There's still gotta be a chance for redemption, there's gotta be a course of action that although will never satisfy everyone might just make enough happy to fill the orders and continue making knives or is it too late?
I totally, 1000% agree with this. To me (recognizing that some of this is easier said than done), if it were my business, I'd probably pursue the following course of action:
1) I'd immediately close my books, and stop taking new orders. While there is demand from folks that don't know about (or don't mind) the other shenanigans, and they might need the cashflow from new sales, the ongoing damage to their reputation due to repeatedly releasing and selling newer products before fulfilling their old commitments is too great to continue as they are.
2) If cashflow is their major issue, find an investor or other source of external financing to finish out the existing obligations they have, and deliver the knives at the fastest rate possible. Also contact all outstanding order holders directly, and offer them the option of an immediate refund, along with a
realistic timeline for actual delivery.
3) Cancel and refund any production runs for which materials have not yet been purchased. Wait until the ship is righted, and normalcy restored, before selling new models.
4) once the current obligations are met, and the bleeding is stopped, regroup and come up with a new business plan for how to balance quality, price, and general customer satisfaction (ie. how to deliver knives quickly, in achievable numbers, and learn when to say no. Also don't require the buyer to pre-finance the run).
5) By whatever means necessary, stop Guy from being the bottleneck to timely production. He's not the only person who can finish a knife. He should be occupied with running the darned business, and maybe acting as the main quality assurance arbiter, but to have him also mechanically doing production is too much. The first thing I learned about small business when starting mine is that you need to work ON the business, not IN the business. If you're in the boiler room doing the grunt work, then who's conning the ship?