If my business fails, it will reflect badly on my family

In America, the fear of failure for startups exists, but it’s recognized that businesses fail. Some actually see it as a badge of courage or learning experience. The same isn’t true in my home country.

If I fail then it reflects badly on my family. My father is especially concerned and keeps telling me to find a proper job.

Business is for real men

This is my company and my money and I will do what I want. I don’t need Board members and investors telling me what to do. If they don’t like what I’m doing they can leave. I don’t believe in democracy and voting in business. It slows things down and causes confusion. 

The same applies to anyone who works for me. My staff do what they’re told. They can’t question or challenge me. I know what’s best. I got us to where we are. Working for me is simple. Get the work done on time and under budget. I pay better than other companies if my employees perform well. If they don’t do it right, they get fired.

I don’t believe in training and all that soft development stuff. Business is for real men. It’s war.

What should we do with a batch that didn't pass quality control?

One of our larger customers rejected the latest delivery from us. They said the labels weren’t fixed properly and when they tested a bottle, it didn’t meet their standards. They have a strong quality control system, but this is the first time they rejected our product.

It was a large order and we aren’t sure what to do with it now that the customer rejected it. One team member said we should sell in the market because the labels were wrong. Another questioned if it’s ethical to sell product that failed quality control. A third member said we should export it to another country. No one suggested that we destroy it!

I said we needed to learn how this happened and destroy the batch. We then had a long debate about our ethical responsibility. The fact we had to debate this was a concern to me. Finally I said, “We are an ethical company. There should be no question of reselling this batch. This isn’t who we are.”

The MBA team consulting for us had a different agenda than ours

We felt lucky to have the help from an American business school. MBA students were scheduled to come see us in June. There was a lot of excitement around their arrival. They would stay for six weeks and work on key projects.

When they got here, for six weeks there was a ton of activity but none of it was really focused on the day-to-day running of the business. The CEO was always with the students, so we didn’t have much time with him during their stay. Priorities weren’t clear and critical decisions were postponed.

After three weeks, the students prepared an Interim Report and gave a presentation with a series of recommendations. From the first slide of their PowerPoint, my stomach started to knot up. Their recommendations were so sophisticated and conceptual that they were almost irrelevant to our company. Some failed to recognize the culture in which we operated and the way business was done here. Some relating to government engagement were simply naïve.

Right after the presentation I told the CEO and we needed to get control of their work and refocus it. At first he didn’t want to listen but then I other team members joined me so he had to act.

The first issue he wanted to address was how to manage the professor who was sponsoring the visit. He was the CEO’s informal mentor. He wanted the visit to support some research he was doing. We quickly realized there were conflicting agendas.

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.

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.”

We didn't want to sacrifice our principles for growth

Our business was doing $5M in annual sales and we were making $800K pre tax. We were growing at 15% per year and had 25% operating cash flow. We were the market leader in our segment and enjoyed an excellent reputation as an employer. Our CFO went back to his grad school to speak at a conference. When he came home he said we had to grow faster. Growth is the most important thing and we should aim for $30M in sales in the next three years.

None of us agreed with this. It would change the whole company, put the company at risk, and destroy our culture. The CFO wouldn’t give in and had his professor visit us. He was really nice but spent all his time telling us to grow faster. He told us we could grow to over $125M in sales if we followed his plan. He would be happy to become our advisor and had great connections all over the world.

When he left we were all exhausted and confused. We went to a bar to talk. None of us wanted to follow this path. This wasn’t who we are and not why we started the business. We wrote to the professor to tell him; our CFO said he would quit if we sent the letter.

We stuck to our plan and today, sales are $8M, margins remain high, cash flow is positive, and we stuck to our principles.

The financial model that got funded isn't one we're committed to

I’ve been working on the financial model for over a month. We’ve been over and over it and I think we have it pretty much right. We included it with the business plan to a range of investors. The first response focused on the gross margin and our pricing strategy. We answered all the questions and modified the model. The second investor was concerned about the growth and working capital requirements. The third investor wanted us to lease our equipment rather than buy it.

All three wanted to invest subject to their concerns. When we factored all their input into the model the results were very different from our original ideas. Their input meant the cash flow was better but margins were depressed and the cash flows remained negative for a longer period. 

We sent the revised model back to the investors. They all had additional questions and suggestions and wanted more modifications. We then went to the investor who we hope would lead the round to see if we could get some consensus and agreement around one model. The investor agreed and we closed the round, but it took three months longer than we had planned for, took up a lot of time, and left us with a plan that we weren’t that committed to, but we did have the money.

Somehow silos were forming when I thought we'd been active in preventing them

We were having a team dinner, there are now 40 people, and as I looked around, I realized I don’t know all of them that well. I noticed people were seated with others from their departments. Sales people were with sales people, ops with ops, etc. I realized I had a problem on my hands; the company was already breaking into silos.

We always valued collaboration and saw it a part of our culture and differentiation. But I could see this slipping away. Where had I gone wrong?

When someone joined the company, they worked in each department and we had open meetings with everyone in the company. When possible, we had multi-departmental teams working on projects. What else could I do? If I failed to act now, the problem would get even worse.