In my first business, aside from (considerable) help from family, I flew solo for the first two years. No business partners, no employees, no staff. As my business grew, I started needing more and more help. I finally found what I thought was an ideal partner, but unfortunately, we couldn't see eye to eye and had a bad break up that ground my business to a halt.
I met Sally* (*names have been changed) at my first trade show in New York (NYIGF) where I exhibited my products to buyers from all over the U.S. She owned a company that manufactured the same type of product as mine. If you've ever exhibited at a trade show, you know about the rampant paranoia among the exhibitors. After I finished booth set up on the first day, a fellow exhibitor came by and advised me to seal off my booth overnight so competitors wouldn't copy my booth design or products. She told me that in the past, a number of businesses were known for stealing product designs from others at trade shows. I thought she sounded kind of paranoid, but I looked around and sure enough, some folks had covered the front of their booths with sheets or even installed removable walls so the booth could not be viewed after hours. Her words were still ringing in my ears when Sally approached me and introduced herself as the owner of a rival company.
Sally seemed friendly, open and genuine. Though she manufactured the same product as mine, her designs and aesthetics were totally different and we had different target customers. I was a bit guarded when she asked questions about my products and couldn't tell whether the questions were innocuous or an attempt to get proprietary information. I had a fabulous show with lots of new accounts opened and Sally and I agreed to keep in touch.
A year later, I had the opportunity to exhibit at a show for five days in Atlanta. When the show coordinator mentioned Sally's company was exhibiting, I figured it might be worthwhile. I contacted Sally to get her thoughts on the show and trade notes. She would also be coming from the Northeast and she gave me some shipping tips. We made plans to meet up and have dinner.
When I got to the show in Atlanta, Sally's booth was just around the corner from mine and it was reassuring to see a familiar face at such a huge show. Every day we met up for a few minutes to talk shop and commiserate and had a great dinner out one evening. At the end of the show, we again promised to keep in touch.
Sally and I touched base every few months to talk about our businesses. About a year and a half later she mentioned she was coming to Philadelphia for a few days, so we made a plan to meet for dinner. I was excited to see her and hear how her family and business were doing.
By this time, I was totally overwhelmed and in over my head in my business. I couldn't keep up with production demands, orders were falling through the cracks, I had a new baby, and my long-suffering husband was sick of packing up boxes of product for me when he got home from work. Something had to give and I resolved to find someone to take over my production so that I could just manage my business.
Sally and I met at a really nice restaurant and caught up. I described how I'd recently had a second child and was having trouble managing an infant and the production demands of my business. I asked if she knew of any outside manufacturers and to my surprise, Sally offered to take over my manufacturing! I was elated. Her company didn't have the five-figure minimums I had typically been quoted, and I knew she had high standards for her own products. I eagerly agreed and promised to draw up paperwork as soon as she was done with her trip. Little did I know, this would be the beginning of the end of our friendship and temporarily, for my business.
Sally agreed to a confidentiality agreement and we discussed terms for production. I agreed to pay her company by the hour, which was my first mistake. I wanted to make it worth her while to pick up my production and was afraid that if I insisted on paying her by the piece, she'd quickly demand higher minimum runs of each SKU, which would mean I'd have unsold inventory sitting around. For the first time, she also mentioned she recently launched a product that sounded very much like one of my best sellers. I was irritated and suspicious, but still just grateful she was helping me, so I didn't say anything. Mistake number two.
Our problems began immediately. I'd had someone pack up materials to send to her and didn't supervise the packing or insist that a packing list be created. I got an angry email from Sally that the boxes were in such a disarray that she and her assistant spent hours unpacking and arranging the materials. She insisted she would have to charge me for the time spent organizing. I got angry and refused to pay for the preparation time. I started to feel like she was trying to rip me off.
Unbelievably, we spent the next three days emailing back and forth over this disagreement about paying her for the several hours she spent unpacking the materials. I got angry and started to lawyer her, demanding that she immediately send my confidentiality agreement over with her signature on it. (she had agreed to sign it via email, but had not yet mailed it back signed- mistake number three). She sensed my mistrust and asked how I could do business with someone I didn't trust. She abruptly told me she was sending all of my materials back to me and wanted nothing more to do with me or my business ever again and wished me luck.
Ouch. Sally's words really stung. In my crazy mind, I started to wonder if she did all of this on purpose to hurt my business. It was the end of summer and it was about to be super busy season just before the holidays. I knew that without Sally I couldn't possibly keep up with any orders for the upcoming season or find a new manufacturer on such short notice. I cried for several days, distraught that someone had so callously ruined my business. And then, I had a revelation.
Sally hadn't ruined my business or intended to hurt me. The predicament I was in was solely my fault and I had no one to blame but myself. It was time to put on my big girl pants and figure out how the hell things had gone so wrong.
Where did I go wrong? Here's a partial list:
1) I should have had a solid manufacturing plan in place from the beginning, complete with alternatives if a manufacturer fell through or ran into problems;
2) I should not have entered into an agreement with someone I didn't trust;
3) I should have had a written agreement with Sally that provided for payment on terms I was comfortable with or negotiated the terms further;
4) Sally and I should have discussed expectations in greater detail, including what tasks I would be charged for, how she wanted me to organize things for her, etc.;
5) When things got difficult, I should not have immediately launched into a-hole lawyer mode and should have stepped away from the situation for a day or two until I was calm.
I think I was totally wrong to mistrust Sally. And until I fully trusted her, a business agreement with her would never work because I'd always be suspicious of her actions. That's no way to treat people you do business with. Needless to say, Sally and I are no longer on friendly terms and I have not heard from her in two years. This was probably the hardest business lesson I ever learned.
Ultimately, make sure you trust everyone you do business with. If you don't, find someone else to do business with. Secondly, even if the person is a friend, discuss all expectations and get them in writing up front, not when you're already in business together. Third, always expect that people have good intentions until they've shown you otherwise and not the other way around.
Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way. When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.