Toxic and dying startup – want to split off and start from scratch. Unethical?

This is pretty edge-case and controversial for sure, I hope you will have some sympathy for my situation despite the slightly bad intention of this post. I work for a startup, recently been promoted to management position. Ever since then I feel more responsibility towards the team and want to make sure they are happy.

Our boss is treating people like shit. He constantly fires people after short periods without a chance to settle in, employees old and new have anxiety and panic attacks, they’re afraid of him. I’m one of the few who don’t have this issue because he likes how I deliver work (I generally work more since I’ve tried to build a startup myself before, so I’m used to the hustle – he expects too much from the rest of the team). These people are doing good work, they have a great mindset and given the right management they really produce wonderful work. I’ve kept people he wanted to fire that admittedly did not perform as much as wanted but after taking time to get them in the right direction they now perform great and people love their work and their engagement for the company is great.

Instead of empowering people and shaping them to become great employees he constantly fuels fear in them. He ridicules and insults employees in front of other people and tells other new people that previous employees are idiots and puts the blame on them rather than his incredibly inhumane behavior. Some of the shit he’s done with people is really beyond being ok, this is shit that would get you sued in other countries (we’re an Asian startup, employee rights are not as strong as in other countries).

I’ve had enough of it, so have a lot of great people that are still with us who are pretty anxious because of the culture. I am starting to have sleepless nights because I know how my teammates are feeling and I can no longer live with this. I am having a hard time that I am working so hard and trying so hard to make people feel ok when he’s the root cause of it and it won’t change. Our startup is on the brink of dying, we barely have traction and are burning cash like crazy. We have recent investment, however we have some major red flags in terms of transparency. We don’t know how much has been raised, who are our shareholders, we don’t know our burn rate, etc., our investors don’t even have proper financial statements and our boss is paying out of his own pockets.

I am sick of this. We have lost really great people because of him because he is unable to appreciate and manage people for success. We still have great people that soon will be kicked out as well. There are people that will not be kicked out but nevertheless are scared and looking for other options.

There are a lot of people that believe in me (kicked out and current employees) and are willing to follow me into a new venture, to do a similar startup from scratch with a better company culture. We all have non-compete agreements of course, however we would maybe venture in a slightly but still very similar startup. I know that with those great people we can outperform our current series A startup easily in 3 months in terms of traction. I have no doubt that we could properly execute our vision in a short amount of time. Getting some seed funding wouldn’t be an issue for me, I know people.

The question is: Is this unethical? Is this ok? Am I being unreasonable? Am I a dick? I don’t see any way to resolve this issue with our CEO – I’ve tried to talk sense into him but he doesn’t take me or anyone else serious. He thinks it’s no big deal. I can’t accept it anymore and I can’t look away. Today one of my employees was crying, I was talking to her and she couldn’t cope with this anymore – and she’s one of the tougher people at the company!

For clarification I am not a co-founder. There’s only one founder, the CEO. I’m just an employee.

  • Not unethical, but hairy given non-competes. If all of what you say is true, you really don’t have an ethical dilemma. Just talk to a lawyer and get on with it if that’s what you want to do.

  • Don’t let misplaced loyalty hold you back. I wouldn’t even worry about the non-compete. A company that’s being mismanaged and that is running out of money fast can’t afford to enforce it anyway.

    • That’s a great point … especially if it’s a number of employees at once. Company would likely threaten, but anything more than that would cost more money than it’s worth, or than they have.

      Go for it OP

  • I wouldn’t do it. Too many red flags with all the non competes.

    Also, you have no idea what it is like to run a business until you have done it. Simply being a good manager is not enough.

    I’d suggest you leave and find a new place to work, or an idea unrelated to your existing startup

    • Let’s not pretend that running a business is rocket science. There isn’t a background in this world that unqualifies someone from becoming an entrepreneur.

      OP, if you understand the space and the buyer needs, you’re more than prepared.

  • Go for it. If you can raise seed money and get traction in 3 months, then do it.

    I would worry more about what the existing investors in your company will do, not the current CEO (who won’t have much say-so and would look like a failure). If they are big-players, they may be able throw roadblocks in your way (threaten big lawyers, call up your seed investor and scare them, bad PR, etc).

    If non-competes become a serious issue (which I doubt they will, even in US you need lots of money and high-priced attorney to enforce), then you can always sell/merge or even buy-out your current CEO & Shareholders.

    Or, maybe pitch it as an Ultimatum to your CEO (ie: Mutiny). We’re all going to leave unless you do this… Or you could call up your largest shareholder and express your concern. There is no right answer — too many variables to know which will turn out best in the long run, but clearly you need to do something.

  • Depending on the country non competes may be unenforceable either through legal statutes or simply red tape. Best consult a lawyer.

  • Assume you get past the legal hurdles, there’s a lot of emphasis placed on products vs sales. Most anyone can build a product: sales and distribution is what makes or breaks a company. Does the current company own the market, or have a lot of customer respect? That can prevent you from reasonably succeeding.

  • Definitely do it.

    Find a way to reframe your experience with this start-up to support your vision to create your own company. E.g. “After working in the space for X years, we saw a customer need and opportunity to focus on whatever, so began this venture to do just that”

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