Start-Up Diaries
The forks in their roads
Our story so far...
It's been just three months since the January issue of Inc. launched the Start-up Diaries, introducing five new businesses and their founders, and promising to report on their progress -- or lack of it -- in future issues. But that's three months of start-up time. Which is to say, time when anything can happen.
Luis Espinoza, the electronics technician moonlighting as a Hispanic-foods entrepreneur, was offered a potential revenue windfall and turned it down for want of the $250,000 he would have needed to pursue it. He seems happy enough with his choice, but where does it leave his company? Meanwhile, edu.com's Adam Kanner did get his money ($30 million in new capital, to be exact) but still can't be sure it's sufficient to make his E-commerce Web site for students work the way it needs to. Still looking for funding or strategic partners were Johann Verheem of Application Technologies as well as the three cofounders of 10 Minute Manicure -- though the three have scored a major contract by changing their concept. Will that decision hurt them later? And as for the two Harvard students squeezing in their start-up chores between classes, they may have a surprising new deal, too. Levi's has approached them about modeling their jeans.
For more details, read on.
In the money
COMPANY: edu.com, in Boston, creator of a Web site where college students can buy stuff cheap and where the companies selling that stuff can market to and do research on the students
FOUNDER: Adam Kanner, 29
AT OUR LAST LOOK: Kanner was hunting for desperately needed capital in amounts that would dwarf the $4 million he'd already raised. The site was struggling technologically. And Kanner was sorting out his working relationship with his chief operating officer -- Linda Kanner, his mother.
LAST DIARY ENTRY: " Mother Is the Necessity of Invention"
Things at edu.com have ballooned. A small, discreet sign remains affixed to the start-up's front door, but it's dwarfed by a back-lighted, billboard-size "monstrosity" (as CEO Adam Kanner calls it) above that loudly proclaims edu.com's presence to workers in Boston's financial district. The company's staff of 60 or so people, who'd previously worked two to a desk in a spartan, 3,000-square-foot office, has swelled to 75 and moved up a flight of stairs into 24,000 square feet of carpeted nirvana, complete with Foosball tables and a built-in putting green. And the start-up's war chest has grown to the size of a small closet, thanks to several months of vigorous fund-raising in which Kanner brought home an additional $30 million. The new capital came from a variety of sources, including the two Silicon Valley venture firms that had backed him originally and, for geographic diversity's sake, four firms in Boston, one in New York, and one in Chicago. "We were trying to raise between $20 million and $25 million," Kanner says, "so we're oversubscribed."
He's especially excited about a $5.3-million investment from Student Advantage Inc., a large, well-established provider of student-discount cards and related services, which had loomed as a major competitor. A new partnership, in which edu.com acts as the commerce arm for Student Advantage's community-oriented Web sites, drastically reduces Kanner's customer-acquisition costs. (Student Advantage's 1.5 million members are automatically sent to edu.com's site whenever they want to buy something.) It also suggests that edu.com may find happiness covering the back end for other student-focused marketers.
As for Linda Kanner, Adam's mother, she's devoting less time to operations and more to her new duties as chief marketing officer. That, together with the fact that the two no longer share an office, gives mother and son some welcome space. "The more the organization grows and her role becomes defined, the less we overlap and bump into each other," says Adam. "And the better our working and personal relationships become." --Leigh Buchanan
Starting over
COMPANY: Inca Quality Foods, in South Bend, Ind., a distributor and "micromerchandiser" of Hispanic foods in grocery stores
FOUNDER: Luis J. Espinoza, 48
AT OUR LAST LOOK: Espinoza, a moonlighter struggling to balance his ambitions for Inca with his work at a satisfying full-time job, was wondering how fast Inca should -- or needed to -- grow.
LAST DIARY ENTRY: " Moonlight over Indiana"
Luis Espinoza's secretary has found another job. So have his two full-time truck drivers. Espinoza says that in early December, Kroger's supermarket chain, which had Inca's display cases in 20 of its stores, notified him that either he should gear up to add operations in 30 more stores in 30 days (at $4,000 a pop just for the new displays) or the chain would find another Hispanic-foods vendor. "The amount of money I needed was tremendous," Espinoza says. "A quarter of a million dollars. I can't come up with that amount of money." (Even the smaller sums Espinoza located required him to put up his house as collateral, which he refused to do.) And so by the end of December the Kroger business -- 60% of Inca's revenues -- was gone.
He may be down, but he's not out. "It's like we're starting all over again," he says, describing the small stores he's continuing to serve in the South Bend area. "It took a lot of pressure off. It's like regrouping."
What about just giving it all up and being satisfied with his regular job at the steel-finishing plant? "I would never let my business go," he says. "Never. I could even get to the point when springtime comes around that I wouldn't mind getting a little cart selling ice cream in the street." --Nancy Lyons
Dream inflation
COMPANY: 10 Minute Manicure, in Miami, a would-be chain of manicure kiosks in airports
FOUNDERS: Karen Janson, 33; Vivian Jimenez, 31; and Lorraine Brennan O'Neil, 35
AT OUR LAST LOOK: The founders were closing in on their first airport contract (Dallas-Fort Worth) and were negotiating with an angel for the capital ($500,000) they needed to launch their company.
LAST DIARY ENTRY: " Three Women and a Kiosk"
In the early months of winter, the elegantly simple kiosk idea got, shall we say, a little bigger. Several hundred square feet bigger, to be exact.
When the Dallas-Fort Worth airport deal stalled, the 10 Minute Manicure founders turned to Pittsburgh. The good news was that the concession management at Pittsburgh International Airport liked their concept enough to send them lease terms by mid-January. The bad news was, there were some catches. The Pittsburgh people had just one space available, and they were thinking "hair."
