Ryan Howard, the former CEO of Practice Fusion, has experienced most startup founders’ worst nightmare…twice.
The first time he was fired from the CEO job to be replaced by a more seasoned business leader was in 2011, but Howard says it didn’t stick as he was able to sway a board member. He remained at the company’s helm for another five years, overseeing a period of major growth for his health-tech startup. He was fired for the second time in August 2015 for similar reasons, he says. The company announced that Howard would be replaced with Practice Fusion’s chief commercial officer, Tom Langan, a longtime health care executive.
Practice Fusion declined to comment on personnel changes.
Howard is in many ways the prototypical tech founder and a self-described “product guy.” In the company’s early days, he didn’t have enough capital to to pay his engineers and ended up paying them with a settlement he received after a motorcycle accident until he was able to raise additional funding. Today, the company has grown to dozens of employees and its electronic medical record software is used by 112,000 medical professionals. At the company’s most recent fundraise in late 2013, it was valued at a reported $700 million.
It’s far from unique for investors to replace product-focused founders with experienced executives in the year or two before an IPO. In Silicon Valley, it’s a frequent occurrence (with a few notable exceptions)–and it is often for the best. But it is rare for founder-CEOs to talk openly about being fired, especially if they sign non-disclosure agreements. During several interviews with Fast Company, Howard declined to get into the nitty gritty details of his final months or speculate on whether it was the right thing to do, but he did share some lessons learned for fellow founders.
Howard says many don’t take the proper steps to protect themselves if the company takes a bad turn, and they don’t mitigate their risks of being fired. Many founders will suffer, both financially and emotionally, when they wrap up their identities with their companies. Here are some of Howard’s tips to help soften the blow:
Have a plan.
From the earliest days, Howard suggests that the team get into discussions about those awkward “what if” scenarios. “Don’t avoid prickly or uncomfortable subjects, like ‘what will happen if this all ends today’,” Howard often tells would-be entrepreneurs. He recommends making a clear plan around the vesting schedule and agreements around termination.
Get a personal lawyer.
Many founders don’t clearly separate their own identity from that of their company or the investors. To avoid falling into the trip, Howard advises that founders retain a personal lawyer. That attorney can help draw up an employment agreement for the founders, which might include things like accelerated vesting and a severance package.
Consider Series FF stock
Almost a decade ago, a series of articles from the startup law community advocated that founders consider a “Series FF stock,” which in a nutshell gives founders a mechanism to obtain liquidity in connection with a venture financing. “It’s this downside protection that is rarely discussed,” says Howard.
Get off to a good start.
Howard suggests setting aside three or four common seats on the board when incorporating the company. That provides some breathing room for founders to maintain some level of control over their board. Never assume that you can add these seats down the road.
Do not rush to fill a board seat.
Fill empty seats “only when you have to,” says Howard, who would occasionally test out potential board members for months by issuing advisor equity and inviting them to sit in on meetings.
Howard gets insight into the style of potential investors by perusing sites like “The Funded.”
Spend time vetting potential board members.
Howard says he regrets getting caught up with maximizing his company’s valuation versus building relationships. He got lucky with investors in many cases, but he still recommends that founders prioritize who they know and trust (especially if they have more than one offer on the table). These days, he looks for subtle signals of a so-called “dysfunctional investor,” like fast-talking or signs of jitteriness. “Spend more time vetting these candidates than any others,” he says.
Howard also recommends inviting potential board members to sit in and observe the meetings. But he also warns against these people having an undue influence if they frequently speak out and shift the conversation.
Don’t bloat the board.
Howard says he often sees first-time entrepreneurs filling their board with five or six members whom they barely know right off the bat. “That’s usually a sign of a naive founder,” he says.
Above all, Howard’s biggest piece of advice? Get a therapist, take off weekends, and spend time with friends and family. “Don’t let the company take over your life,” he says.
Started a company? What advice do you have for first-time founders? Share your ideas with me @chrissyfarr on Twitter.