It's 101 that wholesale buyers order by the case and for producers to specify the casecount and price, and for errors like this to be caught when the prices/etc don't line up. This is equivalent to not knowing that URLs can redirect, or that http:// and https:// aren't the same thing. Distributors work with 1000 brands each and don't have time (or margin) to babysit.
Also, when a company gets a much larger and different customer, I would expect any CEO to pickup the phone and talk with peers about how to manage the process. Brokers are outsourced commissioned reps, not shareholders.
A brokers main job is to get the deal done. But ostensibly they’re also there to advise and build trust. It’s easier to be a broker if people like working with you and refer you.
It sounds like the broker made a mistake on the point around payment terms.
I do agree the confusion on “units” should’ve been caught by the roasters, given order $ amount.
Reading their description, there is no real point in which anyone takes real ownership of this mistake and so something like this is probably likely to catch them again.
Did the consultant drop the ball? Yes, but so did they, in a pretty big way.
Still, I've run businesses and when you're trying to bootstrap without experience this kind of thing does happen.
If you are unsure to what extent you can or cannot depend on the consultant, you might as well do all the work yourself at that point. They cannot add value to the process; they could have not paid the consultant and worked directly with the grocery distributor.
The addition of the consultant led to a delegative mindset ("I'm paying someone to handle that problem") that ultimately didn't pan out for them.
>The addition of the consultant led to a delegative mindset
That's it right there. I've rarely, if ever, seen that work out well honestly. The consultant has no real skin in the game and so you still always should be doing your due-diligence. They're there to help rapidly guide you to competency, but they won't do that work for you, you really need to be an active participant.
They sell for 50% off right now for 42 a case, meaning normal price was 84.
84 × 6000 = 504 000
This doesn't add up with the 250k they were hoping for and the 50% off. Or am I wrong? (too bad they only have decaf yet, wouldn't have minded to try.)
The confusion here is that different types of items have different margins. but grocery is typically 30%, as is hardware / lumber. However coffee itself might be a profit center for grocery stores, and they might make a bit higher on it. Items like gifts are 50-55%, and clothes more like 70% markup.
Yeah so begging for help and everyone shows up to help but they’re still trying to take profit on the entire thing. Honestly nice work, They pulled it off. If I were in that position I would have cut the price to the bare COGs. Feels wrong to beg for help while secretly profiting off your rescuers.
Respectfully, people getting a "50% off retail value" deal on a product are not what most would simply call "rescuers". They are people who got a stellar deal and maybe got a good feel or two that they wouldn't normally have
I work in wholesale, but a different industry (electrical) and this is 100% wrong from my experience. Varies from business to business but often times our POs go out for single units rather than cases. It's actually a huge headache for us as we can't get the team responsible to keep our ERP system up to date on which units to use for which lines.
yep. Sadly, the food industry is different and in fact you see big variations across the trade, both in how buyers, sellers, brokers and distributors work.
I grew up in a piping wholesale business in the midwest that's still going after 35 years. Orders could be ea. (each, single part) or cs. (case, which is arbitrary based on supplier). That industry is never arbitrary unit (e.g. per "units")because the suppliers sell in bulk and piecemeal, and buyers all have their own specs for how they order.
So I can confirm that at least one other wholesale market is indeed different.
I've seen the same with snack foods. Never saw "unit". A single was an each and it would be said like, "$2 per each" rather than most people would say, "$2 each". I can't remember what the bundle name was case...or something, but it wasn't unit.
The situation seems to be that they thought the total order over time would be 6,000 "units" (and I've always seen "unit" as equivalent to "retail item," not case or casepack), not that the orders weren't being submitted per-case.
In other words, the issue isn't that they were selling entire cases at a wholesale unit price; the contract probably stated something like pricing of "$x/case, 6 units per case," but the issue was that a noncontractual, oral term of "6,000 cases" was conveyed as "6,000 units," leading the company to assume they had the cashflow and resources to handle that scale of order. It wasn't, and they didn't. As a result, they went negative free cashflow because they weren't prepared for the capital outlay, payment terms were subject to the entire order being fulfilled (which was 6x larger than they expected), and then the order was entirely cancelled with no recourse or break fee.
So it seems to basically have been a perfect storm of a very small, retail roaster with very limited wholesale experience signing a contract for a single deal that was far larger than they could financially handle, having to take on a bunch of high-interest and friends-and-family debt to cover the costs of fulfilling the contract, then the contract allowing a unilateral out on the part of the resale broker with no recourse for the roasters. It's not the first time I've seen a company get stranded at the growth inflection point with insufficient cash or credit to get over the hump. Looks like they might survive this learning experience, and hopefully will be a lot more cautious about growth opportunities in the future. And it might serve as a cautionary tale for some folks on this site who could find themselves in a similar situation, taking on more growth than their business can operationally or financially support.
Actually, that does have me confused as to how this could happen. Was the coffee quoted per case or per bag? And when the order came in per "unit", how did they not notice that price was 6x higher than it should have been?
I think gp comment is saying that the coffee roaster believed they were selling it at $x/bag. But the acquirer thought they were paying $x/case, which looked very very cheap so they ordered 6000 units of it.
Honestly pretty amazing that this issue could be unnoticed and grow to this degree. I guess that’s the power of wishful thinking. Obv the distributor isn’t putting much thought into this, but the small business owner certainly did.
The word unit alone begs the question, what is a unit? I wondered myself reading it the first time in their article, before I knew it was going to be a land mine of their situation. I never read how they got “grifted”. This is just very poor business management, except they managed to sell it all online with this story which is impressive.
sigh, I know. But food brokers are outsourced commissioned reps and not strategic thinking shareholders. Food brokering is a tough business and many are (shall we say) not that great, and very few think strategically.
> I would expect any CEO to pickup the phone and talk with peers about how to manage the process.
The "Think Different" mentality. I think there are too many CEOs who are only CEOs because they refuse to take advice from others. In this case, all they had to do was literally have a single person on the staff with some experience.
It's a small operation. I doubt they could afford someone on staff for this and similar responsibilities. That's likely why they went with the food broker, expecting that person to consult with them. Many of these people don't work with startups, though, so they're mostly there as rubber-stamp folks and connectors, and can't help consult.
I doubt this is some "I know better" mistake. It's an "I don't know what to do here and I asked someone I think would know but because I don't know, I didn't know how to select that person to ask either" mistake.
“The distributor made a mistake and overestimated the needs of the major retailer and the deal was off.”
It wasn’t that the order was too big; it was indeed that the middle-man screwed up. There’s no evidence that had they done more due diligence that they could have avoided the issue. Supply chain has had lots of unexpected waves since COVID anyways.
Others have pointed this out, but no one has actually done the math yet, so...
6000 "units" for $250,000 is $41/unit. At wholesale. For a product that retails for $16/bag.
It is just inconceivable that no one noticed this discrepancy. This is not a "grift" by the distributor, this is an elementary and obvious fuckup by the producer.
In fact, it's so elementary and obvious that it would not surprise me a bit if this whole thing turns out to be a publicity stunt that succeeded spectacularly well, at least for a little while, because once the cat is out of the bag all the people who bought that coffee will realize that they are the ones who got played.
> June 2022 comes, and the orders for this retailer start coming in from the distributor. This coffee was shipping to five distribution centers so we were receiving multiple orders. The orders were large but we thought we could handle it. Then the orders kept coming, spread apart by days.
So it sounds like they had an initial agreement for 6000 units, but the actual purchase orders were coming in piecemeal.
There's no question that these business owners made some stupid mistakes and probably failed to read the fine-print. On the other hand, when you are a small business looking to grow, you learn as you go along. And oftentimes you have about zero leverage with a multi-billion dollar distributor or a supermarket. You can't really ask them to change their legal terms from their boilerplate language because fuck if they are going to get their lawyers involved to change boilerplate documents at the request of a new manufacturer fulfilling a tiny order [1]. So you sign anyway and hope for the best.
[1] Reminds me of my friend who got a lucrative job offer from a large investment bank out of college, but wanted to adjust the terms in the non-compete section of their contract (something you hear suggested a lot by people here on HN). They literally laughed at him when he suggested it and said something sarcastic along the lines of "yeah, let's phone our legal team and tell them that the first year analyst wants a personalized job contract".
> So it sounds like they had an initial agreement for 6000 units, but the actual purchase orders were coming in piecemeal.
What difference does that make? They thought they had a deal to sell 6000 "units" for $250,000. If they had just bothered to divide 250 by 6 they would have immediately realized that a unit could not possibly be a bag, and they would, by their own account, have passed on the deal, and none of this would have happened.
You are making the assumption that there's some formal deal for $250k total. I don't think that was ever the case. My guess is that in these negotiations, you tell the buyer that you sell in packs of 6 for say $41/case. They run their numbers and come back to you saying "okay, we have all the info we need and we are going to take 6000 units and the formal POs will come over the next few weeks."
> You are making the assumption that there's some formal deal for $250k total.
No, I'm not. I'm not assuming anything. Here is what they wrote:
"In April 2022, a representative from this distributor reached out to us to see if we would be interested in participating in an online specialty coffee program for a major nationwide retailer. The opening order would be approximately 6,000 “units”."
At this point there are only two possibilities.
1. They asked how much they were going to be paid for these 6000 "units" and on what terms.
2. They didn't.
If they asked, the answer should have immediately clued them in that they were making a false assumption that a unit was a bag. And if they didn't, well, that's still on them.
You are assuming they knew the $250k amount at that point. When they made the deal for 6000 units, they didn't know the total was going to be $250k. They didn't know the total was $250k until they learned it was for 6000 cases later.
They must have had at least some discussion on price per unit. Maybe not about the total, but how was this not caught when they sent the first invoice? At six bags per case, either they sent 1/6 of the ordered amount of coffee, or they got paid 1/6 of the expected money.
Others have pointed this out, but it's possible that the estimated volume was quoted in units while the price was quoted in bags. That seems unlikely, but it's possible. If that is what happened, then their IQ (idiocy quotient) is not quite so far off the scale as it would have been if they really had agreed to the deal without knowing the price at all. But it's still pretty damn high.
And under no conceivable scenario are the justified in accusing the distributor of being a bad actor.
But even then the price wouldn’t make sense right? I mean - regardless of unit confusion, didn’t they have to at some point calculate a price per unit themselves ? At that point the error would be pretty clear no? I can’t think of a combination of unit confusion that results in a normal price
> But even then the price wouldn’t make sense right?
Yes, it would, if the price was quoted per bag rather than per unit/case. That seems unlikely, but it's possible, and it would make the initial confusion slightly more understandable.
Yes, that's what I thought at the time. But then I re-read the article and realized that it was intentionally misleading. It is now clear to me that not only are they idiots, they are also dishonest. The summary of the situation, in their words, is:
"TLDR: We got grifted by a multi-billion dollar distributor for $250,000."
That is a lie.
What actually happened is that a broker came to them with an offer which they accepted despite not achieving clarity on exactly what the offer actually was. They thought they were signing up for 6000 bags when in fact they were signing up for six times as many because they did not understand a term of art in their industry. This was their first mistake. Then, when they realized their mistake, they decided to proceed and invest the necessary capital to meet the order without fully assessing the potential risks. That was their second mistake. They could have pulled the plug then, but they chose not to.
Then it all fell through. That's tough, I feel sorry for them, but they are not the victims here. Deals falling through is a Thing That Happens in business. That's why there are contracts and insurance, and why finance and risk management is a thing. At every step in the process, their situation was 100% their fault. No one lied to them. No one put a gun to their head and forced them to do something they didn't want to do. No one did anything that was not part of standard business practice. The situation is entirely the result of their naivete, failure to do their due diligence, failure to properly assess risks, and unbelievably poor decision making in the face of newly discovered information.
And now they are digging themselves in even deeper by accusing their distributor of grifting them. No, sorry, they were not grifted. They were just stupid, and rather than admit it and learn from it, they are trying to shift the blame to their distributor and make this sound like a David-v-Goliath story. It isn't. It's a company-being-stupid-failing-to-own-up-to-it story.
Who cares, didn’t they know how much they’d be paid per ‘unit’?? If they didn’t ask even that they are idiots - that’s the core part of the deal, 1 unit or 6,000
No, but they were 100% given a price for the 6000 units. Nobody is shipping 6000 units to anyone unless they know and like the amount they are being paid.
Even if they spent $216k to make $250k it had to occur to them that it wasn't really worth it. They talked about them working 3 shifts, 12-16 hours every day for 6 weeks, bringing in extra people to help out to get them over the hump. They did all this so they could have future orders like this from this buyer. All for $34k after expenses.
All that effort to get them over the hump and they're basically making $10hr at best. Future orders like this wouldn't be sustainable because you can't pay labor that little. They seem like a lifestyle business that got in over their head.
Did they name the distributor? If not, your take on this is compelling. Unless these guys dropped out of middle school to do the startup thing, in which case we now have a good answer for kids in school who ask "But when will I ever need to use this math stuff?" To defend against "grifters", of course.
The person's point, I think, is that even if you incorrectly believe a "unit" to be a bag of coffee, and you're purchasing 6k units (bags) for $250k, you're then, in your mind, being charged $41/bag of coffee. That price is far too high, higher than retail: i.e., you'd be selling at a loss, or at a price point that the market wouldn't take. So if you believe a "unit" is a bag of coffee, you're not making that purchase¹, as the price is too high.
The "orders kept coming", as I understood the article, because, again, they were expecting 6,000 bags, not 6,000 cases. So by the 1,001th case arrives, you're raising eyebrows, as you're now getting more than you though you ordered. A few over is perhaps whatever, but they were going to get 5,000 cases more than expected — quite a bit more than a few over.
¹… if you've done the math. But I've seen deals in my own field done where I know very little math got done, so … I can kind of see this mistake being made.
> Reminds me of my friend who got a lucrative job offer from a large investment bank out of college, but wanted to adjust the terms in the non-compete section of their contract [...]
Maybe such requests wouldn't work in consulting/IB/law where it seems like starting comp is very regimented ("our first year asssociates all get $X unless our competitor across town raises their offer to all their first years") or in the case of juniors, where firms aren't expecting much from a 22 year old fresh college grad beyond learn to do things the way we want and grind, but I think there's still value in bringing up such matters even if they are non-negotiable.
"We can't change the contract? Darn, I really care about IP assignment clauses!" gives you some plausible ammo for asking for higher comp without just transparently saying "give me more money because you have it and I want it," plus you're subtly implying you are someone who produces IP that has value, not like all those other programmers who didn't ask.
I've never gotten a company to change their IP assignment clause for me, FWIW, but I have had success getting other exceptions.
I’m not totally disagreeing with this advice but it’s just not applicable everywhere. When you are an investment banking analyst coming out of college you don’t have any ability to negotiate salary or pretty much anything.
> but wanted to adjust the terms in the non-compete section of their contract (something you hear suggested a lot by people here on HN).
You probably hear this a lot on HN because:
- In the US, programmer contracts are often negotiable, within reasonable limits.
- Default programmer contracts are often shockingly bad for the employee. And no competent lawyer would ever advise you to sign some of the ones I've seen.
I've successfully negotiated almost every contract I've signed since I was an intern, and I've been doing this for over two decades.
In my experience, very few employers have ever read their contracts. Several years ago, when I renegotiated a contract, the leadership team said, "Wow, that really is ridiculous and unfair," and actually wound up fixing their standard contract.
I had several f'ed up contracts in the 90s-2000s, and tried to negotiate each of them. In a fairly good position several times, as they had forgotten to have me sign the specific contract (non-compete, outside of CA) when they hired me.
I got fuck all, as well. In 2 of 3 cases I think it was the VC who set the contract terms - I assume it was easier to lose 10% of their engineering team than to renegotiate, and I wasn't willing to play chicken and see if they fired me.
> I wasn't willing to play chicken and see if they fired me.
That makes negotiation harder.
There a number of books from the Harvard Negotiation Project which offer roughly the following advice:
- Make sure your plan B is good enough that walking is no big deal.
- Focus on finding a fair solution, even if you need to keep pulling the discussion back to that ideal.
Basically, 75% of your negotiation effort should be spent improving your plan B.
You want to be mostly saying things like, "I would love to work for you, but a 5 year world-wide, industry-wide non-compete is simply not fair. I knew a guy who basically got locked into indentured servitude when a private equity firm abused a similar clause. I'll tell you what. You have employees in California, right? California law strikes a pretty fair balance on this issue. What contract language do you use there?"
And if they say, "No, I don't think we can do that," you say, "Oh, I'm sorry to hear that! I was looking forward to solving your challenges with _____, but it sounds like we can't find mutually agreeable terms. No harm, no foul. I wish you the best of luck." Then you walk out the door and make the phone call to move ahead with plan B or C.
There is undeniable an F-up on the producers part here, however I think you are assuming too much in your calculation. They don't say at any point the $250k order value was the initial order as they understood it. They explicitly state that they kept getting further orders past what they understood as the initial 6k units.
I think what's happed here is that as the order kept a growing they took on more debt to fulfil it. I don't think they believed the initial order was for $250k and that they were being payed more than wholesale per bag.
Again, this is not possible unless they were complete morons. At some point they either had some idea of what they were going to be paid, at which point they should have realized that a unit could not possibly be a bag as they were assuming, or they did not, in which case they had no business being in business. There simply is no way to spin this so that this is not 100% their fault.
Neh. Perhaps the initial communication from the broker was along the lines of "Here's the deal I cut for you. The distributor is going to place several orders that together are going to add up to 6000 units."
"Great, we can do that... sounds good"
Now, the actual orders come in and the language is more concise and doesn't use industry jargon. The actual purchase order probably says something along the lines
500 cases regular (6 bags per case) * $40/case = $20000.
500 cases decaf (6 bags per case) * $42 = $21000
Total order: $41000
They get the first order like this and they say, great, that 1000 units. We should probably expect 4 more orders roughly like this. When they got more than 5 orders like this, they started to freak out.
For your assumptions to make sense, the initial language had to match up to the PO language, which I wouldn't think it necessarily the case. Not being in the food industry, I can 100% imagine how one would assume units to be bags of coffee. I can also 100% see how people well versed in the industry would know that units means cases. This is obviously a rookie mistake and I'm not even going to claim that these are astute business people, but given a kinder interpretation of events, I would say moron is a strong word here.
No one can make that judgment without seeing the paperwork. We don't know how it was written down.
Also they are a really small business. 6k bags a year, their old volume, is only 23 bags per day (5 days week, 52 weeks)! Of course they were out of their depth, and very naive to how this all works. It's not fair saying they are morons and don't deserve to be in business though.
The only circumstance in which "how it was written down" might matter is if what was written down is different from what they said in the blog post. Which doesn't really help.
There are only three possibilities:
1. The deal was written down, and it was, as they report, for 6000 units and $250,000 (modulo phraseology)
2. The deal was written down and it was not for 6000 units and $250,000
3. The deal was not written down.
In case 1 and 3 they are morons, and in case 2 they are liars. There are no other possibilities.
1a) the deal was written down for ~6000 units and X$/bag.
2a) A price per bag was been negotiated and the deal was only estimated at 6000 units, but a total was never explicitly stated as it would depend on actual order. Each actual order is unambiguous and the numbers add up correctly.
Remember negotiation, order size, and billing are three different steps. Miscommunication is amazingly easy as people ask clarifying questions like “So you want 6000 units at 7$/bag?” Thinking holy shit 42,000$. And get answered “Yes” by someone thinking 7 * 6 * 6,000 = 252,000$ yea that adds up.
Re-reading the blog it appears that the initial deal was just verbal, and the contractual element was individual purchase orders coming in. Everything seemed OK until they realized that they were getting POs for more product than they expected.
4. The initial deal was verbal or even written down, but not in a contractual way. i.e. they get an email saying, hey, we are going to follow up with multiple purchase orders that will total 6000 units
When the actual POs (which are more "legally binding" so they won't use ambiguous language or industry jargon) come in, they use language that specifies the exact number of cases + number of items per case + payment per case + total payment.
Add to this it seems they didn't fully understand all of the details of those POs. Like payment schedules, that they can return unsold inventory after certain point and so on.
The distributor likely treated them as some bigger operator that could just supply stuff and have other buyers. Or they just didn't care.
> 6k bags a year, their old volume, is only 23 bags per day
They were bigger than this, but still small. They said that 36k bags is about 1.5 years of sales for them, so that's 24k bags/year, or about 65/day (using a 7-day week calculation). 24k bags at $15/bag is $360k/year revenue, which is still quite small, especially if you have employees (and I believe some of these bags were sold through local stores, so that means revenue is less).
the units weren’t purchased, though, it was an order. If we take them at their word that they worked with a broker, then there’s numerous ways this could have happened. For example, the broker could have said “they’ll pay you $x per bag and they need 6,000 units” which would explain the discrepancy. After all, the order was for “units” but what’s ultimately being sold is bags — so there is some translation happening somewhere.
The businesses entire pitch is ethics, it would be batshit crazy to try and run such a gambit when ethics is core to their business.
> the broker could have said “they’ll pay you $x per bag and they need 6,000 units”
That's possible, but unlikely. The whole concept of "bags" just doesn't enter into it in a wholesale transaction.
But even if this did happen, they could have avoided the problem by clarifying: "So that's a total of $X, right?"
Also, at some point this deal should have been put in writing, at which point, again any ambiguity should have been resolved. They had a lawyer, surely they would have asked him to review the deal before signing?
Sorry, but there is just absolutely no way to spin this so that this is not 100% their fault.
it’s absolutely their fault in many ways, I don’t dispute that, but I absolutely dispute the idea that this must be a grand conspiracy to trick people into buying coffee with an impossible story.
They were dealing with a broker who is responsible for getting a deal done, the broker has no investment in the intricacies of the deal, so it’s totally plausible that the broker was saying whatever was necessary to get the deal done even if that meant providing ambiguous information that could have confused a naive supplier.
I didn't say it had to be a conspiracy, only that I find this hypothesis plausible in today's world.
> the broker has no investment in the intricacies of the deal
He certainly does. Brokers don't get paid unless their deals close.
> it’s totally plausible that the broker was saying whatever was necessary to get the deal done
Of course. It's still their responsibility to achieve clarity on what they are signing up for before agreeing. At the very least they should have done a sanity check on the terms and the bottom line.
The specifics of the arrangement with the broker are not disclosed but a reasonable guess is that the broker is taking a percentage. A percentage of anything is better than a percentage of nothing. Much like a realtor, the incentives of the broker and supplier are not aligned. If the broker cared about the outcome then the broker would have behaved very differently throughout the entire process.
Saying the broker would behave in the suppliers best interests is like saying a sales person in a software business will behave in the best interests of the companies developers.
The fault only extends as far as the amount of coffee they had to produce, but not the money. Had the distributors worked like the broker promised (they didn’t) then while the intense 3 shifts a day grind would have had to happen, the money issue wouldn’t be a problem, as they would have then sold it all to the distributor. So yeah, they fucked up, but not quarter million fucked up. That’s on the distributor and/or broker.
I'm assuming they had a stated wholesale price sheet somewhere - maybe it specified per bag and per case prices. They received the indication that orders for 6,000 units would come in. If even 6,000 bags was a massive deal for them, the idea that it could be 6,000 cases might not have even entered their thinking.
Not a grift. Their fault for not clarifying, and arguably a failure from the consultant to not step up and help them navigate uncertain waters. But I can absolutely see how it happened in a way that wasn't a stunt.
Something something high quality, ethically-sourced coffee?
(I don’t actually know the details of those descriptions. Playing devils advocate it sounded to me like they were trying to run a very ethical, environmentally friendly, health-focused business from the start, which is expensive as far as I can tell in the US, so maybe those prices made sense.)
The details of the product don't matter. What matters is that their "fire sale" 50% off price is $8/bag, so their full retail price is $16/bag. So they were looking at a wholesale price that was 3x their retail price and no one noticed that this was odd and bothered to investigate further. I find it hard to believe that anyone could be that stupid.
I also think it's pretty dishonorable to publicly characterize the consequences of their mistake as a "grift" by their distributor. Modest Coffee is not the victim of anything but their own negligence.
maybe they gave the broker their AMEX to pay not realizing the broker makes their money on commission. heh although that would be an even more inconceivable mistake than the dollar discrepancy.
Hello! If you read the whole story you will understand the numbers and the situation. It is all explained and you should read the whole story from beginning to end.
I worked for a company who was faced with a big customer interested in a deal that would roughly quadruple the amount of business that we did, possibly more. But as things went on all the assurances / up front claims from big company had exceptions. "Well that's not always the case." and the complexity and frankly our trust in this big company seemed to erode fast. Yeah they said they'd pay for the extra work we'd have to do, but it wasn't clear (specifically to me) if even they understood how much work that would be and from meeting to meeting expectations seemed to shift, sometimes wildly on the part of big company. The more clarifications we asked the weirder things got. It would take a dedicated team larger than our own company to really even approach / get a handle on these guy's problems.
We passed. Told them they were too big for us and frankly we weren't setup to deal with them at their scale and potential complexity. We hoped to be one day but we just weren't there yet. They took the news well.
Another similarly small company got the deal... 2 years later went bankrupt. They invested heavily to support big company, lost many of their smaller customers who were their main income (we know because they came to us), and the deal with big company failed because big company really didn't know what they wanted and ultimately should have chosen a much larger software company.
Years later big company had a subsidiary that was largely independent but had some issues that our software could solve. Big company VP remembered us and told subsidiary "just hire those guys". So we got a deal in the end / handled the subsidiary's problems easily / quickly.
Super happy they unloaded the overstock! What an incredibly stressful time, been there before and it can feel like the world is crumbling.
In a past life, I ran a small business selling lip balm to small grocery / specialty stores. It started small and then with some good ol' fashion cold calling, we got into more and more stores. Eventually direct store sales is too much for a handful of folks to operate (and if your goal is to expand outside of your local region).
The next step (which they are at) was to start working with one of the big distros (I'm guessing for them it was UNFI or KeHE). You eventually get to a point where most buyers at larger store chains (Kroger, Whole Foods, etc.) eventually just want to streamline their ordering, which means moving to a distributor (also the Regional / National buyers for the categories eventually just push that way if your sales are growing rapidly).
Looks like they mentally had gotten to that point and did the right thing, find and expert to take you there.
If I had to guess on how this whole issue actually went down, the broker / consultant negotiated all the terms with the distro and basically they (the biz owners) didn't clearly read the contract details (putting all your trust in the expert without much verification). I was in that same position once and learning the distributors industry terms is tough to figure out without outside resources / guidance. As they write in the post, the broker basically let them down, while they equally leaned on the broker too much for obfuscating industry knowledge.
Did I miss something in the article about how this was a grift? While these guys feel like they were screwed, and sure, they might have been screwed, making an order and then cancelling it isn’t a grift. No one stole from them, and I’m not sure how the multi-billion dollar grocery distributor got any financial benefit from the whole episode.
A lot of larger companies push off supply chain risk to their suppliers this way. Auto industry is notorious for it.
They might order 10x what they think they’ll need to hedge a risk on their side, fully expecting to cancel 90% of them (and telling the suppliers the opposite of course), and screw all but the lucky one. And often use that as leverage on the ‘lucky’ one too.
The numbers in this story don't exactly line up, in a way that tells a fun and clearly stressful story: (The cases have 6 bags each.)
The intro to the blog post mentions 34k bags of coffee actually made. The initial order was thought to be 6k bags of coffee, but was actually 6k cases = 36k bags of coffee. So it looks like some got sold off between the delivery fiasco and the blog post. Later in the blog post it's mentioned as approximately 30k bags sold for half off + free shipping.
It looks like at time of writing there are $5277 in donations at $50/case, so 630 bags from the fundraiser. The Fire Sale has sold out at 24k bags, short of their original 30k bag goal. (Edit: They sold out of all of the caffeinated coffee, not all of the decaf.) They raised between $173k (all $7 bags + donations) and $197k (all $8 bags + donations), not counting the substantial shipping costs for 4k cases of coffee.
The debt likely to be paid off first is $60k of personal credit cards, $65k of business credit cards, and $45k of personal loans (there's a social cost to keeping these after such a successful fundraiser). $170k total here, leaving the $66k of other debt to be paid off more gradually.
(Edit: They only have decaf left from the sale coffees. The 4k bags not put up for sale, and some remaining decaf, are all of their excess inventory. Ignore following paragraph) ~~I'm guessing that they chose to keep the extra inventory after seeing the wild and immediate success of the sale. Knowing that they can pay off their worst debt, and getting a ton of new customers as well, they'd rather have the extra 6k bags around to sell at normal prices. It's also possible that they sold out of one type of coffee first, and that helped them decide to shut down the sale, rather than keeping it updated with the different varieties still in stock.~~
Modest Coffee now seems poised to be successful. Extra stock, no longer extra warehousing space needed, exposure to a ton of new customers, and their worst debts paid. I wouldn't be surprised if they look back on this fiasco as their biggest success in a few years.
I am guessing the reason this coffee went fast is because it was a good price and the good sob story. Hard to imagine they can continue to pull that off. Fool me once yada yada
I wouldn’t be that sure about the price being good, if we’re talking about specialty coffee, which is a totally different kind of beast than the supermarket coffee.
It’s almost a half a year old coffee (time since roast), a great part of the flavor has been already lost. We also don’t know how it has been stored, temperature will also affect the quality.
just a small part:
“A lot of volatile compounds that escape from coffee after roasting is about 1000 compounds identified in coffee and out of those, 50 compounds are important for the aroma of coffee.
[…]
So, when we look after one month some of the compounds like this one Methanethiol ends up at less than 10% of what we had in the fresh coffee, but also others they behave very differently. This is means that the relative composition of the coffee changes with time. ”
there’s a lot more fun stuff in there for the coffee enthusiasts.
The kind of people that buy specialty coffee would also tend to pay attention to roast dates and have very different expectations compared to people that buy coffee in a supermarket. Half a year is a lot for this audience.
When you buy from a roaster directly something like roasted a week ago would be more like the typical age. So I'm a bit surprised, I would have expected this audience to be much pickier about the age of the coffee.
I suspect that the people buying this coffee are either:
1. Taking the "loss" to support a small business
2. Normies who feel like they are getting a deal on "Specialty coffee" that they normally wouldn't buy. Some people can't pass up a deal (esp a feel good one!)
The numbers still don't quite add, given 24k bags sold + 634 cases of decaf still for sale (= 3804 bags) is still under the initial 30k bags. But I suppose 2k bags of decaf could have easily sold in the meantime.
I didn't mean it as the biggest success in terms of revenue or profit. I meant that this fiasco would set them up for such natural and smooth future growth that in a few years, when looking back, they would tell the story of Modest Coffee with "our current success started because of a fiasco from a misunderstood contract".
Ouch. As others have pointed out, there were a number of missteps that compounded the problem but it is a nice after action report and ideally these guys have learned three things:
1) There is no such thing as asking too many questions.
2) Legal advice is expensive, getting into a bad contract more so, as a result make sure that you understand exactly what the contract says, and what "bad things" it is protecting you and them from.
3) Distributors don't make "big orders", their customers do. If a distributor tells you they have a big order then talk directly to the customer making the order about it. If the distributor won't tell you the customer then don't do the deal.
It looks like they survived this semester in "advanced logistics" and that will make them a much better company overall by incorporating that learning into their processes.
One of the interesting things about being at Sun from "startup" to "enterprise company" was seeing first hand the stupid mistakes that didn't kill them but they successfully learned from. I am convinced this is part of the "business experience" for everyone but couldn't prove that from my own experience (I might just pick companies to join that learn things by pain :-)
How on earth do you accept an order for X “units” without ever double checking what a unit means? Even if it was really individual bags, wouldn’t you at least want to know what weight the distributor expects?
They use the word “grift” so many times, but really it was just stupidity on their part. It’s your job to understand how the industry you are entering works.
The only grift is this fake sob story to get sympathy and get rid of excess inventory (and of course the internet ate it up).
The obvious reason the details of their story don't make full 100% correct post-facto sense is because they hired someone specifically to facilitate their interaction with the larger market. They trusted this person to get these details right, so that they could focus on their actual business of making coffee. It turns out that person was some kind of incompetent, and they themselves were left holding the bag(s).
I'd guess that the reason they don't name names is that most of their ire is directed at this facilitator, their attorney has advised that naming them could end them up in a nasty libel suit, and the last thing they want is any more "excitement". I'd also guess that the title/narrative puts the focus on the big company for better virality.
> It turns out that person was some kind of incompetent, and they themselves were left holding the bag(s).
I understand that that is the story they want to tell us. But that story doesn’t add up.
If you are selling anything you need to know at the point of signing the contract how many you need to deliver, for how much each, and what is the total.
Even if the person negotiating completely drops the ball at worst you will realise something is very bad when you look at these three numbers. Either the price you receive will be 6 times as much as you expect, or the count won’t match your expectations, or the total won’t match.
Or the price was listed in $/lb, $/bag, or the distributor even played sloppy with the definition of "unit" where it meant bag in some places, and carton in others.
As practical advice to avoid getting burnt, yes what you say is true.
But as condemnation from an Internet Investigator who's going to get to the bottom of this company's possibly flimsy story to save us from some possible omitted details? meh. I can totally see how the attorney reviews the contract, the consultant explains the terms, and the business owner is mistaken about what they're signing up for. They did think they knew, that was the entire problem.
For me, the first thing that does not make sense is investing all of the below into a venture has a 99% track record of being low profit margin and low ROI (prepared food business, especially something as fungible, nonessential, and low barrier to entry as coffee):
> Mid July, after 6 weeks of roasting 21 hours a day on the roaster in 3 shifts, working 12-16 hour days, regularly working until 11 pm to finish bagging and boxing, bringing in every friend, young and old, to help get this order done, we sent off the last pallet. In the end we produced 34,000 bags of coffee, an insurmountable feat. We were exhausted, mentally, physically, and emotionally, but we did it. We figured it would take a couple of weeks to move to the retailer’s warehouses and then the payments should be released. To make this order happen, we had to take $45,000 in personal loans from friends and family, $65,000 in business credit card debt, $35,000 from a business loan, $60,000 in personal credit card debt, $20,000 in outstanding invoice debt, and $11,000 in loans from us personally to the business, for a total of $216,000 in debt. We maxed out every credit card and depleted our personal and business savings. We had no other choice but we reassured ourselves that the $250,000 that this opening order would pay us and continued future orders from this retailer would be worth it in the end.
There's important context: they had a signed contract that they were half way through executing on and they had been told to realise the full value of the contract they had to deliver the coffee.
The natural conclusion in that situation is "we must do anything and everything to get across the finish line so all of our effort is not for nothing" and if the contract is due to pay out $250k in a few weeks, then taking on $200k of debt is plausible. Sure, an expert in the field wouldn't make these mistakes and wouldn't take on the risk however these aren't experts and so they did not understand the risk, they thought the $250k was guaranteed if they could just get to the finish line.
The debt did not exist prior to execution of the contract, the debt and contract are linked. Your comment supposes that they started out by borrowing $216k.
Hint: At the point at which they agreed to sell 6000 units, they must've agreed to a price for those units. Then later they figured out that the trader meant cases and upped the number. I'm thinking they expected to get paid about 6 times more (6 packs per case) ...
They agreed a per-unit price. But they thought a unit was a bag, when it was actually a case of 6. So they thought they were getting 6x per bag.
As someone that has gone through the process of trying go to build a business that sells to distributors, I cannot understand how you’d miss a 6x discrepancy in your price model. Your margins are slim, a 6x markup means you’re seeing more than 500% profit margin. (Probably by not having a price model, if I had to guess…)
> They agreed a per-unit price. But they thought a unit was a bag, when it was actually a case of 6. So they thought they were getting 6x per bag.
The problem with this interpretation is that it would mean that the entire second half of the story would realistically have to be a lie. Once they realized that they were getting 1/6th of what they thought, they would have to find a way to get out of the contract or go bust, which is the opposite of what they say happened. As such, it's too much of an accusation to make with essentially no evidence.
There's definitely something odd about the unit pricing and unit ordering though.
I agree it's weird, but I don't think it's up for debate on interpretation, they quite clearly state it:
> The food broker laughed and said “I wondered why you’ve been so upset and concerned. When they said ‘units’, that was cases. They’re right on target so far.” You can imagine how we felt in that moment, realizing that the person we hired to make this a smooth transition and to guide us and to tell us the things we don’t know failed to ever ask us if we were ready for a 36,000 bag order.
I.e. they thought they were getting a 6000 bag order, not a 6000 case order.
The error on pricing can only go one way; they can't have signed a deal where they charged <fair-per-bag-price> per unit and therefore don't break even at 1/6 the per-bag-price, since they would just walk away at that point instead of borrowing money to throw into a deal that they don't break even on.
So they must still break even at 1/6 the price, which means the distributor priced it somewhat-fairly (at least not below-cost) per-bag, and they originally thought they were getting an insanely good per-bag-price that was 6x what they should have been getting per bag. Again, not questioning your working when you think the distributor is paying 6x what they should is a big red flag for me. You should notice a 2x discrepancy as margins are really thin in this kind of business, and your business plan needs to have a pretty good idea of the margins in order to determine if you can even break even.
Edit to add: I suppose it's possible that they agreed a per-bag price, with "bag" and "unit" used in different places in the contract. On reflection I should reduce my certainty on the above.
Almost certainly. They way it was explained, the distributor wasn’t sure what size order they were going to have. They were told just to prepare for 6,000 “units.”
maybe the understood the margin percentage and thought it was a mistake on the other side of the contract and so went along with it. Maybe they thought "hell yeah! they messed up the pricing and we're getting a massive profit on this".
They didn't even understand the terms they agreed to. The distributor didn't "grift" them. They weren't swindled, it was just bad business decision making and lack of understanding their terms.
We normally got a copy-paper box or two of these at a time, which lasted for a few months. However, one day one of my colleagues, who did not grow up speaking English, placed the order and asked for a huge number of cases, thinking "case" was a synonym for the individual plastic boxes that they came in.
It...was not, as we found out when a delivery man appeared up with a motorized pallet jack. He's a bit miffed too: "Is there an easier way to bring up the rest?" The order ended up filling an entire closet and then some. They were still working through them when I left a year later.
In retrospect, the price was obviously too high, but it was a small part of a big equipment order--and science stuff is often eye-wateringly expensive anyway.
Perhaps not a grift, but surely the guy who arranged this deal (who they have since ceased doing business with) could have more clearly communicated to them to what it was they were agreeing. There are multiple points of failure, and it seems the company accepted the crippling responsibility on their end.
I understand that but unless he is an attorney he has no business explaining contract terms to you. Always read contracts yourself or have an attorney read them.
I recall when I took basic accounting, we learned that common payment terms were "2/10, net/30" meaning "2% off if you pay within 10 days, and it's all due within 30 days."
So it was common practice to wait 30 days (or more) and still take the 2% off.
This is in no way blaming the victim, but "for a total of $216,000 in debt" I would hope I'd just say, "no, we're not doing that." One of those hard calls that nothing in business school can prepare you for.
Many people don’t have great options and see such opportunities as possibly their only chance for a big break.
They’re playing in the big-leagues and needed the kindness of strangers to bail them out of what appears to be their mistake as going by other comments units as cases are industry standard. That the distributor couldn’t move the product compounded the issue. Supplier/distributor shenanigans are common and something to be on the constant lookout for, but this seemed pretty normal, the prudent thing to do would be to not have signed up for so much but of course they didn’t know they did. Pulling the pin early might have helped, as it wasn’t selling they wouldn’t be liable for damages for failure to supply, but it would have impaired their ability to grow.
Not suggesting those here did anything nefarious beyond overextending by mistake but there does seem to be a new trend in e-begging where someone gets themselves into a situation and seeks a bailout from social media. “Help I accidentally bought a $100K couch” for example.
I don’t blame people doing something that’ll help them. I often wonder if I were to get terminally ill and there is an expensive cure beyond my ability to pay what my go-fund-me video would look like.
I think the real problem is if there starts to be a reliance on the kindness of strangers and more people decide to dig deeper holes for themselves instead of pulling the pin.
Yup. Being able to say No to something you’d really like to be a good idea but probably isn’t, even if it has potentially very negative consequences is both really important in real life, and not as common as we all wish it was.
"One of those hard calls that nothing in business school can prepare you for."
Do you really need a business school education to see that this was a mess right from the beginning, though?
It sucks for the small business owner, but at the same time...if you sign one of the largest contracts of your businesses life and are not even sure that you are selling individual bags of coffee or cases of bags of coffee...
No business school is going to help that level of dumb...
If you read, the contract was not for the goods, the contract was about the policies of getting paid. The units was an estimate from the distributor about what was going to be needed later. There wasn't a contract about the goods. That's not how it works with a distributor anyways. The distributor is invoiced for the goods that they order, as they order them, and if you read the story, there were several orders. There is not a contract for all of the goods.
Inventory financing is a severe pain in the ass for small businesses. It makes moving up to the next level incredibly difficult.
Math example:
You sell something for $20, and it costs you $5. You have free shipping, which costs you $3. Shop and CC fees are maybe $2, so you're netting $10. Then taxes means you net $6.
So if you sell 10,000 units you've netted $60k. But to make that $60k you need to spend $50k up front to buy the inventory, and maybe $2k more to ship the inventory to you. Then you need a place to put it, so maybe $1k/month.
So when you need to order your next batch of inventory you need, say, $52k. You haven't made that much yet, because your inventory has a 2 month lead time. So you use money from the 60k in "profit" to buy inventory, leaving you no profit.
At that point you haven't made anything. It looks like you're making money, but you aren't. Maybe you dip into your tax reserve fund to buy that inventory, but the fact is that you probably haven't paid yourself much, if anything.
This is the brutal reality of small business math.
The realities are brutal indeed BUT we should all be using the right terminology here: This is all about cashflow. When you say:
> So you use money from the 60k in "profit" to buy inventory, leaving you no profit.
That is incorrect. The business still has made a $60k profit, but they have no CASH since they had to redeploy that cash toward additional inventory (which leads to additional profits).
> At that point you haven't made anything. It looks like you're making money, but you aren't.
Again, sorry: You have made $60k in profits, but you're short on cash. Your business is making money -- you now have the next batch of inventory paid for and you were able to afford that with the profits from the previous batch. Those are real assets, But your business is indeed short on cash -- this is where revolving credit lines and similar financings come into play (which carry a cost and complexity of their own).
Notably, with cost of money rising, I’d expect a non trivial percentage of existing business models and businesses to no longer be viable because of this.
I imagine there’s reasonably priced financial products like business lines of credit, especially if you’re demonstrating a revenue stream and your only issue is cash flow. Ie. You’re not borrowing money for big capex things like renovating a restaurant. Of course nothing is guaranteed. That second batch of coffee may not sell.
For a long time, those have been nearly free and easy to get. The temptation then is to continue doing more and more marginal business models, because they work and the competition does the same.
Those are getting harder to find and more expensive. Lack of those at the right time is what causes the liquidity traps the Fed is always talking about, when it happens at large scale.
Little risk of that happening now it seems, and a lot more ‘reaping’ of marginal business is likely before the Fed changes direction.
I'm very confused by your numbers here. Are you sure you haven't counted something twice?
Let's say you're moving 10,000 units per month.
You buy the stock for $50,000, get it delivered for $2,000 and store it for $1,000 - so you had to get an investment of $53,000 to set the business up.
You sell the stock for $200,000.
Making those sales, you spend $30,000 on shipping, $20,000 on credit card fees, and $40,000 on sales tax (assuming your "taxes means you net $6" means your country has a 20% sales tax which you included in your $20 selling price)
At the end of the month you owe your investors $53,000 and you've got $110,000 of cash. You've basically doubled the initial investment in a month? That doesn't sound unprofitable to me, that sounds incredibly profitable.
> So you use money from the 60k in "profit" to buy inventory, leaving you no profit.
Not exactly related but I see a lot of comments online from people usually saying "wow, this business is made up of a bunch of greedy profiteers gouging customers for doing _____ behavior" when in reality... aren't most businesses at most running at 10-20% net profit margin? Small, medium, and large?
You still have a profit of $60k. That you choose to reinvest that profit in acquiring additional inventory does not affect the profit calculation on the inventory already sold.
One thing that irks me about dealing with big businesses, that the post touches on, is payment terms. If I buy an item, I pay for it immediately (or if it’s large enough, a creditor pays for me). Big companies pay with IOUs that say they’ll give you cash later, say 30-90 days from now or after criterion X is fulfilled. They do not care if you’re a small company with poor liquidity. I think it’s absolutely abusive behavior
It's worse than that because they will drag out payment after the term has passed.
My first job out of school was for a mom-and-pop manufacturing company. I got an inquiry one day from a very well known company, and mentioned it to the boss. He gave me a long lecture about why we didn't work with that industry. They were notorious for stringing their suppliers along and holding them in a sort of debt bondage. I remember responding with a FAX (yeah, that's how it was done) explaining our terms: Pay in advance. The boss made sure that the business was never beholden to a single large customer.
We also had a draconian, hair-trigger, credit hold process. I remember overhearing the scheduler / receptionist telling a customer: "You are on credit hold right now, we can't schedule your next production run."
Cash flow is the be-all end-all. If you cannot make rent, you are done. Big business does not care. Working for a big business, I have encountered other small companies who do not want to deal with us - getting $MEGACORP to pay their bills on time is a foreign concept.
My fortune 10 company regularly pays our bills after the pay period - like 60 days late on a net 30. And then I, a technical person that just wants the damn AWS bill paid so I stop getting emailed about it, have to chase down the people responsible internally, even though they get the same billing emails. Because for some reason they didn't like the old way of setting up auto pay. Oh. And they will send literal paper checks to pay some bills... to closed offices since everybody works from home now.
The accounts payable department wastes more time than they save.
Yep, when I started out in business I focused a lot on price (and hence our margin). I then learned that with large distributors / customers the more important aspect can be the terms because "terms and conditions" of sale can make an order not an order, a payment be delayed months and even the price paid not how much you receive.
I've heard of enough similar stories that if I was ever in this sort of position I would be factoring in the risk that the large company decides to not pay.
I remember in a corporate finance class in college, we did a lot of calculations comparing prepayment to net 30, net 90 terms, etc.
The game is to maximize cash flow, though in the end, it doesn't make a lot of difference except in very thin margin businesses. But the general wisdom is to always try to take maximum advantage.
I always felt that it is a silly strategy considering that it strains your suppliers, provides little financial benefit, and big corporations blow so much money on so many other things that could easily be addressed before worrying about setting up net 30 payments.
It’s basically a free short term loan from your suppliers who are eating the inflation instead of you. It does strain your suppliers but if your business doesn’t really need them and you can force them to accept it, why not?
As a supplier, payment delay is basically a cost you have to bear to deal with large distributors. It’s a trade off between somewhat predictable volumes and cash flow availability.
I would never do a one off with a large distributor however. You are going to get swindled as this article nicely illustrates. Large distributors buyers have years of training exploiting people in your situation.
> It’s basically a free short term loan from your suppliers...
Honest question: Is this really a free loan, or is it the cost of the load hidden (i.e. the interest charges are not broken out explicitly)?
For example, if a supplier has shipped goods with a wholesale prices of USD 100 to a retailer with a net 30 day payment term, I would assume that the USD 100 includes all of the costs associated with that USD 100, including the costs of "financing" that USD 100 for 30 days.
Edit: I've known many people who started freelancing and who forgot to include all of their costs when calculating their rates, especially costs for things like repayment terms. This seems like a very easily overlooked problem for most new businesses.
I mean, yes, in a way. Suppliers are hopefully making money or they won’t be able to supply for a long time. On the other hand, large distributors love to include Most-Favoured-Customer clauses in their contracts so it’s often just an additional cost of doing business with them which has to be taken out of the margin.
That’s because I initially wrote f*ked but thought I would stay polite.
You don’t think being ordered a very large amount of a product then being told months later that actually that was a mistake and you now have to take back the products while not having been paid at any point during the process and having them try to charge you for the costs of storing it and shipping it back to you sounds like a swindle?
Groceries is a high capital very low margin business because you need to have all of the things in store before you can sell them, some of them for extended periods. Essentially this reduces the amount of capital you need to upfront and shoves it down to the next in line. The alternative would be to take a loan.
I would love it if the EU or government would enforce equal payment terms for whole company. Lets say a shop wants to have a net 30 terms with their suppliers, then they should also offer net 30 terms for their customers.
This would equalize power dynamics. The large corp shouldn’t be allowed to demand immediate payment on one side and then just significantly delay payments on the other side.
So I’d sell products to my customers (say bags of coffee) and then 30 days later come by their house (charge their credit card) to collect?
This is a terrible idea. Half of the people wouldn’t have the money and your company would become a debt collection agency. You’d be forced to charge at least 3X for the product.
No, the credit card company is on the hook for your debt and will pay the business. The credit card company will be the one coming after you in 30 days looking to be made whole.
The merchant isn't being paid immediately either though. I don't think Net 30 is unusual for merchant accounts, but it's been a long time since I was exposed to details of payment processing (knock on wood)
That is very country specific. I could do almost all of my purchases with credit card if I wished. Or with buy now pay later. I don't really care, I pay my full balance on the CC at the end of the month anyway.
It sounds like that classic “focus on the things that can be measured easily” business finance attitude that causes things like “don’t kill your customers” to be missed.
jjeaff - BNPL (buy now pay later) by companies such as Affirm may help level the playing field in applicable industries/cases as a 3rd party can shoulder the risk.
With BNPL, small companies are paid right away (within 1-2 business days), and the BNPL provider is responsible for collecting payment from the other party.
I don't think BNPL it would apply in this case specifically as the grocery industrial complex seems stuck in the last century, but in other cases it is an innovation in payment terms that could help.
Full disclosure - I have no affiliation with Affirm or any other BNPL provider.
I had similar lessons in an intro Accounting class I think, they compared the common "2/10 Net 30" payment terms, where you could take a 2% discount if you paid the invoice within 10 days. Annualized, that's a ridiculous rate of return and you'd be foolish not to do it if you have the cash on hand.
If the terms are simply "net 30" with no early payment discount and no late payment penalty, there is no incentive for the customer to pay on time.
In my experience, the larger the organisation, the longer the presumed payment terms. I've learnt to demand payment in advance, otherwise I'll get caught up pos-hoc in the labyrinthine and entirely cloistered whims of accounts departments who seem to think they're morally-placed to dictate whatever terms they wish.
Worst in my experience was Unilever, who simply assumed they could pay in 90 days, which ..er.. rankled. Thankfully the job I did was directly for someone quite high up, so a week's worth of pointed emails and calls somewhat hastened payment.
i've read comments like this before on hackernews. Are the payment terms not on the contract signed? It seems like something you'd really want to understand before starting a project...
They generally are, but if you say net 30 and set a % penalty for not paying in net 30 (common), when a multi-billion dollar corporation decides to do net 90 and won't pay the penalty, what are you going to do as a freelancer? Sue them? The amount of money you spend on legal fees would likely be multiples of the penalty fees. And it would delay payment further. Big corporations rely on this power imbalance.
Reminds me of one of my favorite videos on the internet:
"F*ck you, pay me"[1]
In which Mike's lawyer makes the very good point that you should really put an attorney's fees provision in your contracts so that the purchaser pays your legal fees if you need to chase!
yeah, i see your point. I think I fall into the trap of believing what some random piece of papers says always reflects reality. I worked for a large smallbiz ( independent pharmacy chain ) early in my career and it was like pulling teeth to get insurance companies to reimburse/pay on time and correctly despite what the contract said. We had about a dozen people who's only job was to watch them like a hawk and stay engaged with their AP department and nurture a relationship.
It can get much, much worse. We had a customer that set a net-60, it was the first time we landed an "enterprise" type deal and we sort of missed the net-60 part of the contract (I know, lol). So after 2 weeks we called the customer asking if everything was alright and that we hadn't received the payment yet. He let us know that a net-60 doesn't mean they reserving 60 days to pay, it's that they actually pay after 60 days. Well that blew our minds, but we patiently waited the 60 days.. nothing. So we called to their finance department and we got a callcenter worker in a far away country that actually tried to negotiate a 10% discount on our order for a more speedy payment.
In the end they paid 2 weeks after the net-60 expired. Probably calculated to be maximally annoying with the least amount of risk of legal costs. Really takes the wind out of you. Selling to California startup type companies is so much nicer, I once took a call, negotiated a whole new pricing model closed the deal, entered the product details into FastSpring and the customer paid 40k for the yearly subscription on that model that same afternoon.
I wonder how you could word the contract such that failure to pay on time would be onerous enough that the big company would actually move on it. Something like penalties + legal fees + treble damages or something.
Our lawyer told me years ago that you are SOL and therefore to avoid doing business with assholes and to try to acquire leverage over debtors where possible and to expect to lose money once in a while.
I guess it depends upon the type and size of the job in question. A lot of my work is invoiced upon commitment or completion, and in some cases (as with Unilever here) it's simply decided that their terms over-ride that on my invoice somewhere after the event.
One thing about credit accounts is that it allows the people placing the order to be different to the ones involved in settling the account, and for the latter to be handled asynchronously rather than holding up the order.
Imagine I need some stuff now (or on the next truck), I can place the order and it will be immediately loaded on the truck. Then separately, they'll send an invoice to the accounting department who will settle it over a week or two, which may involve moving money around, foreign exchange, etc.
And yet, if you’re a big company, transactions are expensive. If small companies need frequent payments and won’t float AP, why would you buy from them? Would you rent an apartment that insisted on daily payments? (Ok, bad analogy, but you get the idea).
I don’t have a good answer, but this isn’t a one-sided thing where the big guys are taking advantage of small companies. This is also small companies agreeing to operate the way big ones do in order to get a foot in the door.
By my reading of the story, upfront payment wouldn't have changed the number of payments.
And forget about daily. It's very reasonable to want monthly pay, and should not be a burden at all. And monthly pay would need at most a month of float, on average probably less. That's not where the real payment issues are.
Yeah frequency of payments was an example, but kind of a red herring. Consider it as “running AP differently for a small subset of vendors” as an abstract concept. It’s expensive to do 5% of your business differently than 95%.
Even in the age of computers each transaction has a cost and a risk associated. And there is no upside to large companies. They don’t want to receive per-minute payments any more than they want to send them. So if 95% of a business’ volume works one why, why invest in making 5% different just to deal with smaller vendors, who are already more difficult to deal with (for 100% good reasons).
Right? Even cloud computing companies which technically charge you per-minute pricing end up rolling it into a single monthly bill at the end of the month instead of a CC transaction literally every minute.
Almost like I acknowledged the specific analogy wasn’t great because rent is typically pre-paid.
Fine, let’s talk post paid. Electric bills. How you would you feel about an electric company that sent you an invoice and wanted to be paid daily? Yes, yes, the analogy is also imperfect because consumer electric companies can do auto-pay and walmart generally does not for small vendors. But please try to see the point even with a less than totally perfect analogy to consumer life.
Maybe your anologies just don't work, because the situation is completely different? The payment terms spoken about above are not to minimize transaction fees, often enough they are 90 days after the order is completed even for a single order, how does that minimize transaction cost (and how is that comparable to electricity bills?)?
I know that in Australia the terms in groceries are horrendous. Generally, frood vege suppliers have to buy specific boxes for delivery (from the supermarket chain) they then still have to pay rent on those boxes and if items don't sell they have to take them back (and pay a box use fee again), make items available at discount for specials run by the supermarket, on top of that the payment terms are as described above. Essentially the big chains don't take any risk, and the small suppliers all the risk. This might be particularly bad because the market is dominated by 2 chains. Supposedly Aldi and Lidl were much better at the time, because they tried to break into the market.
I would expect the electric company to work like EZPass does where you're expected to maintain a non-negative account balance that they pull money from when you go through a toll and you either periodically top it off by stopping in and paying cash or letting them do so automatically (via direct deposit / CC).
This situations where paying in advanced _every_ time would be cumbersome just means the customer has to maintain a balance. There is also a difference between a business and residence.
Interesting - in India, I have only paid house rent at the end of the month (post-paid). It was a shock to me to learn that in UAE they expected rent annually, in "advance" (I guess it is smart as that weeds out those living paycheck-to-paycheck, who may default on rent)!
It can vary by landlord and jurisdiction. Some places you’re technically paying for the month you just finished, others you’re paying for the month upcoming. It only really differs on the accounting after the first month.
My ($x billion+-sized) employer pays vendors within 2 business days of the invoice being submitted through the internal payment process, regardless of whether the payment terms allow for us to do net-30 or net-60. It doesn't meaningfully affect our cash flow to delay payment, but it makes a huge difference for our vendors. As you've noted, a delayed payment can literally be the kiss of death for a small company.
In the mid 00's I had a digital agency and we hosted sites for a few fairly large hotel chains. One day, I got an email from procurement at one of them that said, "we're holding payment on all outstanding payables until next month." The hosting billing system shut their site down at 12:00pm the day after payment was due and dutifully redirected to the "pay your bill online page".
Ten minutes later I get a frantic call from procurement, begging me to put the site up. I fumbled with the billing system, and finally told her, I think the only way to fix it is make a payment... which she did. $6,200 on credit card. The customer never missed a payment after that.
In the case of food retailers you also need to consider the time on shelf.
To take the coffee example. If any average shop buys 4 cases of coffee (24 bags) and on average sells 2 bags per week, then the last bags will sell after 12 weeks.
On avg. it will be 6 weeks (42 days).
Product will also spend 1-2 days in transit and might not be unpacked on the floor until 1-2 working days later (so maybe 2-3 days).
We can assume payments take 1 day to process.
So 46-48 days in total.
So 50 day payment terms means they are more or less cash flow neutral.
Numbers are made up, but roughly align with my experience of selling other durable food to grocery retailers.
I don't believe it's "the food business" as much as "suppliers" in general. I know non-food industries that operate this way, and it's common enough that accounting classes I've taken covered some of the basics of these.
Advertising or informational industries (e.g. non-tangible goods industries) seem to operate differently, as you've said.
I primarily do direct mail which is tangible. But the margins are thin and postage is such a big part of our cost that if a customer was going to skip payment we’d need 10 new orders to cover the loss.
So it makes sense to never extend credit.
I do think it’s very industry specific and food / retail as one of the worst.
What is direct mail? If that's rhe equivalent of UPS/USPS, then that's a service, not a tangible good. A tangible good would be something more like a part used in a manufacturing process, which is where the commonality to food comes into play - food tends to have many ingredients that come together into a final product - but anything following this tangible good line, from my experience, will follow these terms.
The reason kind of seems to be to give more flexibility to the supply chain. If everyone required payment upfront to get items to shelves or lots for customers to buy, then the risk goes more fully on the last link in the chain. It appears this pattern began to spread the risk to the entire chain.
Direct mail is junk mail. I help the dentist, roofer or gym in an area send advertising snail mail to the homes near them. Efile there is a service element, we also print the ad and send it. So it’s definitely also (and primarily) a product business.
Maybe not even suppliers and just organizations. I once offered tutoring services to someone who was working with the VA to get their degree. Since it was a subject outside of their normal scope and I was not a contractor with the VA I had to fill out paperwork and even then it took a year to get approved and paid for the services. Thankfully I wasn’t doing this for a living but as a favor and the person I was working with was very persistent in following up with his have supervisors otherwise I would given up long before.
Net 30 is how a lot of Switzerland operates. You can buy all kinds of things - as a consumer - on a "pay later" basis. Flights, groceries, appliances, insurance, you name it. It's a level of trust that's pretty unusual in other countries, though you can bet they'll keep chasing you (and there is a national debt register). QR codes have replaced paying in slips, but they'll send you the code in a letter/PDF and you have a month to pay.
But from the industry side. At the big corp level this is all handled by some CRM/Oracle/IBM/SAP system and once things have been approved by whatever chain of people need to sign off, the payments are automatically sent out. The flip side is that if someone hasn't approved something, or they're waiting for paperwork unbeknownst to you, you have to wait until they do another run. So you have to nag them. The people who bought the thing from you are probably not the people who will actually pay you.
I know of a few retailers that operate on Net 270 terms for their smaller vendors (Looking at you, Home Depot) and Walmart would tell us that they would reset the 'calendar' if we would call and ask for the status of a payment.
A tangent but what were you selling if i may ask? I'm developing a little bluetooth device that lots of people in a large hobby would find interesting and was fantasizing about pitching the prototype to a reseller.
more specific to the physical goods business. if we establish a relationship where I'm regularly ordering merchandise from you - invariably we set up a regular billing cycle w/ a 30 day payment-from-invoice.
I remember reading that one reason suppliers are willing to work with WalMart despite the low prices they pay is that WalMart doesn't play these games with delayed payments - they pay exactly when they say they will.
90 day "credit" terms are typical across many industries. Yes, it sucks, but also, it's a reason to not over extend yourself while trying to get to the next level.
> They do not care if you’re a small company with poor liquidity.
This is a feature, not a bug.
If you are in an inventory-rich industry, you do not want to deal with a supplier that has no working capital.
Goods first - money later sucks if you are a small startup. But it's much easier to work with inventory and figure out the money later than vice-versa. Toyota does not want to stop the production line because their order of ball-bearings showed up late and now they have to start a new purchase cycle.
It's the other way around I've found for a lot of the automotive industry. Most of the big automotive companies try to keep their suppliers a hop and a skip away from not being able to keep the lights on in borderline debt bondage to the auto manufacturer. Puts them in a much better negotiating position and makes sure that the profits go to the auto manufacturer rather than their suppliers.
That was half the reason for the chip shortage. Auto manufacturers collectively (and incorrectly) forecast a decline in demand in cars during the pandemic, cancelled a bunch of orders for chips and a bunch of the suppliers went under. Then started offering 10x-20x for replacement chips from their few remaining suppliers (that pretty much all went to buying out wafer slots that would have been non-automotive chips) to keep a $35k car not being able to be shipped for the lack of a $0.30 part.
Yea but as a food producer (also a coffee roaster) I also get payment terms from my suppliers. And it all kind of makes sense when you think we are all adding value and margin. The “loan” everyone is giving to the people later in the chain is the cost of production rather than the final sale price. So for a 100k order it might cost 50k to produce in cost of goods. That 50k to the suppliers is probably 35k etc.
After working at a small engineering firm whose owners were pretty open about the finances. Every time I read or hear someone ranting about how people with small time incomes and few assets have to 'pay their bills' I think back to the owners of that company bitching about this or that fortune 500 customer just up and not paying for stuff for months after it was delivered.
If you have enough brand recognition where they must have your product specifically, this usually means you are big enough that the payment terms aren't that big of a deal
I've seen this even worse outside of the US, and just how ... poor trade routes, trust and "markets" are.
It really makes me appreciate the US more. But I am still dismayed that I'm all caught up on the state of commerce and that its not even more streamlined and sophisticated.
It absolutely is abusive behaviour, and it's unfortunately pervasive across industries.
Bethesda is infamous for withholding payment to smaller companies to force an acquisition of IP. And (not to get political) big-shot celebrities like Donald Trump or online influences do it too. Often it's even worse than "we'll pay you later", it's "give us a steep discount and we'll pay you back in exposure/future opportunities to make a lot more."
The coffee producer was expecting a retail chain to pay $41/bag ($250k/6000)
I'm glad that they were able to move the bags and save their business and themselves from all this debt, but this red flag needs to be addressed and owned up.
That's what it ended up being, but they thought they landed a 250k contract to do 6,000 "units" and they were surprised when those units ended up being cases mid-way through production/ordering.
I'm not saying that the OP was blameless. I don't understand why the first thing they did after the discovering the issue was to hound the distributor and try to renegotiate payment terms. I believe the worst would have been to loose 6000 bags, which wouldn't have been too traumatic.
Edit: I haven't seen the specific order. Maybe it was written in a way that priced by bag but somehow requested UNITS in a way that the total order volume in USD wasn't clear.
The story surely paints OP in a better light than the other side would, so maybe there is more to this than meets the eye.
For sure, a good learning experience for those guys.
> Maybe it was written in a way that priced by bag but somehow requested UNITS in a way that the total order volume in USD wasn't clear.
If the price was listed per bag as $6.83/bag (assuming 6 bags/case) and the PO said 6,000-units, that's the "best light" scenario for the OP I can come up. There are literally zero other numbers (no totals, no total dollar value) and the only difference is in the "units" which could be overlooked.
But what kind of PO doesn't have some sort of total which shows how much money the contract is expected to be worth.
Actually, I now know what seemed so weird to me. If they had planned to sell a bag for $x (41 or 41/case_size) retail, but now realized that was per case not per bag, this would have reduced their profitability by a lot or completely killed it. Since there is no mention of this in the story (it was only a bout the size of the order), I'm still believing that they thought their per-bag profit was unchanged by the now larger order (otherwise they would have mentioned it or immediately renegotiated the deal).
I guess we'll never know unless we see the order details...
The point is they are claiming they understood "unit" to initially mean "bag". That seems incomprehensible, it'd mean indeed that they originally thought they were being paid $41 per bag, not case, and then realized it was $41 per case only when they realized "unit" meant case.
>>To make this order happen, we had to take $45,000 in personal loans from friends and family, $65,000 in business credit card debt, $35,000 from a business loan, $60,000 in personal credit card debt, $20,000 in outstanding invoice debt, and $11,000 in loans from us personally to the business, for a total of $216,000 in debt.
I don't find myself very sympathetic. Feels like there is plenty of evidence that the business owners here aren't the most diligent or detailed oriented.
$45k+$65k+$35k+$60k+$20k+$11k adds up to $236k
Best case this is the result of their own naivety/incompetence, worse case this is just a distasteful marketing ploy.
>>Mid July, after 6 weeks of roasting 21 hours a day on the roaster in 3 shifts, working 12-16 hour days, regularly working until 11 pm to finish bagging and boxing.
Despite this work schedule, had no problem releasing their weekly hour-long podcasts every week in June/July.
> I don't find myself very sympathetic. Feels like there is plenty of evidence that the business owners here aren't the most diligent or detailed oriented.
> $45k+$65k+$35k+$60k+$20k+$11k adds up to $236k
$20k of that, as called out by them is invoice debt. Aka they will are owed that amount but amount, they just have yet to get it from the distributor. Leaving them with the $216k number given.
People are getting hung up on the "cases vs bags" error, but it sounds like the small-coffee people overcame that.
Selfish observation: this coffee has to be close to its shelf life, despite being roasted in Jun/Jul and despite being sealed. A "one year best buy date" is unreasonably generous.
> Selfish observation: this coffee has to be close to its shelf life, despite being roasted in Jun/Jul and despite being sealed. A "one year best buy date" is unreasonably generous.
Certainly. Then consider the fact that this small business is now claiming they're going to ship thousands of individual cases, all sold with free shipping. That's going to take quite a while.
When we worked with Mega-Mart, you were required to acknowledge all orders within a certain time period, and you also had to enter all your shipments into their system as well.
All suppliers were graded by these scores etc. Errors or failure to report would end up in your company getting removed.
The problem was, the people assigned to hound us for this information were using old data. They would get a report emailed to them the night before, and by the time they emailed us about it the next day, we'd have already submitted the requested information.
It didn't mean anything, though. The ball was already in motion where someone at Megamart would leave a nasty voicemail to our salespeople who then reported it to the CEO who would then come down to give sales/IT/logistics a mouthful.
Big companies are mostly made up of small people. Small companies tend to have bigger people. If you want to become well known, stand up to the shitty ones, their complaints will do the rest for you. I think the OPs story is going to have a good ending, and I hope that broker tries to slander them because it's free marketing from someone who people in that business probably know all about already. Good luck, and nice save.
> Then, 3 weeks into the process, with the orders still coming, Marcus pointedly asked him about why they were ordering so much more than the 6,000 bags they had originally predicted. The food broker laughed and said “I wondered why you’ve been so upset and concerned. When they said ‘units’, that was cases. They’re right on target so far.” You can imagine how we felt in that moment, realizing that the person we hired to make this a smooth transition and to guide us and to tell us the things we don’t know failed to ever ask us if we were ready for a 36,000 bag order. This is equivalent to a year and a half’s worth of coffee for us. We would NEVER have agreed to this had we known. It was more than we could physically or financially handle. We immediately severed our relationship with this food broker figuring at this point we were better off figuring this out without him.
> “I wondered why you’ve been so upset and concerned. When they said ‘units’, that was cases.
Ouch.
I get a lot of flak at work and at home when I get irritated that people don't use the right words and terms and this story won't change my attitude.
Eg:
- "we want a new tab on the website" -> they want a new subdomain with a whole new CMS and a link in menus of every site
- "we want a new site to highlight this thing" -> they want a single page with a photo and a paragraph but want to be able to change it themselves at will
I worked for a web agency a while ago, where they embraced DDD and like the first few meetings with the client were only focused on creating a ubiquitous language and defining common terminology in order to avoid misunderstandings, it takes a bit of bootstrap but it's the best way to work with people who are not technical. Probably food distribution could make some use for it too as far as I can see from the post
One thing that I came back to time and time again while consulting is that most operational problems are, in whole or in part, language problems, in the Wittgenstein sense. I worked with a lot of clients to define and document “linguistic boundaries” in their organizations where terms could abruptly change their meanings, and then used that to help silos communicate more effectively with each other.
Can you provide good reading, books, etc on this skill?
I'm a junior dev and I notice this everywhere in my org. I'm just dipping my toes into DDD by Evans but it's a bit opaque to me.
I think a good place to start is through the service design lens — “This is Service Design Thinking/Doing,” Jon Kolko’s books, and IDEO’s handbook (all available on Amazon). These are all practical, business-oriented works, and will give you the language and tools you need to interact with service designers or conduct your own explorations.
In the tech side, I still think there’s a lot of value in reading through Booch and friends, even if you don’t go on to use UML in a formal way, and even old, deprecated approaches to modeling (think Shlaer-Mellor) can be valuable as an introduction to more modern (and generally more complicated) approaches to domain modeling.
For more academic and less practical works, look into philosophers of language and communication (Rorty, Habermas, Latour, etc) — if you don’t have a background there, try the “Very Short Introduction” series, which gives a good grounding before moving into further secondary or primary literature. What you get from these writers is a way to think about language, communications, and complex systems, so you’re building a conceptual toolkit. (Analytic philosophy, which is another, “mainstream” branch of philosophy, also has applications in the formal comp-sci route.)
Sociology and STS (Science and Technology Studies) kind of occupies a practical middle-ground between philosophy and design; I’ve often said that when we do service design, we’re really just doing folk sociology. There’s no shortage of textbooks, but I’d recommend looking into academic field guides for ethnographic studies (a fancy term for “going out and talking to people about what they do”) and ethnomethodological studies (a fancy term for “going out and talking to people about what they believe”). While the service design books will give you practical tools for conducting workshops and research programs, sociology books will give you a firm grounding on why those tools are used, and how to theorize effectively on what you uncover. I also like measurement theory, which is a branch of psychology concerned with understanding how to define measures and metrics — great tools for clearly defining data and reporting.
Finally, in addition to all this, consider digging into a corporate finance text or two; the three legs of the stool are product and service design; technical and operational architecture; and finance and sales. If you can read your company’s balance sheet and cash flow statements, you’ll be in a much better position to understand where you need to target investments, what the likely return on investment will be, and how much cash (or debt) is available to make things happen. Start building up a good knowledge base in all those areas, and you’ll have the tools necessary to know the “where, how, and why” to apply the “what” of technology to your organization’s problems.
I HATED people saying “we want to add a shopping cart to the website” (i.e. we want to implement a full e-commerce solution for our business that currently has none). Not because the term was wrong, but because they thought about the icon in the corner and not the logistics, legal considerations, plus whole new tech platform. Often it was mentioned almost as an afterthought… a line item in the feature list for a quote for the development of a new website.
Your examples are people "being helpful" by "figuring it out for you" when they don't understand all the specifics. Yes, that's an annoying problem any specialist deals with.
The article is about something that should have had clarity in a contract. It's the kind if situation that should involve lawyers.
If you read TFA it explains that they did consult their lawyer before and after, but that fighting them on it would cost more time and money than they could afford.
It does not say that they consulted their lawyer "before and after". They say:
"...yes, we do have a lawyer and we are currently following the advice of our lawyer in everything we are doing. We can challenge the contract but legal fees could run over $30,000 and take years."
Which kind of sounds like they might have hired a lawyer after the fact in an attempt to 'fix' the situation.
> Your examples are people "being helpful" by "figuring it out for you" when they don't understand all the specifics.
Oh, this definitely happens but then I just explain how things work and what it means. But it also happens a lot with people who should know better than that (with the job title and all).
I noticed that some PMs (and now also engineers) use “tab” in place of “page”. So “adding a tab” means “adding a page”. I was very confused by that and still have to double check what they mean each time.
I was buying a house many many years ago at a time I was self employed. I owned a computer company and my largest client put in an order for 20 computers.
They had Net 30 terms with me so I said to them, "I'm very sorry, I am buying a house and can't float the money for 30 days. I can refer you to someone else to buy them from."
The general manager of the company told me it was no problem, send the invoice directly to him and he would pay me the day he gets the invoice.
I sent AP and the general manager the invoice and they didn't pay me for about 45 days after they received the invoice.
As a result, I barely made settlement on my house - I was literally cashing in change at the bank. I had no furniture, not even a bed and slept on the floor for the first month I lived there.
I have a relative who runs a small business. He says that 95% of his clients pay on-time or at least something close to on-time. There's 5% who don't. As a younger man, he said he took a few of these customers to court for claims in the 10-20k range. He wanted the money but it was also the principle of it. After a few such cases, he realized that he was spending time and money in order to recover relatively small amounts. Most importantly, this was taking away from his time running the business. He found it was way more profitable to just let these cases go and focus on what he's good at.
Now, if you are chasing people down pretty regularly, maybe you have a department dedicated to handling these cases and it makes sense. But if it's a once in a while occurrence, a few thousand dollars probably isn't worth the time and effort for an otherwise successful business owner.
Yes, but like others have said, I never thought it was worth it. I like to focus on moving forward.
I have a friend who worked for a large law firm and he told me that even they wrote off some unpaid bills or negotiated discounts. I was shocked to find that even when the lawyers could deal with the legal work themselves, they chose to pass.
have you ever tried to do that? I paid $19,000 once to sue a company for $8500…
The reason was more to force their hand, but you don’t just “sue a large company” they will play games like ediscovery, and crazy-weird jurisdiction stuff
You sent him an invoice and bought the equipment for him? But you said you can’t do anything until you get paid, not until you send the invoice out to him?
The distributer said, "actually we don't need this much, so either take back this enormous amount of coffee that we know you can't handle or give it to us for free and you can "write it off on taxes," which leaves the coffee company screwed on their loans. When the coffee company says they want to take it back, the big company tries to make them pay an enormous fee. The grift, as I understand it, is in the distributor saying they needed X and then saying they didn't need it and giving them two shitty options for how to proceed.
Those options were explicitly laid out in the contract they signed, they even say that in the blog post. It's not a grift if they tell you up front exactly what will happen.
What might happen, vs. what a company decided to inflict on you are different things.
Why did the potential buyer have a sudden inability to sell any part of a large order, what changed? Presumably, if they're got the product for free they somehow would have found a way to sell it all. Maybe they (the potential buyer) were just using the small company to force a price with a different supplier.
I'm not sure if one can tell if it's grift or not; it certainly seems immoral. Like going into a small restaurant, ordering loads of food and then saying "oh, I ate before I came out, I'm not hungry" and just leaving without paying.
I'm happy they were able to move their stock, but yeah. Something got signed with these terms in it. So you need to account for the possibility or have it renegotiated.
This sounds like the business equivalent of college advisors. They had an advisor who was probably well meaning but couldn't fully accommodate the young company because of ignorance/inability/whatever and now they're deep in a decision they never would have made.
$5-10k in a decent retainer would likely have prevented this.
I'm not convinced of well-meaning. I've seen this same scam happen with a different distributor in a different domain.
This is the classic "if you owe the bank $1000 you have a problem, if you owe the bank $1 billion the bank has a problem". And thanks to the net N terms + control of the end client, you're the bank.
i neither trust nor have sympathy for anyone in the situation. i guess its because any inter-business negotiation / transaction should be assumed to be hostile since its generally close to a zero sum game, or partially one. you are trying to buy some goods / services to then sell for a profit, or you are trying to sell some goods or services for a profit that you already made. its the same as flipping something at a yard sale- sometimes you get screwed, and its basically always your fault. i guess your post reads like you think you are a well behaved consumer buying stuff at a retailer with good customer service. which is an impossibly naive or deliberately false point of view. and of course, the fact that your whole goal of writing these posts was to sell the coffee, and it worked, makes your aw shucks routine all the more suspicious. i have been screwed many times in the world of manufacturing, no one ever complains like this, you either have recourse or you eat it and dont feel bad for yourself.
edit: on top of that you are selling coffee, something that is already well provided everywhere. it would be different if there was some element of charity or necessity, but your endeavor is purely a profit seeking one (with no negative externalities, id consider it neutral to everyone else) which furthers the mismatch between your tone and reality
edit 2: of course i think its a dick move by someone to order a bunch, then reneg. but if you werent aware of that risk, you are just stupid, especially if your going to spend 250k
> This coffee is still good. It was roasted in June and July 2022 with a one year best buy date.
Still good but hardly fresh for a specialty.
Anyway. There’s a 6x number in here that somebody (or somebodies) completely missed…
Seems like what they thought was a fair-to-good deal was actually a such a terrible deal that, given their incorrect definition of a unit, the numbers in their model lined up.
That might be something the consultant could have spotted, since they’d seen the numbers around previous deals. I’m not sure it’s their duty/obligation to.
who even thinks that 6000 units will be bags. I mean considering that we are talking about food distribution it can't be bags. now consider aldi in the us or in germany, it has over 2k stores, consider it will send 50 bags per store (which is not a lot, but that would probably be around 2 cartons, which is fine for a start or special) it would only be possible to send it to around 120 stores, so why should they even bother?
now the other way round a simple person who operates like 2 aldi stores wants to order the coffee, he would probably only need around 200 bags, so why did they even think that 6000 units are bags.
its so stupid. (especially since they bothered in writing how much hours of coffee that would be...)
When you sell to a big chain, they don't necessarily put the products in every store. I have a friend in the food business and when he was getting started, the big chains would put his product in a small number of stores to see how they sold before putting in larger orders.
Unit of Measure confusion across varied supply chains is a real problem.
Here is an anecdote from past experience. This is from the healthcare sector. Our client builds and installs systems for supply chain management in hospitals in North America and Europe. Think of hospitals ordering syringes, needles, gloves, implants etc., There are a zillion suppliers providing tons of SKUs and products will have multiple vendors supplying them (for supply risk management). Each product from a supplier also has multiple variants -- for eg: gloves could be in sizes Medium and Large etc.,
At the point of ordering (eg: the nurses' station) the hospital would have setup a mapping of the logical product SKU (eg: Medium Nitrile gloves) to two or three product item codes specific to each vendor. The hospital's material management system takes care of the local inventory management and reordering.
While most of the ordering happens through electronic systems, there are still orders originating through <gasp>faxes</gasp>! It is a small fraction of the total orders placed, but it is non-zero and fulfilling them is critical. Many times, the nurses maintain thick binders full of product catalog listings and ordering procedures specific to the hospital's preferred/certified vendors. Most of the time, the exception process is to hand fill a form and fax the order to the vendor designated fax number. (Yes, it still happens in 2022/23).
In the backend, the faxed order has to be entered (ie., entered into the supplier's ERP system). Our company was doing the order entry for these faxed orders.
Once we received an order from a hospital in a small European country. The order was for "baby blankets" or something similar that is used in a Neonatal ICU. Long story short, due to a two character error in translating the unit of measure from "EA" (i.e., Each = single unit) the hospital's unloading dock received two truck full of cases of baby blankets, enough to exceed the total annual birth-rate of that small European country.
I got tired of reading "expert" opinions in this thread... All throwing numbers that "don't add up", but at the same time confusing some elements of the story to make it sound as "fake". Sometimes, there are just hard workers seeing an opportunity to grow after years of waiting and fighting. You see the deal, it sounds risky but you think you can do it and maybe it can change your life... You trust the wrong person, don't do your double checking, and boom, it just explodes in your face. Maybe that would never happen to this "experts", but it could definitely happen to me.
Direct to Consumer is the way to go. The silver lining here is that you guys got massive exposure with this fiasco and hopefully won't have to partner with (multi)national corps to sell coffee in the future.
This isn't grifting, and if they had specified the distributor it would be libel. This is a story about a small business that made a lot of bad decisions and got in way over theirs heads.
That's all well and good, but the spin to try to make themselves look like victims is pretty disingenuous. This sounds like the story you get from a teenager about how it's everyone else's fault after they're caught red handed doing something wrong.
How are they possibly not the victims after the distributor orders a vast quantity of product, goes MIA for months, and then proceeds to go "whoops, just kidding, here's your stale product back"?
They are victims, but also they are in business that should know what they are doing. This stuff isn't exactly uncommon if you do some research. And that is why they should have been entirely sure what they signed up for. They were not forced to enter this contract, but instead choose to.
Yeah. I guess it could be grift if the distributor never really had a realistic buyer for them and they were just taking a high risk with somebody else's capital or it was all in order the get the fees that the article mentioned them trying to charge. The article isn't clear about whether those fees are even in the contract or not, or how they overcame them.
Anyone know a good resource (book, video, whatever) about starting a small business, including approximate customer or revenue growth rates and mechanisms to get customers? So much I’ve been reading is for high growth startups and I wonder what the other end of the growth distribution is supposed to look like. How to know a slightly profitable hobby from a growing small business, for example?
No one has pointed this out. These guys are selling high end coffee. They also admitted this was their largest order by far. Where are they getting this high end coffee from? Is there an unlimited supply of this coffee somewhere? The cynic in me suspects some of that coffee might not even be what's advertised.
There's high end and then there's high end. I don't know this roaster well, but I can take a stab at how this works, based on roasters local to me.
The absolute biggest and best roasters have relationships and locked-in supply or exclusivity with farmers. They're also likely re-investing profits in those farmers. There are a very small number of roasters of this scale and sophistication, and they're probably already the ones in national retailers.
Everyone else is buying high quality but still commodity green coffee and roasting it.
The first group is able to get higher quality and guaranteed supply because of the deep relationships. They're excellent roasters, but they also are able to attain a higher level of quality because of the garbage in garbage out principle. Everyone else is competing on who can do the best job of roasting the same product. Important, but not quite the same.
I can't say that this company falls into the second category for sure. But if they do, that explains how they can get lots more supply very quickly. Their coffee is high end, they're doing a good job of roasting it, but it's not so high end that there isn't a bunch more green supply that they can get.
Reminds me of the “Level of Effort” field in DevOps. If you have a group of tickets with a value of LOE total of X, it could be in hours, days, or some other contrived measure.
This is why you abolish the word “unit” in your factory. “Unit” has no actual meaning. It’s just a filler word for an object that you should be mentioning explicitly.
TLDR they had a miscommunication about the units. They thought they were getting 6,000 bags of coffee, but it was 6,000 cases with 6 bags each.
In school, every class that involves numbers always stresses the importance of units. This is a good real-life example of how important units are, but easy to stumble on.
> How can bags be mistaken for cases when negotiating a deal? The price would be different by an order of magnitude.
These kinds of confusions happen regularly, lol. Back a decade ago when I was working in pubs, colleague ordered what he thought would be one pack of paper towels - in the order form, he chose the wrong column to place the "1" in. Next day a shipping company showed up with a pallet of paper towels. Boss wasn't amused too much, but not because of the money, rather because we lacked the space to store a fucking pallet of paper towels. We ended up selling half of them to patrons at cost and managed to squeeze the rest wherever we could - I would not be surprised if someone today would still find a random roll somewhere and wonder where it came from.
In another job at a supermarket, this happened somewhat weekly. Didn't really matter unless it were really slow-moving or perishable goods, but it rarely happened in the latter case and in the former case stuff could also simply be sent back to the central warehouse.
This isn't some random small deal. It's hard to see how nobody noticed that the total dollar value of these orders was either six times higher or six times lower than expected on a invoice that represents the bulk of your entire business.
Yes, but at some point a purchase order has to be drafted and a contract has to be signed. Those things should be spelled out in detail.
I'd think the big company would almost demand that or else the coffee roaster could ship 6000 zip lock baggies with 10 coffee beans in each. I know that's an absurd example but a PO and contract protects everyone against that and that's why any reasonable company doesn't proceed without defined terms.
Possibly this is the real reason the order was cancelled. Once the unit/case thing was figured out, the distributor realized they’d have to pay 6x more or the seller realized they were getting paid 6x less. The deal fell apart.
I probably wouldn't take on tens of thousands of dollars of loans based on that. I guess it's presented that they took the loans out after the confusion was identified.
When I saw it yesterday they had more than 1,000 cases of the dark roast left (and none of the light or medium). So 1,000 cases in a day, a big chunk of the 34,000 bags. I wonder how long it will take them to ship, what with their not having the facilities for it.
When I was homeless, I found a job with a "call center". Our training consisted of teaching us the cover story and how to handle reactions to it. We began with a joke involving alcohol. Then if they didn't hang up we launched into the pitch: "We just lost our lease on our warehouse, and we've got to move all these pens. You can get them imprinted with your name and phone number for a bargain. What do you say?"
The coffee supply chain seems to have a lot of people claiming to add value who don’t really.
Does this business need to be saved because the customer really cares they specifically roasted and bagged some beans they got?
No, the coffee bush did all the work. And yet we never meet or thank it. (The farm workers go second. The James Harrison video you learned your coffee making technique from is third.)
Also, when a company gets a much larger and different customer, I would expect any CEO to pickup the phone and talk with peers about how to manage the process. Brokers are outsourced commissioned reps, not shareholders.