But perhaps Brothers's strongest support came from Andrew Kostecka, for 22 years the franchise expert at the U.S. Department of Commerce. They were an odd couple, the self-effacing 60ish bureaucrat, tall and balding, and the henna-haired firecracker of a CEO, seen together at numerous IFA conventions and Pop-Ins franchising "seminars." Brothers dropped his name relentlessly. "It was always Andy this and Andy that," one franchisee recalls. "She led him around by the nose." The Pip-Ins name was featured regularly in news stories about franchising that quoted Kostecka.
"Carol got prominence from Andy Kostecka's promotion," attorney Rudnick says. "That wouldn't have been right, even if the business had been doing well. But given her financial difficulty, it was ludicrous."
If anything, Brothers's financial difficulties had become more pronounced: in addition to the expense of her travels and the continuing operations back in Columbiana, she now had her new consultant, new lawyer, and new PR men to pay. In the neverending search for capital, she had ruled out venture capitalists (she would not give up what they'd want) and bankers (they'd be less than impressed with her books). Instead, she turned to friends.
For the short term, there was Indiana master franchisee Tom Bolles, the most successful of her remaining franchisees, who had agreed to invest $25,000. For the long term, she pinned her hopes on Ed Crawford, a Cleveland business associate of her husband's who seemed intrigued by what she was doing. According to Brothers, in June 1983, Crawford put together a group of Cleveland businessmen and attorneys to invest $100,000, in exchange for 12% of the company's stock. Brothers had hoped for more, on significantly better terms, but at least it was a start.
Brothers had a new marketing strategy for Pop-Ins as well. She decided that she had chosen the wrong kind of franchisees in the past. There would be no more selling to working-class folks who needed to take home paychecks three months after they started. Now she'd move upscale, looking for prospects who expected a bigger payoff, but could afford to wait. And rather than individual franchisees, she'd concentrate on selling multiple territories and master franchises.
New connections and a new strategy soon paid off in qualified new leads. Ted and Stephanie Zajac, for example, were exactly the new sort of customer she'd targeted: a husband-and-wife M.B.A. team, she a supervising CPA at Peat, Marwick, Mitchell & Co., he a management consultant at Coopers & Lybrand. They met Brothers at an IFA convention and bought two Dallas territories. And there were Jim and Judy Kreitz, who bought an Illinois master on one of Brothers's visits to Chicago to see attorney Rudnick. Two Washington, D.C., attorneys bought the D.C. Pop-Ins master after a long conversation with Andrew Kostecka himself. "Kostecka thought Pop-Ins was a good business," one lawyer recalled. "He recommended it, specifically, by name." Over lunch, Kostecka even explained the Commerce Department's plans to take Pop-Ins to Japan, according to one of the lawyers.
Brothers's story had never sounded better. CPA James Hurt's most recent audited financials showed $754,000 in revenues on the income statement, with a healthy 10% net profit and a solid balance sheet. And while there was now a long section on the new FTC disclosure document about the Karp and Kane litigation, Brothers had a knack for turning skepticism into sympathy. "Carol talked about how bad these people had been, how they had tried to steal her business," Ted Zajac remembers. "'Poor Carol,' we thought, 'she really got screwed."
Just as the Pop-Ins selling machine was going into overdrive, however, her informal capital network started to unravel. Tom Bolles, the franchisee who had invested the $25,000, asked for his money back after Brothers deposited his check but refused to sign the necessary papers -- Brothers says the agreement would have tied her "to so many strings that Bolles would have owned the company." But with the $25,000 already spent, Brothers was now facing the prospect of another lawsuit and the loss of royalties from her largest-grossing franchise. In desperation, she turned to her Cleveland investors to help her out, but she couldn't strike a deal without giving up more equity. Then, suddenly, in October 1983, Crawford wrote that it would be "impractical to invest any further capital in Pop-Ins" under any conditions. He also withdrew from the board of directors, describing the company as "for all practical purposes, bankrupt."
Relations with Rudnick were also crumbling, even as his legal bill was soaring. Rudnick knew Brothers's finances were desperate: he advised that her only hope against Lynn Karp and Jim Kane was to negotiate a settlement that wouldn't leave her bankrupt. He tried to convince her to slow down, to rewrite her disclosure documents and contracts, to clean up her act, but she needed sales now more than ever. When members of the IFA came to Rudnick with complaints about Pop-Ins' business practices, he says he declined to discuss specifics about his client.
Brothers remembers it differently. "Rudnick was telling me to go on with sales, and to build the system," she complained. "Then, when I couldn't pay his bill, he went to a board meeting of the IFA and made the statement 'Pop-Ins is in serious financial trouble.' Talk about a breach of the client relationship!"
