Out Of Business What happens when your personal dream turns into every entrepreneur's nightmare?

Failure is perhaps the scariest word in an entrepreneur'svocabulary. Like some evil thing lurking in the corner of everysmall business, the shameful closing is the unanticipatedantithesis of the celebrated grand opening.

But it happens. Although statistics show that manysmall-businesses fail, W. David Waters certainly didn't expectto become a statistic. He intended Honolulu-based Centaur Zone Cafeto be the prototype of an international franchise of coffeehouses."This," he says, "was supposed to be the launchingpad."

Instead, Waters found his plans dashed after just one year inbusiness. "I thought we'd either be an overnight sensationor we'd flop," he says, "but I never dreamed we wouldjust drag along, hanging on to tidbits of hope here and there. Itwas emotionally and psychologically trying."

Once Upon A Time

If not a happily-ever-after conclusion, the tale of thiscoffeehouse certainly enjoyed what seemed to be a storybookbeginning. With a Georgetown University dual degree ininternational management and finance and years of managementexperience under his belt, Waters set about in early 1996, as anyproper entrepreneur would, doing research. He identified a crosssection of target markets in downtown Honolulu: the artsy crowdfrom the Hawaii Theatre that was across the street from hisproposed location and wealthy Asian students from Hawaii PacificUniversity (HPU) around the corner. He consulted other coffeehouseowners, a SCORE representative and the director of a nationalcoffee organization. A local banker was so impressed withWaters' business plan, he wanted to nominate him as SBAentrepreneur of the year before the coffeehouse even opened."Everyone," Waters says, "was helpful."

Getting start-up capital was a bit trickier. Waters found aJapanese investor who added $13,000 to Waters' $10,000 fromsavings and credit cards, but the SBA turned down his loanapplication because, according to Waters, the business was new andhad no collateral. Instead, he borrowed $20,000 from his father."I sent him my business plan," Waters says, "and hesent me a check and wrote `Go for it.' "

In October 1996, Waters signed the lease for his location andstarted fixing up the place: painting, buying antiques and adorningthe used furniture with trendy animal prints and purple velvetcoverings. Centaur Zone Cafe officially opened on January 6, 1997.His first day was slow and depressing, says Waters. "So manypeople saw me painting, bringing in antiques, and they kept saying`We can't wait for this to open,' " he says."So we thought once the doors opened, people would comein."

Still, Waters hoped that a dance performance at the HawaiiTheatre would bring business. "We passed out fliers, and webought all these desserts," says Waters. "The theaterclosed, and everybody just walked by. Less than 10 people came in.It was so embarrassing."

When word-of-mouth started to spread, Centaur Zone Cafe didbecome, as planned, a hangout for college students. The businessbroke even after three weeks, but Waters didn't exactly feellike celebrating. "We were making enough money to pay the rentand electricity," he says, "but not enough for me to paymy own bills."

When summer hit, students departed, and business once againslowed. Waters' property management company agreed to give himan extension on rent payments until the fall. But by the timestudents returned, Hawaii's poor economy, entering its seventhyear of decline, had already started to take its toll on thecoffeehouse.

Waters says the recent financial crisis in Asia was "adouble punch to the stomach. We were hit immediately."Although the number of HPU students in the cafe decreasedsignificantly, Waters says, "Part of me kept wanting to go on.But in another sense, we were wondering why we shouldtry."

Waters' father gave him one last boost of inspiration."My father has always supported me. He called and said hewanted me to stick this out for at least two years," Waterssays. "He's never been so opinionated about something inhis whole life."

This time, however, the property managers weren't assympathetic. "Closing wasn't my choice," Waters says."They decided it for me."

Waters believes his perseverance may have led to his finalmistake: He didn't seriously consider selling the business."I thought, `If I can't make a go of it, why would someonewant to buy it?' " says Waters. "I didn'tthink of selling it, but I never thought it would close, either.Until the end, we thought something miraculous wouldhappen."

So did his customers. "You know you've been doingsomething right when students tell you not to give them a discountbecause they want you to stay open," says Waters. "Andthis homeless person came in, gave us her ring and said, `I heardyou need the money.' "

Closing Day

"It was nothing romantic," says Waters of that fatefulday this past February. "The coffeehouse closed like itopened. It just sort of opened and just sort of closed. I thoughtI'd break down and cry, but I didn't.

"Our hearts started it; our personality was in thatcoffeehouse. So when we closed the doors at 3 a.m. on Sundaymorning, it was just a shell."

Waters has since moved to San Francisco, where he is seeking ahigh-tech job. "I thought it'd be nice to get a paycheckevery two weeks," he reasons.

At least Waters' experience hasn't left him bitter."As time goes on, you remember the good stuff, and the badstuff isn't as bad," he says. "Even after a year [inbusiness], I'd look around and think, `I still love thisplace.' I never got bored with it."

Do those fond memories mean Waters would someday, somehow,consider starting another business? "Yes," he says,"and I'm kicking myself for it."

Report Card

Business critique by Sam Slom, business consultant andpresident of Small Business Hawaii, a Honolulu-based association ofsmall-business owners:

"Waters' objective was laudable and ambitious. But wasit realistic? Locating in downtown Honolulu has built-in traps,unlike a mall; in most cities, downtown areas are more transientand economically depressed.

"Another mistake Waters made was to rely too heavily onstudents, who generally are not income-stable--or product- orgeographic-loyal. Also, the Asian economic downturn was beingincreasingly discussed, so targeting his coffeehouse to nonresidentAsian college students was a big mistake.

"Hawaii also has the highest mandated benefit costs,including compulsory medical and burdensome workers'compensation, unemployment, temporary disability insurance andliability costs, which can add 50 percent to payroll costs and cutdown on cost/revenue ratio.

"Waters' biggest mistake was underestimating theconsequences of Hawaii's worst-in-the-nation business and taxclimate which, for eight years, has gobbled up big and smallbusinesses while breaking many able entrepreneurs."