I am always hesitant to distribute an opinion based on intuitive perception, but this is too simple, makes too much sense and is too potentially destructive to keep quiet.

For the last 3 years, I have been fortunate enough to have built a small company with the love of my life.  It is a skin care company, and since it’s inception, our singular focus, above all else has been to produce quality products.  After 3 years, we are still relatively small.  We have grown enough to remain completely invested in the business with an eye on the future, but we are by no means exploding.  We have received countless offers and suggestions, urging us to take on an investor, and always with the most grandiose elaboration on the realization of our true potential as a company.  This is always very tempting, but the discussion always leads back to the same place…  Interests.  As I said we are small and focused on quality.  What that means is that we use simple, and pure ingredients in our products.  The unfortunate result is that they are not what most would call stable.  Like I said they are great products, but their shelf life is not as long as it could be, and our flagship product has a melting point of around 75 degrees Fahrenheit.  We could add some fillers, a stabilizer or two and  preservative and the end result would be an ideal model for a commercial cosmetic product, but that’s not what we’re after.  We are a small batch, high quality, purist producer that believes our only true value as a company is in our unique dedication to purity and simplicity and that’s all there is to it.

The first question out of every investors mouth is always along the same lines.  “What do your sales look like?” “How many stores are you in?”… Always focused on volume, and that makes sense because an investor serves 1 function for 1 purpose.  They provide money, in the hopes of making more on the back end.  Of course this has it’s usefulness, but I realized this morning that it has one, major flaw.

The relationship is simple, they give you money, you give them ownership and thus decision making power.  Because their interest is financial, money is the single driving force of the every decision.  These people are not investing because they care about you and what you do.  Investments are not limited to the realm of the investors expertise, or else they wouldn’t have much to invest in because their expertise is money.  Unfortunately that means they don’t care about the quality of your product.  They don’t care about your customers’ satisfaction.  They don’t care about ethics, or integrity.  They care about quarterly gains.  As long as this quarter yielded more profit than the last, they are happy and that’s all there is to it.

I will take a moment to qualify that I am not attempting, nor do I believe it possible to describe the basic nature of every investor relationship in a few paragraphs.  There is an exception to every rule, and this may not even be the rule, but it is happening.  I know it is happening because I’m watching it happen, and what is happening is very clear.

I call it customer stretching.  A slow increase in price, supplemented by a decrease in product quality in the name of increasing profitability.  These things happen very slowly and incrementally, usually slow enough that those in charge feel that this slight decrease in product quality is justified by the economy it provides.  However, after a sufficient number of quality sacrifices, you inevitably end up with a shit product, and that’s all there is to it.  The product is slowly degraded and the price is slowly raised until the bubble bursts, triggering company collapse and a sell off happens. Why?  Investor directed business strategy.  Executives making terrible decisions to satisfy greedy investors with the singular focus of making as much money as they can as quickly as they can.  Once the company is driven to collapse, the investors lose a bit, before they can all bail, but not nearly as much as they’ve gotten.  From there, for them it’s as simple as identifying the next investment opportunity.  Meanwhile, the founders, employees, everyone who actually relied on the company for support are left in the gutter.