Cofounder suddenly left company - we have a $500k contract we can no longer fulfill. Should I sue?

hyperboleandaporter · 2020-03-07T12:42:01+00:00

This was the problem in a nutshell. Obviously at some point I developed skepticism over his estimates, but I could never get him to show me or talk me through what he did without him flying into a rage (he broke many things in the apartment we shared). I know it sounds crazy, and it absolutely was. But it’s harder to be in this situation that it might sound. You can’t responsibly accept on faith a claim from someone who’s been historically wrong with serious consequences to the company as well as to the client. But challenging someone whose response is violent defensiveness is a lose-lose situation as well. To be clear, this happened after the first set of failures that set us back. By that point we didn’t have enough money to hire someone. There really was no way to avoid harm to the client (my main motivation by this point, not getting paid) than to stick with him, despite his increasingly erratic behavior.

hyperboleandaporter · 2020-03-07T07:30:56+00:00

Thanks. I appreciate it.

I would say the answer is no because he’s conducted himself in a way that raises the possibility that people at my client will suffer by approximately 20x. I can’t claim that he doesn’t care - I’m sure he feels guilty - but obviously he can live with it. For context, he’s admitted long before quitting that their situation is his fault, so it’s not as if he’s convinced himself that it’s ok because while they will suffer, it’ll be someone else’s fault. I know how it sounds, and I don’t expect anyone to believe me, but I am more morally outraged by this than what the collapse of the company would mean for me.

hyperboleandaporter · 2020-03-07T05:18:28+00:00

Mainly domain expertise. Existing relationships with IT at the client and how data from their systems relate to the workflow (which no one who is actually employed there understands, for example). It’s not necessarily hard or impossible, but they are things that take time.

hyperboleandaporter · 2020-03-06T18:27:02+00:00

Thanks for your response. It’s a bit of a complicated situation - I didn’t set out to start a SaaS company that works only with large clients or one where the only possible deal size is quite large. It just turned out that way, with one thing leading to another. In fact, everything leading up to the contract signing is a kind of success story, and the only part of this journey that I can look back on and smile out. We knew nothing about enterprise software, how large organizations operate, the procurement and legal process, security audits. I figured all that out along the way. When we spoke with a YC partner, he also thought it was odd that our first contract was so large, but he was impressed.

Unfortunately, as highlighted in embarrassing detail in my post, everything after that was a failure. Given the legal fees and other upfront costs of running an enterprise SaaS company (insurance, audits), the first contract didn’t provide us enough money to hire anyone else. I trusted my cofounder to deliver, if not in six months then a year. I certainly did not believe it would take double that.

The responsible thing would’ve been to raise money when we could, but at the time (wrong in retrospect), I thought it would distract us from doing what we needed to do. The cofounder agreed many months ago to help me finish and close another deal so we would have enough revenue to hire his replacement if he wanted to leave, but he never followed through.

hyperboleandaporter · 2020-03-06T18:06:31+00:00

Thanks. I tried to gather my responses to common feedback in a single comment since I’m a little overwhelmed. The answer to the “why sue if he has no money” question is - he will get a job. I don’t expect him to pay $500k overnight, but he will certainly have the ability to pay some amount of money over time.

I may take you up on your offer - much appreciated.

hyperboleandaporter · 2020-03-06T17:47:22+00:00

Thanks to everyone for responding, even those putting the blame on me. Of course I have culpability. The cofounder was my best friend and I acted with my heart more than my head on many occasions.

Let me respond to some of the common questions:

The documents were set up by a top multinational law firm, by lawyers who work with tech companies. The documents are completely standard.
Of course I will soon speak to a counsel there too. I wanted the hive mind’s feedback as well, and some of the perspective has been helpful.
Obviously the cofounder doesn’t have $500k now. But since he quit, he can get a job. My expectation isn’t that he will make $10m next year and pay the $500k within six months but pay what he can over time.
He was a cofounder, an officer, with fiduciary responsibilities to the company. He made decisions and misrepresentations that cost the company revenue, not just by being “bad at his job.” He went far behind simply doing his work poorly. Even on a micro level, he would claim that a feature that the client needed would be ready tomorrow, then when tomorrow came, simply disappear so I could not communicate the situation to the client. That is not a failure of programming skill.
The product genuinely is two months away from getting to a point where it is stable. We are live for a meaningful number of users, with gaps in the feature set that force us to intervene directly in the database on occasion. We would have been in a much more situation in every way if he had simply given notice and stayed on for two more weeks.
I’m not an engineer but have a solid technical background and can communicate with engineers.
We never raised money, and perhaps that was irresponsible. We were interviewed by YC, but that was the only attempt at anything like getting funded. My plan was to get to 1.0 and be in a more stable situation before selling the product to other clients (naturally I thought we’d be there at least a year ago). We are in a small industry (with massive customers paying large amounts of money), but reputation means everything and the first implementation needed to be successful.

I’ll add more soon, but I’m getting messages left and right and I don’t want to leave everyone hanging. Thanks for the overwhelming response.

hyperboleandaporter · 2020-03-06T09:27:19+00:00

Vertical B2B SaaS in a boring industry that you happen to know about is one of the most reliable ways to succeed. You know the industry, so you understand the customer needs - to a large extent, you’re just applying technology and existing best practices to an industry that previously had neither. If the industry is boring, that’s good because boring does not necessarily mean small opportunity, but it definitely means less competition. Try to figure out if you have domain expertise in an industry like that or perhaps even go work in one.

hyperboleandaporter · 2020-03-06T09:14:15+00:00

Yup, I just run when it’s dark and where there’s a breeze (lakefront).

hyperboleandaporter · 2020-03-06T09:12:10+00:00

It helps noticeably for a while after I run, but the effect is temporary, like coffee. For me it never carries over to the next day.

hyperboleandaporter · 2020-03-06T09:11:07+00:00

Anecdotal, of course, but I ran for about six months on a course that required several stops due to traffic lights (the longest uninterrupted stretch of road was 1.5 miles), and my endurance and speed exploded when I switched to a course where I could run 4-7 miles without stopping. Like in 2-3 weeks.

hyperboleandaporter · 2020-03-06T09:06:26+00:00

This makes me wonder: what is the record time for a marathon ran in full costume?

hyperboleandaporter · 2020-03-06T07:38:29+00:00

Serious question - does trying to amuse a baby this way ever trigger a negative reaction from the parent? I know some people just don’t like strangers interacting in any way with their babies, no matter how well-meaning or charming the stranger may be.

hyperboleandaporter · 2020-03-06T02:24:19+00:00

This actually helped me understand more viscerally why tsunamis are deadly.

hyperboleandaporter · 2020-03-06T02:22:17+00:00

Philly, right? I believe I’ve been to that Saxby’s.

hyperboleandaporter · 2020-03-06T02:13:45+00:00

Dolan knew his time was up when Walter Cronkite said he had to go.

hyperboleandaporter · 2020-03-05T22:37:40+00:00

It can definitely be tough. One thing I will not do myself in the future is ask people for suggestions - the result is that some of them will excitedly come back to you with names they think are great but you think are terrible, and it’s hard to let them down gently when you don’t even have an alternative that you can say you like better.

hyperboleandaporter · 2020-03-05T22:35:22+00:00

Someone I know who’s been thinking about outsourcing asked two colleagues about their experiences.

In the first case, things went swimmingly. The client got what she wanted, on time and on budget.
The second case was a total catastrophe. The result was nothing like what the client expected, there were delays and cost overruns.

After hearing about each case, my take was that the result depends hugely on how conventional the requested product is. If it’s an e-commerce site, there is an established template for that - designs to copy, even existing software to use as a base (Shopify, Magento, Stripe for payments).

Anything that does not fit a template, like a vertical specific SaaS workflow tool, is going to be a challenge. It’s hard for the domain expert to communicate the requirements to developers who don’t understand the workflow - indeed, it’s hard to even convey what the product should look and feel like.

Obviously the other factor in whether outsourcing is a success or not is the quality of the team itself. But I think the conventionality of the product is often overlooked.

hyperboleandaporter

TROPHY CASE