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CEO Confidential: Sabotage!

My COO convinced my managers to take over my company.

A couple of years ago I started to build a management team for my then 5-year-old company, which had reached $3.2 million in annual revenues. I was anxious to ease out of daily operations and spend more time on big-picture activities.

I hired five managers to oversee various departments, and a few months later, I brought in a COO — someone who didn’t have as much technical experience as I would have liked, but who seemed to have a lot of people experience. I thought he would be the missing piece of the puzzle.

Was I in for a surprise! Within two months of hiring this COO, he convinced my five managers to join him in a coup to take over my company.

Strange things had been going on — quiet caucuses and secret meetings — leading me to suspect some sort of conspiracy. When I confronted the COO, he presented me with a letter signed by him and the five managers asking for my resignation. (I had given these six employees varying degrees of equity ranging from a half point to a full point that aggregately represented a 10% stake in the company. Although they lacked a majority share, apparently they thought they had the upper hand because they outnumbered me.)

After showing the letter to my attorneys, I filed a lawsuit against these employees — not to press charges, but as a declaratory action to establish that I was, indeed, the owner of the company. They filed a counter lawsuit — and spread rumors that I was mishandling funds.

I quickly won the lawsuits, but this has been the worst thing to happen to me as an entrepreneur — to have people whom I trusted turn on me so quickly.

My attorneys advised me to fire all six employees immediately. However, because I believed the five managers had been misled by my COO, I gave them all a chance to work it out, and one of them stayed with me.

Fortunately, the incident didn’t permanently hurt my business; however, I learned some valuable lessons.

As the owner, you’re the boss, and you should never let go of that authority. The answer isn’t to micromanage because you have to relinquish some control to grow. Yet you really need to know the people you put in positions of authority. In hindsight, I see that my mistake was acting too quickly. I was so frustrated with the management of daily operations and anxious to move on to other things that I brought on the COO too quickly. I might hire another COO, but not unless I have some history with that person — and a great deal of trust.

Today our company continues to grow with the new leadership, a better system of checks and balances, and a much more disciplined approach to management.