Although Cooney anticipated problems with really rapid expansion--cultural issues among all the smaller acquired companies, for instance--his real problems came out of the blue.
Not long after he signed an engagement letter for a $12-million secondary offering, Cooney's underwriter was suddenly sold and its West Coast operations were shut down. There he was, deciding how to integrate the international operations of a company Laser Storm was acquiring, when his cell phone rang. The party on the line asked why Laser Storm's underwriter had fallen "off the box."
"I said, 'Don't joke with me right now," says Cooney. But it was no joke. Laser Storm's stock price fell from $3 and change to less than a dollar by the end of the day.
"We lost all support for the stock and all of our ability to raise capital after that," says Cooney. Nine months later the company filed for Chapter 11. "We've spent the last two years scraping to recover," Cooney says. "We had sales of $6 million at the time, but we were three days away from being a $20-million company. We were up to 70 people. Now we're just 4."
Cooney has regrouped, creating a leaner and meaner Laser Storm. He plans to restructure the company and try to grow again, through an industry roll-up. This time "we'll be coming more from a position of weakness than strength," he says. --Christopher Caggiano
MYTH NUMBER 2: 'YOU MUST BE VIRTUAL'
There's no place like in-house
THE CEO: Susan Sargent
THE COMPANY: Home-furnishings maker Susan Sargent Designs, in Pawlet, Vt.
THE BUY-IN: With a little technology, you can build an empire from your living room.
Susan Sargent wanted to live the life of an entrepreneur without sacrificing the lifestyle of an artist. So when she established her first business, in 1996, Sargent set up shop in a barn near her home studio in rural Vermont. Her stated mission: to create "a model company" with "best-in-the-world creative talent." How did Sargent plan to build such a world-class organization so far from the beaten path? By outsourcing and creating a virtual company, one united by technology instead of real estate.
Sargent didn't have to go far for help with her vision. Her husband is celebrity business guru Tom Peters. It's hard to miss the buzz when you're living with the author of such new-economy manifestos as Thriving on Chaos and The Pursuit of WOW! Every Person's Guide to Topsy-Turvy Times. Peters even runs a popular seminar that's all about being virtual and exporting work to employees wherever they are.
So when Sargent set out to "run this business very differently from traditional furnishings companies," she was well prepared to explore all the options. She began by outsourcing her entire sales operation, linking a distant sales manager and 120 independent reps by phone and E-mail.
To her dismay, it was a disaster. She expected the reps to act and feel as if they were an extension of the office. But "they weren't savvy with laptops," she says, and they never jelled as a group. Even though all the reps had access to Sargent's real-time database of inventory, few used it. They weren't selling her newest products, because they didn't know about them. Worse, they took orders for products not in stock. A disconnect developed between the company and its retail customers. "We were getting this from stores: 'You never have what I want," Sargent says.
She lost sales--and made sales to customers she didn't want, retailers that couldn't properly showcase her hand-crafted products.
Sargent's sales manager, some 3,000 miles away in San Francisco, was too far away to deal effectively with all the problems. "There was a big missing piece in how we all related," Sargent says.
So she abandoned the dream. She brought sales in-house, hiring a new sales manager who calls Vermont home. "Home base needs to be our office and not a home 3,000 miles away," says Sargent.
Then she cut loose 118 of the 120 reps. "Instead, we have six customer-service people here on the phones, everyone listening to each other's conversations," she says. "There's no replacement for that in a virtual company. We're just too busy, swamped, and overwhelmed to try to catch up with each other at the end of the day. In our own office, with our own people, everybody shares the excitement when new product samples come in. It keeps them pumped up."
Sargent's headquarters, which originally housed a staff of two, has moved from the barn to a converted Victorian farmhouse. She has 15 employees working there. The company has partnered with 35 stores, each of which devotes a corner to a Sargent "boutique." The company's 1998 sales were about $3 million. But Sargent has learned a hard lesson. Virtual companies just don't work, she says: "Not when you're evolving madly every day. I can't see any substitute for having everyone in one place." --Susan Greco
Go right to the outsource
THE CEOS: Cherie Serota and Jody Gardner
THE COMPANY: New York-based maternity-clothing maker Belly Basics
THE BUY-IN: Everything can be outsourced.
To Cherie Serota and Jody Gardner, the concept of a virtual company was the right idea at the right time. It became the entire basis for the 1994 launch of their Manhattan apparel business.
At the time, Serota was pregnant and fashion frustrated. She and Gardner were both executives at Henri Bendel. They conceived Belly Basics--a line of clothing with 1998 sales of $3 million--as a resource for women who wanted stylish maternity clothes. They knew they'd need lots of outside help.
The pressure to act like a much larger company was intense. Shortly after agreeing to carry the Belly Basics line, retail chains demanded that the young company be fully automated with electronic data interchange (EDI) systems, for instance. It certainly made sense to outsource those technical back-office functions. Gardner and Serota did just that, but they didn't stop there. They tried to outsource themselves.
