Rewriting the Ending

Tweet

In fact, Méndez had more investors than he needed. For all his warnings, he wound up raising far more than the $500,000 he had originally said he was seeking. He kept only what he thought the business required and returned the rest. "I figured that the long-term success of Kepler's wouldn't be achieved by a one-time infusion of money, regardless of how big it was," he says. "If we cannot do it with the amount of money we have, we will not do it with 20 percent more."

In addition to money, Méndez needed experienced professionals who could pull the deal together quickly. There again, he had no problem. The law firm of Orrick, Herrington & Sutcliffe volunteered to represent the investment group pro bono. David Cowan lent his expertise in crafting the term sheet. Anne Banta agreed to work on initiatives that Kepler's could develop to open up new sources of revenue. And the task of writing the business plan fell to another volunteer, Mitch Slomiak, who had been the chief financial officer of two businesses--including a three-time Inc. 500 company--before becoming what he calls a virtual CFO, working with small, growing companies. "This was the fastest business plan of that quality I have ever done," he says. "I mean a professional business plan meant for sophisticated investors, with a detailed financial model that they could drill down into. We also needed something to show the landlord, which was tricky because we had to forecast rent. That could either tip our hand in the negotiations or get them upset. And we had to do it fast. I think it took about two weeks from my first meeting until we finished hammering out the fine points with the attorney who reviewed it before presenting it to the investors."

Then came the term sheet, which stipulated the conditions that had to be met before the investment group would do the deal. One called for renegotiating payment terms with creditors, especially the book vendors. That turned out to be relatively easy. But it soon became clear that Kepler's might have trouble satisfying the second major condition--that it renegotiate its lease and get a reduction in its rent. At first, the Tan Group showed little inclination to renegotiate anything. Phone calls were not returned. Letters got no response.

Méndez was concerned, and so was Kelly Fergusson. She, too, says she wrote letters and left phone messages. She also decided to pay a visit to the Tan Group's offices in Palo Alto. She rang the buzzer and tried the front door, but it was locked. She walked around to the back, where she found another door, this one unlocked. Letting herself in, she made her way to the reception area, which was empty. "Hello, hello," she called. A staff member appeared. Fergusson introduced herself and asked if they could sit down and talk. She wasn't offered a chair. She said she had come to let the Tan Group know how important it was to the people of Menlo Park and the surrounding area that Kepler's reopen, which would happen only if it could negotiate a new lease with more favorable terms. "I just want you to know that the eyes of the community are upon you," she said, "and the community will be very grateful for anything you can do." Then she left.

Fergusson proceeded to write personal letters to the principals of the Tan Group, which she then hand-delivered to their homes. She also contacted other public officials, who wrote letters as well. Whether because of their efforts or for other reasons, the Tan Group--a spokesperson for the company denies it was slow to respond--soon opened talks with Kepler and his lawyer. Both sides bargained hard. At one point, the Tan Group agreed to reduce the rent, but only if Kepler's reduced its footprint and made room for another tenant at what had been the front entrance. That was unacceptable to both Kepler and the investors, who were the ultimate decision makers.

The negotiations dragged on through September. "We made sure they understood the negative effects Kepler's closing was having," says Méndez. "All the businesses around the store had suffered fairly dramatic drops in their own revenue. So the Tan Group could have been looking at a cascading effect that could lead to other problems. Of course, that's standard negotiating."

Meanwhile, time was slipping by. Each week that the store remained closed was a week of potential profit down the drain. Having lost September, Kepler couldn't afford to lose much of October. He set Saturday, October 8, as the target date for reopening. That meant he would have to send out a press release on Monday, October 3, if he was going to get the media coverage and the turnout he hoped for. But on Sunday, October 2, the deal was still not signed. Once again, Kelly Fergusson took matters into her own hands. She called the home of Faber Tan, the 70-year-old president and CEO of the business and a philanthropist who had been honored in the past for his contributions to the community. He called her back the same day. "I made a personal appeal that they treat this as a priority," Fergusson says. "He sounded generous. He wanted it to happen."

 PREV  1 | 2 | 3 | 4 | 5 | 6  NEXT 

Read more:

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.

Sign-up for our Leadership and Managing Newsletter

Email Address: