My Company Grew Too Fast -- and Went Out of Business
By Jim Picariello, CEO, Wise Acre Frozen Treats, Blue Hill, Maine
When I started Wise Acre Frozen Treats, no other company was making organic popsicles from unrefined sweeteners. Working out of a schoolhouse kitchen in March 2006, I developed my recipes using honey and maple syrup. A year and a half in, I brought on my first employee, and then it really took off from there.
By 2008, we had 15 employees, a 3,000-square-foot manufacturing facility, and distribution to all of the natural foods stores and many major supermarket chains on the East Coast. Then we landed a contract to distribute on the West Coast, too -- but we never got the chance to fill all the orders. By the end of the year, we'd gone bankrupt and I was unemployed.
A meteoric rise
After our first year, opportunities started coming up really fast. We won the "Most Innovative Product" award out of more than 2,000 products at a large food show called Expo East. From there, we lined up a contract with a huge national distributor, United National Foods, and got freezer space in premier stores like Wegmans and Whole Foods.
Previously, we'd been filling orders for eight stores for a few hundred dollars each, but our first order from United National was something like $45,000 worth of product. It was a quantum leap.
The company's progress was right in line with my business plan's best-case scenario.
A run-in with the local billionaire
Once business took off, I knew I needed to raise more capital to cover our operating expenses, which included labor, equipment, ingredients, packaging materials, insurance, taxes, legal fees, design and marketing, as well the lease on our building.
Local bankers gave us $300,000, split between a regular loan and an equipment loan. We also received $200,000 from an investment firm. But because we had so many orders to fill, I knew we really needed about $1 million to keep us solvent.
We made a handshake deal for that amount with a local billionaire at the end of spring 2008. He told me, "I'll be able to make this happen really quickly," so I went back home and bought equipment -- even though I didn't have the money to pay for it.
Weeks later, the bottom fell out of the economy. Our would-be investor was all wrapped up in the stock market decline and pulled out of our deal. That was the beginning of the end.
There were five or six months when I was constantly doing a mad dash between running the company and meeting with potential investors. The investors would always say, "We're looking for someone making $2 million in revenue."
At that point, Wise Acre was making about $200,000. I'd ask them, "If we were making that much, why would I need you? I have a product that sells really well, no one else has it -- what else do I need to do?"
They all said, "We'd like to see what you can do without our money first."
It's a chicken-and-egg thing: If you're already really successful and you don't really need the money, they'll give it to you.
Why we failed
Our business plan indicated that it would be about two years from starting production to making a profit. But one of our biggest problems was that we didn't raise the money we needed before we hit milestones like getting distribution throughout the East Coast. We went from eight stores to dozens, then hundreds, immediately. We were burning through about $30,000 a month at our peak, but we didn't have the capital in place to back it up.
I also wish I'd hired people who were good at raising money. The people I did hire had good contacts, but they didn't have the background or experience to effectively raise the funds we needed. Even in that economy, I could have raised the money if I'd had the right people on board from the start.
By the end of 2008, Wise Acre had gone out of business. Even though the orders were still coming in, we couldn't pay our bills. The $300,000 bank loan was in my name, and I had to declare bankruptcy. Now the bank owns the product, the equipment and all of the trademarks.
To add insult to injury, I live in a remote area without many jobs, so I was unemployed for about a year. To go from being the boss of a big shop to being unemployed was really demoralizing. Now, thankfully, I have a professional job, but it's not at the same level.
It was incredibly frustrating and depressing to have things end the way they did, but running my own company was a hell of an experience. It's important to stand behind a product that you believe in. A lot of it is timing, and a lot of it is making your own luck.
Jim Picariello co-founded his first of three ventures at 25. He lives with his wife and two girls in Downeast Maine, where he does a comically bad kids' magic show at Halloween, and dreams up wild business concepts he could launch while living in the middle of nowhere.
-- As told to Kathryn Hawkins
- Check out the U.S. Small Business Administration's tools for financing a small business.
- Take a quiz to see if your company is growing too quickly.
- Find out how businesses are securing venture funding in a recession.
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