He never would have said what he did if he knew I had his investors on speed dial
Oftentimes, there’s an unspoken camaraderie amongst fellow founders — even if they approach you via a cold email. It’s kind of like nepotism, where by the nature of your shared entrepreneurial plight, 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 bump up on the credibility list, no matter how baseless.
That’s precisely why I was so shocked when a seemingly standup founder of a “booming”, well-funded startup — though one in an undoubtedly controversial niche — reached out with an offer. This founder wasn’t selling me anything; he was instead asking to “buy” something from one of my under-wraps businesses.
When I say “under-wraps” businesses, I’m referring to one of the businesses I own, but for which I’m not publicly associated. In other words, this founder didn’t actually know I would be the one on the receiving end of the email — and perhaps that’s why he thought he could pull the wool over his email recipient’s eyes in a bait-and-switch deal I didn’t see coming.
The public-facing persona associated with this business is not publicly portrayed as a business-savvy person at all, and in retrospect, it makes all the more sense why he thought he could take advantage of her. Here are a few warning signs that you’re dealing with a sleazeball 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 fellow founders. When an offer includes fast cash, little effort on your part, or a seemingly outsized promised outcome, your B.S. meter should be blinking. However, that’s the obvious red flag; many of the equally dangerous warning signs of a soon-to-be-scam are veiled under a much more convincing and appealing pitch.
As a founder, one thing to which you’re not immune is flattery. Whether it’s your first startup or your tenth, receiving a doting note full of detailed compliments praising the intricacies of your product or service can instantly allow the flatterer to pass through the B.S. filter a little too easily. Since the flattery was so in-line with our gushing customers and coming from a synergistic startup in an adjacent industry, it seemed all the more credible. Thus, I — from behind the keyboard — took the bait.
The deal seemed like a no-brainer:
- It aligned with our industry and target market
- It was offered by a large, seemingly credible, well-funded startup
- The co-founder reached out directly with a detailed sales pitch
- It wouldn’t cost me any time or money; they wanted to pay us, leverage one of our products, and showcase us on a large stage in front of hoards of our target customers
Well, that’s what the co-founder initially implied…
Flattery is what got this founder’s cold email through my filters and sweet-talked me into a verbal agreement. Just before finalizing deal terms, this founder alerted me of an “issue” he hadn’t previously spotted.
Apparently, the product they were going to buy and showcase actually lacked a few features, and thus didn’t quite fit the criteria they were looking for. After the laundry list of compliments and weeks of back-and-forth salesmanship on his part, this criticism was an out-of-the-blue surprise.
Plainly put, this founder had all of the information about my company’s product up to this point; yet, suddenly, his criteria changed, and he now shifted his stance from flattery to frustration and downright bullying.
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 over-asking offer price
- Once the seller’s been won over by your deal terms and generous price, you start to mysteriously “find” and point out all the problems that make this dream house look like an ugly problem child (this is what the inspection report is for)
- Armed with your newfound dealbreaker critiques, you decide to renegotiate, requiring 5, 6, or even 7-figures in seller concessions or price reductions to make the deal palatable
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’d approached me.
Nonetheless, after airing out his grievances with my company’s problematic product, he restructured the deal, throwing out a low-ball price, as if he was doing me a favor. The double-irony is that at this point, worn down by weeks of negotiation 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 to be done on my part; it was just the price that dropped.
Before I proceed, there’s a moral to be learned:
Bait-and-switch me once, shame on you; bait-and-switch me twice, shame on me. In other words, it was only my fault for moving forward and walking right into the trap I should have seen coming.
We signed on the dotted line, he wired the money, and I assumed we were done. Not so fast…
Within hours of the money transfer, a few small final requests floated in. Initially, they seemed minor and optional. However, this founder’s tone swiftly changed, 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 on his specific requests, I can say that this founder wanted me to rewrite history and make material changes to our product’s presentation and marketing in his company’s favor.
Again, offering him the benefit of the doubt, I assumed he simply didn’t know or realize the ramifications or dishonesty of this unethical request. I kindly pointed out why we weren’t comfortable implementing those reputation-risking (and morally compromising) transgressions. I expected he’d gracefully bow out, apologize, or fade away and let it go, so I was shocked by his subsequent response.
His first rebuttal merged bullying and the bandwagon effect, claiming his company has “done this before” with X, Y, Z other legitimate startups, with no issue. Though that may be true, knowing he’d convinced other startups to abandon their morals for a quick buck didn’t persuade me to do the same. It was one phrase in my response that sent him boiling; when I declined his strongarming, I reminded him we were committed to maintaining our honesty as a company.
Once I dropped the H-bomb, this founder kicked his threats and requests into high-gear. If we wouldn’t succumb to his sleazy market manipulation request, we instead had to give his company an exclusive deal, far superior to the initial terms, and one that would be worth far more than even 10x the price he’d paid, due to the opportunity cost we’d be sacrificing.
The issue here wasn’t just the inappropriate and unfavorable requests he’d tacked on; it was more the fact that this founder was piling on post-deal requirements and stipulations we’d never agreed to. This is when the amicable, mutually synergistic, and previously generous offer turned nefarious, scammy, and threatening.
They say you should never negotiate in a hostage situation, since the one taking hostages has the upper hand and unlimited leverage. The same logic can be applied in some business negotiations: If your counterparty begins acting dangerous, unethical, or threatening — and you fear retaliation — accommodating their requests to arrive at a peaceful or mutually agreeable deal could be a slippery slope.
In my case, I did fear retaliation. 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 rapport and tone changed from friendly to cold and threatening, I began to question and distrust how this deal would actually end up. Sure, he’d paid us a reduced sum (comparative to his initial offer), then asked for the moon with no offer of additional compensation, but what if he used our firm morals and obstinance to comply with those requests against us?
- What if he showcased our product in a negative light, out of retaliation?
- What if he tried to claim we hadn’t held up our end of the bargain, disputing the wire or inciting a lawsuit?
Regrets: Once the tides had changed this much, the deal — though technically already “done” felt like a major risk and mistake, and I regretted accepting a cent of his company’s money into our bank account.
Apparently, he felt similarly regretful: Upon realizing we weren’t willing to acquiesce to his increasingly outrageous requests, he abruptly demanded the money back, with no regard for the lost time and effort we’d write off.