2009 started off miserably: The company was in the middle of a giant cash-flow problem that started around October. We had resorted to using all of our sales income to fund production for the next month, and worse, we couldn't take care of short term debts and payables. It was ugly and the CFO and I were getting terrible phone calls, e-mails and office visits from vendors we owed money to. What do you say to people who in good faith shipped goods to us, but now had to wait for payment? All I can do is to tell them the truth...I didn't have the cash to pay them, but they would be paid when investment came in. I think January and February brought 4 different law suits and numerous collection notices. The CEO seemed to not be fazed in the least, living as he normally did, avoiding all reality. January was a great month in one way...the break-even plan the CFO and I put into place was working and instead of burning $350,000 that month we only burned $27,000. The CEO quickly took credit for that and announced to the trade that we were now cash-flow positive in hopes that any investors still interested in us could find some good signs in our announcement. He also found new ways to spend that cash (exactly what cash?)...ramping up the PR and marketing machine once again.
Important lesson #1: Even when you are faced with severe cash issues, stick to your principles and tell people the truth. There is no need to lie.
2009 Continued miserably: Late in March, our old investors decided to help with a small influx of cash...at a ridiculous 100% interest rate! Way to show us how much faith you had in the company guys! That cash was quickly consumed to pay off our most serious payables. That month we also violated our supply agreement for our most important raw material...against better judgement. I had given the CEO one request back in Jan. I needed him to re-negotiate our supply agreement BEFORE we went outside the contract to save money. I could find the raw material at a savings of almost 30% per pound...of course I would take the savings! He waited almost 3 months before jumping in. As the COO, I was supposed to manage the supply contracts, but as my relationship with the CEO soured, he decided that I was not in the best position to renegotiate. I had found numerous violations from the vendor to allow us to negate the contract, which was my advice to him. Kill the original contract and if the vendor could match outside pricing, then negotiate a new deal. The result of his renegotiations? A 15% commission on any material we bought outside the original agreement AND an extension on the supply agreement into the following year. The CFO and I shook our heads...not only did he eat up half our savings, he wed us to this small time supplier for another year.
Is that a ray of hope I see? The spring brought investor after investor to our offices to see if there was anything left to get in a deal. It always ended the same way...each financial representative asking why we weren't at break-even after 4 years of operations. (As a reminder to you all, this is what I have been preaching since week 3 of joining the company) How do you answer that? The CEO kept saying the same misquoted line from our largest investor, "We were lead to believe that topline sales growth was more important than bottom line growth and sustainability." Let me decipher that biz speak...it is better to grow sales while sacrificing profitability and any hope of having a business long term. Funny thing is, he really believed that. He didn't care how much money we lost as long as we could grow sales. Charged with that mission, the sales guys focused on getting the purchase order, rather than on profit. Luckily one potential investor was not scared off...and continued to discuss the opportunity of acquiring the brand. Later I discovered that every single executive that had a say in the deal gave it a thumbs down...all except one, their CEO. He was mesmerized by our CEO and his ability to sell. He did have that one talent...he could get you to believe anything, and was passionate about it. He may not have had the business chops he needed to run a company, but I will give him credit for his sales ability. He could sound convincing, he could sound right, he could sound like this was the best thing for you. So they kept at the due diligence. We kept at the smoke and mirrors.
Important lesson #2: Believe the data, it can't lie. Listen to your advisors, they are being paid to think and to make good decisions for you.
The hope grows: Even after 3 months of digging, uncovering and our feeble explaining, the investor continued toward a close. The CEO promised everyone jobs...against being advised not to promise anything by the investor and by the CFO and I. He was also working his personal deal with the acquiring company. By this time, all meaningful responsibilities were removed from me. Since I still wanted to maintain my principles and could not violate supply agreements and contracts, the CEO decided that only he would run the "sensitive" areas of the organization. He changed ingredients, juice claims, and formulas to meet whatever promises he had made to the acquiring company. "Why yes, we have the highest antioxidants on the market. No, the competitor's products are mislabeled, we clearly use more juice than they do." I managed the production schedules, oversaw the bottling runs, and made sure my suppliers were paid. I hoped a deal would go through to end my misery. I stayed for one reason: There were people in the office more susceptible to office politics and they needed a buffer. I chose to stay to maintain a good office environment, to help them through some tough times, and to help them transition to the acquiring company's expectations. I took the month of July off to go to Kenya with a mission team. While I was gone, the CEO changed the labels to show that we had a higher level of juice than the competition...but he didn't change the formulas, just the label. He waited until I was gone, then bullied his co-founder, the CMO and CFO into complicity. The formulas were finally changed, but only after the new acquiring company nagged me on a daily basis for what was promised in the deal. Surprisingly, the formulas that I finally got were very different from what I had prior to leaving on vacation. When the VP of production at the acquiring company asked me how these formulas ran on the production line, I told him that I didn't know...I had never seen them before. He was dumbfounded and wondered aloud what was going on in our company. I mentioned to him that not only are the formulas untested, the costs were out of line. When I told him that they were, he laughed and said, "That isn't the worst part, your CEO just talked our Sales Execs into a price reduction." So now we were taking down both price and margin at the same time. He ran that up the line to his boss, and I got a swift dressing down by the CEO, natch.
Important lesson #3: The people really are the reason for a company's success or failure.
The Deal goes through!: Months of worrying and scurrying ended with the signing of a deal in August. The CEO's promise of employment for all was sadly mistaken. Only he, the co-founder, and sales group were retained. The rest of us got the boot after transitioning our responsibilities. The total amount of the deal was also kept quiet, and 50% of the cash was being held in escrow for 18 months to settle any and all legal issues. The CEO got his cash, and everyone else has to wait 18 months for theirs...if there is any left after paying legal fees and corporate fees for the old investors. His poor co-founder got screwed more than the rest of us put together. He had been promised founders shares from day 1, and faithfully worked his butt off for the ungrateful, selfish and greedy founder. At one point he worked without pay to help with cash flow, hoping that his unselfishness would be noticed and rewarded when the cash out came. With nothing in writing, the co-founder got only what was approved by the board...his worthless options. Memory fades quickly when cash is involved. Truthfully, I am not counting on getting anything for my two years of enslavement. I expect the old investors will submit their exorbitant fees to "administrate" the old company, and I expect the lawyers will siphon the rest to settle the lawsuits. But I would have donated any proceeds to my non-profit group anyway.
Important lesson #4: Get it in writing!
It gets better...you just have to wait: An old friend offered me a consulting project to help him develop his business and to provide technical help for his flavor company wherever possible. I appreciate his generosity and entered into a 3 month contract. I work 3 days a week at his factory providing technical and business development help where I can. It has been fun helping him identify ways to get his flavor company to grow. He is graciously figuring me into his budget for next year in a bigger role, but unfortunately it is in California.
So the year is ending on a positive note. Mercilessly, the new acquiring company let me go. They were generous and professional and I appreciate how they handled things. I hear that sales are slumping, costs have risen, and they are having supply issues with their contracted suppliers. Who would have thought?
Life is really Yin and Yan. While I write this negative experience to unburden my heart, I have the exact opposite experience with SmartCup. It has been a year of immeasurable successes, great experiences and heart-warming interactions. The balance that SmartCup was able to provide for my life is a salve that I could not have survived without.
Important lesson #5: Find the balance.
I hope all of you have a great New Year's celebration and don't get too caught up in the resolutions thing...it isn't that important to identify what to change, just be open to good change next year.
Chow!
