Starting Up in a Down Economy

Being able to raise money in 2001 undoubtedly put Method on the growth path. By 2006, the company had $71 million in sales, and today the founders are pushing to reach $100 million. But Lowry and Ryan look at the period before they raised money, when they struggled and nearly drowned, as pivotal. In retrospect, the fact that they had to hone their pitch in countless meetings with store managers and vendors was fortuitous. They were practiced enough that by the time their big break came -- pitching Target for national distribution -- they didn't blow it. Which raises the question: Did the recession actually make Method better? The founders think so. As Ryan puts it, "The hungriest wolves hunt best."

-- Ryan McCarthy

Case Study No. 2: As Others Quit R&D, RF Micro Devices Forged On

In early 2004, Jim Kemerling came to visit Bill Pratt in his stately Greensboro, North Carolina, office. Kemerling had been laid off two years earlier and had started a company called Triad Semiconductor. He had a groundbreaking idea -- a chip that could be customized easily -- but he was having a hard time getting the technology right. Two years in, he still didn't have a finished product. Though he was an ambitious engineer, Kemerling appeared to Pratt to be plainly discouraged. So Pratt told him the story of how he had founded his company, RF Micro Devices.

Eighteen years earlier, Pratt was running a research and development division for a big semiconductor company. When the business posted its first loss, in 1991, Pratt's facility was shut down. Fortunately, his severance was generous: Besides the equivalent of a year's salary and benefits, his bosses transferred to him the rights to the technology he had been developing -- tiny chips for cell phones. They also let him use their office rent-free and sold him testing equipment for a bargain price of $70,000. A month later, Pratt and a colleague named Powell Seymour launched RF Micro Devices.

Even with the intellectual property and free offices, Pratt's first year in business was disastrous. The design work would cost several hundred thousand dollars at least. Dozens of acquaintances had pledged their financial support, but they all begged off when it came time to cut a check. Very quickly, the partners drained their severance and then maxed out their credit cards. "That was very preoccupying," Pratt recalls. "We had families to feed." Then the company's prototype literally went up in smoke. Pratt and Seymour were in the lab, designing a chip for a Japanese cell phone company. One minute, the chip was there, visible under the lens of their microscope. The next, it was gone. The minute structure had gotten so hot that it had simply disintegrated. The partners saw humor in the situation -- "We had this great product that would disappear at the most inopportune times," Pratt jokes -- but their client wasn't amused and withdrew its order.

In early 1992, just before their severance ran out, Pratt and Seymour landed $1.5 million in venture capital. The terms of the deal were pretty dreadful -- the partners gave up 60 percent of the company to their investors -- but they desperately needed the cash. The next four years were marked by more snafus and bad breaks, including a client that canceled a project only after RF had delivered 100,000 parts. But persistence finally paid off: The company turned a profit for the first time in 1997, the same year it went public.

In a funny way, Pratt says, the recession was a blessing. Because few companies were investing in product development at the time, RF Micro Devices could labor over its chip design without worrying about competition. And when the economy took a turn for the better, Pratt's technology was ready to go, while other semiconductor companies, having scaled back their R&D efforts, were now forced to play catch-up. "It gave us a window of opportunity," Pratt says. Today, RF boasts $1 billion in annual revenue and more than 3,200 employees worldwide.

Having struggled for many years before becoming a success, Pratt heard echoes of his own story in Kemerling's. When they were fired by a big semiconductor company, Kemerling and his partner, Dan Wrappe, indulged in self-pity for a few days before founding Triad, in a business incubator at Wake Forest University. "We thought we would go out, talk to customers, and start taking orders," Kemerling says.

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