How To Avoid Getting Kicked Out Of Your Company

How to avoid getting kicked out of your company? The chances of being ousted from the company you worked hard to build are higher than you could imagine. Most founders never anticipate that this can happen, but it has occurred in some of the world’s top companies.

Check out statistics, and you’ll learn that close to 50% of founder CEOs end up stepping down from their positions. This happens astonishingly within 8 months of their series A funding. This is a fact that Don Valentine, founder of Sequoia Capital, has corroborated.

You’ve probably heard about examples like Travis Kalanik, the founder of Uber, Jack Dorsey at Twitter, and Martin Eberhard. Few people know that Eberhard was the co-founder of Tesla; instead, the name is often associated with Elon Musk. Interestingly, Musk is one of the original founders of PayPal.

If some of the top founders end up leaving their companies thanks to board decisions, that could happen to you, too. But what is the sequence of events leading up to the founders being fired? Where do they go wrong?

Let’s dive into understanding the driving factors that put you at risk. Identifying the triggers will help you better understand how to avoid getting kicked out of your company.

Why Founders Get Forced Out of Companies They Build

When you start a company, you have a mission and vision for the company. Savvy founders are aware that they cannot build a startup single-handedly. Several other skill sets are crucial for getting started, success, and later, scaling and operating. This is why they need a team. And possibly co-founders.

In the initial stages, the board comprises the first founders. However, as the startup grows, so will the team, which will include product developers, technical experts, and marketing strategists. Eventually, you’ll need capital, for which you’ll approach institutional investors, such as venture capitalists (VCs).

However, VCs in the current business landscape don’t just provide capital, but they are also strategic investors. Their funding criteria may include a board seat with voting rights, allowing them to impact the company’s future direction. Having a say in its operations and governance is also a priority.

Keep in mind that investors are concerned with maximizing their returns and making a profitable exit. Their funding decisions center around their fund’s lifecycle. It’s not unusual for them to push for a merger or acquisition deal (M&A). Or even an IPO if it aligns with their exit horizon.

These objectives may not necessarily align with your long-term vision for the startup. Or, the time frame for which you need investors to maintain their holdings. If that happens, investors may leverage their voting rights to oust you from the company. They may bring in a new CEO who shares their views.

Where Founders Go Wrong

Most founders make the crucial mistake of trusting their board members and investors, particularly when they’ve personally selected the core talent. Unfortunately, these are the people who ultimately execute the decision to vote them out of their position in the company.

Not Having the Documentation in Order

It comes down to the steps you’ve taken to secure your ownership stake and control over the startup you built. For instance, a robust operating agreement that outlines the appropriate share class you’ll own as the founder. This agreement should also specify your voting and decision-making rights.

From the time you establish the company, you’ll institute a company culture where the team understands how to drive the vision. You’ll trust that board members will carry forward the vision and collaborate with you to execute on it. Unfortunately, self-serving interests can cloud their judgment.

Given the opportunity, the board may choose to fire the founder if the move benefits them and their interests. This situation typically occurs when disagreements arise between you and the board. At this time, you should have the necessary paperwork that ensures you have the final say.

Not Building Trust and Rapport with the Board

Having a robust relationship with your board members and investors is critical. But remember that top-notch performance may not be enough to secure your position in the company. You can demonstrate impressive metrics, such as increased valuation, profits, revenues, and market share.

However, you need to do better. You’ll build trust with the board and your team. That’s how you can ensure their support when taking risks for the company’s growth or making difficult decisions. Having a rapport with them will ensure that you enjoy a long, unchallenged tenure at the company.

When you do exit the company, it should be voluntarily and on your own terms–through a strategic merger or acquisition. Or, when the company goes to an initial public offering (IPO). You should get the returns you deserve for the efforts you invested in the company.

Picking the Wrong Investors

Raising funding is crucial for scaling the company, but so is picking the right investors. One of the most important lessons for how to avoid getting kicked out of your company is to be wary of hiring people who prioritize their interests over the company’s.

Not all investors operate in the same manner; many are committed to the company’s long-term success. They are interested in supporting its organic growth and exiting through a timely acquisition or IPO. Look out for investors who push for maximizing short-term gains over long-term profits.

Investors who don’t understand how the industry operates and the possible challenges you’ll face are not the right partners. They may start to panic in the face of industry-wide hurdles and consider exiting.

Keep in mind that storytelling is everything in fundraising. In this regard, for a winning pitch deck to help you here, take a look at the template created by Peter Thiel, Silicon Valley legend (see it here), that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that founders worldwide are using to raise millions below.

How to Avoid Getting Kicked Out of Your Company – Steps to Take

The basic strategy for avoiding getting fired from your company is to always be prepared with the best defense. Complacency and blind faith are the worst mistakes you can make. Don’t assume it can’t happen to you–no founder is indispensable.

At any time, the board or investors can decide they need fresh perspective and talent to run the company. Your contributions, performance so far, and the value you bring won’t matter. A single bad decision or outcome can put you in a precarious position.

What you need is ironclad documentation, set down in writing. Read ahead to understand how.

Draw up the Paperwork

The right time to secure your control and decision-making rights is when you establish the company. Ensure the articles of association include the necessary clauses that prevent board members from overriding them. Apple’s Steve Jobs learned that the hard way. Here’s what you can do:

• Work with your legal counsel to include provisions that protect your equity, ownership stake, voting rights, and control.
• Clearly specify the good leaver clauses to secure your rights, whether you choose to leave the company voluntarily or involuntarily. Design the founder’s vesting schedule to ensure you get substantial compensation, which can deter hostile takeovers.
• Ensure that you own adequate super-voting shares or multiple-class shares. These are a type of stock that assigns you significantly more voting power than other standard shares or stock. This strategy enables you to maintain control over corporate decisions. Even if the company issues more shares and the overall ownership stake is diluted, you’ll secure your position.
• Get irrevocable board seats in the company to protect founder representation.
• Institute restrictions on who can purchase the founder’s shares. If the company’s bylaws prevent third parties from purchasing your shares, that’s an added layer of protection.
• Include clauses that outline how disputes will be resolved in the event of disagreements between the founder and the board. The clauses should specify who has the final say.
• Clearly outline the founder’s exit pathways and how your involvement with the company comes to an end.
• If you’ve established the company on the basis of intellectual property (IP) you created, that can be leveraged. Typically, IP ownership transfers to the company, which is a separate legal entity. However, you could retain ownership of the IP, which prevents the board or hostile third parties from kicking you out.
• When adding non-compete clauses, you’ll design them to work to your advantage.

Do the Necessary Due Diligence When Choosing Investors

While investors are careful about investing in companies that demonstrate the potential for maximum returns, the reverse is also true. Founders should be cautious about the investors they bring onto the board. It’s crucial that you work with people who understand your vision and will support it.

Select investor-mentors who will offer you the necessary guidance when the company faces challenges. Look for veteran founders who have built companies within your industry and can provide you with sector-specific advice. They also have a better understanding of the potential challenges.

Thus, you can rely on them for bridge loans and non-monetary support with additional resources that are invaluable. You’ll pick success partners, not people who’ll oust you when the going gets tough. Don’t hesitate to reach out to the founders and companies they have previously supported.

Have candid conversations with them to find out how the investors reacted during crises and hurdles. Did investors offer founders support and guidance? Or, did they threaten to pull out or demand perks to offset some of the risks they were facing? These answers will help you pick the right investors.

Additionally, consider selecting impact-driven investors who are committed to giving back to the community. These entities are less likely to engage in corrupt and underhanded dealings. You can also rely on them to align with the company’s values and mission statement.

Do the Necessary Due Diligence When Selecting the Board

When selecting board members, consider individuals with whom you have a working relationship built on complete trust. Make sure you know them personally, but also keep a close eye on their activities. Checking their credentials and laying down expectations beforehand is advisable. Here’s what you need to do:

• Draw up contracts for their tenure in the company, complete with roles, responsibilities, and positions. Specify their voting and decision-making rights, as well as the scope of control they can exert.
• Institute a company culture with a non-negotiable code of ethics that everyone in the company must commit to. There can be no compromises when serving customers or the mission.
• Before bringing in investors, ensure that you appoint directors to fill the main board seats. This strategy will leave few openings that investors will want to fill.
• Be cautious about allocating board seats to incoming investors. Balancing seats against their risk is important, which is why you’ll assign seats to the lead investor. Don’t overlook the option of offering positions as board observers to investors instead of a director.
• Establish a rotating tenure for board members, particularly those not directly involved in core operations. This approach enables you to avoid reappointing them if their performance is deemed to be subpar. Or, if they pose a threat to your position.

Move Swiftly When You Suspect a Coup

Now that you have an overview of how to avoid getting kicked out of your company, you should also understand how to handle sticky situations. If you suspect an imminent board action, act swiftly. Get your defenses and allies–investors and board members–ready to counter the move.

Leverage the company’s bylaws and articles of association you’ve established to rebuff the decision. Most importantly, never sign any papers under pressure. Request time to reconsider the offer to step down and consult your legal team for guidance. Don’t make the mistake of getting intimidated.

Don’t hesitate to file a lawsuit to secure your position. This move can give you additional leverage, as investors and customers often hesitate to deal with a company embroiled in litigation. Board members seeking to oust you will have to rethink their decision.

As the founder, you should know how to avoid getting kicked out of your company. Be ready with practical strategies that can secure your control and ownership over the company. Act quickly when you see a threat to your position.

You may also find our free library of business templates interesting. There, you will find every single template you need to build and scale your business completely, all for free. See it here.