Honor Customer Commitments To Avoid Poisoning the Well

“In a small way, every talent acquisition poisons the well for future, bootstrapped startups. It erodes the confidence of users and potential customers. People put their company blog on Posterous, they add their business to GoWalla, they gave AdGrok a few hours of their time, etcetera, etcetera.

I’m not saying I would turn down the offer. But I fear the long-term effect of all these acqui-hires is my potential customers saying “No thanks. I doubt you geeks will be around in 18 months” when I market to them.”
Erik Dungan (HN: callmeed) on “Posterous Acquired by Twitter” HN Thread (bold added)

An acquisition hire means that the original service is shut down or turned into an open source project but no longer maintained by the founders.  In a thread on the Google acquisition of AppJet (EtherPad) on Hacker News  commenter pvg nicely summarized the moral hazards in the transaction:

Any early-adopter of a start-up product accepts the risk that the company behind the product might be unsuccessful. Customers like that bet, in part, on the notion that despite the statistically long odds, the company is making every conceivable effort to stay alive and succeed.

The ‘buyout-and-the-product-dies’-type exit introduces a sort of divided loyalty and misalignment between the goals of the founders and the goals of their customers – if you’re unsuccessful you might fail and we might suffer an abrupt service termination but at the same time, if you’re quite successful, we might also suffer an abrupt service termination.

My observation on HN at the time was based on the original announcement that the service would be shut down within 6 weeks.

If only they had interviewed at Google and joined the team they wanted to be on a year ago.

These transactions trade on the goodwill of early adopters. And they make it harder for other startups as potential early adopters start to assume that it’s better to wait for what Google releases instead of investing time in a product that will be scrapped either if the company fails or is successful and acquired.

[Given that many of the AppJet team came from Google] My point is that if they wanted to build their own company they should remain committed to the product they built, and find a better support model for current customers/users than shutting down without notice. I do not begrudge them making money at all.

But one reason that they have “millions of dollars worth of Google stock” is because they offered a service that people adopted and paid for. I think they have more of an obligation to customers and users than the initial announcement indicated and I worry that not taking better care of customers in the transition makes it hard for other startups.

Google ultimately relented and open sourced the code, with this announcement currently archived on etherpad.com )

Google recognizes the value of the EtherPad code base and has released the code as open source. For more information, see  EtherPad project on Google Code & EtherPad discussion group

This open source release has already led to many efforts to foster further development and provide EtherPad-like services. If you are looking for a service based on the EtherPad software, or want to run your own EtherPad server, see the following links (not affiliated with Google, use at your own risk):

• PiratePad
• TypeWith.me
• Sync.in
• EtherPad Foundation

This is not an “aint it awful” post.  It’s a suggestion to take care in the commitments that you make to customers, especially early customers who help you create your brand,  so that you honor only honor the letter of any agreement but also the spirit.  If the opportunity to solve customer problems does not get you up in the morning it’s unlikely that a “big bag of money” will let you move to a better lifetime.

More fundamentally, as I wrote in “Overnight Success”

1. If you define success as making a lot of money quickly you should go into sales and cut out the middleman.
2. You can buy one lottery ticket and make a lot of money. You can buy many lottery tickets every day of your life and never recover the cost of your lottery tickets.
3. Most of the time the opportunity for “overnight success” is sold by folks who are interested in making a profit on your dreams without actually fulfilling them.
4. Of all the sources of funds for an early stage venture, revenue is the most compelling demonstration of traction. Too many entrepreneurs view fund raising as an accomplishment in and of itself.

The challenge with a startup–like many other things in life–is that you need to integrate many different inputs, your own hopes and fears among them, and negotiate a working consensus with your co-founders, suppliers, partners, and customers to be successful.

Related Post Wed-Mar-14 Reginald Braithwaite‘s post “Dear Landlord” closing paragraphs:

If I move in, I’m committing my business to your place. I don’t want to read a six-page letter telling me what a great ride it’s been and how much fun you had building this place and how much you’re getting to sell out, and oh yes, the loading dock is open 24 hours to help me move my stuff the hell out before you bulldoze.

Architecture models often have these tiny plastic figurines that look like people walking around. If I’m supposed to move in before you sort out your “monetization strategy” and “exit plan,” This isn’t an office and I’m not a tenant. It’s a model of an office and you’re asking me to be the plastic figurine sitting at the foamcore desk.

Thanks, but no thanks. I’m done with that.