The saddest business experience of my career

By steenslag — P1010533, CC BY-SA 2.0

A young entrepreneur started a manufacturing company to introduce an innovative superabsorbant gel to the market. He had one customer, who repackaged the gel into a potting soil mixture sold through garden shops. The product’s appearance as white crystals was very important to selling it at retail.

Since this customer was so important to the company, as a part of my investment due diligence I flew to his Boston headquarters to ask the customer in person,

If I invest in the company, you are going to buy the product?

He said,

I won’t commit to buying your capacity, but I will buy all I need from you.

That was a good enough response to trigger my angel fund’s investment.

The entrepreneur sent the first shipment to the customer, along with an invoice. For months, the receivable stayed on the books without being paid. I grew increasingly agitated that the customer had broken his word. Finally, the time came to get an attorney involved, at least to collect the invoice. It was as much a matter of principle as it was money.

On the way home from an especially frustrating meeting with the company, the bookkeeper called and suggested I touch base with the customer directly. The customer’s version of what happened was eye opening.

After the investment, the entrepreneur began running behind schedule and started feeling pressure to perform. Unfortunately, the early batches of product were brown, not white as the customer expected. Low on cash, the entrepreneur shipped the product as it was, with no explanation to the customer. Already frustrated that the shipment was late, the customer was ticked off when he opened the shipping containers and the product was obviously unusable. The customer rejected the order and refused pay for it.

The entrepreneur knew all this, but for months had not been straight with me. Confronted with the facts, the entrepreneur conceded what the customer said was true.

Trust was broken with the customer and with me. I was accountable to my investors and wrote them to explain what happened. The entrepreneur was so horrified by my report that he moved to another city. We brought someone else in to run the company, but the wound was fatal.

The energy and passion of intuitive leaders inspires the confidence of many people working with them, who don’t see what the future can be as clearly as the leaders. Passionate champions of high growth ideas have a great obligation not to violate the trust of those who place their confidence in them.

If they do, the game’s over.

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John Warner

John Warner

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Serial entrepreneur sharing 40 years of insights to control your destiny in our turbulent times