No one was using the supply chain management system!!

One morning, an employee mentioned there were rumors that the port would be closed due to a dockworkers strike. I asked if anyone knew how much material we had coming in. No one did. I asked if anyone knew how much was actually at the dock. No one did. I asked how much stock have we paid for that hasn’t been delivered yet. No one knew.

I was shocked – no one knew what was going in our supply chain. It was all there in the system but no one bothered to look. Clearly they didn’t look at the data everyday. I asked why they weren’t using it.

They said it was all wrong and has been since the day the system was set up, so no one uses it. I asked how they managed the supply chain and they said they’d call friends at the dock and ask what they have, then call the customs agent and ask what is coming in. I asked if this meant our physical stock records on the computer were wrong and they said yes.

My cofounder and I were gone for three days and everything fell apart

My business was 8 months old and it’s been a roller coaster. One day I thought we had the next Google. The next I thought we would fail by the end of the year. Whenever both of us cofounders were away, chaos seemed to erupt.

I had to go to China to place the orders for next year. My cofounder wanted to go to NYC to see potential investors. We both wanted to go at the same time.

I said the business was too volatile and the employees too inexperienced for both of us to be away for two weeks. He said we weren’t married to the business needed to trust our employees.

We both ended up going away at the same time. Three days after we left, I got a text saying our merchandise manager decided to join our competitor and just walked out. The accountant didn’t come into work and never told anyone. He was supposed to run payroll so no one got paid. Finally, there was a robbery at our newly opened shop. They took all the money and a lot of merchandise. They also broke the door and the glass in front.

My partner got on the next plane back from NYC.

A fundraiser wanted equity even if she didn't raise any money for me

I wanted to use a convertible note to raise the first $400K for my company. It meant I wouldn’t have to have the expense of a formal valuation and it gave me degrees of freedom. Most of the people I’d be talking to are friends and family, so I wasn’t overly concerned and didn’t want to give away equity at this stage.

At a party, I was introduced to a powerful woman who raises equity for companies in Africa. She was so self-confident and unshakable in her conviction that one only used equity to fund startups. I listened to her and asked questions. I came away thinking I was wrong to use a convertible note.

I told others I trusted what this woman said and they said that a convertible note still made sense and that I should talk to other people, including people who had used this woman to raise funds.

I tracked one person down who was very satisfied with her work. But she had raised $25m for a series A. She said I should talk to other people who did not have such a good experience and where the fundraising efforts failed. When I spoke to them I learned this women took equity even if she failed to raise funds. I also learned she tended to undervalue the company to make the raise easier.

I went to her and said I would use her services but that she only got equity if she was successful. She refused my terms.

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 

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.

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?

My staff were hiding the poor customer feedback from me

We started getting customer feedback by putting cards in the product and calling them directly. The feedback wasn’t good. People said the product didn’t live up to their expectations. They said customer service was poor and it often took a week to get a reply. Some said our staff were rude. The phone survey and the cards showed the same pattern.

The team questioned the research method. They said they didn’t get any complaints, that they reviewed every customer letter and monitored response times. I decided to do two things: read all the comment cards and call customers myself. What I read and heard was deeply disturbing. My team wasn’t telling me the truth. They were hiding real problems we had with our customers.

I gathered everyone together and told them what I found. I told them that from now on every problem should be brought to my attention. I also told them every product would have a survey card with my name and telephone number on it so that I would know what was really going on. If we start a company based on hiding data, rejecting market feedback, and ignoring facts, our business is doomed.

We still have no idea how all that stock went missing

At the end of every quarter we did a formal stock count. When we were a real startup, we were always able to reconcile the stock and find it. As we grew, there were some discrepancies but nothing major. The differences were so small that we simply wrote them off.

Last quarter, the first stock count showed that more than 15% of the stock was missing. We counted again and found the same thing. We looked all over the warehouse and couldn’t find it. We now had six people working in the warehouse but they all said they didn’t know where the stock was.

We examined all the invoices and delivery notes and found that they hadn’t been reconciled for over a year. The accountants used the invoices to create the accounts and value the stock. The delivery notes were in piles in the warehouse office. Upon closer investigation it emerged there were no delivery notes for a number of high value items. We called the supplier and they said they were delivered. They provided signed notes to show when they were delivered. All were signed by the same warehouse operator.

When we asked him, he said he didn’t know anything about missing stock. There was nothing else we could do as there was no hard evidence of fraud. We tightened our controls and reconciled all the paper work. All was fine at the next stock count. To this day we don’t know what happened.