Many years ago, while I was working for Larry Wells at Creative Strategies International, one of our clients asked me to be president of his startup robotics company. For very little money. For some stock and a seat on the board of directors.
I was flattered. And I was young. And the company was one of those incredible genius companies that can’t get past the founder doing amazing things with technology. He was always tweaking things, always tinkering and never actually finishing a product. He lived off service contracts and custom stuff for chip manufacturers.
Larry, who later became a venture capitalist, was a true leader. He advised me to take the job in the mornings only, part-time, and to keep the job with Creative Strategies for a few months. He offered to help make that work by giving me special flexibility.
“Work with them for a while, and see how it goes,” he suggested. Good man.
I never got to see the books. My founder entrepreneur friend was offended every time I asked. He would reassure me, “Don’t worry, we’re OK, we’re making it.” And in the meantime, unbeknownst to me, he kept thinking he could cut corners with payroll taxes and make it up when he hit big.
He never hit it big. The company went under. I went back to Creative Strategies, very grateful for Larry’s vision. A bullet dodged.
A year later I was subpoenaed by the IRS for a tax case. I discovered that my friend the founder was being sued by the IRS for $90K in unpaid payroll taxes. The company was bankrupt, but he was still personally liable because he signed the checks.
So I had to testify. It turned out that the IRS could have held me and the other directors liable as well–another bullet dodged–except the founder made it clear that he had been lying to us. And I guessed they checked into the bookkeeping and who signed checks, and decided not to pursue it.
Good lessons. Larry did me a favor and I have reason to believe that I repaid it afterward by staying loyal to my original job with his company. And my friend teaches us all to never, never borrow from payroll taxes by not paying them.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
