Rewriting the Ending

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Meanwhile, a Menlo Park city council member, Kelly Fergusson, had called a rally for Tuesday, September 6. Opaterny put the announcement on the website, and hundreds of people turned out, packing the plaza in front of Kepler's. Clark Kepler, smiling broadly, thanked people for their support. Opaterny read some of the e-mails he'd received. The mayor said a few words. Eventually, Fergusson got up to outline a strategy for resurrecting Kepler's. Mainly she emphasized the role that the community could play. "I wanted to empower them," she says. "We had volunteers in the crowd getting everybody's e-mail address." She mentioned an idea that had come up to have people purchase memberships, as supporters of public broadcasting do. She admonished the crowd to buy local--"No more Amazon." And she urged them to attend an emergency city council meeting that was to take place after the rally.

More than 100 people took her up on the suggestion, filling the council chambers. As people took turns speaking, however, it became apparent that grassroots democracy was not going to save Kepler's. Some of the speakers thought the store needed to carry more of this or that type of book or magazine. A few were critical of Fergusson for getting involved in matters best left to the private sector. One person denounced the whole idea of enlisting investors who would no doubt demand that the store be profitable, and thus forfeit its character. And on and on.

It was too much for some in the audience--Anne Banta, for one. After serving as head of corporate communications for the microprocessor group at Intel and then becoming employee No. 16 at Adaptec, she'd gone into business for herself, doing marketing for venture-backed businesses. She wanted to help Kepler's, but--as she sat there listening to the parade of speakers--she thought, I don't know if I can handle this. Finally, she got up and walked outside, where she ran into a small group of investors and entrepreneurs who had just done the same thing. One of them was Daniel Méndez.

"The eyes of the community are upon you"

Ever since that brief conversation with a Kepler's employee on August 31, Méndez had been trying to come up with a plan to save the store. The challenge he faced was more complex than it first appeared. He was dealing, after all, with a low-margin business that had apparently succumbed to forces beyond its control. Méndez believed he could find investors willing to put up the money to get Kepler's up and running again, but only if it was capable of generating the cash flow it would need to survive on its own. No one would be interested in resurrecting a business that would always be on life support.

And it wasn't just the investors he had to persuade. The Tan Group, which owned the property, was unlikely to renegotiate the lease unless it was sure Kepler's would be around for the next 10 years. The vendors would not extend additional credit unless they were confident they would be repaid. Even Clark Kepler had to be convinced. He had just been through a nightmare. He wasn't going to start all over again if he wasn't reasonably sure the story would have a happier ending this time.

Time was also a factor. If Kepler's wasn't going to reopen, it would have to file for bankruptcy--soon. Word of its closing had been trumpeted around the world, and creditors were lining up. If Kepler didn't move first, they could force him into Chapter 11, which would complicate any attempt to revive the business or undermine his efforts to make a graceful exit. Then again, if Kepler's was going to reopen, it had to do it fast. The holiday season was approaching, and the store had no staff and little inventory. Even with an injection of capital, the business could not afford to lose the holiday sales, which typically account for a third of its revenue for the year and the lion's share of profits.

"I was extraordinarily explicit," says Daniel Méndez. "As an investment, this is a lousy one."

With that in mind, Méndez set out to raise the money Kepler's would need to reopen. He went about it much as he would have approached the financing of a technology start-up--with one crucial difference. He stressed that the investors should not expect to see their money again and that they certainly wouldn't earn a good return on it. "I was extraordinarily explicit," he says. "I said, 'As an investment, this is a lousy one. It has to be a labor of love."

Nevertheless, he attracted a group of investors that would be the envy of any Silicon Valley entrepreneur: college friend David Cowan, a general partner at Bessemer Venture Partners; Bruce Dunlevie, another top VC and a general partner at Benchmark Capital; Geoff Ralston, the chief product officer of Yahoo; John Doerr, the legendary VC with Kleiner Perkins Caufield & Byers, who, ironically enough, had sponsored the firm's early investment in Amazon and still served on its board.

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Bo Burlingham

Burlingham joined Inc. in 1983. An editor at large, he is the author of Small Giants: Companies That Choose to Be Great Instead of Big. The book was a finalist for the Financial Times/Goldman Sachs Business Book of the Year Award in 2006. Burlingham is also the co-author with Norm Brodsky of The Knack; and the co-author with Jack Stack of The Great Game of Business and A Stake in the Outcome.

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