Good on you for talking about it, John.
There are a lot of companies with unrealistic business models. They don't know the scale of things, or they assume some other source of cashflow is going to happen. In Dog Soul's case, I suspect the latter, because the company was also did B2B work. I have a hunch that they figured they would divert some of this to production costs, release a lot of stuff and then watch the long tail money come in. Unfortunately, B2B services in PDF are not a big thing. No revenue from there = no money to hire people, and if you want a bunch of releases fast, you're going to have to schedule things before you know you can pay for them. This is a bad idea, especially when you pay on a per-word/piece rather than a profit sharing scheme.
People panic. They get too proud to admit they made a mistake. They start playing fast and loose with the truth. They start leaning on people for money.
Now I've had two tight spots. In one, I hired someone to do a little class book. They submitted, I PDFed it. The sales sucked. Fortunately, I paid royalty, so it kind of sucked equally for both of us. I ended up paying this person an advance and withdrawing the product simply because tracking it was too onerous. They got the money they were owed. It stung, though.
In the other situation, I was on the verge of contracting someone for a Quick20 expansion, but almost right after tentatively the proposal (but before signing anything), I had to spend a bunch of my savings to commute to the ARG/online project I was working on. I had to tell this person that I couldn't move forward. I got their hopes up and feel bad about that, but again -- nobody was denied money they were entitled to.
These were unfortunate situations, but I feel I made the best out of them by identifying the issue early, and taking it on the chin before I dug myself a hole. People really need to do this if they want to do business ethically. Wince to yourself and take control.
