Twenty years on, has tech learnt the lessons from how Facebook handled Eduardo Saverin's defenestration?

Twenty years ago, Eduardo Saverin was ousted from Facebook. The drama that unfolded became the plot of The Social Network, showcasing how Zuckerberg ousted his friend and business partner, Saverin, in an underhand manoeuvre.

The story as presented in The Social Network goes something like this: Zuckerberg engages in a power grab when Facebook receives $500,000 from angel investor Peter Thiel, prompting Zuckerberg to dilute Saverin’s share of Facebook from 34% to 0.03% as part of the deal with Thiel, without any other owner’s share being similarly diluted. Zuckerberg has Saverin’s name removed from the Facebook masthead and orders security to eject him from the party being held to celebrate the Facebook platform reaching one million users.

Facebook ultimately settles with Saverin in the ensuing lawsuit, as Zuckerberg’s lawyer advises him that a jury would otherwise learn about the sordid history of Facebook’s founding – which involved a proto-website on which Harvard students could rate the attractiveness of the university’s female attendees – and Zuckerberg’s callous behaviour towards his former friend, none of which is likely to go down well with the jury members.

The Social Network may be a fictionalised account of real-life events, and we cannot be certain of just how accurate Fincher’s film is in its portrayal of Facebook’s creation and the subsequent falling-out between its co-founders, but there are still salutary lessons to be learned from it 20 years on from this seminal moment in big-tech history. The question is, has the tech sector absorbed these lessons? Or are we still seeing history being repeated?

Clarity is crucial – getting it right from day one

One key aspect of the Facebook story as set out in The Social Network is that neither Zuckerberg nor Saverin are properly prepared for the huge success of their project, and therefore haven’t put in place any of the formal structures and arrangements needed to protect themselves and to clarify their own standing, roles, and responsibilities as their business experiences meteoric growth and the money comes pouring in.

Sadly, even today a lot of tech startups get this wrong. Especially where friendships are involved, it can be tempting to leave things informal, rely on verbal agreements and assume that everything can be ironed out with a conversation. But this is ultimately a dangerously naive approach and fails to serve anybody well when it comes to growing and safeguarding a business and reaping the rewards.

So, it is important to ask fundamental questions. Has the business been incorporated? Who in the core team is defined as an employee? What are their employment terms? How does this link to their rights as a shareholder? Is every shareholder an employee? And every employee a shareholder? How many shares will new joiners receive, if any?

With any tech startup, it is crucial to have these conversations from the outset, properly document everything and put the necessary formal arrangements in place so that everyone has clarity regarding their status and entitlements. This will help ensure the key players are properly protected. And if the business outgrows the skillset and vision of one of the individuals  who has been involved from the outset, as seems to have been the case with Saverin and Facebook, it is also critical for the business owner(s) to have an appropriate strategy for dealing with this difficult situation and ending their working relationship with the individual in question.

Managing such an exit often requires an emotionally aware and human-first approach that takes into consideration the feelings of the person being asked to leave and the impact their departure may have on the morale of the remaining team members, especially given the often tight-knit relationships within small startup businesses.

Sensitivity and fairness are the watchwords here, in order to avoid the kind of acrimony and financial ramifications we see play out in The Social Network when Saverin is unceremoniously defenestrated from the company he was instrumental in creating.

A common problem here is that many fledgling businesses lack the internal expertise to handle such situations appropriately, and act from an emotional rather than a professionally informed and grounded basis. This is why seeking external advice is so crucial.

Don’t spoil the ship for a ha’p’orth of tar

Another crucial lesson to be learned from the Facebook story – and something many tech entrepreneurs trip themselves up on – is that you shouldn’t cut corners when it comes to investing their own money during crucial growth stages.

All too often, tech entrepreneurs will spend months and years developing their brilliant idea and evolving it into what has the potential to become a viable and profitable business, only to have things turn sour on them by failing to spend appropriately on necessary HR additions.

You may need to take on new people in order to evolve your business, but feel that you can’t afford the money to pay them a salary and might therefore be tempted to pay them out of operating profits and cut them in for a share percentage based on performance. This is a false economy and can put a substantial part of your business in jeopardy, as you end up essentially giving chunks of it away by mortgaging your future success for additional human resources today.

Don’t leave your great tech idea open to being stolen

Another danger for tech startups is when they fail to properly document the scope and limitations of this new professional relationship, thereby potentially placing a cuckoo in their own nest: if you allow the individual in question to gain profound insights into how your business operates without putting the necessary contractual safeguards, such as protection against the misuse of confidential information, IP and non-compete clauses, in place, they might feel tempted to go off and replicate your idea for themselves and end up out-competing you. Just ask the Winklevoss twins.

Much the same applies when tech startups get to the point where they need external funding to take them to the next level: by going cap in hand to venture capitalists, you inevitably open your business up to third-party scrutiny, and it is therefore essential to have your intellectual property rights nailed down beforehand.

Yes, it costs money to get all the proper agreements and documentation put in place by an appropriately qualified and experienced solicitor – but this amounts to far less than the cost, both monetary and emotional, of becoming embroiled in one, if not several, lawsuits over IP rights.

And that’s a wrap

When setting up a tech business, it is very easy to get caught up in the excitement of developing your idea and focusing on its evolution to the exclusion of more mundane, yet ultimately equally important, aspects of being an entrepreneur.

As we can see when we watch The Social Network and learn the lessons from Mark Zuckerberg’s costly falling-out with Facebook co-founder Eduardo Saverin, it is vital to formalise and properly document roles, responsibilities and ownership stakes when you start your own business.

Entrepreneurs have to work very hard and take big risks to enjoy success – why put it all in jeopardy by not taking the necessary legal steps to protect your business and employee relationships?