Earlier this winter Rasmus Dahlberg of the Odense-based publishing house Det Historiske Hus asked me ‘why we had founded an association and not a company?’. I answered something to the meaning that the association was much more flexible than a formal business at this point, where we still needed to put together the right team, find investors and expand our network etc. I also told him, that I wasn’t sure if our leadership and organization was in place etc. All these things were true enough.
A few weeks later the association exploded in my face. As a matter of fact, I did see it coming, but, I’m sorry to say, didn’t react swiftly enough on the early symptoms and gut feeling I had. I didn’t realize our differences would escalate into open conflict. Instead I nurtured the vain hope that our differences and different backgrounds would only make Kaplak stronger. Now, the association is no more, and has been replaced by a regular for-profit company. And this is all for the better.
For a long time I have wanted to elaborate on the background of these developments here, but have held back, because I’ve dreaded the painful aspects of reliving the conflicts we had. Yet I know this is something we need to be open and talk about. We want to create an open business, which dares be vulnerable too and openly show what the process of building a company like Kaplak entails, even when it’s rough. It also may allow other startups to learn from our experience.
Last and not least I hope and think that this article may also be part of our internal healing process, which we need to cater to – before we shoot ahead into our bright future.
What went wrong with the association?
The Association of Kaplak Investors (Kaplak Investorforening) was founded on October 15th 2007 by Morten Blaabjerg, Jens Wellejus and Jesper Böttzauw.
We chose to found an association because we believed it would be more flexible and better able to expand the circle of ressourceful people around the project, as well as attract further capital. We needed candidates for several key roles on the team, as well as more capital to create the company we wanted. The association was a method for hooking up our different professional networks, which would help provide the team members we sorely needed, while we jointly saved up cash for a ‘real’ company.
All this was very good in theory, and this idea may indeed have spawned such an outcome, if we’d been a larger circle of people to begin with, with a higher willingness to lay down real money on the table. As it was, it relied too heavily on too few members to invest in the company, as well as lobby and activate their professional networks to also invest and become members of our association. And it relied (too) heavily on information sharing between members, about activities, valuable contacts and potential customers in our networks, and between the association and new investor prospects.
In return for this, all members were given equal influence on proceedings, in their vote and electability for board membership, regardless of the value of their investment. This spelled trouble.
In fact, this choice of organization proved less than flexible. Formal proceedings became too great a mouthful for too few people involved, taking valuable time and ressources from more important tasks, i.e. developing Kaplak as a company. If the association was to work, we needed to work hard to expand it and nurse it, as much as we needed to work on Kaplak the business. At the same time, I had a growing feeling that my partners, albeit enthusiastic about the project, wasn’t so enthusiastic as to actually invest human money, or alternatively, spend more time to help attract and close further investments for the company, and in doing this expand the circle of ressourceful people connected to the project. I felt I was the only one working on the project, but without real ownership to my work, as it became the property of the association.
The conflict arose between Jesper and myself, with Jens in the impossible position as a mediator or taken hostage between us. There were deeper misunderstandings and differences at stake, but the point of conflict was our new wiki.
From the very beginning of Kaplak in the spring of 2007 an internal (and later public) wiki was a key element in Kaplak’s communications and information sharing plan. It was in the first business plan.
Now, when the wiki finally was online in late November, Jesper suddenly objected to using it, even when asked directly to do so. I found myself spending more and more time “persuading” or trying to trick Jesper into using the wiki. One key goal of the wiki was to abolish email as a knowledge sharing tool, yet I kept spending an increasing amount of time in one-to-one bottleneck email correspondance with my partner. This was frustrating, because we could have used all the energy put into emails and explaining back and forth to build our wiki at the same time. My point was then and still is, that there’s no saying “I don’t understand it” when you’re in front of something new, without willingness to dive in and try things out and experiment. Without this willingness to try new things you’ll never learn what it is. This goes for wikis in particular. As an experiment, I copied all of our correspondance into the wiki. In part, because I hoped to show, by example, that we could have this exchange in the wiki just as easily – everything readable and editable by anyone in our circle, not limited to two people. But nothing really happened. Jesper felt reluctant to share any details on his contacts and possible Kaplak customers in his network, although this sharing and connecting was in fact a key contribution of his to Kaplak by his contract. I didn’t feel he trusted me, my leadership or the company, and I slowly lost faith in him as a partner. These events were probably inevitable, given our series of misunderstandings, difficulties and conflicts of which I describe only some here.
In early January we had a very loud board meeting, which culminated with Jesper leaving the board. At this meeting I tried to demonstrate, that Jesper’s efforts didn’t amount to what he had said he’d deliver : leads and contacts. Jesper in turn said he had been talking to a lawyer about my ‘criminal act’ of copy-pasting our ‘private’ correspondance into the wiki, which he believed to be in violation of Danish law. This ended the meeting, as I can’t tolerate a partner who believes I am a criminal, and who had the audacity to discuss these alleged criminal offenses with a lawyer before considering the interests of the company. I can’t live with a partner who’d rather discuss my possible acts of crime with a lawyer, before he’ll contribute value to the company, do the work much needed, and learn to use the tools he’s been given to do so, and by all this protect his own investment in the company.
In addition, I could under no circumstances spend time arguing about any possible grounds for such accusations, because that would just even further lead focus away from what was important : building a great and durable business. To put it bluntly, I found the accusations ridiculous, but also revealing, in terms of how deep our differences struck in relation to Kaplak. Kaplak is a company and product based on technologies of sharing : open source, wikis, filesharing protocols, copy-paste, widgets which flow from platform to platform and so on and so forth. I couldn’t see my partner representing Kaplak in this sense, and this effectively terminated our business relationship.
It was the final straw in a chain of events which spelled out the need for simplifying things. The board was in effect put out of business, unable to legally enter into agreements on behalf of the association. I resigned as a chairman, although I continued to run Kaplak as a CEO, according to my contract for 2007, but without any certainty that my work would be authorized with a new contract for 2008.
Now I worked without any ownership to what I made. This was clearly intolerable.
One thing was sure. I didn’t want Jesper on the board, and I wasn’t very happy to have him as a partner. But it wasn’t any sufficient solution to simply replace one board member with a new one. The real problem, as I saw it, was that influence was awarded to any member of Kaplak on completely equal terms, regardless of investment or value contribution. As a majority investor, CEO and chairman, I technically had to refer to the board, i.e. myself and my partners, even though I owned much more of the company, than my two companions.
This in effect undermined any motivation for further investments in the company by members, as well as for inviting others to join the circle. This also undermined the authority and leadership of the association. Why invest in something you couldn’t be sure (theoretically) wouldn’t be led by a completely different group of people after the next general assembly? Why respect leadership among ‘equal visionaries’? Why work for and respect an assocation which claimed ownership to the company and it’s values, but wasn’t capable of delivering the ressources, it was created to facilitate?
Something needed to be done about this. If we kept going without abiding by the formalities of the association, we would just undermine the authority of the organisation even further, and risk undermining the entire project. We could try to get a stand-in for our board, to sign documents which would subsequently have to be approved by our general assembly. We could change the rules and demand cash investments from all members, in the hope that this would lead to a more responsible board of investors, who would be more careful about protecting their own investments. In other words, we could patch up things a bit and try to keep going until we acquired more members and investments – or until we were fed up with working for nothing, while our business suffered.
Or we could realize that something was wrong with our choice of organisation, at least at this level of Kaplak’s development. We could abolish it altogether, in spite of fears that it might not be very pleasant.
The association was designed to be difficult to abolish, and dissolving it meant to deprive present members of formal influence on the project, and carry over investments and agreements to a new company. As it was, I was the majority investor and only investor of capital so far, but this didn’t provide me with any special influence in the association, where the highest authority remained the general assembly. Two extraordinary general assemblies were needed to dissolve the association, each called with 14 days notice.
The first assembly took place February 21st, which was in effect an ultimatum to all members. To be square : put money on the table or lose influence – or alternatively, abolish the association. An ultimatum may not be the best road for dialogue, but I wanted to make sure the seriousness of the situation was manifest, and that this could not be sweettalked away. I also made it clear, that if we weren’t capable of electing a new board at this assembly, I wanted to dissolve the association. This in effect meant, that we needed at least one new member to sign up before or at the assembly, which made it hard to resist laying down the organisation.
I was the only attendee, which I took as another testimony to the malfunction of the organisation and as a time to wake up to the fact that I had chosen the wrong business partners.
On the other hand, it made things very easy. The association was formally dissolved at a second general assembly on March 10th.
The rebirth of Kaplak
Thus, we abandoned the association in favor of a regular for-profit business, which is the best thing that could happen for Kaplak. There is a re-established clarity of ownership and leadership, which is capable of reinstating confidence in the company. We can begin building income streams and develop Kaplak v1. We’ll do this by selling complementary products, i.e. products which complements Kaplak v1 and attracts the same kind of customers, i.e. somewhat web-savvy niche producers, who knows that they need to get out there with their product, but still has to find the best, precise, low-cost method and tools of achieving this.
To begin with Kaplak will be listed as a private single-person company. Under Danish law, there’s no capital requirements for this type of company. The new company honors the spirit of all agreements entered into by the association, with the exception, that A-shares will only be given to investors who invest a cash amount of a certain level in the company. Mikkel continues to be our hosting partner. As before, warrants will be effective when the company agrees to list as a private limited liability company (anpartsselskab), which requires a substantively larger amount of capital.
We’re also increasingly facing a choice concerning our communications strategy, which this blog post goes to prove. Open business and open communications is not just something you do when everything is running smoothly and there are nice things to report. If there’s something I hate it’s the superficial niceness of startups with only positive stories. This is not something which establishes confidence in my book.
In Kaplak we need to re-orient ourselves at a much more radical level of public openness. It may hurt our chances with certain investors, but then it’ll win us others who understand how we want to do business. The clear argument is that an open system can operate faster (no passwords to remember everywhere), grow bigger, be much more visible online, and invite readers as well as input to the company, at all levels of our activities.
If we want to attract the right people, we need to show a considerable openness concerning our challenges and problems too. And if we want to grow this market we’re in, we need to be daring enough to help others, who will also be our competitors. Because competition is a good thing. It helps you stay on your toes, and it sharpens ideas and business models. And if there’s something we need, it’s this. Smart people, capable of breeding and nurturing sharp ideas and business models.
On a related note, earlier this spring, I also shared these entrepreneurship lessons with How To Split An Atom, a great entrepreneurship blog written by Steve Spalding.
