2006: THE BREAKDOWN
The book that may have done me in, owing to its being the bible of the Machiavellian snake who stole as much as $1.5 million from Knock Knock. I still haven't read it.
2006 Overview: The fifth year. The year the evil, manipulating, thieving manufacturing broker’s activities escalated to their apex and I finally figured it out. The last of the truly horrible years (not that there wasn’t stress and horror to come, but at least there was some leavening in the bread). The year I shook free and decided to start running the company on my own.
Reading through my 2006 emails in order to remember and document this history was a doozy in and of itself. It’s like looking at another me, another business, another time, and thinking, “What the hell was she thinking, how the hell was she juggling it, and why the HELL didn’t she SEE WHAT WAS GOING ON?” I feel like a complete chump as I review what the manufacturing broker and consultant, whom I thought was a close friend and mentor, was doing to Knock Knock, as I contemplate the fact that I repeatedly said, “Oh no, he’d never do that to me” to those who warned me about him. I feel humiliated, mortified, ashamed. And fucking pissed. Fucking furious. Because I got fucking fucked. And you know what? Sometimes things are so bad that no phrase besides “fucking fucked” will describe it accurately.
So why did it happen to me and Knock Knock, and why didn’t it happen to industry peers? I was just discussing that with our former director of sales, the one who quit in 2005 in part because of the manipulative influence and negative impact of the Machiavellian manufacturing broker. She’s now back at Knock Knock in a newish and exciting capacity, and in our chitty-chatting, here’s what we came up with. Some other businesses were partnerships, so there was some balancing out and truth-telling going on between the partners. Most other businesses didn’t have easy access to money like I did, so they had to be more careful with it, and they didn’t have enough money to attract a vulture. Most other businesses grew more slowly and didn’t have to worry about importing hundreds of thousands of units of product with no experience. Knock Knock was exploding in a way that most small gift-and-specialty companies don’t, I had the money to make mistakes and support that growth, and I was utterly and completely overwhelmed—in short, I was a mark, and I acted like one.
The big picture is that the manufacturing broker was by 2006 acting as a business consultant as well as a vendor, meaning he saw all sides of our finances and could single-handedly fatten and harvest the golden goose (an apt metaphor for the manifestation of my own personal stress). Where he had originally quoted a 5 percent commission for his brokering services, it turned out he was pushing it to 50 percent, as well as calling for SKU (stock-keeping unit, consumer goods jargon for individual products) counts and manufacturing quantities that were inappropriately high for Knock Knock, growing our inventory and lining his wallet. Not to mention that he was doing a very poor job of it—quality was down, punctuality was nonexistent, defective product began to become a huge and expensive problem. Also, his impact on the team was exceedingly negative, especially starting in 2005.
Life Awards, which also came in a horizontal nameplate style. Aren't these fun? They each came with 6 interchangeable brass plates for swapping out according to whim, adhered via magnets. Don't you just love the confetti lining the boxes? Too bad these were so impossible—and, with their original factory, unethical—to manufacture.
Until I saw it, I didn’t see any of it. I paid him for it, and I thanked him for doing it because I didn’t think I was paying him enough.
Why did he do it? The company survived without having to downsize or decrease its output, and the amount he stole (on the order of $1.5 million) and the time period over which he did it (about 3.5 years) have become, believe it or not, smaller and smaller in the scope of Knock Knock’s entire existence. I’m well beyond what is the worst betrayal I’ve ever experienced. I think I’ve forgiven myself. But I can still shift into obsessive thinking about why he did it. Is he a sociopath with no conscience, as are, apparently, a disproportionately high number of CEOs and businesspeople (which I learned from a book on sociopaths that I read not too long ago, prompted by this This American Life episode and this TED Talk)? Is he so self-deluded that he talks himself into believing that his actions are justified, that he has a right to do what he does? Is he a compulsive liar? I personally think it’s the latter two. He doesn’t display certain qualities that sociopaths have. He appears to love his children. And there’s no doubt in my mind now that he is indeed a compulsive liar, someone who lies even when he doesn’t have to; an instinctive manipulator, someone who manipulates even when he doesn’t have to; and a megalomaniacal narcissist. And I mean all of those in the pathological and not the colloquial senses of the terms. His favorite business book—hell, probably his favorite book of all time—is the ancient Chinese masterwork on military strategy by Sun-Tzu, Art of War. He frequently suggested I read it. Clearly I should have.
Okay. I’m going to shift now to other stuff, then go to the month by month. In 2005, I’d come to the conclusion, helped along by the manufacturing broker, that more products meant more revenue, so I grew the list by 80 percent. FYI, that’s a lot. We did this by launching a new program of blank product, No. 2, and by “acquiring” (that term somewhat overstates it) a small t-shirt and card company started by a couple of actresses. Yes, overall it was a year populated with narcissists.
Because Knock Knock was hemorrhaging money, my uncle and his business team, who were acting as Knock Knock’s informal board, stipulated that I have a professionally prepared strategic plan put together for some visibility into the company’s future. This is what unveiled the fraud of the manufacturing broker.
I also made the most expensive hire of Knock Knock’s previous history, a true shift in playing field, bringing on a VP of sales with a resumé from large companies that read like a rocket ship. This utterly key person later became our COO and is now our president. He’s a golfer, but I don’t hold that against him.
I just loved the Dating Kit. From the Notification of Attraction Cards to the Relationship Resumé to the Sexual Release (not necessarily in that order), this was a masterpiece that didn't sell.
- We introduce what I still think is one of Knock Knock’s better releases, a corporate-themed (i.e., corporate-tweaking) program that included Life Awards, Corporate Flashcards, and Cubicle Note stickies. We also launch Nifty Notes and one of my favorite failed products of all time, the Procedural Dating Kit. Life Awards, however, entail the one social justice–shaking experience of my China manufacturing career—a factory in the hinterlands that consists of small rooms that reeked eye-wateringly of deadly chemicals, rooms in which people clearly both live and worke. To visit the factory takes a five-hour van ride (and I get horribly carsick—between that and the chemical smells, I will vomit upon arrival, always a good way to start a meeting) over roads both paved and dirt. To date, it’s the one time I’ve seen China much beyond its cities. Even though I do not feel ethically comfortable manufacturing at this factory, and will not do so again, it is also clear that people need and want these jobs despite their incompatibility with Western—and human—workplace standards; economic conditions outside the cities are desperate, and the factory cities I’ve been to started off in the last decade or two as small communities like this one.
- In large part thanks to the manufacturing broker and his accountant business partner, as well as an excellent new accounting manager who will help us take the company’s finances to the next level, we start to get reporting into place—daily sales, monthly financial statements, actually closing months. I’m finally starting to understand how accounting and finance should be run.
- Knock Knock products appear on The Today Show.
- The manufacturing broker is also co-overseeing sales, co-managing (never a good idea) our newish director of sales. In response to the latter’s more conservative projections, the former writes, “Given a 15 percent increase reported for a year that is considered poor, I’m doubling for 2006.” I’m sure it won’t surprise you when I report that we did not hit our numbers in 2006—but we sure will spend to them.
- One of our goals is to do business with Barnes & Noble. We are exceedingly excited to get a meeting with them at which they talk about floor displays, entire Knock Knock sections, and a Knock Knock publishing program. This ends up going just about nowhere and we do only minor business of little success with B&N over the years until 2012, when finally the seal is broken and Knock Knock can bust a seriously good move with them. Hallelujah to 2012.
- I go to St. Barth’s for a vacation with my uncle and his family during which I work most of the time (though I do manage to fit in snorkeling and yummy family dinners). On the plane ride home from New York City to Los Angeles, I am upgraded to business class and seated next to a beautiful woman who is being loudly and strenuously hit on from a few rows up by former New York City Council president Andrew Stein whom, oddly enough, I recognize. (This is an unnecessary detail but I feel it somehow adds to the surreality of the whole story.) She and I get to talking, in part about how slimy this man is, and how thick his hair and large his teeth. After quite a while, we get to the “What do you do?” part of the conversation. I describe Knock Knock, unsuccessfully. I list a few products. “Oh my GOD!” she exclaims. “I was staying with friends on St. Barth’s”—an odd coincidence, seeing as this is an NYC–LA flight—“and one afternoon my hostess hustled us all off the beach to go to a store in town because she wanted to show us the most amazing and witty product. I was like, ‘I want to stay on the beach!’ but she insisted and I went along. So we go to the bookstore, and she was right!” The woman then proceeds to tell me which are her favorite Knock Knock products and which ones she purchased, at St. Barth’s prices. Knowing that my uncle and his wife are huge boosters of Knock Knock, exceedingly proud to see our wares the world ’round, and that they are further inclined to know and vacation with people who run in beautiful and accomplished circles aswell as host them at their home in
Dolph Lundgren, of Rocky IV fame, loves Knock Knock. It's a good story how I know that. You should read it.
St. Barth’s, I think to myself, “Could it be that this woman is friends with my uncle and his wife?” So I ask her, “Who were you staying with on St. Barth’s?” certain that she will mention Bruce and Suzie. I feel I must insert a drumroll here, because the answer was so strange and unexpected that it’s vital the dear reader have to wait for it a minute. “Dolph Lundgren,” she replies. “He and his wife are two of my best friends.” Ba dump bump.
- When it comes to the history of Knock Knock, it will of course be the events that stand out, in some ways more of them bad than good, because the good ones will be a little less cataclysmic. Which makes it all the more important that I interject here how much I love Knock Knock’s creative team and output and activities right now. We are brainstorming at our highest potential. I am still writing and editing and proofreading just about everything, my second job in addition to running the company. In fact, until 2007, 98 percent of the words that come out of Knock Knock—from product copy to marketing copy to copy copy—will be by me. This is inordinately satisfying and inordinately stressful. As our art director and I will say for a good four or five years, “Jen is the bottleneck.” The design team is among the most creative we’ve ever had and we are in brainstorming and concepting sync, the fun part of the business, the part that takes less than 5 percent of our time, the cream in our coffee.
- We are putting the finishing touches on a new line, a sassy collection of t-shirts and greeting cards, originally started by two actresses, both of whom are very pretty and very funny. One has since become, if not a star, a visible success many of you would recognize. My thinking in purchasing this line and developing it with them is multiple-fold and, though a failure in this instance, will continue to date to be a strategic goal.
- Outsource some of the creative burden, not just in execution, but in concepting and brand identity.
- Share some of the marketing and PR burden, especially since it is thought that these actresses will be able to attract press coverage easily.
- Increase our offerings within our sensibility, but diversify for potential additional stores and channels of distribution, etc.
- Under the Who’s There Inc. umbrella (our actual corporate name), build different brands that can do different things.
Unfortunately, none of this will work as we’d hoped. The actresses are difficult, unreliable, and self-centered (surprise!). Others within Knock Knock think the line is a bad idea, but no one tells me. In fact, the demise of this line will be a turning point with the art director, later VP of creative services, now SVP of brand development, wherein I will say “Tell me if you think something!” and she will begin to do so, really the beginning of our working as a partnership and the beginning of Knock Knock being less of a monarchy.
- Though the Life Awards and Cubicle Notes were introduced into the marketplace in January, we still do not have inventory. The Life Awards are at a crisis point multiple times, almost canceled multiple times. The Cubicle Notes introduce me to something that continues to surprise everybody who’s not in the paper business: sticky notes are very, very difficult to manufacture well, and only 3M can really do it. Unfortunately, all consumers’ expectations are keyed to 3M products, so inferior sticky notes disappoint. We have sticky notes on every surface in the office in order to see how long they’ll stay up, how much they’ll curl, how they interact with different surfaces. We are reinventing the sticky note against our will. Manufacturing is late, defective, and riding on its own little hand basket to hell, and I can elicit accountability for it from no one. This may be the nadir of our problems with manufacturing and shipping on-time. I think about our philosophy (since updated) in which I’d stated that we “believe in shipping quality product on time.” When I wrote that, I was stupid enough to assume that this was a personal character choice. I had no idea that making that happen would involve countless moving parts, so many of them out of my control. I delete that sentence from the philosophy.
- We are profiled in Newsweek.
- I go to Spain to visit one of my closest friends in the world since I was eight years old. Her mother, who was my piano teacher throughout my youth and adolescence, is visiting as well. Though I am with some of the people I love most in the world, I spend much of the time working.
I took a lot of pills in 2006. None of them had the effect indicated on the cover of our Take a Pill cards.
- In preparation for our Take a Pill card series (which alludes to our future A Foldout History of Antidepressants book) I obtain one pill each of the following: Prozac, Wellbutrin, and Paxil. The pharmacist is confused at the one-each dosage, and I do not put it on my insurance for fear of looking like a smorgasbord pill popper. Because Vicodin is a controlled substance, I end up borrowing that pill from a friend. I do not give it back.
- I have been nitpicking at a newly-hired senior designer who is not working out. He is forgetful and disorganized and cannot keep up with our pace, and his work and attitude are subpar. There is no question that I have been short and sharp with him, and I am still the all-purpose micromanager I started out to be. One Monday morning, I open my email to see “Open Letter to Knock Knock.” He has sent this to the entire team at 12:53 a.m. on Monday morning so that it’s unlikely I’ll be able to catch it in time to short-circuit it. In this letter, he airs his disgruntlements, not all of which have to do with me. He attributes a panic attack resulting in an embarrassing defecation incident to my “workplace bullying” and shares links on this “serious problem” that is “only currently prohibited by law in Canada.” While he is not wrong about some of what he’s reporting, the letter is retaliatory, vandalistic, and over the top. For example, I am not aware that I was doing the following: “Ms. Bilik’s comments have always been carefully constructed in such a way as to not constitute political incorrectness or verbal harassment (as it is defined by law).” I can only be grateful that I have accomplished such careful construction. It is a shitty start to a shitty week in a shitty month in a shitty year. This former senior designer (he also announced his immediate resignation and stated “do not attempt to make any further communication with me, whether by telephone, in person, email [including automated newsletters], or otherwise”) is not the only one with a shit problem on his hands. Or elsewhere.
- We debut a new booth design at the National Stationery Show in New York City. We have expanded our presence to a three-booth footprint and, in addition to introducing the actresses’ t-shirt and card line, we are premiering No. 2, our line of blank office products. We are so very proud of No. 2—the design and overall identity, the formats, the paper quality, the packaging, and it came entirely from the design team, led by the art director with very little originating input from me, the first such program.
Oh, No. 2., how we nurtured and loved you so. RIP.
Our SKU count has exploded. Target, the design-savvy big-box retailer of all time stops by the booth, and expresses interest in working with Knock Knock, a high watermark. At the show, the actresses behave like prima donnas, embarrassing us in the booth, and I almost send them home. There is way too much unnecessary drama and way too much perfume and porelessness (you know, from foundation makeup) and I begin to realize that it will be better to part ways, despite having poured so much money into a program that will be a no-go.
- While in New York, I meet with Knock Knock’s informal board, and I am read the riot act for our spending and lack of profitability. It is a true come-to-Jesus moment and I barely make it through the meeting without crying. They are, of course, correct, but it has never been put to me this bluntly and Knock Knock has never been this close to ceasing to exist. There is much talk of cost-cutting as well as a suggestion that I sell the company. There will certainly not be much more financial support. Fortunately, at the board’s earlier behest, I have begun an engagement with a consultant who will help put together the strategic plan for which the board has been asking. As this person will open my eyes to the manufacturing broker’s malfeasance, it is ironic that the recommendation for the consultant comes through the manufacturing broker’s business partner.
- I tell the actresses that we are discontinuing the program for business reasons, including lack of interest at the show (I don’t think we got more than three orders for the line). Though they have been paid fairly for their line (which would not have happened at all had I not stepped in; I revived it from moribundom) and all their work, they are furious. By accident, one of them sends me an email that is meant for the other in which they joke about what I will be saying to people about the line’s demise (after I have offered to have it come from them): “I am sure Jen wants to use this list for better purposes than a breakup letter—would be nice to have it come from us I suppose. Instead of ‘I can’t stand these too skinny bitches, and I am going to wait [for] the appropriate time and then sell t-shirts and check out Knock Knock! . . . P.S. I am really fat.’” We never sell the t-shirts and sadly their list is of no use to us. They are still skinny bitches (with big tits, might I say, one of the only characteristics we share), and I am still fat.
- I travel to Las Vegas to do a presentation at the How Design Conference, “How to Write and Design at the Same Time.” It is not my best public speaking performance, but the handout I prepare for it will become one of Knock Knock’s core proprietary creative documents.
- I make a big hire for Knock Knock, bringing on a big-guns VP of sales. I find him through the manufacturing broker’s business partner (also ironic, as he will outlast the Machiavellian manufacturing broker). This person will transition into our COO and then our president over the next six years and, with the soon-to-be-promoted art director, will start to comprise an actual management team with whom I can run the company.
How could you not love it? The display alone was like six feet tall.
- I attend a weeklong “Business Principles for Design Professionals” at Harvard, a collaboration of AIGA and Harvard Business School. I am in heaven returning to school, now truly appreciative of consequence-free learning. I am also starving for business knowledge and discussion, something I don’t yet have with friends or peers. I meet people who will become mainstays in my life over subsequent years and have an altogether grand time. I realize how important it is to look up from my desk, outside of the Knock Knock office, and interact with people who aren’t employees. I will, of course, forget this within the month. While in Cambridge, I am surprised to see a Harvard Square store window full of No. 2. I am with fellow students when I walk by, and the timing of being able to show off to them is so primo it seems too good to be true.
- While I am in Cambridge, I receive a letter from an industry peer accusing Knock Knock of knocking her company off. It’s the first time we’ve ever been accused of this (and I think there will only be one more, and a totally crazy on at that, over the next six years), and it feels awful. She has no legal leg to stand on, but it is a painful and not uncostly episode.
- The strategic plan is finished and the consultant and I present it to the informal board in New York City. One of the most glaring revelations is that we are paying way too much for manufacturing, and that I have made the following structural errors in Knock Knock’s relationship with the manufacturing broker:
- No contract or written agreement.
- No competitive bidding (only working with one vendor).
- Working on a commission basis but not seeing original invoicing documents.
- Having all our eggs in one basket, i.e., single-point failure, i.e., we’re screwed.
- Mixing up a personal relationship and a business relationship (a friendship, not a romance, sadly; at least if it had been a romance, I could have had a little more fun with it).
- Allowing for conflict-of-interest functions to be taking place, e.g., the same person making money from manufacturing orders is the one who’s setting manufacturing quantities.
The consultant estimates that the manufacturing pricing may be as high as 30 percent over what it should be, based on his experience. We leave New York with an approved plan.
- I hire the consultant as a sort of part-time CFO. He offers to be the bad guy in the relationship between myself and the manufacturing broker. I think that I may have found a potential business overseer. I do not yet realize that I am going from person to person—boyfriend, incompetent director of operations, crooked manufacturing broker, MBA consultant—like the chick in that children’s book Are You My Mother? I once saw a Craigslist ad that said “Visionary seeks functionary,” precisely what I wanted. I have been asking the wrong people “Are you my partner? Are you my partner?” After 2006, I will finally realize that it’s me. I am my partner. I am my mother. I still miss my mother. I will always miss my mother.
- One of the reasons I have hired the new VP of sales is for his experience in selling to and negotiating with key accounts, specifically mass retailers. The manufacturing broker–slash–sales consultant has said that he can do this, but everything he’s ventured has fallen through, despite Knock Knock’s countless hours spent developing spec products that never get purchased. The VP of sales and I travel together to Minneapolis and obtain our first Target program, a customized promotional group of products around the theme of “family travel” to set in early summer 2007. We are overjoyed, excited, proud. The products will be customized rather than our signature catalogued products for a few reasons:
- Mass retailers cannot maintain boutique manufacturers’ suggested retail prices for signature product. To lower the SRPs for select accounts would undersell a manufacturer’s (Knock Knock’s) other retailers.
Our first program for Target, a customized "family travel" collection. I'm still immensely proud of this—the art director and designers did a beautiful job with an aesthetic that fell slightly outside Knock Knock signature.
- We cannot manufacture many of our products at a cost low enough to hit a mass retailer’s desired prices, so in most cases we need to “down-spec” product—use lighter-weight paper, take away extras such as die-cutting or foil-stamping, include fewer pages, etc. This means a custom run.
- Non-mass retailers do not want to see the same products they are selling in their stores in mass outlets. Their stock in trade is curating special items, while mass focuses on value. While I personally—and many of my colleagues—do not believe that having the same products at mass and at specialty undercuts their sales in specialty, the specialty retailers do believe that, so we have to respect it. The reason I don’t believe it is because I feel that shopping is defined more by activity than by purchase—if someone is at K-Mart, they are there for a particular reason and don’t buy something and say, “Oh good, now I don’t have to go to a boutique.” When people are in boutiques, they’re there because they want the experience of strolling and browsing. My thoughts. This overall issue is called “channel conflict,” meaning concerns around different sales categories cannibalizing one another. Another example: retailers hate that manufacturers have direct-to-consumer ecommerce websites, even though all of us do.
- Finally, the programs we and other such boutique manufacturers do are “promotional” rather than “in-line.” Promotional programs are those that appear in the stores for a specific “drive period,” generally seasonal, e.g., back to school, holiday, family travel (early summer), etc. These drive periods are usually 8 weeks long. Promotional products are on endcaps and floor displays rather than in the aisle. “In-line” refers to products that are in the aisles—those are products that are, for the most part, regularly stocked and replenished, sold year-round rather than for short periods. Promotional programs almost always consist of customized rather than stock catalogued product from boutique manufacturers.
- Gross substances are currently hitting the ceiling fan, raining toxicity down on unprotected heads, namely mine, with respect to the manufacturing broker. The consultant and I are attempting, as diplomatically and professionally as possible, to interject some transparency into a manufacturing relationship that bills some $1.5 million per year. We are inquiring into such possibilities as seeing original invoices, given that this is a commissioned relationship; confirming in writing the commission amount; establishing industry-standard 30-day payment terms, with final payment after product lands in our warehouse so that we can inspect it (in 2006 we will have over $100,000 worth of defective product for which we have already paid); and potentially transitioning the manufacturers to direct relationships with Knock Knock in exchange for a fee or commission for the manufacturing broker. Every request is met with a brick wall and lots of negative indignant hyperbole. The manufacturing broker, he who professed to love me and Knock Knock dearly, threaten to cut off all our manufacturing as we go into Q4, the all-important fourth quarter, holiday, so I am forced to play semi-nice in order that Knock Knock have revenue, i.e., things to sell, until we can get ourselves away (this will take over a year to complete). I am the recipient of high-drama emails about how insulted he is, how he has never in his entire career blah blah, how he has bled for me, and worst, how this has never been a profitable business for him, when later forensic analysis will show that the average markup over 3.5 years is 34 percent, starting off lower and rising to 50 percent in the last year, on annual expenditures of some $1.5 million, actually excellent profits for a multi-client two-man operation with a small part-time back office in Hong Kong. One such example of the manufacturing broker’s high dudgeon:
In 2008 (i.e., next week) I'll tell you a funny story about these Family Travel luggage tags.
Yet you keep questioning me? Please, stop wasting your time. All your challenges from day one on this subject continue to be insulting as you are not respecting my rights as an individual at all, from my perspective you are demanding information that not only questions my integrity but further, really has little bearing on any outcome.
I have successfully competed for years and have experienced all sides. Sometimes I win and sometimes I lose; occasionally choosing whether I want to be in the winning or losing position . . . Do the math any way you want, overlap it with the time necessary to administrate, and you will clearly, in fact very clearly, see a figure where nobody is getting rich quick or further, taking advantage of anything. To insinuate otherwise is where we keep being insulted.
It is your right to do whatever you want, I respect this. Please pay me the same respect in return. If you have all of a sudden come to a conclusion that we are crooks, then take your business elsewhere, we do not have enough time, both you and I, to deal with this. It is your right and I do not want to be continually standing in front of your sharp sword. Again let me remind you, I have never, ever been treated this way by a client.
If you choose to toss years of effort in the name of a saving a few cents here or there, I respect it. Jen, we have always been your partner; working together to achieve success. Where you think this changed I have no idea. Where you believe my loyalty to you and then your business has been any less than 100 percent is far beyond my comprehension. Knock Knock has taken more of my time than any other client with one exception and in this case, the revenue stream is not comparable. I have dedicated a lot to you with a strong desire to continue but please make no mistake about it, I will not stand under your scrutiny, and I am only interested in standing shoulder to shoulder.
Let’s make no mistake about it, Jen—speaking for myself and my partner too, we love you and care too much to have this continuing conflict. Our relationship as peers, not as your vendor, is what is valued most. We are very appreciative of your business and do not want to lose one penny of it either but completely understand that a percentage should go, for your good. Note, I would never fall on this sword for anyone I didn’t care so much for. The pain of where we are at today is too much for all of us to deal with. We need to figure out a way, with full respect of each other’s position, integrity and feelings, to move on.
His tacks vacillate between venom and conciliation, love and insult. Finally, he pulls out a tactic that I only six years later realize he has been employing all along: he attempts to undermine his competition for my ear and trust, and he does it in this case in such a transparently manipulative way that I wonder I did not see it before. In the middle of this six-week breakdown (that destroys a relationship of 3.5 years), the manufacturing broker writes me, “Regarding [the consultant]—please, please, please—I cannot break the confidence of my partner. [My partner] does not trust [the consultant]. I urge you to keep this between us please.” He has also attempted to undermine the VP of sales, and before that the director of operations (unfortunately, they were both right about each other—she knew he was crooked and he knew she was an incompetent pill). It is a classic construction: he knows that my trust in him has waned, but also knows I still trust his partner, so he appeals to me to keep a secret that is not actually true. His approach should be taught in the University of Lying and Manipulation, it is so structurally sound.
- The consultant and I spend hours meeting with attorneys over the possibility of suing the manufacturing broker. Besides maintaining our sole source of product manufacturing, we have also refrained from confronting the manufacturing broker about certain issues because we are waiting to see what kind of legal case we can assemble. We meet with a group of very high-level partners in our white-glove law firm. The upshot is that to mount a case would cost at least $250,000; require hundreds of hours of my work (not to mention emotional upset and distraction); disrupt the company via employee depositions, etc.; and would have a low likelihood of success because our arrangements were not in writing and the broker’s company is (on purpose) incorporated overseas, in Hong Kong, an almost impossible lawsuit. My uncle advises me that one should only take on such legal battles if the company’s existence depends on it because they are so costly in time, energy, and money. “You are better off looking forward and taking the company to higher levels of success,” he says, “than looking backward in anger and stalling your forward momentum with the disruption of your company for a minimal chance of success. And if you did win, he probably wouldn’t be able to pay you.”
Apparently there are a lot of products from Family Travel in this post. On another note, did you know that I love to camp?
- I stop talking to the manufacturing broker and his partner, instead deputizing the art director to be Knock Knock’s go-between. This alleviates some of the pressure and allows for the good cop–bad cop construction that the manufacturing broker has long been mendaciously applying in his depiction of manufacturer and partner backs and forths. I focus on identifying and initiating direct manufacturing relationships.
- The consultant CFO turns out to be a very good consultant but not such a good internal team member, which I have since learned is often the case. “There is a reason why they are consultants,” I have heard it said. We disengage that engagement.
- One of our biggest key accounts (according to our company’s internal classifications, mass retailers have more than 200 rooftops/doors, key accounts 20 to 200, and gift and specialty under 20) oddly and summarily drops our business, canceling all POs, because of a billing error that, when the retailer calls to rectify it, finds our accounting manager eating lunch when she answers the phone. The from-another-culture retailer is so insulted at the billing error and the fact that the accounting manager was chewing and swallowing that she determines she will never do business with Knock Knock again. It will take two years before that edict is reversed.
- Knock Knock hosts an AIGA tour of our studio. During the question-and-answer period, the art director asks, “Would you do it again?” The answer is, actually, no, which the audience does not want to hear. I will be asked this again 6 years later in a radio interview. Given where I am now, I would not choose to have not created Knock Knock, because I like where I am now, but if I had known ahead of time what it would take to get here, I would have chosen not to go forward because the sacrifices and toll were too great. The radio interviewer will not like this answer either and, when prompted with a “Oh, come on,” I tell her what she wants to hear. “Yes, of course I would have.” This is still not true.
- We make the difficult decision to cancel any new releases going forward on our No. 2 line. Although we love it, it has encountered various problems. First, the pricing is too high because No. 2 came along when the manufacturing broker was at the height of his fraud, taking 50 percent on top of all manufacturing billing. Second, we have attempted to package No. 2 in a unique way, in clear clamshell packaging, to give it an industrial and differentiated look. This not only adds quite a bit of cost to the product, it prevents consumers from feeling the paper and assessing its high quality, something stationery and office supplies mavens love to do. The clamshells are also correctly perceived to be environmentally unfriendly. Additionally, new “anti-dumping” legislation brought on by office-products lobbies in the United States are levying impossibly high charges on all lined notebooks imported from China, and we cannot cost-effectively manufacture anywhere else—in part because we are just getting our sea legs in direct manufacturing, independent of the broker. We also realize that in our attempts to release a complete program in different colorways, we presented too many SKUs to start and would have been better off starting more slowly. No. 2 represents hundreds of thousands of dollars worth of obsolete inventory and additional costs in time and overhead. Worse, we love it dearly, are terribly proud of it, and its demise represents the end of a particular product dream for us, and a failed venture to which we had applied our very best efforts.
- On the former consultant’s recommendation, we engage with an attorney to begin the process to obtain the manufacturing broker’s customs records through a mechanism called Freedom of Information Act (FOIA) Importer Trade Activity (ITRAC) Requests. This will reveal the original product costs listed by the manufacturing broker for import. When we finally get the data, it is exceedingly difficult to analyze, not keyed to the way we’ve organized our invoices. It takes hours of our operations manager’s time to get apple lined up to apples. The average markup over 3.5 years, starting low and ending high? 34 percent.
- I learn that the manufacturing broker has put one company out of business with his late, defective, fraudulently overpriced product (in part arising from his continually promising he can do things that he cannot in fact do) and has almost killed another, both brought to legal and personal brinks. I also learn that he has completely shafted someone who’d come to him at my glowing recommendation. She has contracted on behalf of a client for the manufacture of many catalogs. Lack of communication and accountability have characterized the whole experience. She had flown to China to go on press in part to remedy these, but now she cannot get the catalogs to ship to the United States. She flies last-minute to China to get to the bottom of it and learns that the catalogs are finished, printed and bound, on the factory floor, but they are not being released because the broker has not yet paid the printer despite the fact that her client long ago paid the broker. He is, not unsurprisingly, robbing Peter to pay Paul. I also learn that the manufacturing broker, who previously owned a decent-size business with his wife and another partner, did not, as he’d told me, successfully sell his company; rather, the business was almost bankrupt and someone else took it over in such a way that the manufacturing broker and his wife preserved only their salaries.
- Fortunately for both of us, dear reader, this is close to the last you will hear about the evil manufacturing broker, and one of the last pieces of major business to close off with him. We are still negotiating about $133,401 worth of defective product for which Knock Knock has paid. We end up settling for a $70,994 credit that can only redeemed against orders placed with the manufacturing broker at a rate of $10,000 per month, meaning we will be placing orders with him for at least another 7 months just to recoup some of our losses (though now we will at least be able to wield competitive bidding).
I forgot to mention that we created a mass-market brand, Ding Dong (get it? Knock Knock and Ding Dong?), for which we had high long-term hopes. Unfortunately, retailers hated the name but wouldn't tell us so for a couple years.
- We have decided to publish books, created internally and with freelancers, for Knock Knock’s Fall 2007 release, a return to my publishing and writing past. I do not have any editorial staff and am still writing and editing everything. I confirm a list of some seventeen titles we will complete during a three-month period. The way this will get done, I determine, is that I will parcel the work out in chunks to freelancers—what could go wrong? I place an ad in Craigslist for $15-per-hour freelancers and interview by telephone 75 people between Christmas and New Year’s. Over time, only two of those people will prove valuable to Knock Knock, and one is still a wonderful part of our team. While anything to get that person would have been worthwhile, 1 to 2 out of 75 is not a good ratio. In addition to our regular product release, we will end up completing 8 books and making great headway on a ninth. But that is a story for 2008.
High Points of 2006:
- Learning that Dolph Lundgren is a Knock Knock fan.
- Hiring the new VP of sales, who will be a mainstay of senior management for the company to present day.
- Obtaining our first Target order.
- Developing and releasing the No. 2 brand.
- Spending a week at Harvard Business School with a bunch of amazing designers and making new friends.
- Successfully requesting Freedom of Information Act data about the manufacturing fraud—oddly satisfying.
- Figuring out that our manufacturing costs will go down significantly and our profit margins will go up in the post-fraudulent-manufacturing-broker era.
- Being grateful that the manufacturing broker’s fraud did not kill Knock Knock as it killed one other company.
- Receiving this note from my mentor uncle, who advised me through the horror: “Just wanted to say that I am preparing a Diploma in the School of Hard Knocks (or Knock Knocks) for you. Tuition is definitely high, but you’ll be able to dine out on this story for a long time to come. But there really is a silver lining. Your margins and your profitability now look like they will be much better than previous work has shown. The company is creating much more value than we thought . . . and that means, of course, Knock Knock will be more valuable in the future. Anyway, congratulations on your stamina—we all have known about the creativity. I am super proud of you!” It makes me cry even now.
Low Points of 2006:
- Receiving a major come-to-Jesus talk from Knock Knock’s informal board about our lack of profitability and realizing that Knock Knock could fold.
- Being ragged on by two narcissistic, weight-bigoted actresses. I think that might be redundant.
- Horrific manufacturing issues with defective and late product.
- Realizing that the No. 2. product line that we love so dearly will not be viable moving forward.
- Coming to understand the extent of the manufacturing broker’s theft, manipulation, lies, and betrayal; feeling like a complete chump; and realizing I was not the good judge of character I’d always thought I was.
Strangest Point of 2006: Definitely the Dolph Lundgren moment, described in February 2006. Dolph! Did you know he has multiple degrees in chemical engineering and chemistry? Also he serves as an excellent security system. Per Wikipedia, “In early May 2009, Lundgren’s Marbella home was reportedly broken into by three masked burglars who tied up and threatened [his wife], but fled when they spotted a family photo and realized that the house was owned by Lundgren.”
Epiphany(s) of 2006: Oh boy. The most of any Knock Knock year.
Here’s a list, notes taken from a conversation with my uncle, all the following words his:
- “Trust, but verify” (I think he was quoting Ronald Reagan).
- Be skeptical, but be very nice, in everything. It’s always a mistake to suggest to someone that they are dishonest, especially if they’re dishonest. An insulting conversation is strategically a poor choice. Negative responses make it impossible to do business well; you have to come at it with methods that keep people from setting up their defenses. It’s vital to de-emotionalize one’s point of view on bad situations and instead gather as much information as possible and see what can be found out; this will improve the ability to manage such such situations. Making judgments too quickly, or in anger, gets you in trouble. Email is a mistake whenever personal emotion is involved.
- Transparency is key; if somebody won’t provide something you should have had anyway, that’s very negative, and if they will, then it’s easy. Nobody should operate without full supporting documentation. Transparency just means the ability to see the things that are relevant to your interest. It’s an unacceptable situation not to have transparency, even if people are behaving perfectly; without transparency, you can’t discuss the business, and generally when people have unfettered access, they take advantage of it.
- Diversified, competitive sourcing is key.
- You should always expect people to promote their own self-interests over mine; that people act in their self-interest and their own vision is a principle tenet of economics. The only way you can have some measure of assurance that people will act right is if your interests (e.g., economic or business interests) are aligned.
And a few more, from me:
- More products does not necessarily mean more revenue and/or profits. In fact, it can mean precisely the opposite. While inventory is booked on the balance sheet as an asset, if it’s unsalable, it’s a liability (hence the designation of “obsolete inventory”).
- Nobody is truly a good judge of character without evidence.
- Contracts are for worst-case scenarios, not best. Negotiating them is like a courtship—the opportunity to get to know each other before the wedding takes place. It’s vital that you look at each signal and inflection during contract negotiation because it’ll tell you just about all you need to know about your future working relationship. Don’t wave off situations that “could never happen” when creating contracts. And if you deny yourself basic business instruments such as contracts, or competitive bidding, etc., you’re much more likely to be screwed.
Whole Point of 2006: I am finally capable of running my own business.
2006: THE PRODUCTS
New Bestseller of 2006: Cubicle Notes sticky notes, and sticky notes in general for Knock Knock as a newly introduced juggernaut category.
We created these and we don't even work in cubicles. That's just how talented we are.
New Flop of 2006: Reality Rhymes greeting cards. And that new brand I mentioned, the one with the actresses and the t-shirts and the cards.
Interesting New Product Note of 2006: We got to commission a sculpture of a slightly gender-neutral man—our own Oscar—for our Life Awards Trophies. Also, I had to vet the “Sexual Release Form” in the Dating Kit through our attorney to make sure that we wouldn’t be liable should somebody actually catch a disease or something.
Quantity of New Products Released in 2006: 142. That’s right, 142. Compare that to previous years—yikes!
Quantity of New Cards Released in 2006: 140. That’s right. 140. Compare that to previous years—yikes!
Quantity of Products and Cards Retired in 2006: 76
Total Live Products and Cards at Year-End 2004: 462. That’s right. 462. Here’s a little context for you:
2006: THE MONEY
2006 Revenue: $3,294,681
Year-Over-Year Growth from 2004: 21 percent
2006 Loss: 25 percent less than 2005’s loss
2006: THE PEOPLE
Number of full-time employees: 10, though I believe we had an additional two or three freelancers.
2006: THE BONUS
I think you’ve had enough.