Laziness can be very costly!
In the world of business, we are often our own worst enemies. We get so caught up in the excitement of a new deal that we become blind to the fine print—the “Terms and Conditions” pages we instinctively scroll past to hit “Agree.” This seemingly small act of laziness can metastasize into corporate complacency, turning a promising venture into a costly lesson.
This is especially true for small and medium-sized enterprises (SMEs). For us, the failure to meticulously examine contract terms and conduct proper due diligence is an Achilles’ heel that can unravel even the most well-structured business models.
The Painful Lesson of a ₦35 Million Loss
I want to share a painful story of how this oversight cost us ₦35 million. For those in a hurry, here is the core lesson before we dive in:
Contracts are only as valid as the parties are willing to honor them. Always “trust, but verify.”
Our business model was sound, but its failure came from two critical sources: a contractor who misrepresented their capabilities and a default clause in our purchase agreement that we overlooked.
We entered into a contract with a partner who claimed to have a line of credit to commence a project. Our end of the deal was to provide an equity contribution of 10% of the total project cost. The contractor was supposed to use their line of credit to kickstart development to a stage where it would attract off-takers—our potential buyers.
We paid our contribution and saw some initial activity on the site. But we soon discovered the painful truth: the contractor had no line of credit. They were relying entirely on our funds for mobilization and intended to use our equity to market and sell units off-plan. By the time we realized this four months into the project, it was too late. Our plan to finance the land purchase was predicated on the funds from these off-takers, a no-brainer given the prime location.
Concurrently, we were blindsided by a ruthless clause in our land purchase contract. It stated that if we missed two consecutive installment payments, the landowner had the right to terminate the contract and seize our entire deposit. We had developed a cordial relationship with the landowner and, in our naivety, believed this would provide a safety net. We were wrong.
The landowner activated the default clause the second month we missed a payment. Despite our pleas and our frantic efforts to source the outstanding funds, she terminated the contract, and we lost the down payment we had made. Our pleas were met with a stark letter from her lawyers.
We lost ₦35 million because we didn’t get proper guidance on the contractual terms and failed to conduct due diligence on the contractor’s claims.
The Enduring Wisdom
The lesson from this painful experience is a simple one, yet it is often ignored:
- Study every term of a contract in detail. If something is unclear, seek legal counsel.
- Trust, but verify. Conduct due diligence on everyone, no matter how close they are to you. In fact, be even more careful with people you know personally.
But beyond these practical steps, I came to understand that there was another, deeper factor at play. I’ll summarize it in this single statement: Business is a spiritual endeavor.