Is it acceptable to cut an employee before going into Series A?

Hi fellow startupians,

I've recently gone into a venture with a friend. He is a business/marketing student, and I am a Comp Sci/Math/Econ/A million other things student.

Before we moved down to silicon valley this summer to work, we had planned to start at 50/50.

That was fine, but then we brought on another person who had some web development experience.

The thing is, come summer, he didn't really want to work on our application. My partner and I who were originally 50/50 each put in 40-60 hours a week into the project, and we feel he puts less than 10.

It's holding us back. He never signed a contract.

Ethically, what is the best move to continue forward? The web developer is responsible for some basic UI, our logo and brand design etc. It's not complicated stuff - I could do everything he has contributed in just a few days.

Yet, at the same time, he was there for the founding idea.

Do my partner and I owe him anything? Our venture is not even Series A yet, but between my partner and I we've already provided ~1.5k (a lot for us college folk) and he hasn't provided anything.

My partner and I are exceedingly frustrated by his lack of motivation.

Should we lay down the law? We think it's a brilliant idea, and every piece of equity is valuable. It should be hitting the market in a couple months.

We are filing legal stuff ASAP, but now is our last chance to include or exclude him.

Answers On Startups, what say you? Keep/Remove?

I deal with this issue all the time. The answer is yes, but how you handle it depends on the circumstances under which he is being asked to leave.

There are four situations under which a person can leave a company:

1. Fired for good reason meaning they aren't doing their job and were given the chance to improve.
2. Fired for no good reason meaning they were doing their job, but you just changed your mind about them.
3. Resign for no good reason meaning they left for their own reasons unrelated to the company and
4. Resign for good reason meaning the company changed in a way that basically forced them out.

In your case you have a guy who is not doing his job. If you have provided warnings to the guy and given him the chance to correct you have the right to fire him and take back his equity.

If you have not given him any warnings or chances to correct his actions then you are essentially firing him for no good reason and he should keep his equity.

This is a simplified explanation. I have an article about this on my blog: http://www.slicingpie.com/the-good-way-to-say-good-bye/ Also, your 50/50 split will cause additional problems in the future. You gave away half your company in advance, so now you have to renegotiate every time you want to change something in the company, like adding new people. In the future, use a Dynamic Equity Split which allocates equity on a rolling basis depending on actual contributions. I will send you a book I wrote on the subject if you email me at [email protected].

I have found Collins Good To Great book rule of thumb for firing very helpful, it is to ask yourself these two questions:

• Would you be happy if he came to you and say he is leaving?
• Would you hire him again if you go back in time with your current knowledge?

If your answers are yes-no you should definitely fire him.