The Hidden Costs of a Product Recall | Entrepreneur

For entrepreneurs, few events are more damaging than a product recall. The immediate image is always financial: refunds, fines and settlements. But anyone who has been inside these cases knows the true cost runs far deeper. Recalls erode consumer trust, unravel years of brand building and expose systemic failures in leadership.

I have seen firsthand how these crises unfold. In nearly every instance, the warning signs were there. Companies knew about risks. Employees raised concerns. Complaints trickled in. Yet leadership chose to wait, to monitor, to hope the problem would fade. It never does. When companies delay action, injuries multiply, lawsuits escalate, and reputations are permanently scarred.

Related: Soar Above, Rather Than Survive, a Product Recall

When delay turns deadly

Consider Peloton. The company faced reports of injuries and even the tragic death of a child linked to its Tread+ treadmill. Instead of acting swiftly, Peloton resisted recalling the product. That decision led to one of the largest penalties in Consumer Product Safety Commission history. Peloton paid $19 million for failing to immediately report defects. The fine was only part of the story. The brand damage continues to ripple years later.

Onewheel, the self-balancing electric skateboard, now faces lawsuits tied to sudden stopping issues that led to consumer deaths. The legal actions are only beginning, but the company’s reputation has already been drawn into headlines that focus on tragedy rather than innovation.

Other cases may not grab as many headlines but still leave lasting scars. Ninja recalled hundreds of thousands of pressure cookers after reports of severe burns. Portable blenders were pulled from the market after blades came loose during operation. Werner ladders were recalled when they broke without warning. In every case, the cost of waiting outweighed the cost of acting early.

Lawsuits are the beginning, not the end

When a product injures a consumer, lawsuits arrive quickly. For many founders, that is the first moment they truly grasp the scale of the crisis. Litigation is costly, time-consuming and distracting, but lawsuits are not the end. They are the beginning.

From my own work in product defect litigation, I have seen how one case rarely stands alone. A single injury multiplies into dozens of filings. What begins as an isolated incident can grow into a class action. Through discovery, internal safety reports, cost-cutting memos and ignored warnings come to light. That evidence does not just determine the verdict — it drives the headlines. The reputational damage is often far worse than the financial cost.

Entrepreneurs must recognize that litigation is not just about settlements and legal fees. It is about the company’s culture being put on trial. Once a jury sees that safety took a back seat to profits, rebuilding consumer trust is nearly impossible.

Related: Companies Often Choose Profits Over Consumer Safety — Here’s What It Takes to Hold Them Accountable

The leadership failure behind every recall

What connects these cases is not simply defective products. It is defective leadership.

Too often, product safety is left to compliance teams or buried in operations. The CEO only steps in once the crisis explodes. By then, it is too late.

The truth is simple. Product safety is a CEO-level issue. It belongs at the very top of the agenda. Decisions in the first hours and days after a safety concern emerges define the future of a company. Listening to engineers, taking consumer complaints seriously and acting quickly to protect customers are leadership choices. They are not legal technicalities.

Entrepreneurs who understand this protect both their consumers and their companies. Those who treat safety as a secondary issue risk losing everything they have built.

The hidden costs entrepreneurs miss

Most founders understand the financial hit of a recall. Few recognize the long-term damage that follows.

The hidden costs include the loss of consumer trust that cuts into lifetime customer value, the greater scrutiny from regulators and watchdog groups, higher insurance premiums, difficulty securing future coverage, the distraction of leadership who must focus on crisis management instead of growth and the brand damage that affects hiring, partnerships and investor confidence.

These costs linger long after the settlement checks have been written. They erode the very foundation of a business.

Why acting early saves businesses

Entrepreneurs have one key advantage over larger corporations. They can move quickly. Without layers of bureaucracy, a founder can make bold decisions to protect consumers and preserve trust. Acting early may feel painful in the moment, but it prevents the cascading damage of lawsuits, headlines and regulatory intervention.

The choice is not between acting and ignoring. The choice is between acting early when you have some control or acting later when you have none.

Related: How to Avoid a Product Recall: Quality Control Essentials

Protecting the future of the brand

Every recall is ultimately a test of leadership. The companies that survive are those where CEOs accept responsibility and act decisively. The companies that fail are those where leaders delay, deflect or deny until the crisis consumes them.

For entrepreneurs, the lesson is clear. Safety cannot be delegated away. It cannot be viewed as a legal technicality. It is a core leadership responsibility that protects both people and the future of the business.

The real cost of a recall is not measured only in dollars. It is measured in trust lost, in reputations destroyed and in businesses that never recover. Entrepreneurs who understand this truth will treat safety not as a burden but as the foundation of lasting success.