Sunday, May 22, 2016

When things don't go as planned...

It is somewhat of a maxim among entrepreneurs, angel investors, and venture capitalists that no one gets it right all the time.  Sometimes, despite the best laid plans and every good intention, things just don't go as planned.  The hard truth is that companies fail.  Losses happen.  Not every startup evolves into Microsoft or Apple.  Some, perhaps most, end up as hard lessons in life for founders, managers, and investors.

Having myself experienced a few nice wins as well as some painful losses, I've found the losses stay with you longer.  They definitely take their toll--emotionally, financially, mentally, and even physically.  It's really hard to put your heart, mind, soul and fortune into something only to see it hit the wall and pass away.  It's hard to explain to your wife.  It's hard to explain to your employees, your vendors, and your customers.

Another thing I've found is that, more often than not, there's no one who you can talk to about these things in any sort of meaningful way.  People who haven't been through it, don't really comprehend what you go through when your business fails.  And it's not something you even want to talk about with just anyone, so you tread the winepress alone, so to speak.  The isolation of it all tends to make things worse.

I remember well when a few years ago I had a company that failed.  In that particular case, we were made aware of some extremely serious allegations of ethical and perhaps criminal violations that were happening in one of our locations.  We immediately moved to investigate the situation, and once we had confirmed what had happened, we terminated those responsible.  In the process, and in an effort to be totally transparent, we notified our bank as to the nature of the things that occurred, and tried our best to do the right thing for all concerned.  Unfortunately, the damage done was extensive, and the perpetrators held key positions in the operation.  Replacing them proved extremely difficult, and the revenues collapsed.

We tried suing them, but before long our legal fees approached $100,000 per month, and it was unsustainable.  So we had to drop any hope of recovery via the legal system, and decided to focus on saving the business.  We might have made it too, except our bank panicked, refused to play ball, and actually made matters worse by first cutting off all of our working capital lines, then moving to foreclose not only on that practice, but all of our other performing locations as well.  The irony there was that our other locations were performing quite well and were in no jeopardy whatsoever.

Before we knew it, things had begun to spin out of our control, despite our best efforts.  Eventually, the bank forced us to sell off all company assets at a fraction of their true market value, and we lost every ounce of equity.  In a little over seven months, we had gone from having a profitable, growing enterprise with a bright future, to having lost everything--our incomes, our dignity, our reputation, and millions in equity.  It was a complete nightmare.

However, even though the assets and remaining operations were sold, the nightmare was far from over.  Creditors demanded payment.  Vendors who had legitimate claims for products they had delivered and services they had rendered were understandably upset.  Unfortunately for everyone, there was nothing left.  The bank took practically everything from the sale.  Of even greater concern were the dozens of patients who were left hanging without knowing who to call or where to turn to get their work completed or their deposits back.  And the amount of money they were out was no small sum, either.  At the time, we didn't really know how big that number was, but we knew it was at least several hundred thousand dollars.

So some very hard decisions had to be made.  One thing that becomes very clear in situations such as this is the wisdom of our corporate laws and legal structure which provides individual owners and investors protection against claims against their LLC or corporation.   It's for precisely these situations that those laws exist.  Knowing we weren't going to be held personally legally liable was one small comfort, but it's all still really hard.  The whole affair is heartbreaking and just plain hard.

One call that needs to be made in these situations is whether or not to file bankruptcy.  In this case, we decided not to.  I can't recall why our lawyers gave us that advice, but every situation is different.  I've often thought since just how much easier it all would have been to just take that step.  It would have been infinitely easier to have a clean break and move on.  But we chose not to do so.

What I do recall is that most of the company vendors had to write off at least a portion of their invoices.  The patient claims, however, just felt different to me.  They had been our customers, and it didn't seem right to leave them hanging without any sort of settlement or closure, so one of my partners (my son in law) and I personally paid back or settled up with each and every one.  By the time we were done, we had spent many hundreds of hours and over $400,000.  It took us over a year to see that everyone got made whole.  But we did what we thought was right.

In these situations, it's important to recognize early on that you aren't going to be able to please everyone, and you may not be able to please anyone.   In the case I've just described, the bank was mad at us for allowing such a thing to happen (in their view), and in turn we were mad at them for completely abandoning us when we needed them most, and making a bad situation far worse.  Vendors were upset that they wouldn't be paid in full.  Employees were upset when they suddenly became unemployed and didn't get their last paychecks.  Our attorneys and accounts and landlords were upset.  Patients were upset.  I was upset.  My partners and our investors were upset.  My wife was upset.  Everyone, it seemed, was mad about the situation and needed someone to blame.

Well, it's really easy to blame the owners--you know, those rich guys who must be responsible, and who everyone is certain must have somehow made out like bandits.  I understand that.  The buck has to stop somewhere.  But very few people actually knew the facts, and in the absence of all the facts it is all too easy to draw conclusions that may not be accurate.

Moreover, as one of the guys in charge, I also felt responsible.  Why did I place my trust in people who could do such things?  How did I not see it in them?  Why didn't our operations people have better systems to detect such activities before they got out of hand?  The inner recrimination goes on and on, and can sometimes be worse than the criticism that a comes from outside.

When it was over, I had lost just about everything.  That's hard to admit, frankly, but it is true.  This was no small matter, as I'm certain every business failure is for those who risk everything to try and make something good happen.  It irrevocably alters the course of your life.  It changes you and those around you.

I write this here with the hope that someone out there who may be going through something similar may know that eventually things do settle down.  While you're going through it, it doesn't seem like it, but they will, and life will go on.  Don't despair.  Be patient.  See what the lessons are and vow never to make the same mistakes.  Pick yourself up.  Dust yourself off.  Give thanks to God that it wasn't worse.  It could always be worse.  Count your blessings and focus on the future.  You'll be alright.  The sun will come up tomorrow and it will be a new day.

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