He never would have said what he did if he knew he had his investors on speed dial.
Often, there’s an unspoken camaraderie between fellow founders, even if they approach you via cold email. It’s kind of like nepotism, where by the nature of your shared business predicament, you instinctively give them the benefit of the doubt. It’s the “we’re all in this together” and “founders helping founders” vibe that gives those cold founder-to-founder emails a boost up the credibility list, no matter how unfounded.
That’s precisely why I was so surprised when a seemingly high-profile founder of a well-funded “booming” startup, albeit in an admittedly controversial niche, approached with an offer. This founder was not selling me anything; instead, he was asking to “buy” something from one of my hidden businesses.
When I say “covert” companies, I mean one of the companies that I own, but am not publicly associated with. In other words, this founder actually didn’t know me he’d be the one on the receiving end of the email, and maybe that’s why he thought he could trick his email recipients into a bait-and-switch deal that I didn’t see coming.
The public-facing person associated with this business does not publicly present herself as a business-savvy person, and in hindsight it makes a lot more sense why she thought she could be taken advantage of. Here are some warning signs that she’s dealing with a sleazy for a precarious deal that probably isn’t worth the time or risk.
We’ve all heard the phrase “if it sounds too good to be true, it probably is,” and that’s no exception for deals coming from other founders. When an offer includes quick cash, little effort on your part, or a seemingly outsized promised result, your BS meter should flicker. However, that’s the obvious red flag; many of the equally dangerous warning signs of a scam ahead are veiled under a much more convincing and attractive tone.
As a founder, one thing you are not immune to is adulation. Whether it’s your first startup or your tenth, receiving a loving note filled with detailed praise praising the intricacies of your product or service can allow the sycophant to instantly pass through the BS filter all too easily. Since the adulation was so in line with our effusive customers and coming from a synergistic start-up in an adjacent industry, it seemed all the more believable. Therefore, I, from behind the keyboard, took the bait.
The deal seemed like a no-brainer:
- Aligned with our industry and target market.
- It was offered by a large, apparently credible and well-financed startup.
- The co-founder reached out directly with a detailed sales pitch.
- It wouldn’t cost me time or money; They wanted pay usgrab one of our products and showcase us on a big stage in front of hordes of our target customers
Well, that’s what the co-founder initially hinted at…
Flattery is what got this founder’s cold email past my filters and cajoled me into a verbal agreement. Just before finalizing the terms of the deal, this founder alerted me to a “problem” that he had previously missed.
Apparently, the product they were going to purchase and display was actually lacking in some features and therefore did not quite fit the criteria they were looking for. After the long list of accolades and weeks of back and forth selling from you, this review came as an unexpected surprise.
Simply put, this founder had all the information about my company’s product up to this point; Suddenly, however, his mind changed, and now he changed his stance from flattery to frustration and downright intimidation.
To be fair, this can be a sales tactic in certain industries, and in some cases, it can work in the buyer’s favor. Let’s go with a real estate example:
- You flatter the seller with compliments and an excessive offer price
- Once the seller has been convinced by the terms of their deal and the generous price, they begin to mysteriously “find” and point out all the problems that make their dream home look like an ugly trouble child (that’s what the seller’s report is for). inspection)
- Armed with his new deal-breaking criticism, he decides to renegotiate, requiring 5, 6, or even 7 figures in concessions from the seller or price reductions to make the deal acceptable.
The irony here is that I wasn’t actually an intentional seller, I never put this product on the market for this type of B2B buyer, and I hadn’t approached this founder, but rather he approached me.
However, after airing his complaints with my company’s problematic product, he restructured the deal and offered a low price, as if he was doing me a favor. The double irony is that at this point, exhausted from weeks of trading and ready to recoup an ROI for my time invested, I actually took it. The terms hadn’t changed, so there was still no real work for me to do; it was just the price that went down.
Before we continue, there is a moral to learn:
Hook me up and trade me once, shame on me; Bait and switch me twice, shame me. In other words, it was just my fault for walking right into the trap I should have seen coming.
We signed on the dotted line, he wired the money, and I figured we were done. Not so fast…
Within a few hours of the money transfer, some final small requests arrived. Initially, they seemed minor and optional. However, the tone of this founder changed quickly, as did the magnitude and consequences of his requests. This is where the subtle bullying morphed into blatant ethical violations.
While I won’t go into detail about his specific requests, I can say that this founder wanted me to rewrite history and make material changes to our product packaging and marketing on behalf of his company.
Again, offering him the benefit of the doubt, I assumed he simply did not know or realize the ramifications or dishonesty of this unethical request. I kindly pointed out why we didn’t feel comfortable implementing those reputation-risking (and morally compromising) transgressions. I was expecting him to gracefully back off, apologize, or fade and let it go, so I was surprised at his subsequent response.
His first rebuttal combined intimidation and the bandwagon effect, claiming that his company “has done this before” with X, Y, Z other legitimate startups, no problem. While that may be true, learning that he had convinced other startups to abandon their morale for a quick buck didn’t persuade me to do the same. It was a sentence in my response that made him boil; when I rebuffed his heavy hand, I reminded him that we were committed to upholding our honesty as a company
Once I dropped the H-bomb, this founder launched his threats and requests into high gear. If we didn’t succumb to his sordid request for market manipulation, we had to give his company an exclusive deal, far in excess of the initial terms, and one that would be worth far more than even 10 times the price he had paid, due to the opportunity cost. that we would be sacrificing
The problem here wasn’t just the inappropriate and unfavorable requests I’d added; it was more the fact that this founder was racking up post-deal requirements and stipulations that we had never agreed to. That’s when the friendly, mutually synergistic, and previously generous offer turned nefarious, scammy, and threatening.
They say you should never negotiate in a hostage situation, as the hostage taker has the upper hand and unlimited influence. The same logic can be applied in some business negotiations: If your counterparty starts acting in a dangerous, unethical, or threatening manner, and you fear retaliation, accommodating their requests for peaceful or mutual agreement could be a slippery slope.
In my case, I did fear reprisals. With great power, in terms of audience, funding, and connection, comes great responsibility, as it’s all too easy for the wrong person to wield that power for evil, rather than good. As this founder’s relationship and tone changed from friendly to cold and threatening, I began to question and be wary of how this deal would actually end. Sure, he paid us a small sum (compared to his initial offer), then asked for the moon without offering additional compensation, but what if he used our strong morals and stubbornness to fulfill those requests against us?
- What if you displayed our product in a negative way, in retaliation?
- What if you tried to claim that we didn’t keep our end of the bargain, disputing the cable or inciting a lawsuit?
Regrets: Once the tides had turned so much, the deal, while technically “done,” felt like a huge risk and mistake, and I regretted accepting a penny of his company’s money into our bank account.
Apparently, he felt just as remorseful: Realizing that we were unwilling to accommodate his increasingly outrageous requests, he abruptly demanded that we pay him back, disregarding the wasted time and effort we would lose.