As X-It's new CEO, DiBelardino had to act fast. His first order of business was to straighten things out with important customers like Hohmann. But to send Hohmann more ladders, X-It needed money to order them from China. And in the spring of 2000, that money was nowhere to be found.
DiBelardino approached Dutton and another X-It investor, Howard Stevenson, an HBS professor, asking them to make him a series of short-term $10,000 loans. His main aim, of course, was to get the cash. But his ulterior motive was to recapture the faith of X-It's investors. He knew he'd need them for his court battle. And he hoped he'd be able to leverage their reputations in order to lure other investors into the "fighting fund" as well as to persuade a law firm to take his case.
First, though, he needed to sell some ladders to pay back the loans. Even with angel assistance, he was still short of the $60,000 he needed to ship a container across the Pacific. However, DiBelardino had a great rapport with the owner of the Chinese factory, dating back to the time he and Ive had visited the assembly line and, after a particularly long night, ended up sleeping there. He called to explain his situation and got 60 days of credit at 10% interest.
As sales from HSN/Improvements began rolling again, DiBelardino used Hohmann's first payment to pay Dutton and Stevenson. To buttress his position with them, DiBelardino also promised to meet several cost-cutting goals. He agreed to reduce X-It's burn rate to $9,000 a month from its peak of $25,000 a month. By doing that, he hoped to show that their money would be strictly for legal fees, not to prop up a company recovering from poor management.
Luckily for DiBelardino, many of X-It's costs went out the door when Ive left. Suddenly, there was one less salary and no Manhattan rent to be paid, and the phone bill was significantly lower. DiBelardino ended a monthly retainer for a public-relations firm that Ive had hired. But his most significant cost reduction came from switching X-It's warehouse facility from one in Los Angeles, where X-It had been paying for unionized labor and space, to a makeshift space just off the Chesapeake Bay.
Thanks to a tip from a college pal, DiBelardino contacted the manager of the local Farm Fresh grocery store, who agreed to let him use spare space in the store's warehouse, which was only five miles from a Chesapeake port. In the warehouse DiBelardino hung a blue tarp from the ceiling, cordoning off X-It's section from the dollies, forklift, and pallets on the Farm Fresh side. Behind the tarp DiBelardino set up a desk with a used computer he had bought for $300. The warehouse saved him more than $1,000 a month in rent and about that much in shipping costs.
DiBelardino also used his hometown connections to score some low-cost labor. Now, whenever a container arrived, he recruited a group of teenage boys he knew from his church to help transport the ladders from the loading dock into the warehouse. He paid the boys $9 an hour, scheduled time on the Farm Fresh forklift, operated the forklift himself, and provided pizza and music.
So there he was, using the community as a low-cost resource, assuming one obligation to offset another, working a forklift, and locating in a warehouse. The Harvard student had become a dyed-in-the-wool entrepreneur.
By early summer 2000, DiBelardino had settled on the Norfolk office of the law firm Hunton & Williams to handle X-It's case. The firm initially estimated that the case would cost at least $300,000, and on July 10, 2000, X-It filed its suit. Over the next 12 months, X-It and Kidde filed numerous motions and cross motions, each one consuming a boatload of billable hours. That made DiBelardino's fighting fund critical. But to persuade X-It's angels to contribute to it, DiBelardino had to overcome not just the company's tangible losses but skepticism about whether he would ever win his case. In all, four of X-It's original eight angels opted not to participate. For Dutton, though, contributing to the fighting fund was a no-brainer compared with his initial decision to invest. "In my opinion -- and I said this to Harper -- the acts of Kidde were out of order," he says. That Kidde might get away with its behavior because X-It lacked the funds to fight back was "something I don't find easy to live with," he says. Joining Dutton as the fighting fund's ethical flag bearer was investor Howard Stevenson, whose sense of outrage equaled Dutton's. Dutton kicked in more than $100,000, while Stevenson contributed $50,000. In the end, DiBelardino raised a total of $272,000.
To make the fund stretch as far as possible, DiBelardino worked hard to minimize billable expenses. When his lawyers needed to travel to Mebane, N.C., to depose key Kidde employees, DiBelardino borrowed his mother's more reliable car and drove his lawyers down. The road trips also gave the lawyers a chance to interview DiBelardino -- something that otherwise might have meant an additional office visit at high hourly fees.
In April, with the case having dragged on for nine months, both parties in the legal dispute asked the judge to rule summarily on some or all of the counts. The judge ruled for X-It on the issue of copyright infringement at the 1999 show. On other matters, such as whether X-It's customer list was a trade secret, the judge ruled for Kidde. Most of the issues relating to the sanctity of X-It's pending patent the judge left for the jury to decide.
In July 2001 the trial finally began. DiBelardino had been anxious for that day to arrive. "I'd been deposed five times, my parents had been deposed, they'd gone up to Harvard and UVA to get my transcripts. It was inconvenient and torturous at times," he recalls.
