
Losing our business – we didn’t see it coming - schwuk
https://medium.com/@Kev_Reframed/losing-our-business-we-didnt-see-it-coming-ab08bf839882
======
themgt
_That week was fraught, as it was the week of a major conference that we were
working with. It was the first time we were displaying adverts on someone
else’s site through our system, but we couldn’t trust Simon — we had no
guarantee that he wouldn’t try and display something malicious.

We had to rebuild the ad system from scratch to ensure that no one could
maliciously inject adverts onto our system. It was too much of a risk to leave
it in the control of Simon.

Once we got control over the ad system we realised that the adverts were
affiliate links, i.e. not unique to us. The companies advertising had no idea
they were advertising on our site. We had no relationship with them.

It slowly dawned on us that the financial forecasts we were basing the raise
on were useless. It was based on information from Simon on adverts that were
not real, and deals that did not exist. The financial model was broken._

I'm sorry but ... what? They ran a company for "a couple years" with at least
a handful of staff, and let this one guy come in and overnight effectively
take over an utterly critical part of the business even though "He hasn’t paid
any of his invoices. We were expecting around £25k from him"

And then they depend on the same individual both to finance and to provide the
financial forecasts justifying their must-have funding round, and after it
blows up they say "we didn’t see it coming"

~~~
simonswords82
AND they forgot to discount his invoices until right at the last minute.

I respect the author's transparency but there are a _huge_ number of lessons
to be learned here before jumping head first in to any other new business
startup that relies on other people's money to launch.

~~~
robtaylor
On their about page

"In 2015, Reframed.TV exceeded investment expectations with no commercial
revenue."

No details of the metrics but that itself would be an interesting post
considering the staff numbers and investment.

~~~
caminante
I can't reconcile that dubious claim, either.

Based on the post, it appears that management didn't have basic financial
skills.

------
ChuckMcM
Interesting discussion here, slamming both Reframed and Simon.

If you are reading this and wondering, the Simon character in this play
follows a very common pattern for the "Ad Fraudster." This particular con
takes advantage of two victims, a web site which thinks it can make money with
advertising, and advertising networks who have excess advertising to sell.

One convinces the web site to host the javascript that will fetch ads from the
network (they do that with an ads API call or when they are super bold they
ask the web site to host a script that will fetch the script from the ad site
and run it (yes people actually do this)) Then our fraudster drives traffic to
the web site (botnets, click farms, what have you) to generate traffic and ad
clicks. Which they collect from the ad agencies (and if they add affiliate
tags affilliate fees) but tell the web site that it will take "90 days for the
transactions to settle given everyone wants to limit click fraud."

Now depending on how much work they want to do and how much organic traffic
the website gets, they can leech thousands of dollars a day off a web site.
They feed fraudulent traffic in that keeps clicking on their ads, they spew
affiliate cookies like confetti, and try to gather that revenue, and they
sometimes "mirror" back to the actual advertiser network (taking one click on
one ad and tell several networks it was a click on their ad)

And here is the sad bit, while its fraud, if the advertiser gets upset they go
after the web site, if the web site is upset they go after the advertiser, if
everyone starts yelling our fraudster just moves on with all the cash they
have pocketed.

------
johnwheeler
This article is damage control for the author's naiveté.

The problem: Reframed did the due diligence _after_ talking to Simon and
seeking additional investment.

It's also not clear if Reframed ever provided any real value, but it's clear
they we're willing to take _real_ money and assign themselves a $4M valuation.
That might not be a sham straightaway, but it's probably one in the making--
good intentions aside.

Your investors will rightfully blame you if you get them scammed. You're
expected to be competent enough to protect them because that's part of your
job as "The Management".

Thank goodness the deal stopped dead in its tracks before more people got
hurt.

~~~
WhitneyLand
Totally disagree that this is "damage control". It had all the signs of a good
faith postmortem that others can learn from.

~~~
johnwheeler
I do think the author told himself he was writing it in good faith, but it was
hard for me to see where he took direct responsibility for the outcome.

I read it as more blame-shifting to Simon, and since this Simon character
doesn't have a voice in this, we can't see the whole picture.

~~~
kev-reframed
Hi, We have taken responsibility for what went on. Simon was not the cause of
the downfall of the business. The fact that we could not monetise and didn't
have a commercial business was not his fault. We have said that to each of our
investors in person. We have still maintained a good relationship with all of
them and they were involved in our board meetings around this (as they have
all of our board meetings) right the way through the business.

The reason I wrote the article is not to say I didn't do anything wrong -
obviously we were terribly naive in many aspects of the business and far too
trusting. I didn't expect this many people to read it, I thought my friends
would read it locally and be forewarned about getting involved (I only posted
it on facebook to my friends). Turns out it got more attention

~~~
johnwheeler
I can definitely appreciate the article being taken out of context by an
unintended audience who doesn't know anything about you. Your friends know you
better than we do.

------
apatters
I think the most important lesson here is that you need to have really good
accounts receivable to survive in business. In a small business AR is a
founder/owner-level concern. You should spend some portion of your time
personally making sure you get paid--on time!

If you manage your receivables actively then you become aware very quickly if
someone doesn't pay on time. This flushes out fraudsters, keeps you directly
connected to your cashflow situation, and gives you early warning signs of any
possible financial problems. These are the ways that actively managing AR
mitigates risk.

It also carries a lot of upside. People who pay you regularly are some of the
best people you can partner with. When someone's paid you on time for years
it's a very big sign that they can be trusted (and have money!). And when
you're directly involved in collecting money from those people you inevitably
end up having discussions with them that are very frank and carry real stakes.
If these discussions are successful that is another sign they could make a
good partner.

If one of the founders at Reframed had stayed directly involved with AR on
some level this story would have had a much better outcome. Simon would not
have been a vendor for long. They would have found a new vendor and learned
through direct experience whether that vendor could be a good partner/investor
or not.

The other acronym I never let go of is HR. If I remember correctly Bill Gates
was personally involved in Microsoft's first 500 hires!

~~~
greghendershott
Exactly. I actually used Quicken in my startup's early days. Naively. And
fortuitously. Even after we switched to real accounting software, I would
focus first and mostly on the cash flow statement and similar metrics.

Many things might someday be cash -- an invoiced sale, an A/R balance, an
investment term sheet. Or they might not. Meanwhile they're only promises or
futures -- worth nothing if the company abends due to a SIGKILL. A small
business is very much an exercise in blocking I/O. :)

------
dexwiz
The revolving door of employees is a big red flag. If you cannot keep
employees, you are either 1) an asshole or 2) doing something shady. Either
way, they are not someone you want involved in your business.

------
nullcipher
Why do companies wait till the dying moments before informing employees? I
have seen many articles now which read like 'we went to back to the drawing
board to realize that we have to close down in 2 days. Our bank was empty'. Is
this just dramatization? I cannot believe people can run business without
something so basic. Like paratroopers jumping out of an aeroplane and then
saying 'we checked before hitting the ground, only to realize we had no
parachutes'.

~~~
simonswords82
When a founder doesn't know that they don't have money to pay their employees
it's unforgivable.

When a founder concludes they might have to fight to save their company and
_might_ not be able to pay employees in X months time that's an entirely
different proposition. You can be upfront with your employees and hope that
they stick around. Or you can keep quiet and do everything necessary to save
the company and hope the employees never need to know.

It's a gamble either way but I suspect the majority of founders opt for
keeping quiet in the hope they can snatch success from the jaws of defeat.

~~~
WillPostForFood
> When a founder doesn't know that they don't have money to pay their
> employees it's unforgivable.

This is a constant state for a startup, from day 1. You always have a runway
of some length at which point you know you can't pay your employees. The
question is when you start to warn about the runway running out. It's much
more grey than you suggest. 2 days warning is unconscionable, IMO. But do you
need to start warning employees at 120 days? 90 days? 60 days?

------
brianwawok
I literally do not understand. What is the other side of the story? Why would
someone go through all this trouble of a fake investment? Clearing buying 10%
of a company for 200k with no check is a game that only lasts for a few
weeks???

~~~
beachstartup
there's nothing to "understand". you assume there is a logic to their actions.
there isn't. the guy was a scammy bullshit artist, a wannabe business man who
talked his way into others' confidence, and probably has mental issues. these
people are out there, and you need to watch out for them.

on a side note, it takes guts to post a story like this. most people don't
admit when they are taken like this. they're lucky he didn't try to steal
money from them directly.

~~~
wingerlang
I think he is asking how that guy cashed in on this.

And I believe the answer was that these guys basically displayed affiliate
links that gave him cash when clicked.

~~~
sedeki
No, I don't think "Simon" meant to cash in at all. As the parent post said:
probably mental issues. These nutjobs aren't looking to get to rich, as much
as pretending/be perceived to be rich.

------
qaq
OK sorry if this sounds harsh but it seems if your whole revenue model is
based on selling ads it would be a good idea to really understand the ad
market.

------
ebarock
For me it sounds so strange a company that does not does a basic "due
diligence". Even with people that I've just met I will do my personal due
diligence.

We live in days that "trust" is something that you acquire after a time, not
something that you suppose that others may have.

~~~
PhantomGremlin
_it sounds so strange a company that does not does a basic "due diligence"_

This applies to government relations as well. Ronald Reagan made a big deal
about this in his dealings with Gorby.

[https://en.wikipedia.org/wiki/Trust,_but_verify](https://en.wikipedia.org/wiki/Trust,_but_verify)

------
Disruptive_Dave
"Just because you can doesn't mean you should" is what comes to mind for me
when reading this. It also reminds me of how often, in the past two years,
I've had to push younger founders to adapt a more pessimistic (I call it
realistic) view of the business world than they naturally have. A deal is on
the table - start by asking how it could fall apart, where the holes are,
what's wrong with it. If you're owning/operating a business, you should have a
nice healthy dollop of distrust in almost all your doings. That could solve so
many of these "problems" that are simply born of naivete.

------
mtrycz
"due diligence", "due diligence", "due diligence"

I mean, I know it's a term, but the literal meaning... If they had been
diligent where/when diligence was due, all of this was evitable.

Also, they should really do some legal action on the guy. Not because of
revenge, but to try to save others from future actions of the con man. Public
shaming is just not so stylish.

~~~
caminante
As pointed out by others upthread [0], the founders likely don't have money
and neither does the con. Thus, legal action's a negative NPV project.

We're only hearing one side, and it doesn't sound like the management had a
paper trail.

[0]
[https://news.ycombinator.com/item?id=12204279](https://news.ycombinator.com/item?id=12204279)

------
boxcardavin
A bizarre story that should be a reminder to everyone that your gut will often
point in the direction of a problem.

Also, the article is written as a reminder, a warning, to not overuse commas
when I type.

~~~
kev-reframed
in, real, life, I speak, like, William Shatner. I think my writing should
reflect that

------
cloudjacker
ex-google loooool I never thought about it but you could totally say that even
here in SF and get a lot of irrational clout and respect

------
tag2
It's difficult to see the logic that some of these guys have with their
"investment" cons. I really wonder the psychology of someone who'd go through
a fake investment proposal like this. Do they just want to feel important? I
recall a similar incident with someone on HN that I have saved from a few
years back: [http://www.shaf.co/post/75399291209/the-fake-vc-eccentric-
ge...](http://www.shaf.co/post/75399291209/the-fake-vc-eccentric-german-
millionaire-and-the)

~~~
jarsin
I was introduced to the world of fake house offers sometime ago. I could not
believe that there are people in this world that literally have no job or
nothing and go put offers on expensive houses. After it happened to me twice
one of the title workers told me they see it everyday and many of these people
do it repeatedly.

------
exolymph
A comment from one of my Facebook friends: "No offense to the guy or his
partners, but his whole story is like an advertisement not to invest with his
next venture. Maybe the next one down the line."

I agree.

------
barkingcat
Due diligence is to be done prior to contract or prior to entering into
agreement. The poster learned that, but it's too late.

------
binarymax
Surprised HMRC hadn't caught up with them, preventing them from being
directors or secretaries on any other companies.

~~~
simonswords82
I've seen so many so called Phoenix companies
([https://en.wikipedia.org/wiki/Phoenix_company](https://en.wikipedia.org/wiki/Phoenix_company))
spun up out of the ashes of "insolvent" companies that leave behind unpaid
employees, suppliers etc that it doesn't surprise me nobody has caught up with
the ad sales guy.

This guy is ridiculously easy to find on the Companies House website if
anybody else wants to avoid doing business with him. All five of his
registered companies are dissolved:

[https://beta.companieshouse.gov.uk/officers/bJDe8K2KIPyGpgvp...](https://beta.companieshouse.gov.uk/officers/bJDe8K2KIPyGpgvpWIY0yFipPGg/appointments)

~~~
robtaylor
"Country of residence Grate Britian"

errrr!

------
krmmalik
Sorry to hear that man. At least you took it on the chin and dealt with it.
Its all part of the learning experience. These kind of stories are
unfortunately far too common but its like a rite of passage for each of us. I
feel bad for your staff, but hopefully they'll find something soon.

------
seesomesense
SUMMARY

Dealt with a scammer.

Told the board that he wanted to invest a fortune.

Failed to do due diligence.

The scammer failed to pay his bills or invest.

Became insolvent.

DO DUE DILIGENCE EARLY

------
seesomesense
Too many red flags around management actions. I would avoid their next start
up.

------
arkad
[OT] My mind somehow associated "Amanda Wood" with "Jessica Hyde". Where is
Jessica Hyde?

~~~
ux-app
A reference from Utopia. An amazing TV show you should go and watch.

------
iamleppert
I wouldn't discount the guy completely and frame him as the "bad guy" here.
Most of the ad sales industry guys are very similar to this guy. They operate
in a realm going from deal to deal, sometimes only a single deal separates
them from extreme success and utter destruction. Sadly, this guy seems to have
a grouping on the negative side of things and might have been just starting
out in the ads business himself. I would have even given him another chance,
after he's been humbled a bit. Just make sure you have cash up front when
dealing with these kinds of people -- they shouldn't be discounted
immediately, rather just treat them like an untrustworthy child.

Just goes to show you shouldn't bank on any one deal coming through. As the
management of a company, its your job to have not only one deal in the works,
but preferably multiple deals, so called "deal flow" or "sales/prospect
pipeline". You should be in constant prospect mode, and never give any one
prospect any significant portion of your time. It's not like it takes a lot of
effort to just talk to people. I realize its time consuming, but what we're
you guys doing in between talking to this guy? You should have been working on
other deals. That way if one doesn't work out, you can rely on the others and
leverage them until your own bullshit wears out.

This is the proverbial case of "all eggs in one basket".

~~~
mcphage
> I would have even given him another chance

What value would there possibly be in giving him another chance? I mean, in
this case it wasn't possible because he managed to tank the company on the way
out, but had they managed to survive him, what would they possibly get out of
working with him again?

