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Comment by lisper | Hacker News Reader

Others have pointed this out, but no one has actually done the math yet, so...

6000 "units" for $250,000 is $41/unit. At wholesale. For a product that retails for $16/bag.

It is just inconceivable that no one noticed this discrepancy. This is not a "grift" by the distributor, this is an elementary and obvious fuckup by the producer.

In fact, it's so elementary and obvious that it would not surprise me a bit if this whole thing turns out to be a publicity stunt that succeeded spectacularly well, at least for a little while, because once the cat is out of the bag all the people who bought that coffee will realize that they are the ones who got played.

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From the article:

> June 2022 comes, and the orders for this retailer start coming in from the distributor. This coffee was shipping to five distribution centers so we were receiving multiple orders. The orders were large but we thought we could handle it. Then the orders kept coming, spread apart by days.

So it sounds like they had an initial agreement for 6000 units, but the actual purchase orders were coming in piecemeal.

There's no question that these business owners made some stupid mistakes and probably failed to read the fine-print. On the other hand, when you are a small business looking to grow, you learn as you go along. And oftentimes you have about zero leverage with a multi-billion dollar distributor or a supermarket. You can't really ask them to change their legal terms from their boilerplate language because fuck if they are going to get their lawyers involved to change boilerplate documents at the request of a new manufacturer fulfilling a tiny order [1]. So you sign anyway and hope for the best.

[1] Reminds me of my friend who got a lucrative job offer from a large investment bank out of college, but wanted to adjust the terms in the non-compete section of their contract (something you hear suggested a lot by people here on HN). They literally laughed at him when he suggested it and said something sarcastic along the lines of "yeah, let's phone our legal team and tell them that the first year analyst wants a personalized job contract".

> So it sounds like they had an initial agreement for 6000 units, but the actual purchase orders were coming in piecemeal.

What difference does that make? They thought they had a deal to sell 6000 "units" for $250,000. If they had just bothered to divide 250 by 6 they would have immediately realized that a unit could not possibly be a bag, and they would, by their own account, have passed on the deal, and none of this would have happened.

You are making the assumption that there's some formal deal for $250k total. I don't think that was ever the case. My guess is that in these negotiations, you tell the buyer that you sell in packs of 6 for say $41/case. They run their numbers and come back to you saying "okay, we have all the info we need and we are going to take 6000 units and the formal POs will come over the next few weeks."

> You are making the assumption that there's some formal deal for $250k total.

No, I'm not. I'm not assuming anything. Here is what they wrote:

"In April 2022, a representative from this distributor reached out to us to see if we would be interested in participating in an online specialty coffee program for a major nationwide retailer. The opening order would be approximately 6,000 “units”."

At this point there are only two possibilities.

1. They asked how much they were going to be paid for these 6000 "units" and on what terms.

2. They didn't.

If they asked, the answer should have immediately clued them in that they were making a false assumption that a unit was a bag. And if they didn't, well, that's still on them.

You are assuming they knew the $250k amount at that point. When they made the deal for 6000 units, they didn't know the total was going to be $250k. They didn't know the total was $250k until they learned it was for 6000 cases later.

They must have had at least some discussion on price per unit. Maybe not about the total, but how was this not caught when they sent the first invoice? At six bags per case, either they sent 1/6 of the ordered amount of coffee, or they got paid 1/6 of the expected money.

This smells like a slimy growth hacking strategy.

> You are assuming they knew the $250k amount at that point.

No, I'm saying they should have asked.

You're moving your goalpost. Up above you said,

> They thought they had a deal to sell 6000 "units" for $250,000.

Now you're agreeing that they didn't necessarily have that deal up front, and that they should have asked for it.

Are you saying they agreed to a deal without even knowing the price of a ‘unit’?? They truly are idiots then

Others have pointed this out, but it's possible that the estimated volume was quoted in units while the price was quoted in bags. That seems unlikely, but it's possible. If that is what happened, then their IQ (idiocy quotient) is not quite so far off the scale as it would have been if they really had agreed to the deal without knowing the price at all. But it's still pretty damn high.

And under no conceivable scenario are the justified in accusing the distributor of being a bad actor.

But even then the price wouldn’t make sense right? I mean - regardless of unit confusion, didn’t they have to at some point calculate a price per unit themselves ? At that point the error would be pretty clear no? I can’t think of a combination of unit confusion that results in a normal price

> But even then the price wouldn’t make sense right?

Yes, it would, if the price was quoted per bag rather than per unit/case. That seems unlikely, but it's possible, and it would make the initial confusion slightly more understandable.

Yes, that's what I thought at the time. But then I re-read the article and realized that it was intentionally misleading. It is now clear to me that not only are they idiots, they are also dishonest. The summary of the situation, in their words, is:

"TLDR: We got grifted by a multi-billion dollar distributor for $250,000."

That is a lie.

What actually happened is that a broker came to them with an offer which they accepted despite not achieving clarity on exactly what the offer actually was. They thought they were signing up for 6000 bags when in fact they were signing up for six times as many because they did not understand a term of art in their industry. This was their first mistake. Then, when they realized their mistake, they decided to proceed and invest the necessary capital to meet the order without fully assessing the potential risks. That was their second mistake. They could have pulled the plug then, but they chose not to.

Then it all fell through. That's tough, I feel sorry for them, but they are not the victims here. Deals falling through is a Thing That Happens in business. That's why there are contracts and insurance, and why finance and risk management is a thing. At every step in the process, their situation was 100% their fault. No one lied to them. No one put a gun to their head and forced them to do something they didn't want to do. No one did anything that was not part of standard business practice. The situation is entirely the result of their naivete, failure to do their due diligence, failure to properly assess risks, and unbelievably poor decision making in the face of newly discovered information.

And now they are digging themselves in even deeper by accusing their distributor of grifting them. No, sorry, they were not grifted. They were just stupid, and rather than admit it and learn from it, they are trying to shift the blame to their distributor and make this sound like a David-v-Goliath story. It isn't. It's a company-being-stupid-failing-to-own-up-to-it story.

Who cares, didn’t they know how much they’d be paid per ‘unit’?? If they didn’t ask even that they are idiots - that’s the core part of the deal, 1 unit or 6,000

No, but they were 100% given a price for the 6000 units. Nobody is shipping 6000 units to anyone unless they know and like the amount they are being paid.

Why would you go into debt for $216k, if you didn't know you were going to make at least that much back?

From the article, they said they knew that $250k was coming so it would be worth it.

This is a major error on their part, to think they had really found somebody willing to pay $41/bag.

Even if they spent $216k to make $250k it had to occur to them that it wasn't really worth it. They talked about them working 3 shifts, 12-16 hours every day for 6 weeks, bringing in extra people to help out to get them over the hump. They did all this so they could have future orders like this from this buyer. All for $34k after expenses.

All that effort to get them over the hump and they're basically making $10hr at best. Future orders like this wouldn't be sustainable because you can't pay labor that little. They seem like a lifestyle business that got in over their head.

Even so, you told them you sell in packs of 6. That’s a unit then. I sympathize with the producers but this really seems like their error.

Did they name the distributor? If not, your take on this is compelling. Unless these guys dropped out of middle school to do the startup thing, in which case we now have a good answer for kids in school who ask "But when will I ever need to use this math stuff?" To defend against "grifters", of course.

The person's point, I think, is that even if you incorrectly believe a "unit" to be a bag of coffee, and you're purchasing 6k units (bags) for $250k, you're then, in your mind, being charged $41/bag of coffee. That price is far too high, higher than retail: i.e., you'd be selling at a loss, or at a price point that the market wouldn't take. So if you believe a "unit" is a bag of coffee, you're not making that purchase¹, as the price is too high.

The "orders kept coming", as I understood the article, because, again, they were expecting 6,000 bags, not 6,000 cases. So by the 1,001th case arrives, you're raising eyebrows, as you're now getting more than you though you ordered. A few over is perhaps whatever, but they were going to get 5,000 cases more than expected — quite a bit more than a few over.

¹… if you've done the math. But I've seen deals in my own field done where I know very little math got done, so … I can kind of see this mistake being made.

Because they didn't know the total was going to be $250k until they learned it was for 6000 cases.

The point is at some did they not discuss “we will sell you a unit for $x?”

If not, why not?

So they were just shipping goods without discussing price at all?

> Reminds me of my friend who got a lucrative job offer from a large investment bank out of college, but wanted to adjust the terms in the non-compete section of their contract [...]

Maybe such requests wouldn't work in consulting/IB/law where it seems like starting comp is very regimented ("our first year asssociates all get $X unless our competitor across town raises their offer to all their first years") or in the case of juniors, where firms aren't expecting much from a 22 year old fresh college grad beyond learn to do things the way we want and grind, but I think there's still value in bringing up such matters even if they are non-negotiable.

"We can't change the contract? Darn, I really care about IP assignment clauses!" gives you some plausible ammo for asking for higher comp without just transparently saying "give me more money because you have it and I want it," plus you're subtly implying you are someone who produces IP that has value, not like all those other programmers who didn't ask.

I've never gotten a company to change their IP assignment clause for me, FWIW, but I have had success getting other exceptions.

I’m not totally disagreeing with this advice but it’s just not applicable everywhere. When you are an investment banking analyst coming out of college you don’t have any ability to negotiate salary or pretty much anything.

The "big company scams small family coffee roasters" narrative is way easier to sell then the "we made a big oopsie" one though.

> but wanted to adjust the terms in the non-compete section of their contract (something you hear suggested a lot by people here on HN).

You probably hear this a lot on HN because:

- In the US, programmer contracts are often negotiable, within reasonable limits.

- Default programmer contracts are often shockingly bad for the employee. And no competent lawyer would ever advise you to sign some of the ones I've seen.

I've successfully negotiated almost every contract I've signed since I was an intern, and I've been doing this for over two decades.

In my experience, very few employers have ever read their contracts. Several years ago, when I renegotiated a contract, the leadership team said, "Wow, that really is ridiculous and unfair," and actually wound up fixing their standard contract.

I had several f'ed up contracts in the 90s-2000s, and tried to negotiate each of them. In a fairly good position several times, as they had forgotten to have me sign the specific contract (non-compete, outside of CA) when they hired me.

I got fuck all, as well. In 2 of 3 cases I think it was the VC who set the contract terms - I assume it was easier to lose 10% of their engineering team than to renegotiate, and I wasn't willing to play chicken and see if they fired me.

> I wasn't willing to play chicken and see if they fired me.

That makes negotiation harder.

There a number of books from the Harvard Negotiation Project which offer roughly the following advice:

- Make sure your plan B is good enough that walking is no big deal.

- Focus on finding a fair solution, even if you need to keep pulling the discussion back to that ideal.

Basically, 75% of your negotiation effort should be spent improving your plan B.

You want to be mostly saying things like, "I would love to work for you, but a 5 year world-wide, industry-wide non-compete is simply not fair. I knew a guy who basically got locked into indentured servitude when a private equity firm abused a similar clause. I'll tell you what. You have employees in California, right? California law strikes a pretty fair balance on this issue. What contract language do you use there?"

And if they say, "No, I don't think we can do that," you say, "Oh, I'm sorry to hear that! I was looking forward to solving your challenges with _____, but it sounds like we can't find mutually agreeable terms. No harm, no foul. I wish you the best of luck." Then you walk out the door and make the phone call to move ahead with plan B or C.

There is undeniable an F-up on the producers part here, however I think you are assuming too much in your calculation. They don't say at any point the $250k order value was the initial order as they understood it. They explicitly state that they kept getting further orders past what they understood as the initial 6k units.

I think what's happed here is that as the order kept a growing they took on more debt to fulfil it. I don't think they believed the initial order was for $250k and that they were being payed more than wholesale per bag.

Again, this is not possible unless they were complete morons. At some point they either had some idea of what they were going to be paid, at which point they should have realized that a unit could not possibly be a bag as they were assuming, or they did not, in which case they had no business being in business. There simply is no way to spin this so that this is not 100% their fault.

Neh. Perhaps the initial communication from the broker was along the lines of "Here's the deal I cut for you. The distributor is going to place several orders that together are going to add up to 6000 units."

"Great, we can do that... sounds good"

Now, the actual orders come in and the language is more concise and doesn't use industry jargon. The actual purchase order probably says something along the lines

  500 cases regular (6 bags per case) * $40/case = $20000.
  500 cases decaf (6 bags per case) * $42 = $21000
  Total order: $41000

They get the first order like this and they say, great, that 1000 units. We should probably expect 4 more orders roughly like this. When they got more than 5 orders like this, they started to freak out.

For your assumptions to make sense, the initial language had to match up to the PO language, which I wouldn't think it necessarily the case. Not being in the food industry, I can 100% imagine how one would assume units to be bags of coffee. I can also 100% see how people well versed in the industry would know that units means cases. This is obviously a rookie mistake and I'm not even going to claim that these are astute business people, but given a kinder interpretation of events, I would say moron is a strong word here.

No one can make that judgment without seeing the paperwork. We don't know how it was written down.

Also they are a really small business. 6k bags a year, their old volume, is only 23 bags per day (5 days week, 52 weeks)! Of course they were out of their depth, and very naive to how this all works. It's not fair saying they are morons and don't deserve to be in business though.

The only circumstance in which "how it was written down" might matter is if what was written down is different from what they said in the blog post. Which doesn't really help.

There are only three possibilities:

1. The deal was written down, and it was, as they report, for 6000 units and $250,000 (modulo phraseology)

2. The deal was written down and it was not for 6000 units and $250,000

3. The deal was not written down.

In case 1 and 3 they are morons, and in case 2 they are liars. There are no other possibilities.

My guess was one of these being far more likely:

1a) the deal was written down for ~6000 units and X$/bag.

2a) A price per bag was been negotiated and the deal was only estimated at 6000 units, but a total was never explicitly stated as it would depend on actual order. Each actual order is unambiguous and the numbers add up correctly.

Remember negotiation, order size, and billing are three different steps. Miscommunication is amazingly easy as people ask clarifying questions like “So you want 6000 units at 7$/bag?” Thinking holy shit 42,000$. And get answered “Yes” by someone thinking 7 * 6 * 6,000 = 252,000$ yea that adds up.

Re-reading the blog it appears that the initial deal was just verbal, and the contractual element was individual purchase orders coming in. Everything seemed OK until they realized that they were getting POs for more product than they expected.

There's another possibility:

4. The initial deal was verbal or even written down, but not in a contractual way. i.e. they get an email saying, hey, we are going to follow up with multiple purchase orders that will total 6000 units

When the actual POs (which are more "legally binding" so they won't use ambiguous language or industry jargon) come in, they use language that specifies the exact number of cases + number of items per case + payment per case + total payment.

Add to this it seems they didn't fully understand all of the details of those POs. Like payment schedules, that they can return unsold inventory after certain point and so on.

The distributor likely treated them as some bigger operator that could just supply stuff and have other buyers. Or they just didn't care.

> 6k bags a year, their old volume, is only 23 bags per day

They were bigger than this, but still small. They said that 36k bags is about 1.5 years of sales for them, so that's 24k bags/year, or about 65/day (using a 7-day week calculation). 24k bags at $15/bag is $360k/year revenue, which is still quite small, especially if you have employees (and I believe some of these bags were sold through local stores, so that means revenue is less).

Is it a standard retail practice to agree to a sale quantity but not a price?

Price per item/unit/case/box whatever and a volume would be on the purchase order, not necessarily the total.

If the PO said "6k units @ $7/bag" (made up price), that's ambiguous enough to cause confusion.

That’s a good example of how this could be written ambiguously, thank you!

the units weren’t purchased, though, it was an order. If we take them at their word that they worked with a broker, then there’s numerous ways this could have happened. For example, the broker could have said “they’ll pay you $x per bag and they need 6,000 units” which would explain the discrepancy. After all, the order was for “units” but what’s ultimately being sold is bags — so there is some translation happening somewhere.

The businesses entire pitch is ethics, it would be batshit crazy to try and run such a gambit when ethics is core to their business.

> the broker could have said “they’ll pay you $x per bag and they need 6,000 units”

That's possible, but unlikely. The whole concept of "bags" just doesn't enter into it in a wholesale transaction.

But even if this did happen, they could have avoided the problem by clarifying: "So that's a total of $X, right?"

Also, at some point this deal should have been put in writing, at which point, again any ambiguity should have been resolved. They had a lawyer, surely they would have asked him to review the deal before signing?

Sorry, but there is just absolutely no way to spin this so that this is not 100% their fault.

it’s absolutely their fault in many ways, I don’t dispute that, but I absolutely dispute the idea that this must be a grand conspiracy to trick people into buying coffee with an impossible story.

They were dealing with a broker who is responsible for getting a deal done, the broker has no investment in the intricacies of the deal, so it’s totally plausible that the broker was saying whatever was necessary to get the deal done even if that meant providing ambiguous information that could have confused a naive supplier.

> this must be a grand conspiracy

I didn't say it had to be a conspiracy, only that I find this hypothesis plausible in today's world.

> the broker has no investment in the intricacies of the deal

He certainly does. Brokers don't get paid unless their deals close.

> it’s totally plausible that the broker was saying whatever was necessary to get the deal done

Of course. It's still their responsibility to achieve clarity on what they are signing up for before agreeing. At the very least they should have done a sanity check on the terms and the bottom line.

The specifics of the arrangement with the broker are not disclosed but a reasonable guess is that the broker is taking a percentage. A percentage of anything is better than a percentage of nothing. Much like a realtor, the incentives of the broker and supplier are not aligned. If the broker cared about the outcome then the broker would have behaved very differently throughout the entire process.

Saying the broker would behave in the suppliers best interests is like saying a sales person in a software business will behave in the best interests of the companies developers.

The fault only extends as far as the amount of coffee they had to produce, but not the money. Had the distributors worked like the broker promised (they didn’t) then while the intense 3 shifts a day grind would have had to happen, the money issue wouldn’t be a problem, as they would have then sold it all to the distributor. So yeah, they fucked up, but not quarter million fucked up. That’s on the distributor and/or broker.

I'm assuming they had a stated wholesale price sheet somewhere - maybe it specified per bag and per case prices. They received the indication that orders for 6,000 units would come in. If even 6,000 bags was a massive deal for them, the idea that it could be 6,000 cases might not have even entered their thinking.

Not a grift. Their fault for not clarifying, and arguably a failure from the consultant to not step up and help them navigate uncertain waters. But I can absolutely see how it happened in a way that wasn't a stunt.

This is what I'm thinking.

Something something high quality, ethically-sourced coffee?

(I don’t actually know the details of those descriptions. Playing devils advocate it sounded to me like they were trying to run a very ethical, environmentally friendly, health-focused business from the start, which is expensive as far as I can tell in the US, so maybe those prices made sense.)

The details of the product don't matter. What matters is that their "fire sale" 50% off price is $8/bag, so their full retail price is $16/bag. So they were looking at a wholesale price that was 3x their retail price and no one noticed that this was odd and bothered to investigate further. I find it hard to believe that anyone could be that stupid.

I also think it's pretty dishonorable to publicly characterize the consequences of their mistake as a "grift" by their distributor. Modest Coffee is not the victim of anything but their own negligence.

The point is that a "unit" could not possibly have been a $16 bag of coffee, if they were getting paid $41 per unit.

The story smells fake to me. The most charitable interpretation is that they were misled by their "food broker" more than they realize even now.

maybe they gave the broker their AMEX to pay not realizing the broker makes their money on commission. heh although that would be an even more inconceivable mistake than the dollar discrepancy.

They seem to sell the bags on their website for ~$15 so they should know that someone selling them for at least 3x the price is odd.

Hello! If you read the whole story you will understand the numbers and the situation. It is all explained and you should read the whole story from beginning to end.

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