A $5000 Chair

This the story of a black faux-leather chair, the kind you can buy at Walmart for $99, that ended up costing me five grand.

Very early in the days of Distil, my partner Steve and I hooked up with this lawyer / advisor. We’ll call him Bill (not just a pseudonym. I’ve honestly forgotten his name) Steve had worked with Bill before when Steve was getting his consulting business off the ground. We would meet Bill at the pub or hockey rink and bounce ideas off of him. He helped us with the incorporation papers and similar routine filings.

As the plans around Distil started to firm up, it became clear Bill wanted to be more than an advisor. He wanted to be part of the company. Steve and I kicked the idea around a bit. It wasn’t obvious where he would fit in. He didn’t have deep connections with our target customers. He wasn’t technical. We didn’t need a lawyer in staff. So we tried him out for the junk drawer job in the startup — CEO.

So he started moving some stuff into our office, including the aforementioned faux-leather chair He made some introductions to local business men that might want to be early investors. But That was the extent of his involvement, just getting the meeting he felt was enough. No follow through after the meeting and definitely no ability to close. Steve and I realized he wouldn’t be a good fit and told him so.

He was understandably upset but behaved professionally. We asked if he would like to pick up his things, including the chair. He said, we could keep the chair. A few days later he sent a respectful email saying he was disappointed but moving on from this incident “without prejudice”. These words would come back to haunt us shortly.

Flash forward a year. We are closing our seed round of $750K. Everyone is excited, things are moving forward, it is a dream come true. During due diligence our lawyer discovered the email from Bill and asked us about it. Not to worry, he never worked for us, he never signed any papers, we were just trialling it to see how it would work out, water under the bridge.

Only our investor’s lawyer didn’t think so. Those words “without prejudice” are lawyer speak for “I’m not going to do anything now, but I retain my right to sue you at any time in the future for any amount”. They wouldn’t do the deal unless we got Bill to sign off any claims against us.

We were scared. If Bill were to find out that his signature stood in the way of us closing $750K, what would he ask for? Steve volunteered to to go talk to Bill.

Later that day Steve called. “Bill will sign the papers if we pay him $5000”. I was looking at that damn faux-leather chair. “We have no choice. Do the deal” I said (or something like that). Damn. That chair just cost us five grand I remember thinking.

I kept that chair for the life of Distil. It reminded me that the littlest things can cost you big.

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35 Responses to A $5000 Chair

  1. s/retina/retain, s/ammount/amount

  2. emily says:

    your lawyer went through email as part of due diligence? How does that work?

    • kentonwhite says:

      Our lawyer was concerned about the possibility of prior claims against technology and the company. As we were relatively young he asked for a copy of correspondence that might fall into that category. So it wasn’t that he went through every email in our in our inbox. We prescreened and the email from Bill was one we included in the package which we forwarded.

      Kenton White

  3. shawnps says:

    s/This words/these words,

    and maybe

    s/latter/later

    Interesting read!

  4. Sean Mac says:

    You got off easy; got things cleaned up and got funded. The sign he truly wasn’t a very good lawyer 🙂

    • I’d say he was a darn good lawyer but not as ethical.

      • justAreader says:

        And I’d say he was an just-so-so-lawyer. A “darn good lawyer” doesn’t care about small amounts like $5k and also he would be a better deal closer. In my eyes if you studied law and you are not able to get at least $5k in this situation, then you shouldn’t even call yourself lawyer.
        I agree with the moral part, though. Not cutting out yourself correclty, if it doesn’t work out, is quite immoral.

      • kentonwhite says:

        I came to view it as he was a great lawyer for himself, but not for us. After all, it was on “his watch” that we got into the mess!

        Kenton White

  5. Damn.Lawyers.

    I am curious though: if Bill didn’t sign any papers in the first place and was indeed just trialling, where could his (potential) claim come from? Did the chair he left behind leave damning evidence of his involvement? Was it the final email conversation? Or can anybody sue after a couple of meetings ??

    • kentonwhite says:

      There wasn’t anything that we or our legal team could find at the time that we thought he could sue us over. But that wasn’t the point. Investors are very risk averse. Just the threat that there could be a lawsuit, even a trivial one that would be thrown out of court, was enough to spook them. As our lawyer at due diligence explained — we could take the high ground or we could take the money. We chose the money.

      Kenton White

  6. Why says:

    Why not out him here in public, so that this sort of unethical behavior is put to a stop?

  7. Derick says:

    How can you honestly not remember this guys name

    • kentonwhite says:

      This has been one of most asked questions. “Who is this person?” “Why can’t you remember his name?” First this story happend over 6 years and 3 laptops ago. But that’s not the point. When this first happened I was angry. I channeled all the negative energy of the universe against this man. “I will never forget this man” I vowed.

      Imagine my surprise when many years later I realize I can’t even remember his name. This shows to me just how short lived anger really is. And I feel no anger towards him now. No desire to dig through my email and find his name. All that is now irrelevant. The lesson I learned, however, is branded on my soul.

      Kenton White

  8. N.S. says:

    This is a very interesting piece. I have no background in business, but from the gist of things, it sounds like Bill’s involvement in the company was somewhat suspect from the very beginning. To me, it appears that Bill’s intentions may have soured after realizing his role in the company was not evolving. Ultimately, lesson learned it seems. Great post!

  9. G says:

    How about you paid $5,000 for:
    1. His advice. You after all did use him to bounce ideas off for sometime.
    2. His time. He did work for you for two weeks.
    3. Interest. Since you didn’t pay him when you sacked him. Only offered him a faux-leather chair. Very generous of you!

    If I was an employee of you and I would read that, I would be looking for a new job. Why? Because of the disrespect you show in this post to your employees and their time.

    The main problem with your post is that you write it in the one-sided, good guys vs. bad guys style. Leaving a legal innuendo in an email is not nice. Neither is what you did. If you sleep well at night, so should Bill.

    The $5,000 are not a sign of Bill’s greed (that would take $500,000), but a sign that you might have hurt someone’s feelings and that he wanted to have his payback time without hurting you too much. That makes Bill not such a bad person, doesn’t it?

    • Phillip Zedalis says:

      I agree with this. He obviously knew you needed his signature he could have asked for more. It’s actually quite reasonable.

    • rizzom says:

      I also agree that this is a good response to the OP. There is clearly more to this story than meets the perusing eye. If ‘Bill’ didn’t *have* any claims against OP, there would be no legal need to pay anything to him or anyone else.

      On first glance, it appears that either the investor’s lawyer had more information than was presented here, the investor’s lawyer is in the wrong line of work, or the OP needs to find better investors.

    • Pete Warden says:

      From the description, Steve and Kenton were straightforward in their dealings. They made a deal with Bill that all sides agreed to, and were honest and direct when it came to terminating it. Bill inserted a weasely legal phrase that left him an option to sue, whilst appearing to a layman’s eyes to be closing the matter. He then used that leverage to extract $5,000 from the business. Is it legal? Sure. Is Bill acting like a jerk? Definitely.

      • G says:

        Definitely a jerk? Have we heard his side of the story?
        I love the internet but what I dislike about it is how quick we are to judge people we don’t know by something someone else we don’t know. We are developing a flash-mob mentality, and it’s this is what I dislike.

        Imaging our reactions if we read a post titled “Apparently my worth is a faux-leather chair” where someone, let’s call him William, describes two guys who asked him to help them with their startup, how he incorporated the company and, since he thought he could contribute to the startup, hinted that he would be happy to join in, but didn’t want to push it too hard. They then said yes, and gave him the CEO role. While he was adjusting to a new role (after all, he only thought about being the legal advisor of a startup), they came up to him two weeks later and said they changed their minds and that they have to let him go.
        Then they offered him the faux-leather chair as compensation.
        Then when they came a few months later to make him sign a letter that he doesn’t have any claims, he thought: “well, they can at pay something for how they treated me” and said yes, I’ll sign your document, if you pay me $5,000.

        We would all be doing the “oh, what jerks!”, “those startup people, they use you when they can and dump you when they can’t”.

        My point is that each story has at least two sides. If you want to write a post that can teach your readers a valuable business lesson, I think that you need to write it in a style that is not going to turn us into a mob. And be respectful to the people you used to work with, doesn’t matter how bitter you felt when it ended (which was my first business lesson, from my first boss).

        But that’s me, that’s what I think, I don’t have a startup, not even a blog, and what do I know anyway?

      • kentonwhite says:

        I really liked your comment. Well reasoned and fundamentally right — it is a one sided post. I’m not going to defend it being one sided. I’ve found the conversation interesting. I will take your advice into consideration for the future as it is something I sometimes forget to do. Thanks for reading and for commenting!

        Kenton White

      • G says:

        I really should proof read my comments before I post them. Apologies.

  10. Good lesson, thanks for the post!

  11. Jonas says:

    You hired a _CEO_ and sacked him after two weeks, without compensation? I’d say that would be at least questionable from a moral standpoint, depending on what his impression of the gig was.

    He could have interpreted promises that you didn’t intend. The fact that you didn’t put those promises and conditionals in writing looks quite bad. There’s a reason why you usually do when hiring someone.

    I would think things could have been much worse for you.

  12. justAreader says:

    Why would the chair cost you $5000? I don’t get that one.

  13. the lesson I learned here: in a startup, one needs to clearly define what happens when the collaboration does not work out. Ideally, one would draft documentation that covered this, signed by all involved parties. This happened to my brother: he founded and worked on a startup that was mostly funded by his two partners, and then they decided to exclude him out of the deal when things started rolling. He could not fight them because they did not have a prior agreement on how to part ways in this situation. Understandably, when founding a company with family or friends, we tend to be apprehensive / neglectful of this due diligence. it’s only after the fact we realize the necessity of such formalities.

    Also, While I agree with G about this story being one-sided, the legalese inserted in the email was not very honest. Bill should have expressed his feelings honestly and addressed the issue then, instead of saving a blank check for rainy days. Regardless of what was left out of this story, I would not want to go into business with someone who behaved in such manner.

    • kentonwhite says:

      Thanks for sharing your brother’s story. It is a tragic story. I can only hope that he has landed back on his feet. Of course it is hard for me to write about the other side since I didn’t live that story, but of course every story had two sides.

      Kenton White

  14. w9 form says:

    FoxNews analyst says he “received reports” that this death isn’t as sad as Amy Winehouse’s..

  15. Pingback: Finding Employee #1 | Battle Hardened

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