[If you've just joined, you may want to read Part 1 and Part 2 first. We've just left off with a meeting with an original investor that goes sour and mass layoffs at SmallBiz, including the CFO's controversial firing.]
The founder proposes that the company be split into two. One company would focus on the original business model and use the SmallBiz Commerce name; the electronic kit micro-business would be used for the proof-of-concept. The other would continue with the ASP strategy and possibly serve as the infrastructure provider to the other company.
The original model would bootstrap with the remaining cash until it met milestones that would prove the concept and then seek first-round funding. The ASP company would seek seed funding and would be provided with office resources and some working capital (perhaps $50,000); most of its equity would be owned by the original SmallBiz Commerce.
On one level, I understood why the founder was proposing this new split-company idea. SmallBiz had not reached any of the milestones necessary for a venture capital firm to invest at the first round stage. We had spent most of our time evolving and fleshing out the business model and writing a full business plan. We had spent a great deal of time and money getting two micro-businesses off the ground and then turning around to divest ourselves of these.
At this time, we have a fairly solid business model, but it is just a 2- to 3-month concept (albeit with some reusable components of the earlier concept). The whole executive team reaches consensus together on the new strategy. The founders admittedly were much more passionate and drawn to the original model, even though they acknowledge it was anathema to investors. The ASP concept is much more of a software technology play, and holds less interest to the co-founders, but is exactly what investors are looking for at the time.
At this point, we have only five full-time employees, one part-time employee and the chairman/founder, who is also part-time.
The CEO quickly argues against dividing the companies in two. It takes me slightly longer to consider the alternatives. I decide that since we are already imperiled as a start-up, diluting the focus and resources into two companies at this stage would surely be the kiss of death. Our chances for success lie in being extremely focused and committed as one team, and in executing aggressively together.
Tense weeks trying to reach consensus follow—everyone had picked sides from the start. The founder fires the CEO, in early December—which marks the end of the company as far as I am concerned. Only a matter of weeks pass before SmallBiz Commerce closes its doors.
[Next: Conclusion of the original published piece listing my "lessons learned" from my own perspective as of June 2001. New material will follow on what this experience has taught me in the ensuing three years.]
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