Founders Share How They Survived A Major Crisis -- And What They Learned From It
Every entrepreneur faces setbacks -- but some challenges are harder to rebound than others.
We set out to find entrepreneurs who not only survived some of the worst possible situations but thrived from the experiences. Some have had their startups wrecked by storms; others held hostage by out-of-control clients. And in fact, some have even been targeted by supersized competitors, threatened with obliteration by the government and stuck with millions in unsold inventory in the middle of a recession. Sounds like a nightmare, right? Whatever the disaster, these 10 entrepreneurs didn't succumb to the chaos.
Learn how they overcame these issues and what they learned from them.
A little more than a decade ago, back in the days of irrational exuberance, Michael Dorf had an idea. He wanted to start a venue that would cater to more affluent music lovers and sell them premium wine, made in-house. He called it City Winery.
Within that idea was another idea. To fund production, he would sell barrels of made-to-order wine direct to Manhattan’s elite for around $12,000 each. He found demand was strong. He took deposits for 300 barrels. It was a great idea.
Except: “Our first grapes arrived the same day Lehman Brothers declared bankruptcy,” Dorf says. “All of a sudden, nobody wanted any ostentatious examples of gluttonous spending.” Almost everyone pulled out. “It was really, really scary. I didn’t know what I was going to do. I needed cash flow desperately.”
Dorf knew he had to sell off the wine fast, but it would have to be bottled and labeled first, which would take even more time and money. So he had another idea: What if he just put it in beer kegs and sold it on tap? It was a desperation move, but the potential upside was clear: no bottling or printing costs, and, because the kegs would preserve the wine better than bottles, less waste. Overall, this meant much higher margins per glass.
His instincts were sound. The wine sold so well that Dorf reoriented his whole business around it, shifting largely to wine sold from kegs. City Winery now has five locations with more on the way, and 70 percent of wine sales come from the tap.
“The problem that was handed to us has turned into one of our great selling points,” he says.
Tyson Lawrence launched his logistics company in 2005, specializing in shipping refrigerated goods. By 2009, the company had reached $5 million in sales and had added a huge national retailer as a client. Given the soft economy of those years, it seemed like Lawrence could do no wrong. “Everything I touched turned to gold,” he says.
So he decided to really blow it out, hiring more staff and spending more money. But his profits stayed flat. Then they started going down.
What happened? It turned out that Lawrence’s best asset had become his greatest vulnerability. That giant retailer had come to make up 85 percent of his business and was squeezing him dry. If there were damaged goods, even if the damage wasn’t his fault, the retailer forced him to eat the costs. And it was constantly changing terms on him, like lowering what it was paying him for jobs, or paying him more irregularly and saying he’d need to give up 2 percent in order to get payments processed faster.
“It was a David-and-Goliath situation,” he says. “We had eight people working for us, and they were a multimillion-dollar behemoth. What they said went, and we had to figure out how to make that happen.”
Lawrence knew that if he did nothing, his company would starve. But if he pushed back, the client would send its lawyers after him, which would also be lethal. So he hit upon a daring strategy. First he quietly started a new logistics company and offered his top people jobs there. Then he demanded concessions from the big retailer, essentially poking the bear.
Source: entrepreneur.com
