Leadership Lessons From YouSendIt's Founding Team Train Wreck

One of YouSendIt's three founders was fired. Another pleaded guilty to a federal charge involving a cyberattack he launched on YouSendIt. Somehow, third cofounder Ranjith Kumaran walked away from the disaster with his company intact and a new set of team-building tenets.

Startups and investors call me when they’re having founding team issues. It’s no surprise given the health of the two founding teams in which I’ve been a part.

Founding Team 1.0: Khalid Shaikh, Amir Shaikh, and I started YouSendIt in 2004. I stayed on and built the company for 6.5 years and am still on the board. The business had $39 million in revenue in 2011. Amir was fired by the board and Khalid is awaiting sentencing for launching a denial of service attack against YouSendIt.com.

Founding Team 2.0: Mehdi Ait Oufkir and I started PunchTab in 2011. Barely a year in the market, PunchTab powers 6000+ loyalty programs and already has large paying customers with a growing sales pipeline. We raised our seed round off of a PowerPoint, launched our first product in three months, and had multiple inbound term sheets for a $5.2 millionSeries A financing (with early YouSendIt investors participating) that was closed within six months.

I was part of a brutal founding team trainwreck at my first company. Here’s what I learned and did differently the second time.

1. Titles are meaningless but expectation setting is crucial.

All of our YouSendIt business cards read "cofounder" until the fateful day a well-meaning angel investor asked "Who’s the CEO here?" We then did the title thing for fundraising optics, a mutually agreed upon, really bad idea.

What we should have agreed on were roles and expectations before the company was formed. Mehdi and I had that talk concerning PunchTab when we sat down for the very first time. Sort this out with everyone who is early at the company, otherwise you’ll waste a lot of time dancing around the issues.

2. Oddball terms from either side will hurt everyone.

We received one Series A term sheet at YouSendIt. The terms were standard and there wasn’t a lot of back and forth about valuation. PunchTab received multiple term sheets. And still both sides combed through every detail to make sure that we don’t spook anyone in the company already or people we will work with in the future.

It’s a small ecosystem, and the last thing you want is to start a new partnership explaining away old surprises.

3. Let the attorneys work on documents while you work on trust.

Many decisions we made for PunchTab’s seed financing were closed with a handshake. Gestures made on both sides included commitments such as, "just tell us how big the check needs to be," "we won’t take any more investor meetings," and "let’s make room for anyone else you want in."

I knew most of the investors for years, but why deal with this? Because it’s the best way to make deals, and the best investors understand this. Pick cofounders and your broader team based on shared values. You have no idea how much overhead it saves.

4. Founding teams get screwed up every day.

Here are the top reasons I get called for advice by first-time founding teams and venture funds trying to help their founders:

-The guilt felt by one founder taking a leadership role (first among equals) after cranking on product for so long. I spent my 2010 Christmas holidays learning Python + Django (I’m an old PHP guy) so I can contribute to PunchTab’s products as well.

-The realization that you haven’t really worked with someone until you’ve started a company together. I’ve been in the valley for 11 years and can easily count the people I’d found a company with on one hand.  

-The disaster scenario: a CEO change. Both the founder and the incoming hired gun have a lot of anxiety, as they should. We both put in the time to make it work at YouSendIt. The big takeaway: You’re not alone. Surround yourself with people who have seen it before and can talk you off the ledge.

5. Move on.

Still think you’ve got serious founding team issues? Advice I recently gave to early-stage teams struggling with each other or their investors: Learn to move on. Sometimes this stuff really can’t be fixed and it’s at least partly your fault, like it was mine for not doing a better job at the beginning.

In this environment there is demand for real founder DNA. If you think you’re the real deal you might be better served starting again, wiser and with a clean slate.  Now I’m a reluctant expert on building functional founding teams. I survived a founding team trainwreck that should have ended me, my first company, and in the process should have wasted millions of dollars of venture capital. But I beat the odds, and if you and your team are honest with yourselves, you can too.

[Image: Flickr user Alexandra Guerson]

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5 Comments

  • Maureen McCarthy

    Hello Ranjith ~
    I appreciate the insights you took from your start-up experience. They are invaluable. Thank you. I too had a start-up that deteriorated and it was a painful experience. From that experience, I created the Blueprint of WE Collaboration Document. (www.blueprintofwe.com) It is now used in 100+ countries, in many languages to begin business relationships with stronger foundations which enable people to be more adaptable and experience more trust up front. Any number of people can create their own Blueprint which then also serves as a thirds party mediator when needed. It has the ability to quiet the Safety Brain that gets so easily triggered in collaborative situations. I can't imagine working with anyone now without creating a Blueprint of WE first. It totally changes the DNA of the relationship and the organization when you build healthier neural pathways right from the start.Thank you again for your insights,Maureen McCarthyThe Center for Collaborative Awareness

  • John Mack

    Ha ha, this was really helpful in developing the protagonist in the novel I'm writing. Thanks!

  • Ranjith Kumaran

    FC thanks for the post and for updating the title to be a little closer to my original.

    For readers who want to learn more I've posted the original version that is probably too long and casual here, enjoy:http://blog.punchtab.com/index... 

    Ranjith

  • Lisa Nirell

    Ranjith,
    Posting this took courage and a suspension of ego. I applaud you. I am celebrating 10 years in business and have made my share of mistakes too. You inspire me to write about them.

    Lisa Nirell,
    Author "EnergizeGrowth NOW: The Marketing Guide to a Wealthy Comnpany"

  • Ranjith Kumaran

    Hi Lisa, thanks for your comment. Courage and suspension of ego are two very important characteristics of folks who can stomach the ups and downs of starting a business. Looking forward to checking out your book. 5 stars on Amazon, wow and congrats!

    Ranjith