In 1997, Al “Chainsaw” Dunlap became the CEO of Sunbeam. Why would anyone give a cartoonish nickname like “Chainsaw” to a board room executive? Great question. It’s because Dunlap was a notorious turnaround specialist. Initially beloved by Wall Street and shareholders, he’d be brought into firms that were middling or sinking, and raise the value of the company.
What were some of his strategic secrets? He would implement bleeding-edge organizational changes like*:
Firing the company’s existing management team
Bringing in his own circle of people
Cutting costs by closing or selling facilities, and laying off thousands of employees
Ol’ Chainsaw was the icon of creating real value.
*Please note: I am not some commie. I recognize these strategies are not inherently bad and often are needed when restructuring a company. However, they’re also the past of least resistance, and incredibly easy for grifters to exploit.
He’d used these strategies at several companies throughout his career, being celebrated for the short-term return he was able to gain for investors (i.e. share price pops, ballooning company valuations, etc.). Dunlap would parachute into a firm, implement these strategies, raise the perceived value, collect a payday, and move on to the next company.
Just announcing that Dunlap would be the new CEO sent Sunbeam’s stock value shooting up by 50%. Once in charge, he went to work executing his routine playbook. After putting the chainsaw to work within his first year at Sunbeam, he wanted to ready the company for sale. By this point, he had cut the work force in half and was showing a much more profitable company, which sent the company’s valuation even higher. Ironically, the company’s performance was too distant from its stock price - even with the turnaround efforts, Sunbeam couldn’t find a buyer - the perceived stock value simply outpaced what the financials were showing. “Dunlap’s only hope was to boost sales and earnings to a level that could justify the kind of premium a buyer would have to offer for Sunbeam’s stock.”1
For context, Sunbeam at the time was a household goods supplier, with a strong emphasis on small kitchen appliances and summer-seasonal products like gas grills. Who cares? Al Dunlap. The combination of his own aggressive (as we’ll see, corrupt) management philosophy, the inability to find a buyer, and a key Sunbeam product segment led Dunlap to commit blatant fraud. One of the ways that fraud manifested was in the perversion of bill-and-hold retailing.
Remember, Dunlap wanted to boost earnings to get a buyer to pay a big juicy premium for Sunbeam’s stock. Bill-and-hold lets retailers secure a shipment of products they plan to sell right now, with an agreement to pay the vendor for the invoice once they start actually selling product. A use case for this is holiday purchases. If you’re Target, you might know that the new Elmo doll is going to sell really well at Christmas, and you want to guarantee you have it in stock. But it’s August. You don’t want to pay for 1000 Elmo dolls right now. Enter bill-and-hold. The vendor making Elmo dolls can guarantee your December stock of the product right now, and you can rest easy knowing you’ll have the seasonal product you want when the time comes. The vendor (Elmo producer) gets to bill you immediately, even though both parties know the retailer wont be paying for a few months. And as an accounting reminder, companies recognize revenue on their books at the time a sale takes place, not when the invoice is paid (i.e. cash is exchanged). Both parties effectively get a mutually beneficial, proactive guarantee.
So for a company like Sunbeam, that had historically weak 4th quarter revenue and was looking to increase sales numbers, bill-and-hold can look very appealing - and can be exploited:
Sunbeam went to major retailers such as Walmart and Kmart and offered to guarantee that they’d have all the grills they wanted for the following summer provided they did their buying in the middle of winter. They’d be billed immediately, but they wouldn’t have to pay until spring, when they actually wanted to put the goods in the stores. The retailers were cool to the idea. They didn’t have anywhere to keep all that stuff, nor did they want to bear the cost of storing the inventory through the winter. “No problem,” said Sunbeam. “We’ll take care of that for you. We’ll lease space near your facilities and cover all the storage costs ourselves.”2
With that arrangement, Sunbeam was able to to report an additional $36M in sales for the 4th quarter that year. The issue was that this was effectively a financial sleight of hand. All Sunbeam did was pull sales forward, which they didn’t articulate clearly in their reporting. While it looked like they had an incredible 4th quarter, the Sunbeam management team deliberately ignored the fact that in the following spring, where these sales would have normally occurred, the company would now likely have horrific sales performance. Dunlap had effectively paid off one credit card with another. His bill-and-hold strategy was employed explicitly to take sales from spring of 1998 to reallocate them to the winter of 1997.
That move achieved the intended outcome: inflating Sunbeam’s immediate financial performance, justifying its soaring value. This led to the Sunbeam management team (Dunlap and cronies) being rewarded in early 1998 with lucrative new contracts and stock grants. Here’s an artist interpretation of Al Dunlap after destroying Sunbeam from the inside:
This obviously created an accounting anomaly for Sunbeam - again, historically weak 4th quarter earnings. And this is exactly what one Wall Street analyst (Andrew Shore) noticed. Shore noticed how abnormally large accounts receivable had grown with little cash inflow (remember: invoice now, retailers pay later). So he called the Sunbeam accounting team to ask about the numbers, and a random Sunbeam accountant explained the bill-and-hold approach that had been implemented, which Shore immediately understood the implications of.
When Shore realized what the bill-and-hold strategy meant for Sunbeams upcoming performance in 1998, he publicly downgraded the stock. Sunbeam’s house of cards collapsed inward, with the mistrust in the company’s financials ultimately leading the firm to bankruptcy. The immediate “success” Dunlap tried to celebrate was simply clear evidence of his blatant fraud and financial manipulation.
Al “Chainsaw” Dunlap, was a grifter. And eventually, everyone knew it.
Elements Of A Grifter
Grifters obscure reality. By nature of what they’re trying to achieve, they have to. Success would be hard to capture if they were publicly and overtly acting as criminals. It’s why WeWork was more of a cult of personality than a responsible business. It’s why Theranos hid the reality of a non-existent product. It’s why Dunlap abused bill-and-hold accounting. The realities they wanted to continue to manifest into the future couldn’t be built on transparency - they were grifts.
What is a grifter? Here’s my pass at defining what grifters do and what sends them down the path of being a con artist:
Obscuring reality
Prioritizing shortcuts
Immorally exploiting games, narratives, and financial information
And in the worst versions of these people - they don’t even believe they’re doing anything wrong
It’s tricky because it’s subjective. And because it’s easy to sit here and write that list and give you examples via hindsight. Anyone and anything is simpler with hindsight. Which highlights the importance I started discussing last week - using the idea of mental models and frameworks to sharpen your capacity to suss out frauds in your own work. Get to a point where you can “know it when you see it”, because defining it explicitly is much harder in the moment. For instance, just because you don’t like Tina at work or the way she leaves dirty k-cups in the coffee maker - that doesn’t make Tina a grifter. A bad person maybe, but not a grifter - this isn’t Salem.
But people like Al Dunlap are what make the professional ecosystem a dangerous place. People who prioritize short-term gains over long-term positioning. People who gut businesses for their own personal financial incentives, leaving the company weaker strategically. People willing to manipulate narratives and financial statements to get the outcome that serves their personal ambitions. And doing it all with a predatory smile and sense of self-assured arrogance.
You can call a guy like Dunlap by a lot of names:
Con artist
Snake oil salesman
Grifter
Raccoon (h/t Ben Hunt)
Asshole
More important than figuring out what to call a grifter, is figuring out some guardrails on how to define one, and ultimately, how to spot one.
Once example is a term coined by Ben Hunt of Epsilon Theory, “raccoon”. Raccoons are “the scammers, con artists, hucksters, thieves and criminals who infest financial services.” But raccoons go well beyond just financial services.
Ben lives on a farm in Connecticut, so he has a lot of field experience with agricultural wildlife like coyotes, chickens, raccoons, and his own dogs - along with the dynamics that play out in a localized, semi-agricultural setting. It’s in these experiences and observations that he draws parallels between people in corporate settings and professional services, and the dynamics on the farm, and where this explanation of raccoons originates:
Coyotes have a roguish charm and bring something interesting to the world with their independence and scheming. Raccoons are simply criminals. And they’re not that smart. I’d put our barn cat up against a raccoon any day on any sort of cognitive test. We think raccoons are clever because they have those anthropomorphic paws and those cute little masks and even a Marvel superhero with its own toy line, but please. Raccoons are takers, not schemers. They’re killers, often for the sheer hell of it. Raccoons steal and kill way beyond what they need, and they do so in a totally wanton, non-clever way. I hate raccoons.
Al Dunlap was a raccoon. Ben’s article is far more engaging and enlightening than being reduced to a single quote, but the gist is on display in that paragraph - coyotes are clever contributors, often innovators, and raccoons are exploitive, mischievous, selfish asshats whose fundamental motivation is gluttonous greed.
I think the key question this reveals to help us identify raccoons is this: is this person or entity actually making a genuine contribution to society, trying to build real relationships, operate with integrity, and overall exchange value for value?
I know it’s a mouthful. It’s a work in progress.
You might be back at the subjective aspect of all this too - who says who is a raccoon. I get to say. And you get to say. That’s the point. Most people don’t walk around dressed like the Hamburglar or with an eyepatch, broadcasting they’re a Scooby Doo villain. You have to define it for yourself. And by doing that, hopefully more often than not, you won’t have to find out the hard way.
At the end of the day, a grifter is entitled. A grifter is narcissistic. A grifter is always the victim. A grifter is greedy.
A grifter always looks for the shortcut. A grifter abandons integrity as soon as it becomes inconvenient. A grifter ignores the right thing in favor of the easy thing. A grifter only deals with surface level information. A grifter chases status and optics. A grifter presents financial statements and strategic plans with an army of asterisks and projections and very little real data or depth.
A grifter doesn’t care about creating value, building products or companies, forging real relationships, or honoring their end of an agreement - they only care about one thing: getting money into their own pockets, by any means necessary.
Grifters are some of the worst versions of ourselves. The lost potential of humanity personified. Never be a grifter.
Next week we’ll take a deeper look into the behaviors and patterns that might expose a grifter, and why it’s so important to develop our grifter radar.
With love/pronoia,
Nick
From Financial Intelligence by Karen Berman and Joe Knight
From Financial Intelligence by Karen Berman and Joe Knight