Early 2005 I was asked to invest funds into an exiting new ecommerce startup. Business plan was solid, there was good competitive advantage over most competitors, I personally knew the founder and my overall feelings on this venture were good. Some of my friends did advice me against this venture due to excessive NDA/secrecy levels the founder insisted on, but I decided to continue. The investment went forth and I also became an adviser for this new venture.
Soon the business was started and marketing pulled people into the web shop. In just few weeks were we had good flow of orders continuously coming in. Things looked positive.
The company was however in dire trouble. Most of time and resources were used to create advanced systems & processes to support high levels of demand which were assumed to soon be there. Some key operations were outsourced and off-shored. Information flow within the company or towards investors was almost non-existent. Supply/Demand management was totally out of control and serious problems in customer satisfaction were starting to appear.
It was clear that something had to be done immediately. On top of my primary work I started working in the new company, trying to assist it back on track. Some problems were easy to fix, but it soon became apparent that there were critical problems in the way the business was structured and managed.
Finally I had to admit to myself that under current management the business was going to fail soon. And I did not have power to change things to the model which would have made more sense to me as the founder had majority control. And it was already too late. Ultimately the business failed, not with a bang but with sort of a sizzle as everyone just stopped working with the company.
In hindsight my mistake is clear. My great trust and hopes were quite misplaced and I continued to follow misguided vision long after problems became well apparent. Numerous danger signs were visible at different times, but I ignored them all. Likely I didn’t want to face the truth so opposite to my hopes and world-view.
After the failure I was quite depressed for a while. I had put fair bit of money and large amount of time towards this venture. Pure business failure would have been more acceptable, but my failure in estimating people felt really bad.
Ultimately I was able to leave this episode behind and move onwards. Now I consider this as most helpful experience which made me realize how unpredictable people can be and how hope can blind us all. This also made me more critical towards my own opinions and more eager to ask opinions from others.
- Trust But Validate
- Do Not Ignore Small Warnings
- Information Is Power
- Premature Scaling == Disaster
- Cut Your Losses