People Interview: Mopping Up
After reviving music careers, Marty Pichinson turned to businesses helping ease the pain for failing dot-coms and offering survival tips to those still going
By CHRISTOPHER KEOUGH
Staff Reporter
Not all those associated with e-commerce and Web development have suffered in the past two years. Marty Pichinson of Sherwood Partners generates as much as $35,000 per client in weekly revenues as a business advisor or liquidation expert.
After a career as a manager in the music industry, a burnt-out Pichinson retired in 1978 to Lake Arrowhead, “a good place to lick your wounds.” Three years later, a friend, Alan Salke, lured him back to Los Angeles with an opportunity to get involved in business consulting. In 1992, he and Salke started Sherwood Partners with a third partner, Michael Maidy. Its first contract for the liquidation of an Internet firm came in 1997 with failing entertainment portal Wilma/911. From there, Sherwood developed relationships with Silicon Valley Bank, Softbank and APV Technology Partners that led to further contracts.
Most of what Pichinson called the “the low hanging fruit” of dot-com closures are gone, and Sherwood Partners has added consulting services to make up for the decline in what once had been a major source of business. Revenues have increased from $3 million in 2000 to an anticipated $12 million this year. The company plans to add a mergers and acquisitions division and an information technology specialist to find ways to make money on the intellectual property left behind by failed companies.
Question: Why did so many of the Web’s grand ideas fail?
Answer: We had one client that went through $50 million. We asked them if their plan was going to work and they said, “Absolutely.” “Have you surveyed any of your potential customers?” “Oh no. We don’t want to tell anyone what we’re doing until we’re ready.” If the client had just focused, they’d have wasted less money, they would have gotten a more focused customer base and they probably could have used that customer to give them some validation for what they sold.
Q: Has the dot-com fallout left the survivors with a credibility problem?
A: Sadly, yes, though I believe the past eight years were wonderful years. There’s a paradigm now that we have to be careful with: Will the company’s customer trust them enough to buy their solution or product when they’ve seen so much failure over the past two years? It’s a very scary situation and the only way to do it is to build slowly.
Q: Who remains at risk?
A: The equipment manufacturers are having problems. There’s too much fiber optics. Broadband’s got problems. Everyone now is getting into the telephone business and I don’t believe they should be. They’re not going to compete against the Nokias, the Motorolas. They don’t have the financial wherewithal. They don’t have the manufacturing wherewithal. They’re getting into a market just for the sake of getting into a market.
Q: What should be the role of VCs and management in a successful company?
A: The VCs are the mentors. They are the ones that are going to prepare the company to go public. They’re the ones who are going to help the company find distribution channels. I believe management must be the dreamers, the focusers, the heart, the soul, the inspiration of the company because they are making something out of nothing.
Q: What about the size of funding rounds?
A: It should be IV funding what we call drip funding or stage funding. You want to let the creators know there’s $50 million available, but it’s going to be benchmarked. When the VC puts its chunk of money in and all of a sudden it doesn’t believe in the company anymore or a competitor just passed it, why should all that money be sitting in the bank so when you close up you lose it? Why should management be able to spend more than the approved and accepted budget from the board?
Q: How, in your view, did all this growth run out of control?
A: The overall situation was over-expectation, the over-expectation that a company needed 200,000 square feet of real estate and right now they’re only filling 50,000. Or, you’re going to have 8 million hits a day and you get 4,000 hits a week. It’s the assumption you need 15 Oracle licenses when you only need three. It was the assumption you needed it for tomorrow, but tomorrow was really six, nine, 12 months down the road.
Q: What is your job when you go into a failed or failing company?
A: I see Sherwood’s role as adult supervision, cleaning up and taking care of other people’s messes. The technology world, in our eyes, is a young and exciting world, but it’s going through what we call the terrible twos. A lot of times there’s failure because of, possibly, lack of direction; possibly, misunderstanding. It’s like the old telephone game when we were children we start something up and in the end, it’s not really what anyone thought it was.
Q: Why has this become such a popular method for shuttering tech companies?
A: These assets are much different from assets like sewing machines, dresses or bicycles. In technology, the assets are first the people, then, if it’s a software-driven business, the source code and then possibly the hardware designs, patents and URLs and things like that. We find a buyer for the operation, the (intellectual property), manufacturing process or URL. A bankruptcy trustee could never do that, they come in a little too late and probably don’t understand technology as well as we do.
A managed liquidation is a very simple process. A lot of times there’s more cash available than liabilities so the company is certainly not insolvent but the business model didn’t work. If a company has to take it to a (bankruptcy) proceeding, we work with the debtor and try to negotiate the best we can and preserve as much cash as we can.
Q: Are there ever alternatives to liquidation in these cases?
A: Hibernation, and it can’t always be done. The company is solvent, has a bright future in theory, but has the right product at the wrong time; or right product in the wrong market. What we’ll do is work with the board, investors and management to lightly wind the company down. We’ll close offices, liquidate excess inventories, terminate many people. The goal is to get as minimal a burn of cash as possible. We’ll keep the key engineers in a smaller facility. We’ll keep the company in a hibernation state, with the (intellectual property) still being developed.
Q: Do you also advise companies on how to avoid seeing you under such negative circumstances?
A: We do tell companies that management should only be looking at the future. We believe that a lot of these are starting with a clean piece canvas and coming up with wonderful art only here you’re coming up with solutions: software, hardware, things like that.
Q: What of everything that’s been made of wireless technology? Are these companies your next generation of clients?
A: Wireless is the future. It’s not even a question. AT & T;, I think, made a major, major mistake by selling off its wireless. You go to Sweden and you can buy a soda from a vending machine with your cell phone. AT & T;’s decision to get out of wireless was short-term thinking. It goes back to trying to make your investors smile for a quarter or two.
Q: Does that mean there’s longevity for personal digital assistants, which once were pooh-poohed as a fad?
A: In concept. Portable handhelds may be twice the size they are now. You’ll take your PDA and set it into a docking station with a flat screen and a full keyboard. They now have a 10-gig hard drive that’s about twice the size of the PDA, but it’s still pocketable. That’s the key: pocketable and transportable.
Q: You revived some ailing careers in the music business. Did this prepare you for your current life?
A: Whether it was Lou Rawls, or the Miracles, or Bill Withers, I was able to rebuild these people’s careers. I always believed that if you had some success, you go and multiply it so that it becomes a great success again.
PROFILE: Marty Pichinson
Title: Principal
Organization: Sherwood Partners
Born: April 27, 1946, Chicago
Education: Bachelor of Arts in marketing, Columbia College, Chicago
Career Turning Point: Helped liquidate Wilma/911 in 1997.
Most Admired Person: Jack Welch
Personal: Wife, Laurie, two children and two from a previous marriage
