Funding for startups

Ex-Employees Take Aim at Accordion

Like many telecom equipment startups, Accordion Networks Inc. has spent the last few months fighting for survival. It seems to have emerged intact, but not unscathed. Some of the measures it took have left a raft of bitter ex-employees behind and may land the company in court.

Accordion faces a California judge later this month who must decide whether to send the company to arbitration with a number of its former employees, who say Accordion management made promises it couldn't keep.

"Accordion survived on the backs of dedicated employees who were cheated out of back wages when Accordion finally got its funding," wrote Donna Fallin, an ex-Accordion staffer, in an email to Light Reading last week. She and others say Accordion strung employees along with promises that the sizeable pay cuts they took would be made up to them when the company got its next funding round.

She says she tried to get those promises in writing, but was put off by management. Then, instead of fulfilling its promises when new funding did come in, Accordion put Fallin and about 20 others out of work.

Accordion says it never promised its employees any back wages. When funding materialized, the company says, the executive team pleaded unsuccessfully with investors for a sizeable bonus to compensate workers who'd hung in there.

"No promises were made. We said we'd make a good faith effort to offer employees a discretionary bonus when funding came in, and we did that," says Michael Underwood, the startup's VP of finance. "It is true that the bonus we wound up giving was small... But if we hadn't tried this approach and asked employees to take cuts, we would have been out of business. A dead body's no good to anyone."

Accordion makes a service-aware switch designed to interact with metro carrier services from the basements of customer buildings. It competes against the likes of Xebeo Communications Inc. as well as a slew of larger players (see A New Optical Taxonomy, Page 10). When the telecom downturn hit, it didn't take long for the new company, started with high hopes in the summer of 1999, to feel the pain.

The company got about $22 million by May 2001. Maybe that's what compelled Telecommunications Magazine to choose it as one of its Hot Startups of 2001 (see http://www.telecommagazine.com/default.asp?journalid=3&func=articles&page=0106t5&year=2001&month=6&doct=cover%20story).

The heat didn't last long. Accordion was hemorrhaging cash. Accordion asked its 80-odd employees to move from salaried to hourly wages and take a 5 percent pay cut. In June, there was another cut of 25 percent. A sizeable layoff was also completed, bringing the headcount to about 40 by the end of the summer 2001.

During this period, employees say they met with management almost weekly and were encouraged to stick it out. "The main message was to keep working, keep working," says Jerold Blair, a former materials manager. "They promised back pay. They said funding was coming, and we knew there were field trials of the systems. We bought the story."

Blair says Accordion's CEO, Gautam Chanda -- a cofounder of Mayan Networks Inc. who also worked at 3Com Corp. (Nasdaq: COMS), Premisys, Intel Corp. (Nasdaq: INTC), and ITT), repeatedly told the staff they'd be compensated. "He often said, 'I will make you whole,' " Blair maintains.

Another ex-employee, Vandi Cooyar, who worked in accounting, says he was "absolutely" and "repeatedly" promised back pay when funding came in. "Put yourself in our position. No one would stick around for minimum wage."

Underwood says that far from promising employees back pay, he repeatedly made it clear to them the there could only be a discretionary bonus appeal, with no guarantees. "I went into excruciating detail." The Accordion team had contacted a labor lawyer to explore the options and did what they were told to do, he maintains.

Meanwhile, he says, Chanda was jumping through hoops to raise new funding and renegotiate the company's debt. He and his team also went to hourly wages and took pay cuts with the rest of the company. "I've refinanced my home twice to pay my bills. I'm making two-thirds of what I used to," Underwood says.

Chanda, who was traveling, was unavailable for comment today.

When $8 million in funding arrived early in December 2001, the employees thought they were home free. But the day after Christmas, most of them were laid off. There was no back pay, and many got their final wages at a rate of $6.25 per hour.

"They needed to show headcount to get their funding," maintains Vandi Cooyar. When that was completed, he says, the management proceeded to lay off people who had stuck with the company for six months at reduced wages.

Accordion management says it had no choice. At least half the new funding, the company says, was needed to pay debts that had accrued in previous months -- despite a renegotiation in which major creditors agreed to take a $150,000 payout instead of $6 million.

In the end, despite the best efforts of management to get a bonus for the loyal employees, Underwood says all Accordion's board could muster was a "few thousand" dollars, spread across the 40 or so who remained, half of whom were terminated at year end.

The cuts and terminations were lamentable but necessary to the company's survival, Underwood says. "I am sorry. But is it better to be dead or to have fought for your life?" he muses philosophically.

Underwood says stock options in Accordion, many of which went unexercised, will eventually be valuable. The company is on its way to better things, he asserts. There are new contracts with businesses in the hospitality industry. There's a new Ethernet-over-Sonet connectivity option coming within 60 days or so. And at the upcoming Supercomm 2002 tradeshow in Atlanta, Accordion will share a booth with BitRage Inc., which makes wireless access gear. Demos will link the two companies' access wares.

Former Accordion employees aren't buying it. Twenty-two of them are ready to file suit against the company, and they've enlisted the support of the state labor relations board.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com For more information on Supercomm 2002, please visit: Supercomm Special
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hitecheer 12/4/2012 | 10:27:51 PM
re: Ex-Employees Take Aim at Accordion $6.25 an hour? And those guys did not get garantee on paper for the pay back? They deserve what happened to them. What else can I say?
Seldon 12/4/2012 | 10:27:51 PM
re: Ex-Employees Take Aim at Accordion Gawd damn, i get paid more as a student!
wilecoyote 12/4/2012 | 10:27:47 PM
re: Ex-Employees Take Aim at Accordion So this guy founds Mayan, a really dumb company that was flawed from the get-go: backplane maxed out at OC 12 when the market was clearly going to OC 48 (multiservice transport).

Then he gets to actually run a company. Shame on the people who went to work for a guy with that kind of track record. Yeah, shame on him for flimsy promises, but this screams: "who's the bigger fool?"
CCIE4956 12/4/2012 | 10:27:47 PM
re: Ex-Employees Take Aim at Accordion I agree with hitecheer. They should have seen it coming. I would have been out when they went to hourly.
LessonLearned 12/4/2012 | 10:27:47 PM
re: Ex-Employees Take Aim at Accordion Judge as you may - but you never know until you walk a mile in someone else's shoes. Suggest you not be so hard on employees for showing loyalty to the management and stamina as to the success of the company. They obviously believed in the company's success and they obviously believed they would be paid - there's no other reason they would have stayed. Were the employees gullible? Maybe... Or was it that they believed in a company, trusted the management, and felt that their pain would be rewarded. I believe it was the latter.
photonalley 12/4/2012 | 10:27:44 PM
re: Ex-Employees Take Aim at Accordion This is truly a sad event. This is a reality for those of us who choose to join or stay in start ups. It's easy to say how could they stay? They trusted, they brought into the vision, they had faith. Everyone wants to think my company will make, we'll be the ones who suceed. The fact is this is a very slim reality. These are some very hard listens to learn from personal experience as opposed to benefiting from the experience of others. Be watchful, listen, and learn and don't be afraid to make a decision. It makes no sense to fear tommorrow, no one really knows what will happen next anyway.

It's sad, it's captilism and its business as business does. I wonder what the future holds for the telecom industry in terms of the backlash for these actions? Anyone care to take a guess?

older&wiser 12/4/2012 | 10:27:44 PM
re: Ex-Employees Take Aim at Accordion Interesting how the student's and LessonLearned perspectives are different. I didn't have loyalty and perserverence when I was in school.
I found as I matured that loyalty often pays. But there is a limit. Refinancing your house to pay bills is a big warning flag. That said, it is easier to refinance with a job, even at $6.25 than without a job.

"The Fine Art of Selfishness" is a book I recommend. It talks about when to put yourself first. May be out of print now.

hmarcy 12/4/2012 | 10:27:43 PM
re: Ex-Employees Take Aim at Accordion Having been part of a start up in a former life there is an ongoing excitement that overcomes logic. In hindsight they made a bad decision but to be on the ground floor of a young enterprise is very exciting and hard to pass up. I also took a bath working for a low salary with dreams and promises of a big payday. The promise of a big payday is the only reason that anyone would stay. True they donGÇÖt have the deal in writing but the management position is also not in writing. I think the employeeGÇÖs have a good shot at this.
powertone 12/4/2012 | 10:27:42 PM
re: Ex-Employees Take Aim at Accordion I feel deeply sorry for thoes whose lost their job and their unpaid salary. There is a big difference between taking a less pay in a startup and taking a temp. pay cut until funding comes. I believe the Judge or Jury will believe the employees' story. It is time to let those so-called "Execs" know that we still have law in this country.
crapshooter 12/4/2012 | 10:27:40 PM
re: Ex-Employees Take Aim at Accordion This guy sounds like a real piece of work. "Is it better to be dead or to have fought for your life?" Puhleeze! All you bought with $8 million was a few more months of life support. Let's see...$22 million in funding in May and it's almost gone by Christmas. You didn't do much for your burn rate by firing $6.25/hour employees (what does that save you, a couple of grand a week?) so that $8mil will be gone easily by Labor Day.

"The company is on its way to better things." Sounds like you need to change your name to Underarock.

To all the posters that have so eloquently pointed out the "naivity" of Accordian's employees, I sincerely hope that you don't find yourselves in their position. With the job market the way it is, I'm sure many of them simply did the best that they could. I also hope that the ex-employees have their day in court and that Accordian's management team is made to pay BIG TIME.
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