Timing Vagaries Can Be Unforgiving for a Newly Launched Venture

By John K. Lane, CEO, Inglewood

Last year, in the midst of the pandemic, Inglewood became involved with a company whose prospects at the time of its original launch looked quite bright. By the time we arrived, though, our role was that of a court-appointed receiver. The business had already shut down, and its assets were sold for about five cents on the dollar. This is the story behind that collapse, and a plain lesson in startup timing risk.

A Product Story That Should Have Worked

Imagine building products from a sustainable, natural raw material that yields well even in poor soil. The plant behind it is non-invasive and drought resistant, it reduces soil erosion, and it needs far less fertilizer, herbicide, and pesticide than annual crops. The applications were many:

• A compostable foodservice packaging material designed to displace landfill-unfriendly foam and plastic.
• An economical solution for the spill management of hydrocarbons and automotive fluids.
• A non-wood pulp for traditional and specialty paper, as well as filters, packaging, and fluff pulp.
• The highest Cellulose Nano Crystal (CNC) content of any known plant, two to three times that of wood. These CNCs can make products stronger, lighter, less permeable, more viscous, and more miscible.

The plant is called Miscanthus, and it checks every box for sustainable, environment-friendly, clean, and green. Add an impassioned, qualified management team, all of them decent and well-intentioned people, and the opportunity looked real.

So What Happened?

In a word, timing. This company was a pioneer, foreseeing the opportunity but not noticing how far ahead of the curve, and the demand, it truly was. Because the product was new, many potential customers had never heard of it. Management had to spend a great deal of time educating the market before it could sell anything.

The competing products were less eco-friendly, but they were also a lot cheaper. The market had not yet reached the point where the environmental benefits were judged worth the added cost. Selling took far more effort, and even when a deal got close, the lower-cost, less-green option usually won. The venture was like a grounded boat waiting for a high tide that never came in time.

The Missteps That Compounded the Timing Problem

Timing was the root cause, but several decisions made the fall harder:

• Built supply beyond demand. True believers in their product, management signed up a large number of landowners to plant Miscanthus. When demand did not materialize, the harvested crop stacked up in the warehouse or went unharvested in the field.
• Invested in infrastructure beyond demand. Anticipating the same demand, the company bought real estate and installed processing machinery in it. Overhead and carrying costs ballooned.
• Startups have startup issues. Most new operations hit snags, and most newly installed production lines do too. Without steady income from established business lines, the company simply burned cash. Being half-pregnant, the investor group poured in ever-larger amounts.
• Pursued too many product lines too early. There were many applications, but successful businesses prioritize. The org chart showed a holding company with seven subsidiaries chasing these opportunities at once. The business would have been far better off establishing a beachhead in one application, generating initial revenue, and building from there.
• Grasped at straws under distress. When things look dire, management teams make risky decisions and reach out for help in the wrong places. Trying to relieve mounting pressure, the company outsourced part of the business and, whether through misunderstanding or something more predatory, soon found itself locked out of the facility.

The Collapse

Ultimately the business came crashing down. Landowners were upset that fields went unharvested. The banks stopped lending and moved on their collateral. The supporting private equity firm said "no mas" and stopped advancing funds. Management cut employees and costs until there was nothing left. Even the third-party outsourced portion of the business soon failed.

Inglewood was appointed by the court to oversee the sale. Being so far ahead of the curve worked against us here too: few buyers wanted to pay to replicate the company's past problems. The good news is that even at a deeply discounted price, a buyer was found. The operations continue today, still waiting for the curve to catch up. This is the kind of situation our receivership services are built to resolve, preserving whatever value remains for creditors and stakeholders.

The Real Lesson

Lest anyone misconstrue, this is not a story about why sustainable investment does not work. It is a story about how timing is critical to the launch of any venture, and how founders have to weigh both the opportunities and the risks. A cold read of market readiness, honest cash flow forecasting, and the discipline to sequence one bet at a time are what separate a pioneer from a casualty. When a promising business runs out of runway before its market arrives, disciplined turnaround work can sometimes buy the time it needs.