Thursday, January 6, 2011
How six companies failed to survive 2010
In business, numbers usually tell the story. If you use them to judge 2010, it was probably a better year for small businesses than 2009. In the first quarter of 2010, for example — the most recent period for which the data are available — there was a net loss of 96,000 companies with fewer than 100 employees, according to the Bureau of Labor Statistics. In 2009, the loss was 400,000 companies.
Numbers, however, do not tell the whole story. Behind every one of those small businesses that failed was an entrepreneur with an idea and a dream. “It was very painful,” said one of those owners, Elizabeth Kavanaugh, whose 12-year-old business, Large Format Digital, closed in March. “My husband and I are still struggling with the aftermath.”
Marc Hedlund, co-founder of Wesabe, a now-defunct personal finance site, wrote on his blog that while he was “enormously sad” about the closing of his business, he hoped that by writing about the difficulties Wesabe faced he would “inform other people who try to start companies in the future.” In that spirit, here are the stories of six small businesses that closed their doors in 2010.
A personal finance Web site based in San Francisco. Wesabe opened in 2006 and closed in July.
AT ITS PEAK Wesabe was one of the first movers in the Web 2.0 financial space. Its founders, Mr. Hedlund and Jason Knight, envisioned a site that would help consumers budget their money and make better spending decisions. The company received two rounds of venture capital financing totaling $4.7 million and signed up 150,000 members in its first year.
WHAT WENT WRONG Ten months after Wesabe’s introduction, a competitor, Mint.com, appeared. As Mr. Hedlund acknowledges, Mint had a better name and better design and was easier to use. Within nine months, Mint had 300,000 users and $17 million in venture financing. In 2009, Mint was sold to Intuit for $170 million.
LOOKING BACK Mr. Hedlund wishes he had simplified the consumer’s experience. “We wanted to help people,” he said, “but it was too much work to get that help.”
A personal assistance and professional organizing service in Manhattan, Gotham Concierge opened in 2004 and closed in August.
AT ITS PEAK In the summer of 2008, Alison Kero, Gotham’s founder, was running errands and handling tasks for more clients than she could handle, from busy housewives to disorganized lawyers and hedge fund managers.
WHAT WENT WRONG As home prices and the stock market plummeted in the fall of 2008, Ms. Kero’s clients began cutting back. She spent thousands of dollars on advertising that did not work. Worse, she became increasingly frustrated with the tedium of running errands. In July, when one of her two remaining clients forgot about a meeting — and then blamed Ms. Kero for not reminding her about it — she decided to close up shop.
LOOKING BACK “I realize now I didn’t love what I did,” she said. “I loved running a business.” In late October, she moved to Denver and started a pet care business, Alicat Pet Service.
A social network for parents and families, based in Wyncote, Pa., iParents.com opened in 2008 and closed in January 2010.
AT ITS PEAK Don Milley founded iParents.com when Facebook was still gaining traction with middle-aged people. “iParents was a place where family members would be able to interact with each other online, share schedules, news, photos and coordinate activities,” Mr. Milley said. Nine months after opening, the site had 70,000 members and venture capitalists were interested in investing about $3 million — if the network could get to 100,000 members.
WHAT WENT WRONG Too much time and money were spent on enhanced functionality, like text-alert reminders about appointments and the ability to turn family photos into refrigerator magnets. “All the bells and whistles diluted our premise — to be a community for parents and families,” Mr. Milley said. In late 2009, he hired a marketing company in Florida to do online outreach and run a photo contest to try to get to 100,000 members. He paid $18,000 for the work and never heard from the company again. “That was the death knell for us,” he said.
LOOKING BACK Although Facebook was a competitor, Mr. Milley felt there was ample room for iParents, too: “The cause of death was really a lack of focus on building a community — that, and we ran out of working capital.” In November, Mr. Milley started PerDiemDeals.com, which sells Groupon-style coupons to small-business owners.
Large Format Digital
Based in Edgerton, Wis., the company printed advertisements on the side panels of trucks. It opened in 1998 and closed in March.
AT ITS PEAK In 2006, business took off, growing about 60 percent a year until 2008. In 2007, sales were $3 million and the company had 15 employees.
WHAT WENT WRONG When the business was growing, Ms. Kavanaugh and Jeff Rank, her co-founder and husband, decided to spend $1 million to build their own installation facility, which they believed would save them money in the long term. The mortgage closed on the same day in September 2008 that Lehman Brothers filed for bankruptcy. Within a month, Large Format’s workload fell 50 percent. “It was literally like someone turned off a faucet,” said Ms. Kavanaugh.
LOOKING BACK “I wish I had spoken to an attorney right after the closing and a C.P.A. with small-business expertise,” said Ms. Kavanaugh. “Maybe they would have told us we didn’t have to go through with building.” Her remaining six employees bought her customer list and started a similar company, Fetch Graphics. Ms. Kavanaugh was hired as social program manager.
Based in Eugene, Ore., the firm did mostly commercial work. It opened in 1996 and closed in February.
AT ITS PEAK In 2008, Varvitsiotis had six employees, more than half a million dollars in annual revenue and five projects under way — enough work for two years. Richard Barbis, the founder, had plans to build the business into a 15- to 20-person firm and was grooming two employees to be partners.
WHAT WENT WRONG When the stock market fell in 2008, clients started to cancel projects. Too much of the company’s work was in the private sector, Mr. Barbis said, as opposed to the public sector where many projects were financed with government stimulus money. With work scarce, bigger firms started competing with Varvitsiotis for the smaller projects it usually landed.
LOOKING BACK “We were hit from all sides,” said Mr. Barbis. His new business, Opa Cove, sells sporting good products for children.
A gourmet baby food company based in Long Island City, N.Y., Petite Palate opened in 2006 and closed in October.
AT ITS PEAK In the spring of 2007, Petite Palate’s organic frozen baby food was sold on Amazon Grocery and in about 100 stores in the Northeast and Midwest. The founders, Lisa Beels, a personal chef, and Christine Naylor, a former cookbook publicist, were presenting their business plan to potential investors, hoping to raise $2.5 million to $5 million.
WHAT WENT WRONG In the fall of 2008, potential investors, skittish about the economy, pulled out. The company was struggling to get its products into the freezer section of grocery stores — yet Ms. Beels and Ms. Naylor stuck to their concept because they believed frozen food was healthier for children than food in jars or pouches.
LOOKING BACK Ms. Beels said she and Ms. Naylor should have been more open to producing shelf-stable formulations. “It took us a long time to acknowledge that and by then we were in debt and couldn’t support the company,” Ms. Beels said. Her new personal chef business is called Haute Palate.