irony

Sara Krulwich/The New York TimesFrom left to right: Carissa Reiniger, Susan Parker, Jessica Johnson and Alexandra Mayzler.

She Owns It

Portraits of women entrepreneurs.

In my last post, Carissa Reiniger, a member of our business group and founder of Silver Lining Limited, described the missteps that left her $410,000 in debt by early 2008. We pick up her story here, as she explained it to the group.

After two years of trying to ignore her predicament, Ms. Reiniger was forced to acknowledge it. One wake-up call came, she said, from the husband of a creditor who went to Silver Lining’s offices in Edmonton, Canada, and threatened her and her employees. Some shell-shocked employees began to quit, and Ms. Reiniger was forced to lay off others. She was soon down to two employees from a high of 25. In a misguided attempt to grow her way out of debt, Ms. Reiniger had expanded from Silver Lining’s original Toronto office, adding outposts in Vancouver and Edmonton, Canada, and Las Vegas. In 2008, she decided to close all but the Toronto office.

Silver Lining had made its living coaching other small businesses on how to set and reach financial goals. Now, Ms. Reiniger’s own business was struggling to manage its growth. The irony contributed to her reluctance to face her financial problems head-on. She wasn’t sure what to do: “I needed either slower growth or more money,” she said.

Still, she said she believed the market for Silver Lining’s services was strong. Small business owners needed help. And Ms. Reiniger said she had learned a lot since founding the company. Much of what she learned came from hundreds of interviews she conducted with business owners for a book, “Inspiring Entrepreneurs: How to Build Your Business to Its First Million,” that she self-published in 2008. Those lessons came too late to keep Silver Lining from falling into debt.

In March 2008, she gave herself 90 days to rethink her business model. During that time, she came to the conclusion that Silver Lining must shift from consulting to something more scalable. “I’m motivated by high-growth, and I was fighting a business model that needs a lot of money and a lot of people,” she said. She eventually decided that providing software to help small businesses, backed up by optional add-on services like coaching, would be her best option. “Whether I have one or 10,000 tech customers, my expenses don’t increase exponentially,” she said. Of course, it would take money to create that instructional software.

Meanwhile, two accountants were advising Ms. Reiniger to file for bankruptcy — advice she opposed. “Walking away from the debt was never an option,” she said. She was also unwilling to shut down her company. Instead, she got creative.

Ms. Reiniger said she cold-called Staples, Research in Motion and Intuit with a proposal to help them reach small-business customers. Instead of investing in hit-or-miss advertising, the corporations could buy Silver Lining’s services and have Ms. Reiniger provide business owners with free, corporation-sponsored workshops. The three corporations signed on, as did two others, she said, and they paid Ms. Reiniger $125,000 to do 10 events across Canada in the fall of 2008. That sum, she said, enabled her to pay the rent.

She continued working with the corporations throughout 2009. “It was like a cash cow,” she said. Six corporations paid her a total of $360,000 to conduct events for small-business owners. By late 2009, she said, she was able to pay off all but $145,000 of her debt. She said she also resumed communication with her creditors, many of whom had been infuriated by her lack of responsiveness. Even a family friend, she said, “was calling and threatening to send people after me.” Another friend sued her, she said, and got a judgment against her when she ignored the lawsuit. They eventually worked out a payment plan, and Ms. Reiniger said she was in the process of repaying him.

By late 2010, she said she believed things were looking up. When her contracts with the corporations expired that December, she had to decide whether to renew. By this point, she said, there were nine corporations, and they were willing to pay her a total of about $1 million annually to serve as a spokeswoman, traveling up to 300 days a year. She decided to decline.

Silver Lining had become a consultant to big business about small business, she said, not a business that helps small businesses. This wasn’t the company she had intended to build. She decided that she would finally take steps to transform her business from a consulting service to a technology company, a move she said she believed would make it much more profitable.

“Why couldn’t you work for like three of the companies and pay back more of the debt?” asked Alexandra Mayzler, a member of the business group and the founder of Thinking Caps Tutoring.

It was an all-or-nothing arrangement, Ms. Reiniger responded. The nine corporations had formed a consortium. They had bought into Ms. Reiniger’s program together.

“You never tried to get a line of credit during all this?” asked the group member Susan Parker, who owns BariJay, a dress manufacturer.

By this point, Ms. Reiniger said, she was dividing her time between Toronto and New York, where she planned to move the company. She said she felt that she had turned the corner in terms of paying down her debt and refining the software concept. “I felt like there was no better place to go big than New York,” she said. But in the United States, she had no credit history, something, she acknowledged, that was probably a good thing. Getting a loan here, she said, would require an American co-signer.

Around the time she decided against renewing her corporate contracts, Ms. Reiniger began talks to bring in a partner to run the company. “Clearly, I’m bad at managing what I create,” she said.

She found a partner who started acting as Silver Lining’s president last December. The following month, Silver Lining began to develop its software product. Freed of the day-to-day aspects of running the business, Ms. Reiniger focused on her strengths: forming strategic partnerships with companies that would buy her software in bulk. She and her new partner also took steps to raise $1 million that would go toward repaying Silver Lining’s debt, developing the software, and operating the business, which stopped generating revenue in January when it went into development mode.

But by March, Silver Lining found itself in a familiar place. The company was out of money, and Ms. Reiniger was about to miss payroll. Additionally, she and her new partner had parted ways. She now expects her annual revenue, which had been $1.2 million, to fall to $300,000 this year.

In my next post, we’ll learn how Ms. Reiniger managed to stay in business this time.

You can follow Adriana Gardella on Twitter.

Article source: http://feeds.nytimes.com/click.phdo?i=671c37c8d08e551cc1466271aa4d581c

FRANKFURT — Europe’s latest plan to prop up Greece seems, on closer examination, to look suspiciously like a plan to bolster European banks.

By agreeing to contribute a relatively modest amount to the rescue, the banking industry is getting something more valuable in return, analysts say. The industry is unloading much of its Greek risk onto the European Union and helping to quash fears that the sovereign debt crisis could morph into a second financial crisis.

The agreement reached in Brussels last week may anger anyone who thinks that banks have already gotten enough taxpayer favors. But the European sovereign debt crisis has always been as much about banks as it has been about Greece. If the deal helps restore confidence, weaker institutions would be able to borrow on money markets again, so they no longer would be dependent on the European Central Bank for financing.

“I think this is a good use of resources,” said Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, New York. “This prevents the hit from becoming so large that it paralyzes the banking system.”

The irony, of course, is that Chancellor Angela Merkel of Germany went to Brussels last week vowing to make banks pay their share of the cost of aiding Greece. She inadvertently seems to have done them a favor instead.

The plan agreed to by Ms. Merkel and other leaders calls for banks to voluntarily swap some of their Greek bonds for more solid paper backed by collateral. Though the swap is technically voluntary, Moody’s Investors Service warned Monday that such action would be considered a default by Greece. Moody’s also downgraded Greece another three notches to just one level above a default grade.

But Moody’s also said that the plan would benefit Europe “by containing the contagion risk that would likely have followed a disorderly payment default on existing Greek debt.”

The debt swap endorsed by European leaders last Thursday will cost banks and other investors €54 billion, or nearly $78 billion, according to estimates by the Institute of International Finance, the industry group that represented banks and insurance companies in negotiations with European governments.

That sounds like a lot of money, but as Mr. Weinberg pointed out, a week ago banks were staring at the possibility that Greece would slide into a disorderly default, with losses in the range of €200 billion, not to mention untold collateral damage.

“Compared to a €200 billion hit, this looks to me like a really good deal,” Mr. Weinberg said. In any case, he said, the cost to banks could turn out to be much lower than €54 billion.

Financial institutions still have substantial exposure to Greece, said Charles H. Dallara, managing director of the Institute of International Finance, who played a key role in the negotiations. The organization estimates that private-sector bond investors still have €200 billion at risk in the form of future interest payments by Greece. In addition, only about one-third of the new paper that Greece creditors will get is backed by collateral, Mr. Dallara said.

Still, he agreed that the deal will help Greece’s problems from infecting banks.

“This has really injected a new stability into the European financial landscape which had certainly been lacking in the past week,” Mr. Dallara said by telephone. He noted that the Brussels agreement came only a week after European regulators had compelled banks to detail their exposure to Greek bonds, an event which also helped clear up doubts about where the risk was buried.

European bank shares rallied late last week as investors appeared to agree that institutions emerged stronger from the Brussels talks. Bank shares fell Monday, but the decline seemed to be driven more by worries about political deadlock in the U.S. budget process than about Europe.

A key test will come on Tuesday when the European Central Bank discloses demand for one-week loans from banks in the euro zone. The amount spiked last week, a sign that many banks were having trouble borrowing money from other banks.

If demand falls Tuesday and in coming weeks, it would be a sign that tensions are easing.

“Banks are suspicious of each other because they don’t know who is holding the bag,” Mr. Weinberg said.

Article source: http://www.nytimes.com/2011/07/26/business/global/propping-up-banks-as-well-as-greece.html?partner=rss&emc=rss

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