Cost cutting lead to increased breakage and customer dissatisfaction

I got a phone call from our largest customer that the last delivery contained some broken jars. I apologized and had someone drive over with replacements.

I then asked everyone how this could have happened. The production manager said he wanted to save money and reduced the amount of packaging we were using. I told him what happened and how this wasn’t a good way to save money.  He looked sheepish and said there was 12 more deliveries with less packaging.

I made him ring each customer. We found six more broken jars.

I couldn't do it all myself but I couldn't give up any control

I am alone and do nothing but work. To save money, I moved back home and feel like a child again. I fight to get out of bed everyday because the amount of things I have to do is overwhelming. My sales were over $150K, but I don’t want to hire anyone else; no one could do things better than me.

As sales continued to grow, I simply couldn’t cope. I hired a fulfillment company to handle the packaging and delivery. I visited them twice a week. Sales were then over $225k and I couldn’t keep track of everything. My accounts were months behind and emails went unanswered, so I decided to hire a part-time assistant.

She was a new mom so it could have been ideal. As soon as we started working together, I became critical of almost everything she was doing. I didn’t want to do things her way and I told her so. Sometimes she was late for meetings and sometimes she did things without asking me first. After six months, she quit. She felt she could never do anything right and that I didn’t trust her.

By this time, sales had grown again, invoices were in boxes, and it took me a week to fulfill an order. The website looked old and I had to update the product catalogue at least once a week as items sold out. This month, 35% of the products have a “sold out” tag on them.

My parents suggested I move out and that I needed an office.  I found a place that was big enough to act as an office and to live in. I moved all my things there.

I tried to hire someone to work with me but couldn’t find anyone good enough. Some people didn’t want to work where I lived. Others wanted too much money. I needed help but I also couldn’t let go. I had to control everything.

The business was in chaos and service levels were really poor. The repeat purchases began to fall away. For the first time in three years sales stopped growing. I had become the problem.

The sales team were misusing their travel privilegs

The sales people travelled a lot. The sales manager signed their expenses. I was supposed the sign the manager’s expenses. Our accountant comes in once a month to do the books. Last month he expressed his concern to me about the rising costs of the sales force. We now had three people plus the manager.

I began to look over their expense claims and noticed they were staying in expensive hotels, bought very expensive meals and drinks, and stayed overnight at places where they could easily drive home. When I questioned the manger, he said these were all legitimate expenses and it cost a lot to entertain customers. I suggested we establish an expense policy. At first he resisted but then agreed. The next month I checked and there was no real change in behavior.  I told the manager he needed to act now.

The next thing I learned through a friend was that the sales manager was seen in a hotel with a woman who wasn’t his wife in city X. I checked his expenses because he was supposed to be in city Y. There was a receipt from a hotel in city X but when I called the hotel, there was no record of his stay.

I hate confrontation, but met him the next morning. He denied everything and got really upset with me. He got very angry but couldn’t explain the situation. I told him we were going to audit all of the sales team’s expense for the past year. He got up, told me he quit, and left the building.

 

Transparency audit theft expense reports trust employees corruption 

A trusted advisor told me I wasn't a strong leader and needed better people

I’ve been turned down by eight potential investors. It is me or the business? I was getting depressed and thought I should stop. I didn’t know how to make sense of what was happening to me. The investors were so aggressive. They wanted me to make mistakes. They just seem like nasty people.

My sister’s husband is an investor and I went to get his advice. He said it was part of the game to ask hard questions. Investors also want to see how you stood up to stress and adversity. He said he would come to our office to meet the team. When he came to see us he asked everyone questions about the business. He asked for data on customers and competitors.

At the end of the day, we sat down together to review his day. He said he wasn’t impressed by the team or their knowledge of the business and the market. He thought they were all nice people but didn’t have the skills to grow the business. Few understood the business model. Above all, he said they lack passion for the business. Then he said it was my fault for choosing weak people and not educating or communicating with them. Great leaders hire great people. Good entrepreneurs hire people that can scale the company to new levels.

He then asked me about the business plan. He listened to my answers then said I didn’t understand the business and couldn’t explain the operations or its economics in simple terms. He said he wouldn’t invest in me or my business because I couldn’t determine the size of the addressable market, the intensity of competition, or how to differentiate ourselves.

He told me this was real life, not a business plan competition. He said in order to be successful, I need better people, a stronger board, and better results. He said no one would invest in me or the business if I didn’t make these changes.

We didn't have an accounting system in place from day one and now things are a mess

We reached $1M in sales by bootstrapping and working long hours. We didn’t have a lot of processes in place and our systems were fragmented. We couldn’t tell what was going on. We all agreed that we needed new systems. We asked around and found a lot people were using XYZ Clouding Accounting for their accounting. We thought it was a good system but we had multiple sites and wanted to open a new business in another country. We also needed integrated stock systems, etc., so we chose ZZZ Cloud Accounting.

We didn’t have any problems setting up the system. Problems started with data entry. We entered all the data we had from our existing systems. Since the data sources weren’t integrated and reconciled, we immediately ran into problems. There were large discrepancies with the stock (finished and raw materials). We couldn’t reconcile the bank statements with the balance sheets, and sales and discounts looked off.

We quickly concluded that the data we entered was flawed and there were problems  going back to when we started the company. The company that sold us the new software said we should stop what we were doing and create a ‘newco’ which would use data from today onward. We should then go back and sort out the old data even if this meant having a third party reconstruct the accounts, etc. We followed their advice. It took months to sort out the old data. When we did, we found we were losing, not making money. We had discounted 70% of our product, not the 50% we planned, and our overhead was understated  by 20% because we have not entered the invoices for electricity and local taxes. All of this meant we had to postpone any fundraising and revise our pricing.

Speakers at the conference made entrepreneurship seem easy and formulaic

I was at a local conference to develop the ecosystem for young entrepreneurs. I couldn’t believe what I was hearing. The speakers and commentators came from the local government and university and two non-profits.

They made entrepreneurship sound easy. They suggested all an entrepreneur needs is a co-working space, a small amount of money, and one or two advisors.

I raised my hand and said that the reality of entrepreneurship was very different. When I started my business three years ago, I couldn’t get a bank loan, it took months to register the company, and I couldn’t find qualified people to hire. The high inflation rate made things even more difficult. The challenges that face us aren’t just in the first three or six months. It’s the first three to five years. We take risks that few people would feel confortable with and we spend most of our time working on the business.

The speaker implied this wasn’t right, that I was doing things wrong and that the new government incubator would answer everything. I find that hard to believe.

The feedback from my team's performance reviews floored me

Even though we’re only two years old, I started having performance reviews for my team. We talk all the time so I didn’t think it was going to be a major event. I found an appraisal form online and sent it to everyone. It asked for everyone’s input so I thought it would be a good idea.

When I got the forms back from the team, I was upset and concerned by what I read. Everyone said I was a poor and weak leader. They also said I couldn’t make decisions and they didn’t trust me. Finally, everyone said if they were offered another job, they would take it.

This was the first time I heard any of this. Why didn’t people tell me this? I had never been a manager let alone a CEO, so I had no idea whether I was doing a good or bad job.  They must have been discussing this behind my back for some time and used this as a way to give me feedback. I was so upset that I didn’t want to come into the office and I certainly didn’t want to carry out the individual reviews.

My agreed to a number of side agreements with the customer

We agreed to supply company XYZ with eight kilos of product each month for one year. This was our first large contract and everyone was excited. The terms of the contract were okay, but not great. My partner said this was necessary to get started.

We shipped the first order and I called the customer to follow up. They were very pleased with the product. After 30 days they hadn’t paid. After 45 days we had shipped another order and still not payment. I called the customer again to see when he would pay. He said the agreement was 90 days credit, which surprised me because that wasn’t in the contract I saw. When I asked my partner, he said it was a verbal agreement and he had to do it to get the contract. We had to borrow money to bridge the payment period.

At the end of the six months, we got an invoice from the customer asking for his 7.5% override discount. I didn’t know what this was and my partner denied any knowledge of this. When I spoke to the customer, he said there was a side letter setting out these terms. He sent it to me and it had my partner’s signature on it.

It took a while, but we are getting better at using data to run our business

I was taught that you couldn’t manage what you can’t measure, so I was always looking for data to tell me what was going on. My team told me I was data-obsessed and that I believed the data more than I believed them. There was no question in my mind that hard data was one of the keys to success. I knew I couldn’t force my team to use the data but I could teach them how important it was for making sound decisions.

My idea was that two days a week we would look at an issue facing the business and go through the data we had and what data was missing for us to make an informed decision. We started with customer data. What struck me first was that we didn’t share a common understanding of who our customer is. It took several sessions, but gradually people began to have a common perspective. By the end of two months we were able to talk about our customers, their life style and life stage, and how they might use our products and services.

When we looked at operations data (inventory, on-time delivery, finished stock levels, wastage, etc). The reaction to this was immediate. The team saw the problems and started to deal with them. I asked everyone to develop metrics, which we now use everyday. We are far from being a data-driven company but we pay attention to the facts, we use metrics, and we find ourselves asking more and more questions and collecting more data to make better decisions.

Our balance sheet is off by $18K and we have no idea why

What happens when the balance sheet doesn’t balance? My background is in agriculture and I don’t know much about finance. I can understand the profit and loss account, but I could never understand or read a balance sheet.

I asked our accountant what it meant. She said she wasn’t quite sure, it could be a number of things: it could be a bookkeeping error, it could be that some cash was missing, or there could be something wrong with our depreciation schedules.

She told me there was over $18K difference, which is a lot for a small company like us. I asked her how long it’s been a problem and why we didn’t know about this sooner? She said she didn’t know and that she doesn’t look at the balance sheet or do a reconciliation every month.