, only a single member of the executive team remained. “It’s rough on people,” Sebastian says. “When you tell people that the thing they’ve poured their passion, time, and sometimes identity into is actually the wrong thing, and this new thing is the right thing, it’s very hard for some people.”

“If people trust you, you need to trust them. If you treat them like partners, they’ll act like partners.”

CRASHING CHRONICLE 2

The Okta Pivot

Targeting the wrong-sized businesses.

There’s a pretty simple reason why Todd and I ended up targeting the wrong customers at the beginning— a mistake that almost cratered the company and left us needing to overhaul our entire business in that terrible year of 2011: those “wrong customers” were the only people taking our calls.

The first product we wanted to build was a way for companies to manage access to online apps for their employees. As I’ve mentioned before, the experience Todd and I had working at Salesforce told us there was demand for such a product. But we had to find customers who would give us guidance on how they needed it to work. When you’re a tiny startup that no one has heard of, the head of IT at a small or midsize business (know as “SMBs”) is more likely to take your call than the CTO of a Fortune 500. So we went where we were welcome, figuring we’d build from there.

We had a good reason to do things this way: it’s what we’d seen work at Salesforce. Ten years earlier, when Salesforce was launched, it planned to replace on-prem software (sold by giants like Siebel Systems) with its new, cloud-based systems. But CEO Marc Benioff was smart enough to know that he would have to bring hard proof to enterprise-sized clients that showed Salesforce could actually improve the functioning of their sales teams and save them a lot of money. The only way to do that was by starting small—with SMBs—and working up.

Todd and I figured the same approach would work for Okta. But there were a few critical differences between Salesforce and us. Salesforce was a customer relationship management (CRM) product that allowed sales teams to manage leads and prospects. Many of the products that existed before Salesforce were terrible; sales executives hated them. So Salesforce would first approach various sales managers, who had the authority and budget to buy simple products. Once a critical mass of teams at a particular company had signed on, Salesforce would go to the organization’s CIO and ask if they wanted to roll everything up into a single contract, emphasizing that doing so would give the company a better overall price and a standardized approach to using the system. More often than not they said yes.

We couldn’t take that approach at Okta. Identity management isn’t managed by individual teams. It’s overseen by the IT department. And that’s where we faced a Catch-22. The IT directors who agreed to take our calls were the ones who worked for smaller companies. But they weren’t the ones experiencing the pain around this issue. It was the CIOs at much larger companies, the ones who wouldn’t take our calls.

Our brilliant idea to follow in Salesforce’s footsteps nearly killed us. The entire way you structure and staff a company is different when you’re going after SMB customers than when you’re going after large enterprise customers. You need different kinds of people with different sets of expertise, especially in marketing and sales. You offer different products. You set up different internal processes. You develop different brand messages. So when Todd and I finally came to terms with the fact we’d been chasing the wrong customers, we had to rip apart the organization we’d built and start building an entirely new one.

But it took Todd and me a while to even realize that that was what we needed to do. Like other founders, we were “extremely confident” in our vision. One of the first signs something was deeply wrong was when a couple of our most senior programmers left the company. We knew we were struggling with sales, but when senior staff with strong track records lose faith in you, it’s a clanging alarm bell that you might have much deeper problems.

It wasn’t until fall 2011, after that painful board meeting, that Todd and I accepted we needed to change directions. We started working on contacting enterprise-sized customers and began the search for an experienced vice president of sales. When that person finally came on board in 2012, he was able to architect a game plan and build a sales machine that allowed us to gain traction and grow.

Today, when I advise founders going through the same experience, here’s what I tell them:

•   Be honest with everyone, especially yourself. Todd and I didn’t really let our team know how bad things were until fall 2011. If we had shared the situation with them earlier, they could have helped us pinpoint the source of our problems and identify possible fixes much sooner. You’ll be surprised how much people will rally around you when you give them the actual information and the opportunity to really impact the business.

•   Do an analysis and create a plan. Insanity, as you know, is doing the same thing over and over again and expecting different results. (Todd and I should have clued in a lot faster that our plan wasn’t working.) Next, when you do the analysis, do it quickly. You don’t have time to do a 30-data-point regression analysis. You need to make your best guess as to where the problem is and then create a plan to fix it.

•   Commit to the new plan and only the new plan. Once you’ve figured out what you need to do—in our case, move away from SMBs toward large enterprises—commit to that. You don’t have the time and money to continue on both paths. The faster you ditch the first boat and jump into the second, the better your chances of not sinking.

•   Be ultra-clear with your team. It’s human nature to resist change, so when you, the leader, give mixed signals about what the company needs to do, your people will default to what they have been doing. It’s more familiar and comfortable, after all. So you need to be absolutely clear that the company is changing directions, and that everyone needs to start heading down the new path.

•   Beware of bad pattern matching. What got us into this mess was the assumption that we could follow Salesforce’s approach. Pattern matching is seductive. Often, it can help you make faster decisions—and ones that are good enough. But when the stakes are high, you need to make it a practice to stress-test any patterns you’re thinking of relying on.

Our brilliant idea to follow in Salesforce’s footsteps nearly killed us.

CRASHING CHRONICLE 3

The Loudcloud Story

Almost running out of money.

In 2001, the bottom fell out of Loudcloud, the SaaS company Ben Horowitz had cofounded two years before. Until then, the company, which offered infrastructure to support business-to-business e-commerce, was humming along nicely. “We booked $27 million in sales in our third quarter—nine months after we started,” Ben recalls. Then in the spring of 2000, the dot-com bubble burst. Ben had been planning on raising more money—their burn rate was through the roof—but suddenly the venture capital industry was battening down its hatches. “It was Armageddon everywhere,” he says. By late 2000, Loudcloud only had about five months’ worth of cash left.

The only way to raise money was to go public. The idea didn’t come out of nowhere. Given its stellar performance, Loudcloud had already started making plans to IPO. But now, the idea seemed preposterous. “We couldn’t forecast our sales. We couldn’t forecast what we had booked already. A lot of our customers were going bankrupt. And we probably needed to change out a bunch of the executives,” Ben says. A conversation with his board, however, made him realize there were no other choices. It was go public or declare bankruptcy.

Loudcloud priced the stock at $10—the lowest it possibly could without heading into territory where the financial institutions Ben was hoping to attract simply would steer clear. Even then, Loudcloud had to reverse-split the stock (create fewer shares) just to get there, which horrified Loudcloud’s employees. “They weren’t aware of how bad things were,” Ben says. “They felt like I hadn’t been telling them the truth.” Then, on the roadshow,* investors weren’t particularly welcoming. The NASDAQ was crashing. Tech stocks were the anchor dragging it down. During Ben’s three weeks on the road, the value of Loudcloud’s “comparables”—the companies it was being compared to—were cut in half. One of the bankers who worked on Loudcloud’s deal later told Ben it was “the worst f**king thing I ever experienced in my life.” Businessweek called it “the IPO from hell.”

Against all odds, Loudcloud managed to go public. The fresh infusion of cash would allow them to live to fight another day. But the company’s problems weren’t over. In some ways, the worst was yet to come.

Even with the new money, Loudcloud’s business was spiraling downward. Potential customers started balking as waves of internet companies went belly-up. “It became too dangerous [for corporations] to outsource [their] infrastructure to one of these new-type Silicon Valley companies,” Ben says. When Loudcloud announced they were going to miss their forecast, their stock price sank to $2. Some Wall Street analysts simply stopped covering them. Then 9/11 happened, sending the economy into a deeper tailspin. Two weeks later, Loudcloud’s biggest competitor—once worth $50 billion—went bankrupt.

Ben couldn’t sleep. He couldn’t see how Loudcloud was going to get out alive. He was wracked by the thought of losing everyone’s money, putting his employees on the street in an economy where there were no jobs, and watching his reputation evaporate. It’s a situation many founders eventually find themselves in. The moment when a founder realizes that their beautiful vision is turning into a multicar pileup leaves them curled up in a ball, desperately looking for a way out.

In the face of imminent ruin, however, Ben did something radical. He asked himself: What if Loudcloud was already bankrupt? What if the train wreck had already taken place? What would his next step be?

The answer was simple: he would ditch the part of the company that hosted software for clients—the part that no one was interested in (but that was currently its primary business) and instead buy the software Loudcloud had developed and build a new company that would sell that product directly to customers to manage themselves. Corporations that resisted hiring Loudcloud to manage their infrastructure would nevertheless want great software to do it themselves. So he kicked off a project to separate the software from the rest of Loudcloud.

The only problem: Loudcloud was again running out of money. Ben knew how much he needed until he could spin off the software, and he cobbled together a plan to get it. The day before he was supposed to meet with prospective lenders, however, his largest customer informed him they were going bankrupt. The resulting loss in revenue blew up any possibility of securing outside money.

Ben scrambled to put a new plan in motion—to find a buyer for the hosted part of the business as fast as possible. By summer, a deal was done. The sale gave Opsware—as Ben’s spinoff was now called—enough money to launch the new software-only business. For the first time since late 1999, he was able to breathe.

But not for long. Wall Street couldn’t understand why he had sold off the revenue-generating part of the company. Opsware’s stock price fell to $0.35, and there were more layoffs. It would be another five years of slogging before Ben’s gamble paid off. In 2007, HP bought Opsware for $1.65 billion.

Shortly after that sale, Ben got a call from a private equity firm wanting to hire him. He didn’t understand why. They said, “We do turnarounds, and we’ve studied every tech turnaround in the last 30 years, and the greatest one was Loudcloud to Opsware.” Ben turned them down. “You’re aware that I’m the one who f**ked it up in the first place, right?” he said. Give Ben credit for his honesty. But he did learn a lot from the experience. Here are six main takeaways:

Had Loudcloud revised its spending plan sooner, it might not have ended up in as big a hole.

•   One day you have a great product. The next day you don’t. “Product-market fit is ephemeral,” Ben says. “But no one ever talks about it that way.” Barring the dot-com crash, Loudcloud might have succeeded. The same goes for the pandemic or for the financial crash of 2008. Plenty of startups were doing great until they were hit by external forces. Never assume that because everything’s going well now, it will necessarily stay that way.

•   Loudcloud’s spending made it vulnerable. Companies usually hash out spending plans based on projections of future revenue. But those future projections are usually based on past performance. After the dot-com crash, Ben continued to plan as if that $27 million quarter was predictive of the future. “That’s how we got caught with our pants down,” he says. Had Loudcloud revised its spending plan sooner, it might not have ended up in as big a hole.

•   Once you’re in the hole, you must become ruthlessly focused on getting out. Loudcloud’s hundreds of employees became furious when they realized how dire things were. Ben could empathize, but he couldn’t get distracted. “You have to keep focusing on your next move. Because all you have is that one move,” he says.

•   You’re going to have to choose between a bad option and a terrible one. Business school case studies often make it seem like the choices leaders face include a good option and a less-great one. “That’s bulls**t,” Ben says. Once you’re in the hole, the choices are usually all bad. It’s incredibly difficult psychologically. “Making a big change is really traumatic for everyone,” he says. But if that change has better odds of success, you have to find the courage to pull that trigger.

•   You should be candid with your team about what’s failing. When you stand up in front of the company and tell them that the current path is no longer viable, you need to acknowledge, unequivocally, that your original vision failed—even as, in your next breath, you try to convince them to believe in the new vision that you now want the company to rally around. “It’s one of the hardest leadership problems there is,” Ben says. “Most people won’t do it.” Your integrity, though, is all you have at this point. It’s what will make at least some of your employees give you a second shot. But if you fudge the truth, they’ll know. “That’s when a founder loses the company,” Ben says.

•   When in doubt, turn the question around. The part of Ben’s story I like best is when he stopped and asked himself: What if everything had already blown up? Putting yourself in that frame of mind liberates you to see things clearly. If there’s nothing more to save, what would you do then?

CRASHING CHRONICLE 4

Tiny Speck’s Real-Death Experience

Knowing when it’s time to throw in the towel.

No founder ever wants to give up. Most are psychologically programmed to be Energizer Bunnies: they just keep going no matter what. It’s an important quality for a founder to have—until it’s not.

Most of the time, when startups shut down, it’s because they’ve run out of money. The founders simply don’t have any other way forward. They’ve looked for funding, as Ben Horowitz did, but it wasn’t forthcoming. When there’s nothing left in the bank, they have to call it quits.

So it takes an extraordinary person to recognize that there’s no point in continuing, even while there’s still plenty of cash on hand. Stewart Butterfield is one of those unusual founders who pulled the plug on his own startup. As one of the founders of Flickr back in the early 2000s, Stewart did well for himself when the image-hosting company was sold to Yahoo. He left Yahoo a few years after that and founded a gaming company called Tiny Speck.

Tiny Speck’s game Glitch launched in 2011. It was an ambitious multiplayer that pushed the boundaries of how people imagined a game could work. But it took massive amounts of resources to support, and by 2012, Stewart could see it wasn’t attracting enough paying customers to become profitable.

At this point, many founders would have tried to keep going anyway. After all, Tiny Speck still had plenty of money in the bank, and the pull of inertia is strong. “There are a bunch of forces aligned against throwing in the towel,” Stewart says. “First, it’s humiliating. I had made all these claims to the press that we were going to do all this stuff. I got the players excited, and I took money from investors.” And then there were the company’s employees. “I had convinced them, in some cases, to turn their lives upside down.” There was one employee Stewart remembers having persuaded to move to Vancouver, where Tiny Speck had an office. “He had a young daughter, and three months earlier, I had convinced him to move away from the support of his in-laws who were helping with his kid, and he’d bought a house. Now I have to tell him he doesn’t have a job anymore,” Stewart says. “When I caught his eye, I started crying.”

Most founders in Stewart’s situation would have tried any number of things to avoid shutting Tiny Speck down. Maybe they would have hired more people. Or ramped up their advertising. Or worse, tried to raise more money (likely on very onerous terms).

For Stewart, however, the realization that it was time to stop came down to a single thing: He just didn’t believe in it anymore. “Founders always have doubts and fears,” he says. “But they do believe that their vision is possible.” One sleepless night, as he was tossing and turning at 2 a.m., he accepted that his belief was gone. “I realized that if I, the CEO, didn’t believe it, then it wasn’t going to work. Success doesn’t just spontaneously happen,” he says. “The board can’t make it work. The employees can’t. Leadership has to believe. It’s a necessary condition for success.” The next day, he gathered his cofounders and his board and told them his decision.

One of the upsides of making the decision while there was still money on hand was that Stewart could wind the company down gently. “We gave every employee a pretty generous severance,” he says. They also built a page on their website called “Hire a Genius,” where they posted the résumés and portfolios of the artists, animators, musicians, and others who were now looking for work. They gave their users the option to get their money back, let Tiny Speck keep it, or donate it to one of three charities. It was a silver lining to an otherwise crushing experience. “We had to clean it up in the most elegant way we could,” Stewart says.

Although Tiny Speck didn’t succeed, Stewart realized that a communication tool the company had built for its teams might be something that could become its own business. At the time, many people were using chat services like Google Chat or tools like Basecamp to coordinate with colleagues. Stewart’s team had built their own in-house tool, based on an old (and very basic) technology called Internet Relay Chat, or IRC. “It lacked most of the features that people would expect from a modern messaging app, so we just kept adding stuff,” he says.

After they shut down Tiny Speck, Stewart and his cofounders started building a new company around this tool, which had been such an afterthought that they hadn’t even given it a name. It was an uphill battle to identify a market for it, though. Glitch had been a game for consumers. This new thing was an enterprise tool they now wanted to sell into companies—a completely different ball game. “When we said it was a ‘channel-based messaging platform,’ people had no idea what that meant,” Stewart says. It was hard to convince people to give it a shot. “Even at friends’ companies, it took us five meetings of explaining and showing it to them.”

But eventually, they broke through. By 2017, the tool was fairly widely known. It went public on the New York Stock Exchange. The pandemic, which forced companies to operate remotely, accelerated its adoption. And in 2020, it was bought by Salesforce for nearly $28 billion.

“I realized that if I, the CEO, didn’t believe it, then it wasn’t going to work.”

The name of that company? Slack.

Stepping Down

When it’s time to stop being CEO.

Few founders willingly give up the CEO title. Their company is their baby. They want to see it through. Ego, of course, plays a role. Why should you give up the top slot when the company was your idea and you put in the sweat and sleepless nights to get it off the ground?

CEOs do get replaced, however—usually when their board loses faith in them. Travis Kalanick at Uber and Adam Neumann at WeWork are examples of CEOs getting the boot, albeit for some pretty troubling reasons. But it’s not uncommon for boards to replace leaders under less dramatic circumstances.

A few enlightened founders can even tell when they are no longer the right person for the job. Seven years after Fred Luddy founded ServiceNow, the company was cash-flow positive and enjoying about $100 million in annual revenue. (A decade later, it’s raking in over $4 billion annually.) But the company had moved out of the tinkering-with-the-product phase and into the develop-operational-excellence phase. The focus now was on fine-tuning internal systems so the company could really grow.

“One of my investors asked me, ‘Do you want to be the product guy or the CEO?’” Fred recalls. They’re fundamentally different jobs, especially once the company gets big. The investor told him: “We’ll support you either way, but we don’t think you can do both.” An engineer by training, Fred had always enjoyed building products. He was now in his fifties, and this was his first CEO gig. He wasn’t sure what the next few years would involve. His investor took him to meet the CEOs of companies his size and bigger. “I saw what these guys were doing every day, and I told my investor, ‘I don’t think I have those skills. And more importantly, I have no interest in acquiring them,’” Fred says.

Soon after that, ServiceNow brought on a new CEO, Frank Slootman, the former head of a data storage company, and Fred moved into a product role. A comment he later made to Forbes confirmed he’d made the right choice: “Frank made us into a very large, well-oiled machine, scaling out the organization in a way I never could have.”

Some founders will choose to helm their companies for a long time—Bill Gates, Mark Zuckerberg, Jeff Bezos, and my old boss Marc Benioff come to mind. Todd will do the same at Okta. But for many, there will come a time to consider passing the baton. There are two primary signs that time may have come:

•   You don’t have the drive and determination needed for the next stage. You might be feeling sluggish or finding it difficult to focus on the challenges and opportunities in front of you. It’s increasingly harder to get “in the zone.” You’ve stopped waking up in the morning feeling energized. All of these are signs that you’ve lost interest—in your role, at least, if not in the company as a whole. Ego becomes your primary obstacle at this point. Recognize that staying in your role might eventually undermine the company. Employees can tell when the person at the top is drifting, and it can impact their own motivation. Work with your board to carve out a new function, one that will let you apply your unique strengths and interests to the company.

•   You’re experiencing serious operational challenges. Despite a huge market opportunity, growth has stalled or, worse, is in decline. Barring an obvious exogenous factor (like a pandemic), or an internal one (like a pivot requiring a reset), growth should continue upward, especially in a big, growing market. Slowing growth can mean that you’re not making the right decisions, including hiring the right people or pulling the right operational levers. All of that adds up to the same thing: the job has become too big for you. If you’re no longer in your wheelhouse, work with the board to carve out a smaller role that’s a better fit.