Saturday, August 15, 2015

(The Big Disrupt) Zirtual: Why Zirtual Failed

Jason Calacanis: (in praise of Zirtual) “I think you’re sitting on a powder keg”
Maren Kate Donovan (founder and CEO of Zirtual) : “Thank you”

It was only a week ago that serial investor and This Week In Startups host Jason Calacanis (an investor in Zirtual) was singing Zirtual and its founder and CEO Maren Kate Donovan’s praises on his show but now it must be painful for Calacanis to watch that episode back as he gave a glowing appraisal to a company that stopped operations and was quickly acquired just days after the interview.

Calacanis, not exactly one to pull punches, was relatively Zen addressing the Zirtual implosion during his popular fan Q&A called “#askjason” (see the video below this article) choosing to look at the situation as something for him to learn from but it’s hard to imagine the man who put YouTube on blast while presenting at a YouTube conference not losing his shit on Zirtual’s founder and CEO via Go To Meeting.

Being a fan of the show, I found it painful to watch back myself as Calacanis went from one superlative to the next about the company, its CEO, and particularly it’s potential for growth as Calacanis tipped the company to reach “unicorn territory”.

While Zirtual’s implosion may have left Calacanis’s face red with anger and a little bit of embarrassment after investing in the company, the 400 employees of Zirtual were left pondering their futures after they were let go by the company via email. However, in truth, they’re jobs were in jeopardy the moment Zirtual made the wacky decision to take them on as full employees with benefits and add an incredible 30% to their costs. This has to be the strangest decision any company can make as there’s no company on the planet, never mind a 5 year startup planning to scale, that’s prepared to add 30% to their costs and risk their margin or, in Zirtual’s case, eliminate it.

Zirtual broke the cardinal rule that established companies and startups in their market live and die by: never make contractors employees. Very few companies who use contractors extensively can take all or even some of them on as full employees and Zirtual, unfortunately for them, weren’t an exception to the rule. Even Uber that’s currently worth $50 billion are scared to death of any court in the countries they operate in recognizing their drivers as employees as they simply can’t cover the costs as, according to a number of reports, they’re already losing a ton of money as it is.

While Zirtual may have got their numbers fatefully wrong, what they got right was building a service clients loved and their employees loved to provide which few companies can say about their business. Wil Schroter, CEO of (the company that bought Zirtual) paid testimony to the commitment of the Zirtual staff as he revealed that some of the staff is working without pay to keep things going and commented on their passion for the business as he said ““They’re crazy passionate. ... They love what they built.””[1].

A company with this much good will from its employees towards it (despite letting them go via email) can never die without a fight and, hopefully, under the, Zirtual thrives.

[1] C. Ghose, 2015,  Failed S.F startup Zirtual’s  fired employees are working for free to revive services: they love what they built’,

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