From the August 1999 issue of Entrepreneur

OK, so some situations won't ever exist outside of the tabloid realm. But in the material world, a number of entrepreneurs have had more than their share of all-too-real nightmares to deal with. Here, three entrepreneurs tell their tales of woe...and how they survived after their worst nightmares came true.

I Got Bugged By The Media!

Ironically, Annabelle Candy Co.'s darkest hour came just before Halloween, 1996, in a nightmare that cost the San Francisco Bay-area company nearly $2 million.

Although pest control is an issue for all candymakers, the pests in this case included the camera-bearing, microphone-toting variety--right before the company's biggest selling season of the year.

It all started when a woman bit into Annabelle's Rocky Road brand candy bar and encountered an unexpected ingredient: a wriggling meal moth. "Instead of calling us, she called [a local TV station], and they just went nuts," says Susan Gamson Karl, 44, co-owner, president and CEO of Annabelle. When a reporter asking if the company planned to recall the product caught Karl offguard--and unaware a problem existed--she answered, "Well, I have to look into it further."

The evening news that night led with a skewed picture of the small family-run company's goodwill. And to top it all off, making its TV debut in living color, was the meal moth in its chocolatey peanut home. The news then went out on the AP wire, and the damage was done. "It was a siege," says Karl. "We had the media in our parking lot for a week." Health, food and safety experts confirmed the moth posed no health dangers, but, as Karl admits, "It was still disgusting."

The 50-employee company hired a PR firm; refunded or credited all its retailers, wholesalers and distributors; and recalled all the company's candy products and had them destroyed. Then, Annabelle shut down its operations for three weeks; dismantled, sanitized and upgraded its entire facility; and hired a new pest control company (and settled a lawsuit out of court with the prior one). The company accompanied everything with a flurry of press releases describing its revamping efforts.

"We've gotten praise throughout the industry for how quickly we took responsibility," says Karl, whose company projects $15 million in sales this year. "It's behind us."

Someone Stole My Idea!

It's been a year-long course in Patents 101 for Miami entrepreneur Christopher Descalzo.

The aromatic cedar boxes that have traditionally housed premium cigars hadn't been improved on in some 150 years. So, in 1996, Descalzo invented a wooden box with a transparent Plexiglas top to house his Escudo Cubano and El Sabinar brand cigars. That same year he applied for a patent on the design.

"The Plexiglas top served a very good purpose," says Descalzo. "The consumer could see the product and didn't have to open the box to inspect the condition of the cigars. I immediately experienced tremendous acceptance from retailers and consumers alike. We went from zero to $2 million in sales the first year--90 percent of our success was due to the box."

But there was an unfortunate byproduct: The box spawned a copycat effect within the industry. Descalzo soon found his attention-grabbing cigar box design was being used by 18 to 20 other cigar companies. In addition, as new cigar makers flooded the market and supply overtook demand, Descalzo says, "Smaller companies such as ourselves [absorbed] a disproportionate amount of lost sales." After watching his sales drop to $500,000 last year, Descalzo is trying to stay optimistic: "We're blessed that we're still in business."

Sure, Descalzo acknowledges there was a contraction in the overall market, but he can't help but speculate that the loss of his unique marketing edge was a major contributing factor to his sales decrease. Notified in September 1998 that his patent had been approved, "I was elated," says Descalzo. But as his attorneys told 15 offending cigar markers they had 10 days to cease and desist, the copycat cigar boxes--all of them--remained on the market. "The patent is a nice thing to hang on your wall," Descalzo says, "but you still have to protect your rights." That protection may only come as the result of an estimated three to five years of litigation.

But Descalzo isn't giving up. "If you succeed in validating one case in court," he says, "there's the likelihood that the others will cease and settle. I may win the war with just one battle."

My Ex-Husband Opened A Competing Store Across The Street

For 20 years, Patty Zacks had enjoyed connubial and entrepreneurial bliss alongside her husband. They'd created not only a family together, but a Providence, Rhode Island, camera business as well. In 1994, however, when their marital union became a divorce statistic, Zacks watched helplessly as her ex opened a competing camera store across the street from Camera Werks.

"I felt crushed," says the 45-year-old mother of two. Under the divorce agreement, she had only paid a moderate amount of "goodbye" money to her former husband. But her happiness at exclusive ownership of the business was short-lived. "I should have demanded a noncompete clause," she reflects. "I was extremely naive in dealing with the legal system, [and] he had a good attorney."

Due to a sagging local economy and competition from her ex, Camera Werks' sales took a 20 percent dip the following year. Then an IRS agent showed up at Zacks' door with a bill for nearly $20,000. Adding insult to injury, she found herself solely responsible for a business debt she hadn't even known existed. "It felt like a sword through my heart," she says. "But you do what you have to do to survive." For Zacks, that meant refinancing her home to pay off the IRS debt.

She also decided to revamp the store. What started out as more of a camera repair facility under the former couple's joint ownership has branched out in some new directions. "I'm concentrating on education," says Zacks. "We promote and nurture the art of photography." Annual sales have risen back to about what they were before the partners' split. "I didn't want to become a bitter person," says Zacks. "You have to be willing to grow."

Contact Sources

Annabelle Candy Co., 27211 Industrial Blvd., Hayward, CA 94545, (510) 783-2900

Camera Werks, 764 Hope St., Providence, RI 02906, psz333@aol.com

Habana Florida Cigar Co., (305) 529-0700

National Home Office & Business Opportunity Association, 92 Corporate Park, Ste. C-250, Irvine, CA 92606