By Mark Haley

hsupply.com lived a spectacular, although brief life.  Founded in the spare bedroom of a programmer�s apartment in March 1999, the startup went on to achieve the following before closing the doors in November 2000:

• Developed a unique business model, that of the virtual distributor
• Conducted needs analysis, developed functional specifications and coded a wall-to-wall e-procurement solution in three months
• Built a national network of dozens of suppliers for operating supplies, food and beverage, office supplies, linen and terry and more
• Deployed to and trained more than 400 hotels in the use of the system
• Sold more than $5 million of product to the client hotels, servicing the entire procurement cycle from specification to settlement

hsupply�s core competencies were in creating software and servicing customers, not cooking.  When it became evident that there would be no more funding from venture investors, the urge to survive compelled a merger partner search.  When none of those opportunities proved out, for many reasons, the music stopped and there were no chairs.

On November 9, 2000, the COO of the company announced to the employees that no more orders would be processed and that the firm was going into an orderly shut down.

This is exactly what happened over the next few weeks.  The customer base and the trade supplier base mostly settled their obligations directly with each other, other suppliers were paid as were employee travel expenses and other debts.  The assets of the company were sold and the business closed, without bankruptcy court or a series of layoffs or locked doors, the typical fallout from a failed business.  In fact, modest severance payments were made to the separated employees in lieu of notice.  The venture capitalists backing hsupply.com paid for this separation benefit with a final disbursement from their fund, but they really did not have to do it (Thank you, Allan and Buck!).

Customers needed to make a rapid shift in purchasing behavior back to their old practices.  Employees needed to find other jobs, after first explaining it to their spouses.  We called it the Maria Test.  Chief Marketing Officer David Grocer asked, �How can I explain this to my wife?  If I can only explain it so it makes sense for Maria.�  Assets needed to be disposed of and everyone had to move on with life, the various investors some $13 million poorer for it.

The most common question in the firm and in the industry was: �What happened?�  During a cab ride in Manhattan, Carol Beggs of Sonesta International Hotels asked, �We thought hsupply had hotel e-procurement pretty much figured out better than anyone else.  Why couldn�t you make it?  If you couldn�t, what about the rest of them?�  

The short answer was that we desperately needed more investor financing in order to live long enough to grow into profitability.  hsupply.com needed about $1 million dollars a month, often described as the burn rate. According to the business plan, it would take another 12 to 18 months to grow revenues to break even.  Unfortunately, the financial markets were unwilling to fund those 18 months, although hsupply was exceeding all its growth and financial targets.

When hsupply.com was founded and funded (and those are two separate events), dot-coms were the triumphant stallions of the New Economy, leading the world to online prosperity and IPO riches.  A few months later, the scenario had changed dramatically.  

Ludicrous businesses pursuing ludicrous business models blew through many multiples of the funding level hsupply.com did.  Did you ever visit www.bbq.com?  Old Economy stalwarts, threatened by dot-coms and inspired by the examples of Cisco and Dell, were successfully moving their business processes online far more rapidly than most observers expected.  And by June, the funding for companies on a bubble, like hsupply.com, had just about dried up completely.  Performance and execution didn�t matter: companies like hsupply.com had simply gone out of fashion and become unfundable.

Ramping hsupply.com up was a lot more fun than winding it down.  Shutting down the business created a lot of anguish and anxiety for everyone involved:  the management team, the employees, customers and suppliers.  Much of the anxiety came from pride.  This great adventure we had launched had augured in after a brief vertical flight.  Much of the anxiety came from much more fundamental causes:  Where will my next paycheck come from?  Will my expense report get paid or will I have to eat thousands of dollars of travel expenses? Can I make the next mortgage payment?

The good news is these basic concerns proved to be a non-issue for most hsuppliers.  Twenty percent of the team had job offers in hand the day after the closure announcement.  Most of the others had new jobs by Thanksgiving at large and small companies.  Those that were not re-employed had made decisions to take December off before resuming their careers.

Looking back on the ride up and flight down, I see a number of lessons that I learned from the startup experience.  

• Be grateful for your family and friends.  Just because you threw your flesh to the pavement in pursuit of building this company from nothing to something (and back to nothing) doesn�t mean everyone else in your life signed on for the same.  Be glad they were there for you when you came up for air, and don�t do it to them again.
• A business failure is not a personal failure.  If you know that you did everything you could for your customers, coworkers and investors to make the venture successful, then hold your head high and be proud of what you did.  The fact that the business was shuttered doesn�t mean that you or the team failed.
• Don�t be afraid to try something bold.  hsupply.com was started with a vision, and organized a great team of people working together to make it happen.  The vision didn�t pan out, but we are all better for having made the attempt.
• Get back in the saddle quickly.  Take the lessons and the experience and move on now rather than ruminate over what might have been or whose fault it was.  Get back out in your field and learn more in your next endeavor.
• You don�t know what you can do until you do it.  Everyone at hsupply.com had to do an awful lot in a brief period of time as a team in order to get the software products built and the customers using the system to buy things from our suppliers.  The timelines were not realistic, but we achieved them because we had to.  The pace and production levels were punishing�but it is nice to know that you can do it if you have to.
• Cash is king.  Just because angel investors gave you half a million dollars, you shouldn�t assume anyone will give you $10 million.  Just because more investors give you $10 million, don�t assume anyone will give you $20 million.  When you spend what you were given, remember it isn�t yours, so be a good steward.
• Listen to the market.   If you know in your heart that the business is worth $100 million, but investors are only willing to value it at $60MM, maybe it is time to reassess.  Something is worth only what someone is willing to pay for it, not a penny more.
• It�s the people, stupid! (Part One)  Surround yourself with the smartest, most motivated people you can find and work your tail off with them.  If things don�t work out, take care of the people around you first.  A good thing about the hsupply shut down was that we did it quickly and cleanly, instead of bleeding our people through layoffs and attrition.
• It�s the people, stupid! (Part Two) You are very likely to see the people from the old company again in the next phase in your career.  Former coworkers, customers, suppliers and other contacts will appear in your business life again in some capacity.  Don�t burn any bridges; do build relationships based on trust, mutual respect and your personal integrity.

Mark Haley is president of High Touch Technologies, Inc., a consulting practice serving the hospitality technology industry. He put the practice on hold for most of 2000 to work as the director of customer relationship management at hsupply.com, previously a customer.  You can reach him by calling (978) 521-3600 or e-mail [email protected].  Many of the thoughts in this article were contributed by other former hsuppliers, notably Larry Hall and Yael Nagler.