Jul 7, 2019

Betrayal and bad luck lie in wait for even the best start-up bosses

written by Lisa Eason

Since I wrote about my business problems here a month ago, I have received more than 200 communications from readers — many discussing their own difficulties, and almost all of them remarkably supportive. I will not identify any of the individuals, but their messages provide some fascinating insights.

First, big setbacks are common, even during the most successful careers. Lots of people who have started a company have experienced extreme ups and downs. One described how, in 2008, his bank pulled the plug, several clients went bust and dishonoured debts, and as a result he lost his business, then his home and marriage. Yet he appears to have recovered his self-esteem and now runs his own business again.

Another entrepreneur suffered a serious accident and had a large theft at his company at about the same time. He managed to avoid bankruptcy, sell his business and emerge in reasonable shape, physically and financially. He says he could not have survived without the help of his family.

Tales of such comebacks are life-affirming. In storytelling, there is a classic narrative arc: a protagonist faces challenges that they must overcome, they experience setbacks, and possibly end up broken — but eventually achieve some sort of redemption. This sequence echoes the chronicles shared with me by readers who took the plunge and founded a start-up.

Some of the messages I received were heartbreaking. One founder described how HM Revenue & Customs suddenly moved to wind up his business. He discovered all the papers in the chief executive’s desk, alongside a raft of unopened mail. The chief executive had suffered a breakdown, but hadn’t told anyone. Inevitably, the company went under, personal guarantees were triggered and the founder lost much of his net worth. Some years later, however, he has repaired his balance sheet and his self-confidence.

Another highly successful manager wrote to me about the one failure that still haunts him many years later. He was installed as boss of a plc that seemed to have a few issues but be essentially sound. Within months he realised that the company was almost insolvent. The shares sank by more than 90% — destroying much of his personal wealth — and the incumbent board fled the scene. He retired, hurt, to rebuild his track record and morale.

For a long time afterwards, he felt unable to walk past the plc’s head office in a prominent London street because it brought back too many painful memories. Now, enough time has elapsed for him to gain perspective on his misfortunes, and he plans to publish his version of events and the life lessons soon. I look forward to the book — he says he learnt more in that short but terrible episode than he did in the previous 10 years in senior management.

Fraud was a common theme in many of the emails I received. I suspect it is much more widespread in the business world than many of us like to believe, partly because most companies and banks prefer to avoid prosecutions, thereby avoiding unfavourable publicity.

It is simpler to sack the accused and write off the losses than help the authorities mount a case that might drag on for years, and still not secure convictions because there is insufficient evidence to support a guilty verdict. One veteran investor told me he had twice served on boards of companies where high-level frauds had gone undetected by auditors, and no one had been jailed. One of the cases even involved bogus bank statements.

These anecdotes reveal just how treacherous it can be running a business. It takes considerable and sustained effort to build something substantial, yet it is frighteningly easy for the whole enterprise to be blown off course through betrayal, bad luck, poor advice or weak management — or a combination of these factors.

Companies can be surprisingly fragile constructs, but the leaders who contacted me and confessed to their struggles were not fragile. They may have buckled temporarily, but over time they found hidden resources and resumed their lives. Adversity somehow made them stronger, and also more appreciative of their many advantages.

It seems that setbacks can frequently furnish the best education. Veteran venture capitalists tend to like entrepreneurs who have tasted failure as well as success. It makes them more rounded — and, in the end, more human.