A startup blew up overnight and laid off its 400 employees via email with no warning

In the middle of the night, a startup that had raised $5.5 million dissolved and disappeared. It deleted its Twitter accounts, Facebook pages, and Google + profile. It changed its website to say its "pausing operations."

At 1:34 a.m. PT, Zirtual, a virtual assistant company, sent an email to all of its employees saying that it had ceased operations, effective immediately.  

A follow-up note to its clients said that it was "pausing operations" to re-organize their current structure. 

The news stung because there was no warning from the company at all, according to several former employees who spoke to Business Insider.

The company and its CEO, Maren Kate Donovan, did not respond to requests for comment on this article.

Everything seemed normal... 

Even 13 hours before it shut down, Zirtual was still accepting sign ups and their money, according Aaron Weber who posted photos of his short-lived run with Zirtual on Twitter.

Its CEO and co-founder, Maren Kate Donovan, had just written three weeks ago in Fortune about the need for transparency during a company shift, preaching that employees need time to adjust: 

"Because what my employees don't know could ultimately hurt the entire business. The sooner your team knows about upcoming shifts in the company-the better.

Additionally, give your employees ample time to adjust, as change in a company can often lead to people feeling unstable in their positions. And be transparent."

Yet, today's email was not a warning to employees, but a door slammed in their face. Employees said they felt blind-sided and not prepared at all for the news, according to the employees Business Insider spoke to and the outpouring of shock on Twitter. 

"I woke up this morning thinking it was a normal Monday morning. I was going to wake up, have my coffee, and have my weekly morning call with my client," Carol Murrah, who had worked for Zirtual for 2.5 years, told Business Insider.

Before Murrah had a chance to read the email, the client broke the news over the phone as Murrah tried to fire up her computer and found herself locked out.

 "I always knew I was going to get my paycheck, until today," Murrah said. "I expected to get paid this Friday, and that's not happening."

Growing, but too fast?

Former employees told Business Insider that the company has been on a rapid hiring spree during the last 18 months, ballooning its numbers from around 150 to the 400 employees it laid off today.

In an interview on Friday with Jason Calacanis - who is also an investor in the company - on This Week in Startups, its CEO Donovan said the hardest part of scaling Zirtual is "growth capital."

"Since we're employees versus contractors, it's hiring ahead, building out this stuff," Donovan said of the challenges, just three days before the startup shut down. "It's seeing the future and playing the game right now."

Over the past few months, work had slowed from some of its virtual assistants, but many thought it was because of the summer vacation season.

"In the last two months or so, work has slowed down significantly. We were pretty confused as to why. We weren't having client cancellations," Murrah said. "We were never once told that was something to worrry about it."

For employees, it seemed like growth was on the up-and-up, according to several virtual assistants we spoke to. Donovan's monthly "state of the union" emails never hinted at problems, and there was even talk of gradually raising the minimum wage of virtual assistants from $11/hour to $15. Zirtual was beta-testing a teams product that could allow whole teams to sign up. 

"We were looking at it as 'oh, there's progression, we're growing,'" Daniell Wells, a virtual assistant who was with the company since February, told Business Insider. 

What goes up, must come down

In the end, it's unclear why Zirtual has shut down, although it's clear that it was in haste. While the company had raised $5.5 million, all of its rounds after seed funding were debt rounds, including one at the end of July.

When it started, Zirtual was a personal, virtual concierge service that only charged $99 a month for unlimited tasks, Donovan said on the show. The company has been loyal to some of those plans, though, and that may have cost them.

"A completely unsustainable business model, but we still have some legacy plans that are sticking around," Donovan told Calacanis. "We grandfathered a crap ton of stuff."

Calacanis, who had interviewed Donovan on Friday, said on Twitter he only found out as investor that there were problems on Saturday, although he hopes it can make a comeback.

Calacanis did not immediately respond to requests for comment.

While some may be more positive about a re-start, the shock is still fresh for those who lost their jobs.

Wells said they have only received the notice of the company ceasing operations, but no other massive direct communication from leadership. Important information like severance and health insurance are still unresolved.

Former employees said they don't know if Zirtual will even be able to make this Friday's paycheck for the employees' last week of work.

Despite the lack of communication from leadership, former employees have created a Facebook group and a Slack team so they can stay in touch and share what little information they have received. They are scrambling to educate themselves on how to be come 1099 contractors, how to get in touch with old clients and how to rebuild the careers they had taken away from them abruptly.

"There are 400 employees who were given the notice this morning. They are all available for work," Wells said. "It was a really poor move. I'm at a loss for words."