Crisis

Founders Share How They Survived a Major Crisis -- and What They Learned From It

From a client taking their company hostage to a competitor smearing their product, entrepreneurs share how they got through awful situations.
Founders Share How They Survived a Major Crisis -- and What They Learned From It
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Magazine Contributor
15+ min read

This story appears in the April 2018 issue of Entrepreneur. Subscribe »

Every entrepreneur faces setbacks -- but some challenges are harder to rebound than others.

We set out to find entrepreneurs who not only survived some of the worst possible situations but thrived from the experiences. Some have had their startups wrecked by storms; others held hostage by out-of-control clients. And in fact, some have even been targeted by supersized competitors, threatened with obliteration by the government and stuck with millions in unsold inventory in the middle of a recession. Sounds like a nightmare, right? Whatever the disaster, these 10 entrepreneurs didn't succumb to the chaos.

Learn how they overcame these issues and what they learned from them. 

Related: How Two Entrepreneurs Turned an Idea Into a Blooming Floral Business

A little more than a decade ago, back in the days of irrational exuberance, Michael Dorf had an idea. He wanted to start a venue that would cater to more affluent music lovers and sell them premium wine, made in-house. He called it City Winery

Within that idea was another idea. To fund production, he would sell barrels of made-to-order wine direct to Manhattan’s elite for around $12,000 each. He found demand was strong. He took deposits for 300 barrels. It was a great idea.

Except: “Our first grapes arrived the same day Lehman Brothers declared bankruptcy,” Dorf says. “All of a sudden, nobody wanted any ostentatious examples of gluttonous spending.” Almost everyone pulled out. “It was really, really scary. I didn’t know what I was going to do. I needed cash flow desperately.”

Dorf knew he had to sell off the wine fast, but it would have to be bottled and labeled first, which would take even more time and money. So he had another idea: What if he just put it in beer kegs and sold it on tap? It was a desperation move, but the potential upside was clear: no bottling or printing costs, and, because the kegs would preserve the wine better than bottles, less waste. Overall, this meant much higher margins per glass.

His instincts were sound. The wine sold so well that Dorf reoriented his whole business around it, shifting largely to wine sold from kegs. City Winery now has five locations with more on the way, and 70 percent of wine sales come from the tap. 

“The problem that was handed to us has turned into one of our great selling points,” he says.

Tyson Lawrence launched his logistics company in 2005, specializing in shipping refrigerated goods. By 2009, the company had reached $5 million in sales and had added a huge national retailer as a client. Given the soft economy of those years, it seemed like Lawrence could do no wrong. “Everything I touched turned to gold,” he says. 

So he decided to really blow it out, hiring more staff and spending more money. But his profits stayed flat. Then they started going down. 

What happened? It turned out that Lawrence’s best asset had become his greatest vulnerability. That giant retailer had come to make up 85 percent of his business and was squeezing him dry. If there were damaged goods, even if the damage wasn’t his fault, the retailer forced him to eat the costs. And it was constantly changing terms on him, like lowering what it was paying him for jobs, or paying him more irregularly and saying he’d need to give up 2 percent in order to get payments processed faster.

“It was a David-and-Goliath situation,” he says. “We had eight people working for us, and they were a multimillion-dollar behemoth. What they said went, and we had to figure out how to make that happen.”

Lawrence knew that if he did nothing, his company would starve. But if he pushed back, the client would send its lawyers after him, which would also be lethal. So he hit upon a daring strategy. First he quietly started a new logistics company and offered his top people jobs there. Then he demanded concessions from the big retailer, essentially poking the bear. 

Related: 12 Motivation Hacks from the Best of the Best

The bear reacted badly. Within 90 days, Lawrence’s company was dead. But a new one was already taking root. Lawrence called it Taktik Logistics Group, and launched in 2015 with a fundamentally different mindset. He went after only small and medium-size clients, the kinds that he could grow alongside with. And he entered into a relationship only if it was mutually beneficial. Never again would he bet everything on one big client.

It was harder work, but it made for a healthier company. Taktik now has about 40 clients and $5 million in revenue, and it’s on track to hit $15 to $20 million by 2020. As for Lawrence, he’s a changed man. “I didn’t call myself an entrepreneur until after I got through this situation,” he says.

Julie Smolyansky was just 27 when her father, Michael, died of a heart attack in 2002. Though the pair had worked side by side for five years at Lifeway Foods, the kefir company Michael founded in 1986, a grief-stricken Julie wasn’t sure she was ready to be the boss. 

Then a family friend told her there was no way a “girl” could run the company. 

“I took it personally, and I used that negative feedback to light my fire,” she remembers. “All I could think about was how hard my parents worked to come to America from the Ukraine -- the literal blood, sweat and tears they poured into this company. I could not imagine letting it die.”

She took the job, which made her the youngest female CEO of a public company. And, for sanity, she started running. A lot. “It was a year of total darkness. My first marriage didn’t survive. I was sleeping two hours a night. All I could do was go to work and run.”

Slowly but surely, it came together. Lifeway now has revenues of more than $120 million -- 10 times the amount it had when Michael Smolyansky died. “When you’re cracked open in such a horrible way, the broken pieces come back together even stronger,” she says. “For a long time it seems impossible, but you just put one foot in front of the other.”

It was on a Friday, about a week before Christmas 2016, when Jeff Raider, co-founder of New York-based men’s razor brand Harry’s, got the email. “Wow,” the message read. “You must’ve really worked up Goliath.” 

There was a link to a video. Raider hit play and “Welcome Back,” the ’70s sitcom theme song, started to roll. “Most guys leave Harry’s after trying it,” read the text overlay introducing a parade of “real guys” citing the reasons they left Harry’s and came back to Gillette: “Kept getting nicks and cuts”; “The shave was not as smooth.” 

He was floored. “It was a harrowing moment -- people spreading misinformation about Harry’s,” Raider says. “But what really fired me up was when I saw our employees were concerned.” He had to act. “There was a big rallying cry from our team to stand up for ourselves. And we wanted to be sure our customers knew the truth.”

Raider had his analytics team pull the data. Could Gillette’s claims be true? “And the answer was no,” says Raider. “Our retention rates were historically well over 50 percent, and in the preceding six months, they were over 80.” 

He knew the ad was a sign that Harry’s was doing something right: Even though it had just 2 percent of the razor market, compared with Gillette’s 60 percent, the brand had recently expanded its retail presence. “That made them nervous,” says Raider. 

Still, Raider wasn’t going to let himself be bullied. Harry’s just had to be careful not to look defensive. “The whole Harry’s philosophy is that we take our work seriously, but not ourselves seriously,” says Raider. So two days before Christmas, the Harry’s legal team sent Gillette a stern but cheeky letter thanking the company for all the free publicity but asking for “a minor edit” to the ad, which was that most guys stay with, not leave, Harry’s after trying it. 

Harry’s posted the letter to its social media accounts. Raider was on a plane when customers started offering their support on Facebook. “My marketing director called and said, ‘You’ve got to see this. It’ll make you smile,’ ” he says.

Related: The Motivation Secrets of Richard Branson, Gary Vaynerchuk and Other Superstar Entrepreneurs

While the Gillette ad still lives online, Raider says revenues continued to climb in the aftermath. “It definitely didn’t hurt our business,” he says. “It only helped.” 

People always warn against working with family, but Davis Smith thought he had it figured out. By the time he was in grad school, he and his cousin had already run a successful American e-com business for seven years, and they were ready to start their next project. Smith, who was raised in Latin America, persuaded his cousin to set up their newest e-commerce operation in Brazil. 

Within 18 months of launch, the company had raised $40 million in funding and had more than 300 employees. “That kind of growth creates a lot of pain points,” he says. “We, as co-CEOs, started to experience stress in our relationship.” The main culprit was different management styles. Smith was too hands-off, and things were getting missed.

“My cousin approached me and said, ‘Look, I think we need one CEO,’ ” Smith recalls. “It was really hard to hear. It was really painful.” Despite the demotion, Smith’s cousin encouraged him to stay on in some capacity, though Smith declined. “It was a little bit of pride and a little bit of knowing that staying would be painful,” he says.

Smith moved back to the U.S., but he couldn’t shake the experience. “I was terrified,” he says. “It messed with my psyche. I really questioned myself: Maybe my last two successes were because of my partner. Maybe I’m not special.” 

But he managed to focus his energy on getting a new idea off the ground -- Cotopaxi, an outdoor apparel brand with a charitable component. And he was sure to build in systems to avoid his earlier mistakes. “In the previous 10 years, I never got feedback,” he says. “People don’t want to tell you hard things because you’re the boss. But it’s an important way to develop.” He set up monthly one-on-ones, where managers give and receive feedback from direct reports. It’s a defining part of the culture at the startup, which was recently named the best company to work for in Utah.

While Smith is still recovering from his demotion and rebuilding his relationship with his cousin, the experience redefined how he thinks about leadership. “A lot of our problems could have been solved sooner, had I just been willing to have an open conversation,” he says. “But once you let something get to the breaking point, it’s too late.”

Things were going great for DraftKings. In 2015, the three-year-old Boston company was one of the two biggest names in daily fantasy sports -- a field in which users assembled fantasy teams and then competed for cash based on how those players performed in real games.

Then Massachusetts’ attorney general announced that she was reviewing whether daily fantasy sports was actually legal. And New York’s attorney general filed a lawsuit to stop DraftKings and sites like it from operating in the state. Other states started looking into the issue, too. 

“We were going to be stomped out of business in a moment’s notice,” recalls co-founder and CEO Jason Robins.

DraftKings was ready, though. It had joined its chief rival and hired a lobbyist. And instead of picking one big, messy fight like Uber did when it first expanded, it launched a campaign targeted at sympathetic lawmakers, to gather the momentum needed to pass broader legislation to regulate the industry. 

DraftKings made some concessions, but in the end, it got what it needed -- and thrived. Today the site has nine million registered global users, and revenue is up 30 percent year over year.

Related: Embrace Your Setbacks -- and Use Them to Your Advantage

As for Robins, he learned something about crises: “It’s really no different than figuring out how to build a product that people want,” he says. “You just look forward and say, ‘All right, what do I have to do to solve this?’ ”

Since 2012, ChowNow has been creating mobile ordering apps for restaurants. To serve its 9,000 clients, it built a template, reusing code for each new app rather than building it from scratch. Then this past July, when ChowNow submitted a round of client apps to Apple, every one was rejected. 

“They pointed to a June policy change that said they would no longer accept apps made from templates,” says CEO Chris Webb. It was meant to stop “cloning,” a dubious practice in which designers create thousands of nearly identical apps to boost visibility of a game or concept. 

Webb’s employees started to panic. “We have hundreds of new accounts; we’ve collected their money and promised them apps,” he says. “What do we do?” 

Instead of dealing with Apple, Webb hired a lobbyist and went to Washington to garner support. The need for template apps, he explained to legislators, is similar to the need for Squarespace and Weebly. Without them, small-business owners would struggle to create a professional online presence. 

With Congress behind him, Webb went to Apple. And it gave in -- a little. Clients’ apps based on ChowNow’s system remain in the store, but additional policy changes loom, meaning Webb’s fight may just be getting started. “You work in startups, you get a thicker skin,” he says. “But still, going up against Apple? Terrifying.”

Candice Blansett-Cummins didn’t intend to start an arts program for kids. The former Sony Pictures exec was battling scleroderma, a debilitating autoimmune disease, and had just relocated to Chicago with her family. But in 2008, when a teacher at a local arts school left her 5-year-old in tears after telling him he wasn’t using an eraser properly, Blansett-Cummins leaped into action. 

She signed a lease on a vacant beauty salon near her home in Chicago’s Roscoe Village neighborhood, painted and laid new flooring -- and within five weeks was ready to open Wishcraft Workshop, dedicated to building kids’ creative capability. 

Little did she know that would turn out to be the easy part.

Three months later, Blansett-Cummins’ 9-year-old daughter began projectile vomiting and losing weight. She was soon hospitalized, nearly comatose and diagnosed with type 1 diabetes and celiac disease. One month after that, her son was committed to a juvenile psych ward after unexplained rages. 

Related: 3 Tips to Transform Setbacks Into Success

When she learned she couldn’t stay with him in the hospital, Blansett-Cummins left, weeping -- and promptly fell down the stairs, into a knee-high pile of Chicago slush. “I remember lying in the snow and thinking, This is the worst moment of my whole life,” she says.

But she got up. And between driving to her daughter’s school to administer insulin shots and visiting her son, who eventually came home with an autism diagnosis, Blansett-Cummins did whatever it took to keep Wishcraft’s doors open. 

Business was slow at first, thanks to the recession. With cash tight, Blansett-Cummins leaned on her husband and family to help with the work. “Looking back, I don’t know how I survived, except I had their help,” she says. “We did what we had to do every day.”

Today Wishcraft Workshop is thriving. Blansett-Cummins has moved into a larger, two-story space, more than quadrupled the amount of programming she offers, and hired a dozen paid staffers. And her kids are thriving. “I now realize the universe didn’t give me anything I couldn’t handle,” says Blansett-Cummins. “That’s a mantra I think all entrepreneurs need to remember once in a while.”

When L.A.-based illustrator Tuesday Bassen started getting notices from her social media followers that huge stores like Zara and Hot Topic were selling pins that looked an awful lot like her designs, she decided she had to see for herself. So she went to the mall. 

“To see a photo is one thing, but when I looked at a copy at the mall in person -- that’s another situation entirely,” Bassen writes in an email. “It’s devastating to hold your hard work in your hands without any compensation or acknowledgment, on a huge commodity level. It’s soul destroying.”

Whether it’s brazen theft or just a failure of due diligence, this kind of thing happens all the time, says Brandon Dorsky, a lawyer who represented Bassen in her well-publicized copyright dispute with Zara. 

“This happens because designers don’t follow advice they were given in art school about how to protect their material,” he says. “Then when their work gets misappropriated, they have limited recourse.” 

Though copyright protection is automatic, if an artist actually wants to defend their work against infringers in court, they’ll have a much better shot if they’ve registered the copyright. But that means paperwork and fees, and for an artist who’s churning out hundreds of new designs each year, it’s an easy step to miss.  

Because lawyering up can cut so far into an artist’s already tight bottom line, many are forced to shrug and move on, or resort to “naming and shaming” on the internet. In 2016, dozens of artists did just that, including Bassen, who took her fight public after getting a dismissive response from Zara’s lawyers. 

She can’t comment on the specifics now, though Dorsky says “the matter was settled to the mutual satisfaction of the parties” at the end of 2017, and Zara’s parent company, Inditex, has said it stopped selling the disputed items.

But for Bassen, the nearly two-year battle was worth it. “It was a draining experience, but not as draining as letting someone slight you,” she writes. “It is awful and isn’t the swift justice you’d like it to be, but if you’re up for the mental stamina required, pursue every case you can. You can really change how business is conducted, and change the world for other makers.”

Sherry Blockinger wanted to open her own pastry shop. And after ditching her career in advertising, enrolling in pastry school and spending nearly a decade creating desserts for private clients out of her kitchen, she finally did: Sherry B Dessert Studio, in Chappaqua, N.Y.

A month later, Hurricane Sandy hit. For three days, Blockinger couldn’t get to the shop. For 10 days, the power was out. She wasn’t sure when she’d be able to get her employees back to work -- if she’d even have jobs for them to return to. 

“We had just gotten momentum, and everything came to a halt,” she says. 

The job of cleaning up was daunting, and not a little heartbreaking, but it was ultimately therapeutic. Blockinger found that shifting everyone into coping mode quickly bonded the team and helped her stay positive. 

And there was another unexpected benefit. While food production was on hold for the weeks it took delivery trucks to access the area, the café had coffee, water and wi-fi, which Blockinger offered up to locals in need. “It was comforting to be helpful while reminding people that ‘Hi, we’re here, come see us again,’ ” she says. 

The shop eventually flourished, an experience that gave Blockinger the confidence to move the shop to Manhattan this year. The crisis gave her a valuable perspective. “There will always be events you can’t control,” she says. “How you get through comes down to a mix of staying true to who you are and a willingness to be flexible. And remembering that it never helps to panic.”

Reporting by Jason Feifer, Alyssa Giacobbe, Joe Keohane, Maya Kroth, Kate Rockwood and Stephanie Schomer

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