How to Respond to a Crippling Error in Your Business [e153]

February 18, 2015

The guys talk about the costly mistake made by one business owner and discuss the legalresponsibilities of handling major errors.

Full Podcast Transcript

NASIR: All right. Welcome to our business podcast where we cover business in the news and add our legal twist for the benefit of you, the listener. My name is Nasir Pasha. Thank you for joining us.

MATT: And I’m Matt Staub.

NASIR: And Matthew Staub is here again, joining us for the 153rd time, I believe.

MATT: Correct.

NASIR: I think that’s a new record, right? I mean, I think last week you were at 152. So, I think you just broke the record, man. 153 in a row. Congratulations.

MATT: I’m pretty proud of that.

NASIR: I wouldn’t get too confident there, you know. You don’t know what’s going to happen next week.

MATT: Yeah, it’s true. Well, it’s bad because we’ve had the other three people that have been here the whole time. And so, they haven’t really said anything, or they haven’t said anything, but it still counts because they’re here.

NASIR: Yeah.

MATT: So, if I screw up and don’t show up, they can just step in and say something and then they’re going to have the record.

NASIR: Correct.

MATT: Yeah.

NASIR: The record committee just requires presence. You don’t have to actually say anything.

MATT: So, I hope I don’t make a mistake like the mistake we’re going to be talking about today.

NASIR: Classic transition.

MATT: Yeah. So, there’s this guy who’s an artist, Cameron Moll, M-O-L-L.

NASIR: Moll? Moll?

MATT: Moll. Moll. Okay. Spend the rest of the episode just trying to guess his name. So, he’s an artist. He’s started a Kickstarter campaign and he was looking to raise $10,000 and, actually, as of recording here, oh, I guess it’s already over. So, he raised just under $65,000 – well above what he was expecting to raise. Nearly 600 people backed the project and he was essentially doing this really cool letterpress printed version of the Brooklyn Bridge – really, really cool thing. People funded it. He gave them a copy of what he created and, after the $65,000, after he spent all the time and money sending out these prints to everyone, he had about $15,000 left. And then, he realized he made a big mistake.
When I first saw this story, I assumed he, like, screwed something up with the numbers or something. His mistake was it was a typo. He misspelled the word “Brooklyn.”

NASIR: Whoops! That’s a big one.

MATT: Yeah. So, B-R-O-O-K-Y-L-N. So, he switched the Y and the L there. So, what he had to do obviously was go back and reprint and reship. Essentially, he cut his profit in half. At the end of the day, he still made money because it was free money that he got so I don’t feel too bad.

NASIR: But did he have to resend it all? I mean, yeah, okay, you misspelled it, but, you know, it’s a piece of artwork. Maybe that’s part of the art – misspelled words. I mean, if you think about it, basically, you guys, it’s hard to picture it, but the Brooklyn Bridge image is made up of different letters which has different words in it, and he displayed that on the Kickstarter, but I don’t think he actually showed the word because, basically, when the final product had “Brooklyn Bridge” kind of in big letters and so it wasn’t on there. But, if some of the words were misspelled on the original poster and people bought it, well, apparently, they can’t spell either so he didn’t have to send it, I guess. I don’t know. What do you think?

MATT: I don’t know if that’s technically a contract. Is he obligated?
How Kickstarter works is people back your project and you can give different incentives. So, he had any pledge of $80 or more, he would send an early bird signer posted – you know, a copy of this Brooklyn Bridge poster. Is he obligated to even send that in the first place? Because people are just sending him money. I think that agreement might be with Kickstarter. I’m not sure.

NASIR: I don’t know how that works but let’s say he was just selling it on his website and, if it was displayed incorrectly on the website, then I suppose he would not have had to return it.

MATT: Yeah, he wouldn’t have to.

NASIR: Obviously, you should, I’m just playing devil’s advocate here. it’s like, okay, well…

MATT: Yeah.

NASIR: It did cost him quite a bit. I mean, it cost him another $7,000 so he lost half his profit. He was at, like, probably around a 14 or 15 percent profit margin and cut that in half.

MATT: Is it a profit marginal? Like, I said, it’s just free money that he got. I guess you can look at that as income.

NASIR: No, it’s a profit margin because his marketing budget was basically zero and, even though these Kickstarters are backers, at the end of the day, it’s just people buying the product itself in general, right? I mean, there’s some, like, if you pledge a dollar or more, you get nothing, basically – you get updates. And then, let’s see, $10 or more, a thank-you card – wow. But then, $80, it jumps up to an early bird signed poster. Basically, you’re buying a poster for $80. That’s how I see it, at least.

MATT: You didn’t mention that the thank-you card was printed on Crane Lettra Pearl, and signed by him, so let’s not forget that.

NASIR: Oh, wow. Yeah, I totally missed that. Well, what’s interesting, this is estimated delivery in 2013. When did this occur? I mean, this seems like a recent article. It looks like he was a little late in delivering, though – February 2015.

MATT: You know, that’s kind of the thing that we were talking about possibly discussing this before, but the downside of some of these Kickstarters is, you know, they set their goals and they have no idea what kind of backing they’re going to get. I don’t know. Can you cut it off at a certain point, too? I’m not sure. But sometimes, if it’s really popular, especially if it goes viral, then you get this huge – I guess this is what happened to the glitter guy that we discussed, even though that was a plan. You get this huge feedback and then you have to fulfill all these orders or the backers that you said you were going to send these things to and then you’re like, “Well, now I have to spend all this time and money fulfilling all these orders,” so it can kind of backfire in a sense even though you’re still getting money at the end of the day, presumably profiting off of it.

NASIR: This stuff happens though in real life, right? Because you may have a product or even a service that all of a sudden takes off, goes viral in its own way, and you have maybe purchase order to fulfill. At that point, your profit margins may be such that, you know, maybe you’re doing it yourself or whatever but you can’t handle that but, at the same time, how do you expand quickly to make sure you fulfill your orders? These are real world problems that occur all the time. So, I guess this guy just had to deal with it, just like everyone else.

MATT: Yeah, and you’ll see that. I watch Shark Tank sometimes and you’ll see that on there.

NASIR: Yeah.

MATT: They’ll say that it got really popular and they just don’t have the money to keep producing or they can only produce in small batches because they have to wait until more money comes in and that money gets allocated so that’s why they ask sometimes for hundreds of thousands of dollars. So, small businesses do need to be prepared for this sort of situation. I mean, more times than not, it’s not going to be an issue. But, for the ones that do take off, you have to have things in place as precautions just to make sure that you can handle huge influx of orders or whatever ends up happening.

NASIR: Absolutely. Obviously, I was kind of joking around of not resending the posters to your customers. But this is a really good example of, okay, on one hand, he may not have a legal obligation to fulfill those orders once again yet he did it anyway. Even though I think most people in business understand that and do it anyway – you know, just like I would, even though I was joking otherwise – but, even if he took a loss in it, right? I mean, people don’t want a poster with a misspelled word. My point is that this is also part of legal risk management in the sense that, sometimes, it’s not just about doing what you have to do, but it’s about protecting yourself by going above and beyond because I’m not even talking about the non-legal aspects because, obviously, if you have a lot of upset customers, then that might be a problem. What about the legal aspects of misrepresentation? They’ll sue you for little small stuff? Even for one simple poster, one person can cause havoc if they are passionate enough to go against you. Ask anyone that’s been through a lawsuit, no defendant believes they should have been sued – well, that’s not exactly true, but many defendants don’t believe that and it’s so easy nowadays and so many attorneys that are willing to take on the most silly of cases and, nowadays, with the internet, you can do it on your own sometimes and really cause havoc to people.

MATT: I agree with you in saying that, even if you’re not obligated legally, it still makes better sense to sometimes take certain actions or inactions because it’ll be beneficial for you legally down the road. I’m trying to summarize what you were saying.

NASIR: Yeah. I mean, basically, you know, you want to be legally sound and be smart in your business, in my humble opinion.

MATT: That’s a good way of putting it as well. You know what I think guy could have done is just said it’s just art and he intentionally misspelled it.

NASIR: That’s the best policy.

MATT: Yeah, there’s no rules for art, unless he said it was going to be spelled correctly. I would have just gone in the Kickstarter and switched the L and the Y. It’s like, “Well, this is what it was the whole time.”

NASIR: Yeah, actually, that’s the first thing I checked. I wanted to see if he misspelled “Brooklyn” anywhere else on the Kickstarter page and, apparently, he did not that I could find.

MATT: I haven’t seen the actual print so I don’t know where it was. Did you see it to see where it actually was on the print? Or was it just, like, on the bottom or something?

NASIR: Gosh. I saw it somewhere.

MATT: Not a huge deal.

NASIR: No, no, this is a huge deal. Let’s find it. Oh, I guess I just clicked on the remaining posters link and there’s a link there. I think at the bottom it just says “Brooklyn Bridge.” Well, anyway, that’s the Brooklyn Bridge for you – always misspelled.

MATT: I don’t know if I’ve been on that or not.

NASIR: I’ve seen it before in person. That’s it. Anyway, all right, well, thank you for joining us, everyone. This is our nice Wednesday, middle-of-the-week podcast. Thank you for joining us.

MATT: Yeah, keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.

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