Life is about taking chances, and it doesn't matter how much due diligence is done, one can never anticipate everything. Despite this, doing nothing is not an option. Always try to mitigate your risks. Jude Smiley, principal of RainMaker Inc. shares her story.
Describe a business challenge you had and how you resolved it.
Challenge: A few years ago I was offered an ownership position in a packaging design company. I didn’t know the owner very well but thought it seemed like a good opportunity to utilize my skills and experience building a design consultancy. I had recently sold my own marketing and design company and was looking for a new venture. This company seemed to be doing great and was ready to move to the next level. I did what I thought was good due diligence and decided to jump in.
After a few months into this new arrangement it became very clear that the other partner was not only dishonest, but had been stealing from clients and embezzling company funds. My gut tangled in knots as I considered all my options. It wasn’t as easy as selling my equity and getting out, my name had been tarnished and my financial resources were already tied up. It looked like it was going to cost me a lot of money and heartache to disentangle myself.
Instead of acting in haste, I sought the counsel of my lawyers, my mentor and some other trusted associates. Together we came up with a plan to remove the partner from the company, make restitution with the clients in whatever way we could, and minimize any additional risk by locking up bank accounts, client files and so on. Once I had a plan in place, I went to the other partner and told her I wanted a ‘divorce' from the partnership. We had a long conversation and I left the office that day feeling like I was going to be okay.
When I showed up for work the next day, I walked into an empty space. No furniture, no computers, no nothing. Thankfully, I had approached all the staff and our largest client and let them know what was going to happen. It was an interesting few weeks with lawyers, police and bank managers. Thankfully I had put the controls in place so that I and my reputation were protected early on.
Resolution: Once the initial shock wore off I started to think about how I could have done things differently. I realized that I hadn't listened to all the clues or ‘red flags' that kept coming up at the beginning of my discussions with this person. I decided instead to think with my head instead of listening to my gut which is always a big mistake.
A year later, all the company's debts were paid, staff had found new jobs and I decided to dissolve the company. We filed criminal fraud charges against the partner which are still pending.
I also came to a real sense of clarity about what I was really good at, and how I wanted to best serve the world. The services we were selling at the packaging company weren't anything I was really passionate about and so it made sense to walk away and start fresh.
What lessons did you learn in the process?
Lessons Learned
- Always follow your gut. Learn how to read your own signals. For me a positive step is a strong feeling of excitement and passion. A negative is an empty, kind of dead feeling. When I first engaged in conversations with this person, I always felt strangely calm and without any enthusiasm.
- Do an enormous amount of due diligence. Don’t just read financial statements, get out there and talk to the clients, talk to the suppliers. Trust the instincts of your lawyers and mentors. They know what they are doing. It turned out that the financial statements that I “bought” into were extremely inaccurate and brought fraud charges to the table after they were reviewed by an outside accounting firm.
- Take action immediately. The minute I sensed something was really wrong, I took any and all actions I could to protect myself further. By doing that, I managed to save $100,000 in potential damages and ensure that my ex-partner couldn't tarnish my name any further. I camped out at 7:00 a.m. one day to meet my bank manager with all the legal documents and made sure we had locked all access to the accounts. My ex-partner showed up at 8:30 a.m., stood at the teller and tried to pull a cash advance out of the company. If I hadn't acted that day, she would have gotten away with it.
- Build your reputation. At the end of the day your reputation is all you have. Thankfully my reputation was strong in integrity and excellence. Whenever my ex-partner tried to tell lies or slander me, she was met with a very unresponsive audience. People already knew me, and that I would do the right thing, no matter what.
- Don't assume that other people think or operate with the same morals and ethics as you do. This was a hard lesson for me but an important one. It has taught me to ask better questions, check references and communicate openly about the standards I have for myself and what I expect from others.
In your opinion, what's the formula for success?
Formula for Success
- Exist to serve – instead of asking what you want from this life, ask life what it wants from you.
- Focus on your passions
- Decide what you truly want and create a plan to achieve it
- Take action everyday
- Recognize your accomplishments along the way
- Never sacrifice your integrity
- Enjoy the Journey
If you were in Jude's position, what would you have done differently?
Visit Jude Smiley's website at http://www.makingprofitspour.com/