Confessions of an Entrepreneur's Wife
Some of the names in this story have been changed.
We were on vacation at the lake when my husband decided to start a company. Our five-year-old, Lily, was napping, so we had some rare adult time to talk about the opportunity Bill was considering. He wanted to leave his job as general manager for an industrial laundry plant to partner with a guy who had invented a drink that was carbonated but also 100 percent juice. It seemed to Bill like the chance of a lifetime, given that he had worked for a number of entrepreneurial companies before, most notably a few beer businesses. And I agreed. As we aged it would only become harder for him to take a big risk like that. We had some money saved and had recently relocated from Boston to Richmond, Virginia--a pretty affordable town. Why not go for it?
I knew what we were in for. I had been a business journalist for a dozen years (five of them on staff at Inc.) and had written countless articles and a couple of books about managing start-ups. My husband was a smart M.B.A. with entrepreneurial drive, I told myself, and I would be the supportive wife with exceptional business sense. In five years, he would sell the company to Coke or Pepsi and cash out.
Of course you've already guessed it: I was dead wrong on nearly every count. Neither of us could have predicted the company's surprising trajectory. Watching Bill navigate the entrepreneurial life, I see now just how little I really knew about starting and building a business. In the five years since Bill embarked on his great adventure, I've come to realize the only thing I was right about originally is that my husband is, indeed, a smart M.B.A.--and he has more entrepreneurial drive, much more, than either of us knew.
Who Wants Another?
The early days were exciting. Bill's partner, Wayne, had developed a unique and sexy consumer product. Bill and Wayne spent the fall of 2000 working on the business plan--Wayne was to manage operations and Bill took sales, marketing, and fundraising, as well as the titles president and CEO. First, of course, came the money, and that wasn't easy. The dot-com bubble had just burst and nobody seemed to have spare investment cash lying around. As I watched our bank account dwindle and wondered when he would give up, Bill hit the venture capital breakfast circuit and worked his cell phone. For a man who professes to hate networking, he certainly knows how to make connections. In February he cobbled together $800,000 in angel financing. It was enough to launch.
We'd had a group of friends and neighbors over to taste-test and suggest names. We spent the day in our dining room, gleefully shouting out potential names and writing them on an oversize chalkboard. Licking Creek didn't make it (although the neighbor who shouted that out still has the mockup bottle Bill gave her). Neither did Knew Jewce, the original name Wayne had given it. A week after the meeting, Bill came up with The Switch, a skateboarding term for making moves more complicated by doing them backwards, or "switching" them up. His company would be the Switch Beverage Co.
Friends and neighbors asked us about investing, delighted by how Bill's adventure was unfolding. A few did invest, as much as $50,000. We had jumped into a glamorous and risky dream, one few others would chance, and they were all eager to live vicariously by hearing every detail. I would discover later that many of these friends and their happy questions would disappear when the company took downturns.
Bill developed packaging--he chose a retro look--and a detailed marketing plan, and bought a pair of giant Land Rovers, which he covered with metal racks and shrink-wrapped with colorful company logos. His first account came from a key investor who was part of the family that owns Ukrop's, one of central Virginia's largest (and still independent) grocery chains. The Switch made its debut at an outdoor festival in Richmond on Memorial Day weekend, 2001. Bill set up one of the Rovers to do a tasting, and Lily and I couldn't give away the samples fast enough.
Bringing the product to market had taken nine months, and I remember how thrilled I was to see it in the cooler at the grocery store. Ukrop's and Kroger stocked all five flavors, and the rows of bottles sat right next to Jones Soda and SoBe, just like they belonged there. I stood in the aisle and laughed. It was the moment I realized that Bill had actually done what I had written so many stories about. Consumers were buying his dream.
Every time we went to the grocery store we'd straighten the bottles and ask the manager to restock flavors that were running low. When Bill and I had lunch dates together we would always go somewhere that carried The Switch, and we'd use a little trick Bill had taught me when he worked for Guinness--turn the bottle so the label faces the rest of the people in the restaurant. When Bill had me doing that for Guinness I was annoyed that marketing was intruding on our lunch, but for The Switch I was delighted to do it, delighted to see so many others drinking it too.
Growth was steady. Distribution spread from Richmond up and down the East Coast. After Bill attended a natural-food trade show in mid-2002, natural groceries across the country clamored for the product and The Switch went national. In 2003 the company got caught up in a serendipitous piece of California legislation. The state banned sodas from schools, creating an empty space in vending machines and lunch lines. Bill put product in cans and hired a West Coast sales force, and California quickly grew to about 60 percent of the company's revenue.
But the growth burned through capital. The company was regularly on the verge of going broke, and every time disaster loomed, Bill would pull a deep-pocketed rabbit out of his hat. After the first $800,000, he raised $3.3 million in 2002, $1.5 million in 2003, and $2.4 million in 2004. He was promised another $2.25 million in 2005. His alma mater, Northeastern, asked him to lecture to the M.B.A. students about raising money.
Sales were also growing, from $800,000 the first year to $1.7 million in 2002, then $2 million in 2003 and $2.5 million in 2004. The company was on track for $6 million in 2005. The growth rate was impressive, but the company wasn't profitable.
Part of the costs were legal fees. For example, in the first year the company's design firm sued. Bill hadn't realized that it's standard practice for designers to own what they create and license it to their clients, unless the contract between the parties specifically says "work-for-hire." The design firm claimed ownership of not only the packaging design, but the name. It took nine months, lots of Bill's valuable time, and $150,000 in legal bills, but The Switch won. Bill had paid the design firm in part with shares, and the shareholder agreement the designers had signed said that all work done by shareholders was owned by the company.
The board of directors, of which Bill was the chairman, agreed that the smartest course was to expand the company to sell it, so a lot of money went to establishing the brand. That was even trickier than he expected in the hypercompetitive beverage market. Carbonated juice was a new niche--not a juice, not a soda, not a New Age drink. The Switch had filed for two process patents and a product patent and remained the only 100 percent juice product. Competitors such as Izze and Fizzy Lizzy, which were only 60 to 70 percent juice but looked more or less the same to consumers, had come onto the market around the same time. Bill spent heavily on advertising, sampling, and marketing, and offered discounts to distributors and retailers in an attempt to establish market share.
Then there was the learning curve. Bill had the M.B.A. and lots of real-world management experience, but he'd never worn so many hats at one time. When his vice president of sales (who had come from Nantucket Nectars) suggested buying a camper and establishing a "mobile marketing team," Bill figured, why not? It was a cool idea and the VP had had success with it before. The company hired two salespeople to live in a Switch-decorated RV, driving it around the country for six months to hand out samples. It might have worked for a more established brand, but for The Switch it just burned through $100,000 without showing much result.
At first, I didn't see the problems. Maybe I didn't want to see them, or maybe I thought they were only Bill's problems. I was just the wife, after all, enjoying the perks. I reveled in driving the colorful Rover, waving at kids on the sidewalks and paying tolls for the cars behind me on the highway. People would motion for me roll down the window, asking "Hey, where can I buy that?" and I would hand them a chilled bottle out of the cooler in the back seat.
We kept the home fridge well stocked with all the Switch flavors and new ones in development. When Lily's friends visited they immediately demanded snack time. I would ask, "Okay, what do you guys want to drink?" and they'd all squeal, "Switch!"
At Lily's school the PTA asked if Bill could donate drinks for a fundraiser and instead he donated case after case for multiple events every year. I had always been a fairly involved parent at the school, spending time in the classroom, sewing curtains, and serving on the PTA. But as our lives got crazier, I realized I needed to focus on my work and taking care of Lily. I tapered off my volunteering efforts, but never felt guilty once I realized how much Bill was donating. Those cases of The Switch bought me time to spend at home while he was out of town.
My Husband, the Hammer
When he was home, Bill was hanging with Richmond's A-list--investors, business owners, hot lawyers, and political bigwigs. I stocked up on cocktail dresses and marveled at the sizes of the homes we visited--one with a pool cabana nearly as big as our house. Was this where we were headed? One of Bill's investors, Mark Warner, was elected governor (although at that point they had to stop talking). Investment guru Peter Lynch was another shareholder. We were moving and shaking. At our parties we served Switch cocktails: orange and rum in the summer, cranberry and vodka in the winter.
Bill started getting ink, and he and I joked about our little publicity competition. I was being covered for my latest book and for helping start a local nonprofit literary group. My face showed up more in the hometown press and on TV, but he and the product got bigger national newspaper and magazine attention. Underneath the glitter, however, issues were beginning to surface.
First was the departure of Bill's partner. He had come from a big-company background, and Bill quickly became frustrated with Wayne's reluctance to make snap decisions and push distributors and vendors for better terms. To me, the problem looked easy to solve. As we settled into bed at night I would ask Bill if things had gotten better at the office. "No," he would say, and he'd roll over and give me his back. He didn't want to talk about it. "Well," I'd say, "I don't see what the problem is. Just ask him to go in the best interests of the company. He wants his shares to make money just like you do." I didn't fully understand why Bill waffled. I didn't appreciate how difficult it was for him to ditch the man who had invented the product and given him the opportunity.
At the beginning of 2003 Bill finally asked Wayne to resign. As CEO, Bill was Wayne's boss, and so Wayne left. When Bill came home and told me, his face was tight and pinched. "I don't know if it was the right thing to do or not," he said. "So, he didn't take it well?" I asked. "No, and I can't blame the guy," Bill said. I finally understood how complex the situation had been, and I thought it might help him to unload. "You feel okay about it?" I asked. "Yeah, it's fine," he said, and he turned to go upstairs.
The truth was he had little time for analysis. As the head of sales and marketing, CEO, president, and chairman of the board, as well as the person charged with finding capital, he had a staggering workload. Like a shark, he needed to push relentlessly forward to survive.
Bill's travel schedule was unpredictable. He bounced from fundraising pitches to sales calls all over North America. When he was home (a few days every other week) he was exhausted and burned out. He had no desire to socialize. I packed away the party dresses and started turning down invitations.
I quit asking him how things were going at work because his answers always focused on problems. He was the No. 1 problem-solving guy, and when you're a hammer, everything around you looks like a nail. It scared me that from Bill's perspective the whole thing was so often about to collapse.
He was also beginning to question whether it was even worth it. With each new round of financing he had diluted his shares. He and Wayne held shares jointly in an S corporation. (They shared a single vote to control their combined shares, which meant the tension between them never diminished.) In the first round they kept 60 percent, but by 2004 they were down to less than 30 percent. I reminded Bill of a conversation I once had with a CEO I was interviewing. "How could you give up so much equity?" I asked. "Well," the CEO said, "it's better to have 1 percent of 10 million than 100 percent of nothing." I could see that Bill's hard work was paying off. I didn't want him to give up yet.
When the company received a local business award, I was thrilled. I thought it would be a chance for Bill to slow down and realize that he had created a big success. For one night he--we--could revel in his accomplishments and accept a few accolades. I got a sitter and picked out my dress, but the day before the party Bill canceled. He had to be in Chicago to meet with a potential investor. I was disappointed, but by now I was used to it.
By this point I was raising Lily alone, going solo to her concerts and swim meets. I was making the decisions about her education, health, and social life with little input from her father. One night she and I were sitting at the dinner table and the meal was over before I realized that I had forgotten to tell her that Daddy was out of town. She had quit asking where he was.
In the spring of 2003 Lily's school decided to send a few teachers to Spain for a month of language immersion at summer school. Lily loved Spanish, and at one point I had been fluent. I found myself wishing we could do something similar. I brought it up casually with Bill, figuring he would say I was crazy. Secretly I was hoping he would say, "Great, let's all go!" Instead, he looked relieved. "I'm going to be really busy this summer," he said. "It's probably best if you guys are out of here." So Lily and I spent July in Mexico, taking classes in the morning and swimming each afternoon. Bill was home three days that month.
I worried about his health. He was gaining weight and had started smoking. I also worried about his moodiness. The man I married 15 years earlier had been a social powerhouse, cracking jokes and cooking gourmet meals for large dinner parties. This new Bill was a short-tempered monosyllabic hermit. When I did occasionally drag him to a party full of my friends, I was shocked at how many he had never even met.
I had originally thought of this as his company, his work, his life. But now Lily and I were also paying a price. With Bill rarely home, I soon lost the time and energy to focus on my work. Left with no profession, and essentially no husband, I became frustrated and resentful. I found myself thinking that it might be easier if Lily and I lived alone, with no illusions about being able to depend on Bill. Fortunately we found a good therapist and held our marriage together, but it became clear that Bill just didn't have the mental or physical energy to maintain much of a personal relationship. I knew he wanted me to be happy, but I couldn't stop picking fights about his lack of time at home. I wanted him to succeed, but I hadn't expected the company to so deeply invade our personal lives.
In January 2004, we sold our airplane. A private plane may sound like a rich person's luxury, but Bill and I had been pilots for years, depending on our single-engine Beechcraft Bonanza the way most families use a second car. We flew to visit relatives and take vacations; it was often cheaper than buying three commercial tickets. When Bill started The Switch, we joked that when it came time to sell the plane, that's when he would bail on this whole start-up thing. We laughed about it, but I was serious. For me flying was a stress outlet, a quick way to visit my family, and a source of income. (I wrote frequently about aviation.) My father, who had died 10 years earlier, taught me to fly and left us the money to buy this plane. It was a huge part of my identity.
And yet, when it came time to sell, the decision was easy. Neither of us had time anymore to stay current with our flight training. And the plane cost nearly as much to maintain when it sat in the hangar as when we were flying it. Money was tight because I was essentially not working and Bill didn't have a big corporate CEO salary. Even though I knew selling was the right thing to do, I couldn't bring myself to go to the hangar and say goodbye. I let Bill fly it to the broker.
Sell, Sell, Sell...Stop Selling
Up to that point, the company had been through ups and downs, but what happened at the office affected me only indirectly. There were moments when Bill landed a big new account, like 7-Eleven, Target, or Costco, and we went out to dinner to celebrate. And also times when he warned me that it might all collapse, and I frantically created an emergency budget for the household. But the company's next problem hit me even harder than it hit Bill.
In the spring of 2004, Bill hired a friend of ours to handle operations. Of course, I had heard from countless CEOs in interviews about the risks of hiring friends, but I wasn't worried. Doug was himself an entrepreneur, having helped start a software company. We lived in the same neighborhood and I saw either him or his wife, Claire, nearly every day. We baby-sat for each other and volunteered together at the school, where we had children in the same third-grade class. Doug and I talked frequently on the playground; he was one of the few people I felt comfortable being completely honest with about the company-caused stresses in my personal life.
I was thrilled when he joined The Switch. I hoped that in Doug, Bill would find a supportive and entrepreneurial partner, someone to share the load so that Bill could spend more time at home, or at least be more relaxed. But that didn't happen.
Before long, Bill decided that Doug didn't have enough industry experience for the job. They talked about it, and Bill hoped the situation would somehow resolve itself, but he warned me that it might not. I worried over the ramifications a bad outcome would have in our small community. Bill reassured me that it was just business, but it sure didn't feel that way to me.
The members of the board finally insisted that Bill fire Doug. This time, Bill was able to think of it as simply a company event, but for me it was worse. Doug was angry and the accusations he made were ugly. I felt terrible that it hadn't worked out, but I also felt betrayed by a friend.
There must have been some juicy gossip among the parents on the school playground, but I unloaded only to my closest and most tightlipped friend and then clammed up. Another friend mentioned that she was helping Doug in his job search. I suggested that she get Bill's side of the story, but she said, "I don't want to know the details. The guy has to support a family and I just want to help." It was a good reminder that there was more to Doug than just our recent experience. I focused on adopting the same open-minded attitude and wished her well.
Ever moving forward, Bill turned to his biggest challenge yet. The company was once again running out of capital, and a Texas investment firm that had promised $1.5 million had delivered only $800,000. By now he was familiar with how to eke out operations with no cash--factor the receivables, pay only production and payroll expenses, and string out everything else. I began to realize why it was that the most successful CEOs I had profiled had come from sales backgrounds. I had always thought it was because a CEO can sell the product like nobody else. But it's so much more than that.
As I watched Bill set off on another fundraising search, I realized that a CEO sells everyone. When he asks for money, he's selling potential investors on the product. He told me once about a VC breakfast he went to early on. He described the other CEOs who were there and the companies for which they wanted funding. Some had great ideas, Bill said, but out of a half dozen who presented, salesman Bill was the only one who came right out and asked for the money. And the only one who got it, he learned later.
He sells distributors, obviously. But when he asks suppliers for better terms he's also selling them on why they should do it. When he convinces a new hire to join a super-risky venture that might not be paying salaries in six months, he's selling her on the potential the job offers. When he convinces me to stay married to him, he's selling me on the better future we will have together.
By the same token, Bill fits another classic CEO profile: He has weak people-managing skills. When he's driving that start-up train at top speed, all he sees is the urgency of reaching the depot. He expects his teammates to put their heads down and shovel coal, not slow things down with questions, discussions, or arguments. He is impatient with many personnel issues and doesn't take the time to apply his sales skills to those situations.
A successful CEO uses sales tactics to figure out what the other person wants, how to make him or her feel comfortable, and then ask for the moon. Not everyone has the chutzpah to do this, but it's something I've always admired in Bill. Admittedly, he can be pushy. At work he never takes no for an answer; he's always trying to figure out how to get what he wants. There are no boxes to think out of; he simply doesn't see them in the first place. And he has zero respect for authority. He is the man who meets a famous author and blithely proceeds to tell him what he dislikes about his latest book. These traits are not always valued, not in friendships and not in corporate America. In a way, I realized, it was by starting his own company that Bill finally found a place to fit in.
Bill found money once again in the fall of 2005, bringing a $6 million investment deal to the board. It would have given the new investors a 51 percent stake in the company. Not only did the board members turn it down, but they fired Bill two weeks later.
The Final Switch
He wasn't surprised. He and the board had spent those two weeks butting heads. Foreseeing the fight, two of the five board members had quit. The company's CFO cornered Bill outside the office one afternoon, asking, "It's going to get ugly, isn't it?" "Yep," Bill said.
"What should I do, resign?" he asked.
"Do what you need to do," Bill said. The CFO resigned from The Switch that day. Bill and the remaining two board members argued in a series of meetings and via e-mail about what was best for the company, but he was outnumbered.
The issues peaked when Bill went to New York to meet with a large soft drink company interested in acquiring The Switch. You'd think the remaining board members would be happy about a potential sale, but Bill said they didn't sound pleased. The board members spent the weekend before his meeting trying to reach him. They called our house every few hours, and one of them even came and knocked on the door, asking me where he was. I felt like we were being stalked. He found out later that they had wanted to go with him.
Bill was let go on a Saturday morning shortly thereafter. That night we attended a black-tie gala at the Library of Virginia to celebrate an award that my nonprofit group had sponsored. Just as when we went anywhere, people came up to Bill and asked, "So, how's it going with The Switch?" Through it all, I squeezed Bill's arm while he smiled and managed to come up with sidestepping answers. I could see this wasn't going to be easy. He had been Mr. Switch far too long to suddenly and painlessly shake it off.
He came home and lay on the couch for a week, confused and a little lost. With the long overdue luxury of time and hindsight (and bed rest dictated by a bad case of bronchitis), he analyzed the past year's activity. He believed that the two board members and the slow-paying investment group were planning to bankrupt the company in order to buy it cheaply out the back end.
I mentioned the situation to a few friends, figuring word was going to get out pretty soon anyway. Now that our glamorous adventure had taken a bad turn, many backed away. One was the friend who had helped Doug with his job search. She had always been eager to talk about The Switch and on the playground one day she asked the usual, "How's it going?" question. I filled her in briefly before we rounded up the kids to leave. In the months following, as articles about Bill and the company appeared in the paper and he looked for work, we never heard from her again.
Happily, there were many supportive friends, neighbors, and investors, and adversity pushed our family closer together. Lily confided to me that she was glad that "those men stole Daddy's company," because now he was home more. I was delighted that Bill immediately started cooking again, something he finds relaxing. While Lily was in school, Bill and I took long walks with the dog and discussed his options--our first in-depth conversations in months, maybe years. He still had his shares, which would be worthless after a bankruptcy. Should he fight to regain control of the company and eke out some value for his shareholders? Or should he just walk away and chalk it all up to a learning experience?
He admitted that he was relieved to be out of the office and all its stress. He talked about teaching. I showed him an article in Inc. about the lack of professors of entrepreneurship at business schools and his eyebrows shot up.
The talk about a new life lasted about two weeks.
On November 15, 2005, the board of The Switch declared Chapter 11 and fired other key employees. The bankruptcy court set a date of January 23, 2006, for an auction at which interested parties could bid for the company.
Was Bill an interested party? Shareholders, creditors, and investors were asking him to buy back the company, and he decided to try. He stayed in touch with his former management team, found backers, and started negotiating terms on funding a buyout bid.
In the weeks after the bankruptcy, his team (including one of our friends who had invested) worked at our dining room table, huddled around the phone for teleconferences. Bill talked with several investment groups. It reminded me of the early days when his small start-up group gathered there, working on the business plan and packaging.
When I think about those start-up days, I realize I've given up far more than I had planned. Years of writing, of books and magazine articles I could have published. I lost a friendship, an airplane, a lot of money. I sacrificed years of socializing that could have sparked new friendships. I lament the toll on Bill's health, and Lily had no choice in giving up precious years with her father.
What I got in return was, ultimately, a closer relationship with my husband and a deeper understanding of what drives him. I learned invaluable lessons about the nature of friendship, and about my own emotional abilities and limits. I learned to live in the moment, not to hang my dreams on expectations. I relish the time I have spent with Lily. I got three glorious summers in Mexico, where Lily and I became fluent in Spanish, something we never would have attempted had Bill been more available for family trips.
The week before the bankruptcy auction, Bill still hadn't reached terms with his backers, so he didn't know whether he would bid at the hearing. I was tense, but Bill was surprisingly cool. "Hey, I tried my best," he told me. Intellectually I knew the value of his experience; I had written stories about CEOs who lost businesses and the critical lessons they learned. But this was hard.
Did I want Bill to win the company back? Or let someone else buy it and just consult with the new owner during a transition period? Or turn his back and not even make a bid? Each option held its risks and benefits.
My first reaction was that I wanted him to win, to take his company out of Chapter 11, rebuild it, and sell, just as he had always planned. I wanted our dream to come true. But then I thought about the price. Could we survive another year of what we had been through? What I truly wanted, I realized, was my husband back. I wanted him to stay the relaxed, happy guy he had again become. Maybe he had learned enough now to be that man and an entrepreneur, but I wasn't sure.
The bids were due the Friday before the Monday auction. Bill started looking into the court filings. He learned that in the three months since he had been gone, sales had dropped drastically, from 35,000 cases per month (half a million in revenue) to about 10,000 cases ($150,000). He wondered what less-obvious things had also been slipping. He debated about whether the company was even worth buying.
By then he knew that only one party was certain to submit a bid--Luther King Capital Management, the investment group that had put $800,000 into The Switch but didn't deliver the additional $700,000 Bill had expected. LKCM was working with the final two members of the Switch board.
It was galling. In 2004, Bill had been exploring the possibility of selling the company in an IPO. It was in part because of LKCM's pledge that he dropped the idea.
Bill decided not to give up. At a hearing on Friday morning, he asked for a two-week extension to pull together his bid. The judge turned him down. Bill got on his phone. By the 5 p.m. deadline he had enough investors to file. By Monday morning he had the high bid of $2.4 million--some of it cash, the rest of it equity for creditors.
The creditors' attorney was not impressed. He spent Monday asking the judge for delays while negotiating with both bidders. At 6:45 p.m. he recommended that the judge take the other bid, saying Bill's was too late, too complex, and not presented on the official forms.
After deliberating in chambers for half an hour, the judge awarded the Switch Beverage Co. to Luther King Capital Management for $1.166 million. Earlier, Bill had taken the stand to testify that LKCM's bid severely undervalued the company, and argued, as others had, that LKCM had planned the bankruptcy all along. "What evidence do you have?" countered LKCM's attorney. "Well," Bill said with a laugh, "all the testimony we've heard here in court."
LKCM and the new management of The Switch declined to comment for this story. When Bill was struggling with the board, however, he was told that his spending was at the heart of the company's trouble.
From the day Bill started The Switch we knew something like this could happen--I kept saying that on any given day we could be millionaires or bankrupt. He didn't choose to end the dream this way, but even he agrees that by the end it was sucking too much out of him for too little return. We're better people, and a stronger family, for what we've been through. And that's a good thing, because I'm betting that before too long, Bill will decide to do it all again.
Phaedra Hise is a former Inc. staff writer who now writes about business and aviation from her home in Richmond, Virginia.