Then I grinned and added, “How much money do you need to turn this into a real company?” I thought Ryan’s software would be a good investment for Simply Audiobooks. As Chairman and COO, I had a lot of latitude to operate, so without consulting my partner, Justin, I suggested to Ryan that SAB could invest in his fledgling company, which he had dubbed Fusenet. He could work out of spare SAB office space, and we’d be able to contribute marketing services, provide business contacts, and importantly, pay him a salary.
Ryan was excited by the prospect, confessing to me, “My wife cried for three days when I told her I wanted to quit and start my own business. She’s really happy that SAB’s going to help us out.” He was a little worried, though, about SAB’s intellectual property rights with respect to his software. His contract with SAB gave us the rights to any invention done on company time with company resources. I wasn’t concerned; he’d always done his job in marketing, and I knew he wasn’t working on the video search engine on company time. Always supportive of entrepreneurs, I suggested I could sign a waiver of the IP rights with regard to the search engine. Ryan gratefully accepted the document that guaranteed him the rights to his own invention.
With Ryan’s tentative agreement on SAB backing his project in return for 50 percent ownership, and a tentative valuation of ten times what he’d been offered earlier, I showed the software to other executives at the company. The CFO and director of operations were both impressed—in fact, excited. I eventually showed it to Justin, but he wasn’t as astounded as I’d expected. Despite my explanations of why it was such a leap forward over other technologies, he felt it would be a distraction from Simply Audiobooks’ focus on audiobooks.
I refused to let the issue drop, and it culminated in a late-night phone call with Justin. “Justin, this thing is going to be huge. Our growth is stalled, and it’s a chance to diversify our revenue.”
“He’s just a twenty-four-year-old kid working in marketing,” Justin responded. “He’s not a software developer. You really think he’s smart enough to make this work?” I said, “Maybe not on his own, but with our help, I think it could work.” Justin responded with a clean “No, we’re not going to do it.”
Just like years earlier when I’d tried to hire Kevin at Novatel, I had gone ahead and made an offer without adequately clearing it. Now, as then, my cheeks turned red at the prospect of telling Ryan we wouldn’t be supporting him after all. I refused to let it drop and began to pester Justin. “Give me a good reason why we shouldn’t do it!”
Eventually Justin raised his voice and said, “I’m not a technology guy. I don’t want to invest in a product where I don’t know what the developers are doing. If you like it so goddamn much, why don’t you invest in it?”
“Okay, I will!” I retorted, despite not having the funds to do so, and the call ended.
The next morning I relayed the story to the other executives, and they decided to approach Justin as well. Justin reluctantly relented, saying to me, “Everyone but me thinks this is a good idea. Go ahead and do the deal. Just don’t spend too much energy on it.” But by then I had spoken to my father about investing in the company with me, and I was assured that I could fund it on my own. I worried that Justin’s weak support could impair the new company, and I also thought that his challenge to me on the phone absolved me from any responsibility I had to Simply Audiobooks to give them first crack at the investment. I declined Justin’s offer, and he didn’t object.
With my own funds, and the help of my father and a few friends, I raised $250,000, and Ryan and I became equal partners in the new venture. Our objective was to create a nice little lifestyle business for ourselves, and we set a target return of $100,000 a year income each.
---
As Fusenet launched and grew, the situation at Simply Audiobooks continued to deteriorate. In September of 2007, we needed a formal strategy session to determine where Simply Audiobooks was going, and the executive team settled on Amsterdam for a weeklong offsite. Justin’s statement to the team was, “It’s not extravagant. We’ll rent a house instead of staying in a hotel and buy groceries instead of eating out.”
“And it doesn’t hurt that a few of you smoke the occasional joint,” I commented. There was enthusiastic agreement around the table, and the flights were booked.
A few weeks later, we were enjoying ourselves with sightseeing at night and filling flipcharts with strategies and budgets during the days when our CFO, Don, received an e-mail from our controller back in Toronto. Our 2008 budget forecast was off—a closing balance had been incorrectly carried over from the 2007 results, and the bottom line was that we had $300,000 less in the bank than we thought we did. Justin was furious, saying to Don, “How could this happen?”
Don calmly replied with his second favorite philosophical comment: “It is what it is.” (His favorite comment was, “It’s not like building power plants in the Amazon,” which applied to everything from urging on the guy ordering in front of him at Subway to getting consensus on our annual budget.)
We cut our trip short and flew back to Toronto immediately. Within twenty-four hours of landing, we’d drawn up a plan to cut costs dramatically, including the laying off of one-third of our thirty-five-person headquarters staff. At a hastily called board meeting, Sergio immediately asked, “So what’s going on? Are we finally selling the company, or did you guys screw something up?”
Justin responded. “Sorry, the business just hasn’t been growing the way we’d all like, and we had to take action. We’ve laid off twelve people, and we’re forecasting breakeven for the year.” He didn’t mention the math error.
Justin’s uncle on the board commented, “Justin, I think I speak for all of us on the board in saying that the situation’s unfortunate, but at least you’re taking decisive action. That’s the mark of a good CEO!”
Even with the “decisive action,” the company failed to do any better, and a few months after the board meeting, both the CFO and director of operations left, realizing there wasn’t a strong future. By the end of April 2008, our situation was put in stark perspective by a team of MBA students from the Schulich School at York University doing a case study on Simply Audiobooks.
SAB’s primary business model and revenue source is renting CDs, and the alternative online download market is monopolized by a coalition of heavyweights the likes of Audible, Apple, and Amazon. Considering this future, SAB is most certainly now near the peak of a declining product and rental market. In parallel with the golden rule of investing—“Buy low, sell high”—SAB’s best strategy is an early exit from this industry to realize its value now, while the times still seem good.”
Right about then, I was pretty happy I was involved in Fusenet as a side project.
DAMMIT, YOU GOT FIRED AGAIN
My original intent had been to fund Fusenet and provide some advice but not get involved operationally. I didn’t stick to that plan, and while things deteriorated at SAB and grew at Fusenet, I got more involved in both, working long hours at both Simply Audiobooks and at Fusenet.
Along with providing advice, I also began managing Fusenet’s customer forums, posting answers to customer questions as well as comments on other posts. I found it to be fun work, and like all of my activity with Fusenet, it could be done outside normal working hours, so it didn’t interfere with my responsibilities at Simply Audiobooks. I was clearly pushing the boundaries of my SAB employment contract, which stated that I could have only a “casual” level of involvement with outside ventures; but I wasn’t concerned because I was also spending a lot of time on Simply Audiobooks during the days, and I thought I was doing a good job of keeping the two separate.
One night, lying in bed with my laptop propped on my knees, I was scanning the day’s financial results for Fusenet, and my wife leaned over and asked, “What are you doing on that laptop every night?”
“Making money,” I replied.
She rolled her eyes. “I didn’t marry you because you had money.
Turn that thing off, and go to sleep.”
I paused, took a deep breath, and responded. “Babe, give it one year. One year and I’ll stop doing all this extra work.”
She pointed at the computer and said, “Okay, I trust you. You have one year. Then I want you to stop working so hard, and we can enjoy life.”
---
Fusenet grew well through the winter, and by spring of 2008, it was humming along nicely and things at Simply Audiobooks had stabilized post-layoffs with some profits. But then on March 10, Sergio, former employee, former board member, and unfortunately, current shareholder, sent an e-mail to the Simply Audiobooks board, outlining in great detail what he knew about the depth of my involvement in Fusenet and asking the board to take action for perceived violation of my employment agreement. Only two months earlier, Sergio had asked at the annual general meeting of the corporation whether I was involved in anything worth mentioning to the board, and I had responded, “No, nothing worth mentioning.”
At a hastily called board meeting, the chairman asked me directly, “Sanjay, Sergio is making some troubling accusations. Have you been working with this other company?”
I tried to minimize my involvement, saying, “Yes, but I’m just an investor. I’m allowed to make outside investments aren’t I? Besides, Justin knows all about it.”
Sergio leaped into the conversation, waving a thick wad of papers. “Just an investor? He’s spending all of his time on this other business. Here are over three hundred posts under the name ‘Sanjay’ in the Fusenet customer support forums!”
I had no adequate response. I stumbled through, “Well, uh…I’m a fast typer, and it really didn’t take that long,” while the board members all stared at me.
Robert, the largest investor, said, “You guys should be focused on your own business, not incubating other businesses. Justin, did you know about this?”
Under the disapproving gaze of his uncle and the other board members, Justin started to turn red. “Well, technically I knew about it, but I had no idea he was spending so much time on it.”
“What?” Robert exclaimed, incredulous. “You guys discussed this, and somehow it never came up at a board meeting? We weren’t given the chance to evaluate the technology ourselves? This kid—what’s his name? Ryan. He stole from us! That technology belongs to us!”
I objected, saying, “Well, technically it belongs to him. He has a signed release from Simply Audiobooks giving him the rights to it.”
Robert exclaimed, “Unbelievable. Who signed it?”
In a subdued voice, I mumbled, “I did.”
Robert immediately went apoplectic, yelling, “You had no right! I’m an investor in this company, and you’re giving away my money!”
A board committee was formed, and over the following two months, all my non-Simply Audiobooks activities were investigated. As it became apparent that Simply Audiobooks had been presented with the opportunity to invest in the new technology, the legality of the waiver of ownership was safe. The only question to answer then was whether I had personally acted against the interests of Simply Audiobooks.
---
After a series of negotiations with the board, I agreed to substantially cut back my outside activities, completely removing myself from involvement in other investments, but Fusenet was a sticking point. The company was at a fragile stage, and I felt that abandoning it now would be damaging. In a new, customized employment contract, I held firm in my belief that I was invaluable to SAB, and I insisted on an exception to the casual outside interest clause, to let me continue to assist Fusenet as long as I was seen as doing my job with SAB.
The members of the board saw my stubbornness as a childish desire to have my cake and eat it too, so after an acrimonious board call, a motion was proposed to remove me, and it was carried out a month later. On August 29, 2008, the company I had cofounded—of which I was still the largest shareholder—fired me.
Going home that night, I called out to my wife, “Hi, Babe, I’m home! And I have some news.”
She spoke up from the family room. “I have some news too! You go first.”
“Well, remember how I told you a year ago that I’d only be doing this two-company thing for another year?” She nodded, and I continued. “Well, I kept my promise. I just got fired from Simply Audiobooks.”
She gave me a big grin. “That’s great!”
“I just got fired,” I said, taken aback. “Why aren’t you upset?”
She replied, “I’m not worried, I know you’ll figure something out.” Then she hugged me and whispered, “I think I’m pregnant.”
---
September 9 2008, 10:18 p.m.
To: [email protected]
From: [email protected]
Subject: Fare Thee Well
Years ago, when I was just a young pup, I met a figure skater in an Indian restaurant in Mississauga. I turned down his offer of free skating lessons and a used leotard, but we did end up going into business together. This entity we created has given me five years of thrills, new friendships, incredible learning, fun, and free audiobooks…along with a few too many spreadsheets, sleepless nights, a heart attack, and Sergio.
It's been a great adventure, just like we promised in our original job postings. It's time now for me to head off on new adventures, but the memories of SAB will always be with me. From drunken nights at a racetrack in the snow to drunken days at the House of Wings; from Ping-Pong to Risk to Guitar Hero to NHL '08 and my brief, half-day possession of the office Stanley Cup; from a dingy eight-hundred-square-foot walk-up above Adam's Rent-all to a less dingy, slightly leaky eight-thousand-square-foot office in the burbs; from our first $10 spent on Google Awards to a $50,000 George Bush billboard and death threats; from a rented library meeting room to our executive “strategy sessions” in Vegas, Montreal, and Amsterdam…wow. This has been a rush.
So, to the people from the early days who've made the journey with me—Justin, Pete, Vitaly, Joy, Jen, Shamir, Sharron, and Lee—to our fallen comrades and to everyone else who has made this such a great experience, thank you. I've had a great time, and all of a sudden these past five years feel like a blur. I'll miss you all, and even when I'm in the building, I'll miss the good old days. Wave to me when I come in for board meetings, and keep your voices down as you tell newer staff who I am. I don't need to hear that sort of thing.
YOU’LL SHOW THEM
Despite the happy news about the pregnancy, I was still angry and embarrassed that I’d been fired yet one more time. In Canada, most employment contract restrictions are unenforceable because they’re seen as limiting an individual’s right to make a living. I thought I could sue Simply Audiobooks for restraint of trade or even a human rights violation. After all, I was doing a great job as COO, and it shouldn’t matter to the board if I was doing something else in the meantime. I complained to a lawyer friend, “If Pixar’s board could allow Steve Jobs to be interim CEO of Apple while running Pixar, letting me post some forum responses for Fusenet didn’t seem like a big deal.” He agreed and gave me a recommendation for a good employment lawyer.
Three days after being let go, I went to the office of James Hold, armed with the board recommendation, the actual firing notice, and the indignation of the righteous. James, a thirty-something lawyer sporting stylish eyeglasses and a tan suit, beckoned me into a conference room and asked, “So how can I help you?” I handed him my stack of documents then sat down and calmly said, “I was fired from the company I helped to found. I’m still the largest shareholder. What should I do?”
As he sorted the documents, James asked me, “Well, what exactly do you want? It looks like they’re giving you six months severance, which seems reasonable. We can probably threaten them with a lawsuit to ask for more, but it would just be a threat. I don’t think you’d win in court.”
I couldn’t imagine getting substantial severance in a settlement—the company didn’t have that much cash. Until that point, I just had an
unfocused, general anger against the company, not a specific plan. After thinking about it for a moment, I said, “Okay, if I can’t get a bigger severance payment out of it, can I get them to buy my shares and let me just walk away?
He shook his head. “Buying your shares is a pretty extreme remedy, and no court is going to give you that outcome based on this contract.”
I sat back in my chair. My thoughts ranged from getting a second opinion to just walking away and forgetting about it. Then James interrupted my thoughts. “But I may have an idea. Can you run through the details of what’s happened up until now?”
I explained the whole sordid story, from the gradual movement of the board in Justin’s favor to a glossed-over version of my role at Fusenet to the failure of negotiations to separate my SAB and Fusenet activities. He rubbed his chin and said, “Well, there’s a concept called ‘Shareholder Oppression.’” He proceeded to explain the general notion, which was that if you could prove the majority of shareholders had conspired to deprive a minority shareholder of his rights, or reduce the value of his shares, then that was legally actionable. I asked what he meant, and he said, “You can sue them.”
James continued. “The real power of the oppression approach is that not only can you sue the company, you can sue the individual board members and shareholders who are conspiring against you, and they can’t hide behind the shield of the corporation and its directors and officers insurance. It has criminal liability implications—not just civil. I just don’t know that you have a case.” James paused and then asked, “Do you want a referral to a litigation firm?”
I smiled and, in the voice of a child who’s just been asked if he’d like some ice cream, enthusiastically answered, “Yes, please!”
---
Two days later, I walked into the fiftieth-floor offices of the firm of Dewey and Howe*, wearing a nervous smile and my best charcoal gray suit. As a pretty blond receptionist showed me to a conference room with a spectacular view of Lake Ontario, I began to question the wisdom of my course of action. How much was this litigation action going to cost me? The warm chocolate chip cookies I was offered didn’t do anything to dispel my fears, but I took two anyway and inhaled them as I waited for Loreta—the partner to whom I’d been introduced via e-mail—to arrive and tell me whether or not I had a case.
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