Starting Up in a Down Economy

The reality was a little more complicated than that. Customers told Kemerling and Wrappe that they wanted something like a chip template that could be easily tailored for each client, which would cost half as much as the standard chip and shorten the amount of time needed for customization.

Kemerling worked on a prototype that met these specs, but it was taking time, and his credit card bills were ominously high. Having been in this situation, Pratt advised Kemerling to stay focused on R&D. He agreed to join Triad's board and to help Kemerling raise money. In 2005, Triad finally perfected a customizable chip that could be produced in six months -- half the industry norm -- for half the standard price. Triad's chips are now used in a variety of products, including industrial machinery and heart monitors, and the business is on track to turn a profit by early next year. "It's very important for entrepreneurs to have a mentor," Kemerling says. "Starting a business is a lot easier when you have someone who's done it before and can walk you through the process."

-- Nadine Heintz

Case Study No. 3: Hard Lessons Learned From Clif Bar's Fast Start

Gary Erickson couldn't have cared less about the state of the economy as he drove across the Bay Bridge in September 1991. What he needed was a name for his new energy bar. The next day, he was going to a cycling industry trade show. Bike shops figured to be his main retail outlets, so this was a chance to get buzz. Without a name, he might as well stay home.

Then, as he made his way to the office of his package designer, it came to him: Clif. It was his father, Clif, who had instilled in him the love of the mountains, who started him skiing at the age of 4, who was responsible for all of his outdoor passions, from rock climbing to bike racing. It was perfect. And so Clif Bar was born.

Although he didn't know it at the time, Erickson started his business in the middle of a recession. The downturn began in July 1990, four months before it dawned on Erickson that he could make a better-tasting energy bar than PowerBar, which had the market to itself back then. By the time he shipped the first Clif Bars, in February 1992, the recession was officially over, although the hard-times mentality lingered long enough to ensure Bill Clinton's election that fall.

"The economy, stupid" may have been as much of a boon for Erickson's start-up as it was for the Clinton campaign. Erickson found, for example, that contract manufacturers were delighted to do business with him. Would that have happened if they hadn't been worried about their own sales at the time? Perhaps. It would certainly have been more difficult for him to have signed them up if the economy had been booming and they had had all the work they could handle. He could have found himself pleading with vendors to take on a start-up that might not have survived long enough to pay its bills.

And unlike the owner of an established business, who faces a number of distractions in a recession, Erickson was free to focus on developing the bar, marketing, finding distributors, and so on. When you're starting out, you naturally worry most about the possibility of failure, and so you devote your energy to avoiding it, which means making sales and generating cash.

What people seldom prepare for is the possibility of success, especially when times are tough. (Boom times are different. In the late 1990s, it often seemed that most entrepreneurs were already figuring out how to spend the money from their future IPOs.) And yet success brings with it dangers of its own, as Erickson soon discovered.

Today, Erickson says a "cocktail" of factors made it possible for him to start Clif Bar back in 1991. Without any one of them, he probably would not have launched the business. To begin with, there was the wholesale bakery he had founded in 1986, at the age of 29. He named it Kali's Sweets & Savories, after his grandmother, Kalliope. It made Greek calzones and cookies, all from his mother's recipes. He sold them to specialty food retailers in the Bay Area, such as Peet's Coffee. By 1991, the bakery employed 10 people and was doing close to $300,000 a year in sales but had yet to break even. Erickson estimates that it was losing from $10,000 to $20,000 per year -- a situation that was no doubt aggravated by the recession. He worked nights and drove the delivery truck on Tuesdays and Fridays. By day, he continued to work full time at a bicycle company. To help manage the business, he brought in Lisa Thomas, a bookkeeper for his brother's foundry. Grateful for her involvement, he made her a co-owner of Kali's, with 50 percent of the stock.

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