I wish we hadn't issued voting shares to all our employees

We issued share options to everyone who worked for us when the company was 1 year old. We did the same in years two and three. We had over 150 individual shareholders who lived all over the world. We had to make sure we kept track of them because we needed them to vote on company matters and approve the annual report. This was time consuming and we had already lost track of 12 people who held 7% of the shares.

We were approached by a large institutional investor who wanted to buy a majority share of the company. To approve this investment, we needed 95% acceptance from our shareholders. The investor wants to buy out all small shareholders (under 1%).

It took us three months and we had to hire investigators to locate everyone. There was nearly 2% we never found so it was a close vote to approve the investment.

My father-in-law didn't understand the terms of the friends and family round and isn't speaking to me anymore

My father-in-law lent us $25K of the family and friends round. He didn’t really take any interest in the company and didn’t know very much about business. Whenever he came to the house he would ask when we would repay him.

To help the business grow we decided to ask debt-holders to covert their debt to equity. Everyone agreed except my father-in-law, even through the conversion terms were very favorable.

He came to the house and in the middle of dinner he told my wife that I was trying to screw him out of his money. He said I didn’t want to pay him back and that I was trying to steal his money. I tried to explain it to him again but he refused to listen. My wife was in tears. My father-in-law called me a greedy bastard and said he was hiring a lawyer.

His lawyer explained the situation to him – this enraged him even more. He now refuses to talk to me and my wife.

The business was running me

The business was growing quickly. Everyone was working longer hours but things were chaotic and I could feel we were losing control. It was growing too fast, if that’s possible. I was really outside my comfort zone but I didn’t want anyone to lose confidence in me, so I didn’t say anything to anybody.

Everyday there was a different opportunity and I found that exciting. I followed most of them. They usually were deadends, but I love the chase. While we were we growing rapidly it began to emerge that some markets where we had early success were either cooling off or going to decline. I didn’t have time to fix them- I didn’t have the analytics to tell me what was going wrong.

In December we still didn’t have a plan for the next year. I didn’t see any way to reach our 25% growth target as the early markets were now in decline. The business was running me. I wanted to go into a room a scream.

Is a startup the best place to train someone?

She came in for the interview and was very impressive. Great academic credentials, worked for a major consulting company, and had lived in Africa. I was impressed by her confidence and she explained her ideas clearly. As we talked I asked her about how she would deal with certain practical situations. I was less impressed by her answers. I asked about the most important experiences in her career. Again I was concerned as all I heard was stories about presentations to clients.

Should I hire someone who has knowledge but very little experience? Is a start up the best place to train someone?

The board member wanted us to buy machines from his company

We need a new machine for the factory. It costs more than $250K. We looked at all the alternatives and decided on the Northeastern-10. As the expenditure was over $200K, it needed Board approval. One member of the Board was associated with a local company that sold a competitor to Northeastern. He asked if we had looked at his machine and we said we had.

He insisted that we buy his company’s machine even though it wasn’t the best for what we want to do. Our shareholder agreement said we needed 80% approval for expenditures of this level. He blocked all approvals.

It takes a unanimous vote of the Board to change the shareholders agreement.

The investors' board members prevented us from taking outside investment then gave a lowball offer

The first institutional investors wanted to have three Board seats. We decided to allow for seven seats but only filled five at the start. The Board meets every two months and deals with all the routine issues.

Business was growing and we could see from the cash forecasts that we would need more money sometime next year. We wanted to start raising money immediately so we wouldn’t run out of money. The Board members from the investors objected. I thought about it as a tactic that would make us more vulnerable to a lowball offer. The less cash we have the less leverage we have.

A friend said he was interested in investing in us. We met, agreed on terms, and then started the due diligence. Everything went well and the offer was reasonable.

We agreed on a term sheet and all that we needed was Board approval. The investors’ Board members voted no even though we only have six months cash left and this was the right thing to do for the company. We tried to appoint more Board members and the investors’ members rejected that too.

Two months before we ran out of money, the investor offered a loan that would convert into equity 35% below the offer we had from my friend.

Is this legal?

She said if I had passion the question of whether I should start a business wouldn't be an issue

I was 43 years old when I decided I wanted to start my own company. I had worked in the strategy group of a major multinational. I was trained through the traditional training schemes but I never had responsibility for a profit and loss account or a major operating unit. I have a young family, mortgage, and aging parents. This was a huge decision for me. My friend suggested I talk with some people before I decided to leave my job.

The headhunter said it would be a wrong move for me. He said it would take me out of the corporate market and I wouldn’t be able to return. Another headhunter said the exact opposite and thought this would enhance my CV. A VC who is friends with my wife said I didn’t have the experience and thought I was risk-averse. I took a bunch of career and psychological tests; they were inconclusive.

I couldn’t make up my mind. I was paralyzed in terms of decision-making. I went to a FinTech conference and met a really impressive serial entrepreneur. I asked her advice and she looked me in the eyes and asked, “Where’s your passion? What’s your commitment? If you had these, you wouldn’t be going around in circles.”

Will simplifying my business reduce my costs?

My mentor told me that the only source of cost in a business is activity. He also said that complexity was the biggest drivers of cost. Is that right? Does this mean if I drive complexity out of my business, i.e. do things simply, my costs will come down?

The increased transportation costs ended up being due to corruption

The company was now 5 years old and sales are over $10M. We employ 45 people and are growing in double digits. We have had very little staff turnover and most of the employees have become shareholders. We have been using more subcontractors to get work done. We always have competitive bids especially as we are located in a relatively small city.

My accountant came to me and said that she was concerned that transport costs were increasing to an unacceptable level. It looked like next year would see a 15% increase. She also said she talked to friends in other companies and they weren’t seeing the same cost increases. She suspected that all our bidders were operating in concert to raise prices. We did a lot of work and found out she was right, they were taking turns winning but the price always went up.

We talked with our operations manager and he said he always chose the low bid. We decided to talk to one of the haulers. What he told us was hard to believe. He said

there was a bidding ring but that it was organized by our operations manager. He was taking a 5% kickback on any bid. The hauler in question had refused to pay and was therefore cut out.

After much debate we called the police. Their investigation showed that our manager was corrupt, that his brother was involved, and that this had been going on for at least three years.

My co-founder was arrested for drunk driving for the fourth time. What can I do?

This was the fourth time my co-founder was arrested for drunk driving. This time his license was taken away and his picture was in the local paper. He was responsible for sales and this meant he did a lot of entertaining and tended to drink too much. We discussed this many times and each time he promised to stop. I am now at the stage where I don’t trust him any more.

There are only two of us on the Board, but I had our lawyer write him a letter saying any repetition of this behavior would result in instant dismissal and forfeiture of all his stock options and incentives. We barely talk to each other now but what else could I have done?