Over the years I’ve run across many people who seek to take advantage of those who have been successful. As one would think, as I’ve become more successful I’ve run into more such people, and from my conversations with other entrepreneurs, my stories are not at all unusual.
I’ve come to categorize entrepreneurs and those who live off of others’ entrepreneurial success as “Those who do” and “Those who support those who do.” I don’t generally like to categorize people in a binary fashion, but for the purposes of simplification and to make a point I’ll do it for this blog. In the latter category of “Those who support those who do” you’ll find all kinds of people in this category, from value added advisors (attorneys, accountants, life coaches, board members, etc.), funding providers, and employees who move from startup to startup. Note that despite the potentially negative connotation one could infer from the second category, no entrepreneur would be successful without the support infrastructure, services and advice that “Those who support” provide.
In the subset of those who support, however, you’ll find the gadflies, those who drift or actively look for successful and aspiring entrepreneurs with the goal of leveraging off the entrepreneurs’ success to their own benefit while adding little or no value and in fact, often endangering the value of the company the entrepreneur has built.
Examples of these from my own experience and other entrepreneurs have included:
- An outsourced accounting firm that specialized in small businesses, and whose owner would take over all accounting for the business, put it into financial hardship, then offer to take an investment stake in the business through a fund he owned (at a significant discount, of course) to help the business out of its state. This firm did exactly this to one of my companies, raising their rates from $5K/month to $80K/month within 3 months, paying all of our vendors early and delaying invoices to put the company in cash distress, culminating in the firm’s owner offering to buy out one of the business partners.
- A financial consultant who had a history of ingraining herself into companies, attaching herself to the board members, holding proxy votes to ouster the CEO/founder, then taking the company to sale, of course after she had convinced the board to give her a stake in the company. She joined one of my companies with a fee of $15K per month, which she rapidly raised to $25K/month, all while attempting to curry favor with the board and dropping hints that she would make a great interim CEO.
- Numerous calls from companies that would offer to do a “company profile” video segment that typically had a celebrity name attached to it and said they have been aired on various airlines. The cost was usually about $30-$40K for a $3K quality production that would have no value beyond a DVD that you can put on your shelf. I don’t even know if they had the permission of the celebrities whom they claimed were the hosts of their shows.
- A person who said that they were creating a localized book highlighting San Diego and the companies in San Diego, who for $1500 would include a company profile. No book was every published, and inquiries to the point of contact were unanswered.
- Numerous life insurance product sales people who ranged from highly reputable to downright shady, with products that often had ridiculously high fees and questionable ability to pay the policies when terms were met. These are often associated with pyramid schemes within the insurance company’s organization.
- Countless C-level consultants, most of whom had never actually run a business but who were happy to tell the CEO how to run their business.
Note that there are of course, plenty of legitimate insurance brokers, accountants, etc. that add value to an entrepreneur’s company. The trick for the entrepreneur is to distinguish the con artists and sleazy providers from the actual value added advisors.
One interesting point I’ve found over the years is many people who turned out to be con artists claim that “my reputation is the most important thing to me.” This always seemed to be an obvious contradiction, since the accounting firm I mentioned had been in multiple lawsuits for exactly the same sort of behavior they displayed in my company, and the financial consultant was well known in the local industry for her type of behavior. The conclusion that I came to is that for the most shady individuals, their reputation, or their perceived reputation, is indeed their most important asset since they could not go very far on personal references or from anyone doing a relatively thorough background check on them. For the most competent advisors and people I’ve dealt with, they typically didn’t pontificate about how their reputation was the most important thing to them, since their actions, time and time again, spoke for themselves.
So as you look to source advisors, follow the following guidance in distinguishing the con artists from the actual value added individuals and firms:
- Check multiple references, not just the ones they provide, but others that you find through your own research.
- Never let another company completely take over and own any function within your company without significant checks and balances and the ability to fire them, and regain complete control, at any time.
- Have other people within your firm, and trusted advisors, interview them. Many of these con artists are very good at conning the business owner/CEO by playing to their vanity and weaknesses, but often others can see these people for who they actually are right away.
- Be careful when anyone tells you “My reputation is the most important thing to me.” Their actions should speak for themselves, if they rely on no one saying bad things about them (for fear of lawsuits or other reasons) it often means they need a superficially plausible reputation in order to get their next set of rubes.