The Sudden Collapse of Onyx Motorbikes: A Cautionary Tale of Succession Planning
The electric bike (e-bike) market, much like the technology sector it often intersects with, is a fast-paced environment characterized by innovation, competition, and, unfortunately, occasional volatility. The story of Onyx Motorbikes, a once-promising e-bike startup, offers a stark reminder of the importance of robust business planning, particularly when it comes to succession in the event of an owner’s death. This article delves into the intricate chain of events that led to Onyx’s downfall, highlighting crucial lessons for entrepreneurs and business owners.
The Meteoric Rise of Onyx Motorbikes
Onyx Motorbikes wasn’t the brainchild of a seasoned entrepreneur but rather the product of Tim Seward’s passion for vintage motorcycles and innovative design. While working as a designer at LG Electronics, Seward embarked on a personal project, crafting a visually striking electric dirt bike prototype that turned heads wherever he rode it in San Francisco. Encouraged by the overwhelming public interest, Seward launched an Indiegogo campaign in 2018, raising close to $1 million and proving the market demand for his unique e-bikes.
The $1 Deal and the Entry of New Stakeholders
As Onyx’s order book swelled, Seward found himself increasingly drawn to the design and engineering aspects of the business, shying away from the operational burden. This led him to accept an acqui-hire offer from Bird, a then-struggling e-scooter sharing company. The deal, however, didn’t involve Bird acquiring Onyx’s assets. Instead, Seward received a substantial payout for his work at Bird and was tasked with finding a successor for Onyx. Enter James Khatiblou, a friend and colleague of Seward’s at LG Electronics, who expressed interest in taking over the reins. In a move primarily motivated by tax implications, Seward sold Onyx to Khatiblou for a symbolic $1.
Navigating Troubled Waters: Financial Mismanagement and Shareholder Disputes
Khatiblou, while enthusiastic, lacked prior experience in running a business. He made several critical errors, including signing personal guarantees for loans and overspending on operational costs. Adding to the complexity, Khatiblou brought on two new shareholders, Kenneth Ames and Troy Smith, who injected much-needed capital into the business. However, this move would later become a source of significant legal wrangling.
Khatiblou grew increasingly wary of Ames and Smith, eventually taking steps to curtail their decision-making power within the company. This period also saw Onyx enter into an agreement with Oxygen Funding, an invoice factoring company. Under the terms, Oxygen would purchase parts and supplies on Onyx’s behalf, with Onyx obligated to repay the advanced funds along with fees. Crucially, the agreement stipulated that Onyx’s assets would serve as collateral, and Khatiblou was personally liable for any payment defaults.
A Company Adrift: The Untimely Death of James Khatiblou
In late 2023, Onyx Motorbikes was on the brink of collapse. Facing eviction from their warehouse, mounting unpaid bills, and a backlog of customer refunds, the company was in dire straits. Khatiblou, grappling with the immense pressure of keeping the business afloat, was also battling deteriorating health. Tragically, at the age of 37, Khatiblou died unexpectedly due to a pulmonary embolism.
Khatiblou’s sudden death exposed a critical flaw in Onyx’s structure: the lack of a will or succession plan. With no clear line of ownership, the company was left in legal limbo, unable to fulfill orders, pay suppliers, or address its mounting debts.
The Fight for Onyx’s Assets: A Cautionary Tale Unfolds
In the absence of a will, Khatiblou’s mother, Diane Khatiblou, became his sole heir. However, this didn’t automatically grant her control over Onyx’s assets. Under California probate law, an administrator needed to be appointed by the court to manage the company’s affairs.
Oxygen Funding, owed a significant sum by Onyx, saw an opportunity to recoup its losses. The company petitioned the court to be appointed as the administrator, a move that would grant them control over Onyx’s remaining assets. However, Oxygen’s claim was met with challenges from multiple parties, including Ames and Smith, the two shareholders who had invested in Onyx earlier.
Ames and Smith argued that a share buyback agreement they had entered into with Khatiblou effectively transformed their equity into a loan, with Onyx’s assets serving as collateral. Adding another layer of complexity, Onyx’s Chinese supplier, Suzhou Jindao, found itself caught in the crossfire, holding a significant number of Onyx’s e-bikes and awaiting a court order to determine the rightful recipient of the inventory.
Lessons from the Ashes: The Importance of Succession Planning
The downfall of Onyx Motorbikes serves as a stark reminder of the critical importance of succession planning, particularly for businesses with a sole owner or a small group of partners. Here are some key takeaways from Onyx’s story:
Have a Succession Plan: Every business, regardless of size or structure, should have a clear and legally sound succession plan in place. This plan should outline the transfer of ownership and management in the event of an owner’s death, incapacitation, or withdrawal from the business. (Source: Small Business Administration)
Consult with Legal and Financial Professionals: Navigating the complexities of business ownership, including issues related to incorporation, shareholder agreements, and intellectual property, requires expert guidance. Consulting with attorneys and financial advisors can help avoid costly legal disputes and ensure the long-term viability of the business. (Source: FindLaw)
Avoid Personal Guarantees: Entrepreneurs should exercise extreme caution when asked to sign personal guarantees for business loans. These agreements put personal assets at risk in the event of a business failure. Explore alternative financing options or negotiate loan terms that minimize personal liability. (Source: U.S. Small Business Administration)
Maintain Clear Communication and Documentation: Open and transparent communication with stakeholders, including co-founders, investors, and employees, is crucial. Maintain meticulous records of all agreements, contracts, and financial transactions to prevent misunderstandings and potential disputes.
The story of Onyx Motorbikes is ultimately a cautionary tale, highlighting the importance of foresight and meticulous planning in the world of business. While the future of Onyx remains uncertain, its legacy serves as a valuable lesson for entrepreneurs and business owners, emphasizing the need for legal preparedness and a well-defined roadmap for the unexpected.
