How to survive when your dot com doesn't

When your dot com is failing and creditors are calling, you'd better have a plan or at least be able to put one together quickly. For, surviving meant scaling down and using any and all means to keep the business going.

When, a seemingly successful online business that provided clients with a multiuser calendaring system, began showing signs that it could fail, brothers Sean and Patrick Connolly made every effort to save the business. But after two possible acquisitions failed and the company had mass layoffs, the greatly diminished business reinvented itself as Collabrio Technologies.

We recently spoke with Sean Connolly, the company’s CEO. Here are some of the decisions his business had to make in order to survive.

Last of two parts
This is the second of a two-part series on the steps that one dot-com business,, had to take when its business model failed. Our first article focused on some of the more difficult decisions that the company had to make to survive.

Settle and liquidate
Along with the company’s troubles with other creditors, MyEvents also had to break a long-term lease on its office space, making the business liable for missed and future payments.

The business faced a similar crisis with its data center, which sent MyEvents a bill for $450,000—plus payment penalties and late fees—when the company told its data center that it would have to get out of its contract.

“What you don’t realize is that everyone is entitled to their full accelerated contract value,” Connolly said. “It’s definitely a shocker when you see those bills coming in.”

So what do you do? Negotiate to pay your vendors a percentage and plead your case. “You tell them, 'This is how much money we’ve got, and this is how many creditors we’ve got, and this is what they’re all asking for.’“

Like working with creditors, dealing with a landlord or a jilted data center that won’t be able to realize the full value of a lease involves negotiation. However, at the time when MyEvents began to topple, creditors couldn’t understand why a dot-com business was failing.

But that didn’t last long. By April and May, people realized that dot-com companies were failing en masse. “Toward the end with the last few settlements, they asked, ‘Do you have a settlement arrangement? Do you have a settlement form? Fax it on over.’“

Having had so many employees, the company also found itself with a large amount of computer hardware, much of which it owned. To pay off creditors, the company worked to quickly liquidate most of its computer equipment.

“Hardware depreciates like crazy,” Connolly said. “The sooner you try and get rid of it, the more you’ll be able to get rid of.”

Seek alternatives to bankruptcy
MyEvents retained Murray & Murray, a bankruptcy firm in Silicon Valley, which advised the company to create a spreadsheet of its assets, debt, and creditors outstanding and approach each vendor/creditor with a plan that would allot them some compensation.

Connolly said that one of Murray & Murray's senior partners told them that if they filed Chapter 7, a court-appointed trustee would come in, analyze their assets, and offer creditors their fair percentage of the remaining assets. "As an alternative, he suggested that I might want to try a 'work-out' with our creditors, as is the case with Chapter 11 protection."

The company contacted its customers and users and offered them a licensing option. As each sale came in, they paid off creditors who were willing to settle.

However, Connolly suggested that any business facing a shutdownshould retain a bankruptcy attorney before they run out of money and prepay a retainer large enough to assure that the attorney can complete a Chapter 7 bankruptcy for you if necessary. Connolly also said that you should make sure you have all federal, state, and local taxes paid.

What's next?
Though Connolly describes the company as “not out of the woods,” he is optimistic. Recently, they’ve had inquiries from “old-economy” companies in industries like shipping, pharmaceuticals, hardware, and telecommunications, with projects requiring user groups or a way for people to collaborate over the Internet.

“Business is picking up. We’ve got some really solid inbound leads for our groupware product and some very happy customers,” Connolly said.

Although his business has managed to hang on, he anticipates that large and small organizations will continue to see dwindling business during the next six months. However, it may take longer before companies begin taking chances with IT again.

“You have to go through the entire budget cycle, so you have wait another year before the budget comes back to where marketing and technology get their budgets up to snuff where they can acquire software and technology that’s more of a luxury and not an absolute 'need to have' to get orders out the door,” he said.

Although Collabrio’s sales are slow right now, it’s been able to generate interest in its product with no sales or marketing dollars. Until business picks up, Connolly said the company would continue to follow up on sales leads and function as a temporary home for some of its former employees.

“If we can start making sales, obviously we’ll start hiring people,” he said. “The goal is to hire people back on and ramp up as profits dictate.”

The business model of yesterday, which led companies to ramp up as fast as they could, is gone. In the new business environment, profits matter, and MyEvents, or Collabrio, will ramp up if and when profits dictate. Profits will now be the name of the game.

Is there a "good" way to shut down a dot com?
Chances are, many of you who just finished this article were laid off from a dot com or are worried about losing your job. Has your business laid off employees? Do you think the business will shut down entirely? Post your comment below or send us an e-mail.


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