The man put all his eggs in one basket, creating a single point of failure. When that failure actually happened, he was hosed.
How would the story play out if he kept part of his inventory outside of the "Fulfilled by Amazon" system, or even outside of Amazon altogether? He wouldn't lose all of it, for one.
There is a limit to how much risk individuals and small businesses can realistically hedge against. Insurance can cover many risks, but it doesn't necessarily cover the impacts of legal, but arbitrary, abuses by business partners. Unpredictable, uninsurable, risks should not be offloaded onto people who are unable to withstand them.
This is an insurable risk. (Property, renter and/or business interruption.)
As you mention, abuse by business partners is not insurable. Which is why one should not be 100% dependent on a small number of them.
In this case, 100% of the inventory should not have been with Amazon. And 100% of their wealth should not have been in inventory. None of this takes away from his claims on Amazon, of course.
I'm all for analyzing what went wrong for purposes of trying to help educate people about how to do things better, but I am extremely uncomfortable with the trend in comments here to more or less act like "This guy just should have known better and not trusted Amazon."
I worked in insurance for a few years. Most ordinary people have almost zero understanding of how insurance works, what it's for, etc. Most people are not making informed consumer choices about insurance. They mostly get what the law compels them to get or what some professional recommends to them, etc.
The way to become rich is to put all your eggs in one basket and then watch that basket. -- Andrew Carnegie
When it works, it works. When it doesn't, it doesn't.
Paul Graham has said that a successful startup "does everything right and also wins the proverbial lottery" (or something along those lines). In other words, you can do everything right and something can happen out of the blue that no one predicted and you are screwed. If you actually get rich, you did everything right and luck was with you instead of against you.
But I disagree with the impression from your post that a safety net would have been the preferred solution to this merchant's woes. It would only keep him slightly afloat, compared to being careful about his business, where he could have kept a significant portion of it.
The line between being careless and blaming the victim is blurry, so I'm not going to discuss it.
However, building a successful startup is fundamentally different from running a sustainable business: in the former case, you deliberately make a high-risk, high-reward bet, while in the latter you want to take only enough risk to keep going. I had the impression that the story was about a business trying to be sustainable getting ruined.
Some people are taking risks because of the general climate around them. Living steeped in craziness can impair your judgment by making it genuinely difficult to figure out what strategy is actually sensible while the world is a case of "Please, stop this merry go round. I would like to get off now."
What I want to point out is that if he was careful about his business partners, he'd be much better off now. It's not relevant why he wasn't.
He had the agency to mitigate the problem, and didn't. What happened was not an unpreventable natural disaster. The lesson out of this shouldn't be "you don't have agency so we need a safety net", but rather "we often have agency to stay afloat". Perhaps also "we need a safety net for when our bets don't pay off or when we don't".
We should be seeking to make sure more people have access to mitigation rather than looking for the one mistake someone made that somehow makes it okay in our eyes that they have gone from having over a million dollars in inventory to couch surfing with friends and relatives as the only reason they aren't on the street. And if their social network runs out of forbearance, the street could be the next step.
I'm not arguing he's some paragon of virtue who got screwed. I'm arguing that no one should be expected to be a paragon of virtue to have any hope of making their life work.
Paragons of virtue should see terrific outcomes, not merely "Oh, you get to not be homeless today. Go, you!"
Anyway, it's 3am. I think I shall stop here as I'm not clear more words will make anything clearer beyond this.
That's mischaracterizing my point. Should people feel consequences of their mistakes? Absolutely. Should people end up on the street for failing at business? Definitely not.
I think the standard consequence of total failure being "Now you have to look for a job while you're on unemployment" is good enough.
(Although it boggles me how someone with 1.5M in inventory didn't have enough savings to rent a room for a few months…)
All I've done is try to reiterate and clarify what my own position is. That's it.
Small businesses don't have the scale to diversify. Having multiple sales channels doubles certain fixed costs. People just do not expect major global brands to commit multi-million-dollar destruction of property.