Assignment:
Nick Tostenrude and Dennis Mouton founded Enablemart when they were freshmen at the University of Portland to bring rehabilitation software-developed by Dennis's father-to market. Founded in 1 999 as Mindnautilus.com, and incorporated in 2000, Nick and Dennis soon discovered that their original business concept was not viable, and switched to making computers that were accessible to people with disabilities. This became a niche market to be served by Enablemart, which began marketing assistive technologies in 2001. Enablemart (enablemart.com) grew to become the world leader in assistive technology, with 14 employees and $9 million in annual sales in the United States, and a subsidiary in the United Kingdom (TechReady.co.uk), at the time of its acquisition by Manufacturers Resource Network in 2007. The path from the dorm room to the boardroom was not always smooth. Creating an advisory board with numerous industry pioneers went relatively well. However, Enablemart needed someone with credibility and access to capital. For Nick and Dennis, local entrepreneurial events provided networking opportunities and led to finding a candidate. Nick said, "We couldn't have asked for a better person to have in our corner." They found an individual who was older, appeared to have experienced success as an entrepreneur, and had a passion for the work. The next step was to secure an employment contract. The founders were pleased that the candidate offered to provide a contract that he had used previously. The contract was daunting, but Nick and Dennis trusted their new colleague. Nick later wrote, "We were a bit thrown back, but this individual seemed trustworthy because, after all, he believed in our idea. So we signed the contract and celebrated hiring our new chairperson." This new chairperson was active for a couple of months, helping to find an excellent CPO, and then he gradually stopped working and communicating with Nick and Dennis. Lawyers reviewed the employment contract and, after they st0pped laughing at how ludicrous it was, explained that the best thing to do was to avoid accomplishing the things that would trigger payouts to this individual. The contract included giving him a portion of stock with a non dilution clause, and an option that permitted him to sell it to anyone he wanted at any time. Whenever they raised capital, he would receive substantial compensation. There was no way to hold him accountable for poor performance because his job duties were so unclear. On top of all of these issues, rather than signing the agreement on behalf of the corporation, the founders had signed it personally. Instead of continuing to pursue the high growth strategy and raising significant capital as they had planned, Nick and Dennis again revised their game plan. They knew that investors would avoid them as long as the chairperson's contract hung over them. After two years of a slow-growth strategy, fueled primarily with funds from friends and family, Enable mart bought out the contract for $20,000 and terminated the contract, ending the protracted agony of their first executive hiring experience.
Case Study Analysis
1. Enablemart's founders created a board of advisors early in the life of the company. How might they have taken advantage of the advisors' counsel when hiring their chairperson?
2. Name at least three steps that Nick and Dennis could have taken to avoid the dreadful experience they had with their first executive hire.
3. What are the implications of signing an employment contract personally, rather than as a representative of a corporation?
4. Nick and Dennis sought legal counsel when their chairperson simply stopped working and they had to slow down their growth plans. Comment on how you think this affected them and the company.