Founder Story: Investor dramas at Feel Good Bananas

The Founder of Feel Good Bananas shares his story, his investor dramas, and his take on the Three Strikes Theory when SkyDiving vs BaseJumping.

I got a message from a Founder in response to my first article which covered a real world case study of a startup - his feedback and his story are is exactly the kind of real life experience and context that I want to facilitate the sharing of, so that we can all learn from each other's experience. 

From Mike, the Founder of Feel Good Bananas, a specialist eco-friendly healthy brand of frozen deserts:

“I read your article.. and wanted to say we are preaching from the same choir book would be an understatement! 

Read this from the RISK section of my business plan… and the related comparable to aviation/skydiving”

Mike's business plan clearly outlines the key risk areas at his specific stage of business where he has run out of his own seed funding but his sales are still less than his operating costs, which means he needs to seek external investment for the first time, to bridge the gap. 

Mike was approached by an angel investor who seemed positive, supportive, wanted the best for the business... and was negotiating the terms of a $1M+ deal for just under half of the company, with the funds coming in over a number of years and increasingly direct involvement from the investor. 

In effect, Mike was buying a business partner. 

Negotiations dragged on. Mike desperately needed funds to grow. The investor desperately wanted to give Mike advice on how to grow...but Mike needed to deploy the investor's funds to take the investor’s advice. Before settling the entire deal, they agreed that a small initial tranche of funds would be put in. But once the initial money was deposited, the investor demanded that it was spent as per their advice, and immediately started acting as if they were an equal owner with an equal say (which would not have been the case until over $1M was invested and a few years of collaboration had occurred). 

Things turned sour, quickly.  

“I never considered in my wildest dreams that a risk I would have to face would be an investor making my company financially dependent on them and then using that dependency to control my business, but sadly that is what happened over the last 6 months. 

Fortunately I managed to borrow the funds to buy him out.“ - Mike

I am personally an avid consumer of Mike's product, which is how we became connected. I had personally advised him on some of the deal structuring and negotiations with the investor he brought on, so I feel a certain level of involvement and responsibility. 

But ultimately, Mike and I both agree that there is no easy or cheap way to safeguard yourself, or your business from situations like this. 

"The investor promised that l would lead and he would follow, but that’s not what happened. Once the money was in it became clear that he wanted to lead, with a more traditional profit based focus, and wanted me to follow. This wasn’t going to work because I had made it clear from the outset that Feel Good Bananas was a “triple bottom line business” (People - Planet - Profit) and that we would not make all of our decisions based strictly on the traditional bottom line of what would make the most financial profit for the business in the short term. Ultimately I think we are a business that aims to create value for stakeholders over the long term, and we needed more patient capital than this particular investor was able to provide” - Mike 

Mike's business is tiny, has been going for a few years and growing slowly but steadily. Today it sells 1,000 units per day, which is an impressive milestone, but still under breakeven costs. 

Mike’s main product if a single serve of a Feel Good Banana which are all the same length and weight. In an amazing turn of fate, perhaps a Strike of Good Luck, Mike had the insight to turn bananas that were to short and literally “didn’t make the cut” into a secondary lower-cost product line (a family pack). As luck would have it, this unexpected family pack product has been WILDLY successful, so much so that the demand for them outstrips the available supply of the bananas that are to short for single serves. This led to Mike increasing the costs of his family pack – giving him a 30% uplift in overall revenue. This lucky Strike / pivot has led to Mike hitting breakeven and negating the need for external investment entirely. 

“I got badly burned, and have decided to steer clear of investors for a while and just grow the business by myself.“ - Mike 

After receiving Mike's message, I gave him a call. I wish I had recorded our conversation to share with you all but instead I will paraphrase part of it:

Mike's hobby is to skydive and he moonlights as a skydive instructor (which helps him fund his start up operations). As per his business plan - and also apparent in aviation risk management principals – it is not any single factor that causes a disaster, but the convergent timing of a number of risk factors all happening at once. 

Excerpt from Mike’s business plan:

“if a business is unlucky enough, that three or more risk factors/variables occur at once, or in close succession, then even a solid business plan with risk mitigation strategies may not be enough to avoid a fatal situation for any business” - Mike

Mike explained to me that when he is teaching skydiving his students correctly intuitively identify base jumping as the more risky, but they rarely identify the reasons why, which is simply because of much shorter time increments in between the risk factors. 

When you skydive there is a risk:

- when the plane takes off

- when you jump out of the plane

- when you open your parachute

- when you land

but each of these risk factors are all spread out in time. 

Compare to the time increments in base jumping:

- the moment you jump off the cliff 

- the moment you open your parachute

- the moment you land

are all very close together in time, and therefore a single failure in one of those events cascades into the others, making base jumping far more risky that skydiving, simply because of the convergent timing of those events. 

I find it really interesting that Mike had this written into his business plan, and that he inherently knew about the convergent timing of risk factors from his aviation and skydiving training.

I love the fact that he was well aware in advance of the risk factors associated with the funding gap between his own seed funding and Feel Good Bananas reaching a breakeven point, and the risks associated with external capital and the associated loss of control. 

After discussion, we both agree that the one factor you can never predict is when people say one thing, but then do another.

Unfortunately, I am no longer surprised by bad behaviour in business, having experienced quite a bit of it. It was always self-serving, but interestingly also usually self-defeating, which never made any sense to me. Why would someone or some company act against their own self-interest?

I recently read a quote which helps to explain this phenomenon “the only difference between fiction and reality is that fiction needs to make sense.” 

I hope you enjoyed, and please keep the feedback coming, I would love to hear your story.

SK