A Little Story About Failure (Part 2)
The Almost Rise....And Ultimate Fall of My Uncle's Company (*Disclaimer: These Views Are My Own and Do Not Represent Any Organization I Am Affiliated With*)
If you read part 1 of this story, you’d know my uncle had an long and winding career, filled with pitfall after pitfall, which culminated in his position as CEO of an alternative energy company called Altek. This is a story I will now further illuminate.
A Mouthy CEO
To pick up where we left off, my uncle became CEO of this company by way of a colleague who owed him money and gave him shares in lieu of payment. Altek (whose website is still running somehow) developed a fuel cell which ran on a proprietary aluminum-based compound. My uncle shopped around this description to investors, along with a deck and a grainy 80’s style video showing how the fuel cell powered a lamp, portable fridge, and a small TV all at once.
For a normal company, a working prototype and a deck would’ve been enough to secure an angel investor, even without revenue. But my uncle’s company was not a typical company, namely because he didn’t speak to investors as a CEO typically would. My brother recalls a meeting he coordinated with a wealthy individual; this individual asked many questions about the product, to which my uncle’s response was,
“What your questions tell me is that you really don’t understand what we’re trying to sell here.”
I don’t care how stupid the question, your job as an entrepreneur is to educate people about your product. Needless to say, the rest of my uncle’s external fundraising efforts were unsuccessful, and my family stepped in to fill the gap - with the equivalent of my college tuition. My father didn’t mind putting some money in because he believed in the idea and, just like my uncle, believed we’d make a windfall.
*Excerpt from Altek pitch deck*
Money, Money, Money, Money
Cash in hand, my uncle was ready to begin producing units. He contracted a manufacturer in Canada, and things were finally looking up. In the meantime, he claimed to be receiving multi-million dollar acquisition offers from foreign organizations in Russia and the Middle East, and rejecting them all in favor of growing the business to what he believed would be worth over $1B (whether the offers were real is still dubious to me). Some of these organizations did however put in pre-order requests for the product, though without any upfront cash, which probably would have been useful for the ensuing events.
*Target markets, excerpt from pitch deck*
As is the case with many large scale manufacturing projects, the estimated costs at the beginning did not necessarily reflect the final cost of production. Changes in design and disagreements with the contracted firm placed delays on production and required additional funds. I can imagine these types of contracts have standard contingency budgets built in (requiring some money to be set aside in case of overruns) or SOPs for what to do when the product specs have to change - which for some reason did not apply in this case. My family’s money had been poured into this project with no output.
As a result, my uncle was back on the road again, fundraising to finish building his product. My family was tapped out and he’d have to find someone else.
The Beginning of the End
Just when it couldn’t get any worse, under the weight of the stress, in addition to his chain-smoking and drinking, my uncle suffered a stroke. The business degraded along with his condition, and though my uncle is stable and functioning today, he still has delusions about the existence of his company (mainly due to cognitive impairment as a result of the stroke). He sends me contracts once in a while, which are generally unintelligible, for deals he is attempting to make to get an investment or sell the IP.
*Me as a freshman in college, thinking I knew something about business*
The Russian scientist is somewhere in Canada, working on more research but thoroughly uninvolved with the business. The investment is long gone, never to be seen again. We've all moved on, but there are many things to be learned from both this story and my uncle’s other business ventures.
Learnings
1) Don’t cut corners. Things will usually cost more than you think and be prepared when money runs tight. Don’t take others peoples’ money unless you feel comfortable that it will get you to your next round of fundraising within a reasonable timeframe. And if you still take it, make sure those investors are liquid enough to give you more money should that cash run out.
2) Don’t enter an industry you know nothing about without the proper help, advisers, and/or team, unless you’re prepared to spend a very long time and large amount of money learning the ropes. You will run into problems you would not otherwise know about unless your had experience in that particular industry.
3) Thoroughly vet peoples’ backgrounds and business dealings. Speak to references, do background checks, scour the internet, whatever you need to do to feel like you know this is a trustworthy person. If there’s an inkling of impropriety, better to not take the risk. There are many potential pitfalls in starting a new business, but people risk is one that you can mitigate to an extent.
4) Finally, and most importantly, act with humbleness and kindness. People will want to work with you for it. Bravado and a know-it-all attitude will impress very few people, and they’re probably not the people you need to impress.