Cary business incubator expands, rehabilitates after failure

akenney@newsobserver.comSeptember 9, 2013 

— By most measures, EntreDot is doing well. In less than two years, the nonprofit has provided instruction, office space and more for more than 100 fledgling businesses, and it now is expanding its network of business incubators from downtown Cary to points across the Triangle.

That success, however, is marred by the bad aftertaste of a shuttered joint venture. Even as EntreDot has opened new branches, several small craft-makers have been waiting for the better part of a year for commissions on pieces they sold through Kindred, an EntreDot-backed venture in downtown Raleigh.

Nine months after Kindred shut down, EntreDot owes about $20,000 to artisans and vendors, including some the nonprofit had aimed to nurture. It’s a public black eye for a group that advertises its business prowess – but the company is working now to settle its accounts, and a representative discussed the “learned lesson” at length in an interview last month.

“I think people learn from transparent conversations,” said Fred Hathaway, director of programs and marketing for EntreDot. He agreed to an in-depth discussion in order to explain the company’s expansion and missteps.

Failure, according to EntreDot, is a necessary counterpart to success – and that’s why an oversized metal “K” stands lonely in the group’s Cary conference room, a reminder of Kindred, where it once stood and the thousands of dollars lost or owed as a result of the project.

Change of expectations

EntreDot is something of a side project – albeit an ambitious one – for its founders, Brad Leinhart and Bill Warner. Both list long careers with years of experience in technology, management and investment. They opened EntreDot and the Cary Innovation Center, they said, because they wanted to boost entrepreneurs who weren’t in trendy downtown spaces or well-funded technology ventures.

In previous grant-funded research, the principals found “it was too expensive to be in the urban core, but that there needed to be innovation centers,” or business incubators, “in the bedroom communities surrounding the dense urban cores,” Hathaway said.

The Cary Innovation Center – now known as the EntreDot Innovation Center of Cary– was the group’s first major project. But even while the office took its first clients, the EntreDot partners were considering a move outside their expertise: They wanted to work in fashion and retail, and they wanted to do it in Raleigh’s increasingly expensive downtown district.

The nonprofit first planned to partner with N.C. State University to launch the Raleigh Emerging Designers Innovation Incubator, or REDii, in downtown Raleigh. That May, a launch party marked the beginning of another new venture.

“However, after spending months from the spring of 2012 to late summer of 2012, we found that there was a disagreement over who owned the brand and who was going to manage the facilities and how the proceeds were going to be distributed. Nobody’s fault,” Hathaway said.

The two groups split, but EntreDot was on the hook. The group already had signed a lease on 131 S. Wilmington St., a prime location just off Hargett Street. EntreDot’s founders still saw opportunity, but the lease soon would prove an expensive mistake.

A new pitch

At first the offer seemed too good. Michelle Smith of Raleigh had long thought of opening a space to mentor artisans and sell their wares – and here was a group of businessmen offering a storefront and financial backing.

“I kept seeing all these signs that they were a little bit different than me. But I also saw an opportunity to create this fully fleshed-out business plan,” said Smith, an artisan and merchant organizer.

EntreDot wanted to make her the creative director of their artistic downtown venture. They’d split the profits, EntreDot managing the back-end while Smith organized goods, people and aesthetic details.

They worked for months to make the place perfect ahead of an October grand opening. Visitors saw a promising slogan on the window: “Incubating Emerging Artisans Through A Boutique, Mentoring & Workshops.”

The place bled money from day one, according to EntreDot. Hathaway claims the nonprofit was losing $2,000 a week; the company had burned through the lower introductory rate of the lease and had pushed $30,000 of cash and $75,000 of debt funding into the venture, he said.

“It placed an inordinate amount of pressure on that relationship to produce, right out the door,” and sales weren’t bringing in enough money, Hathaway said.

Kindred’s troubles were obvious early. Besides simple problems, like a faulty cashier system, the incubator’s cash flow went awry within weeks.

Christina Nicole, a silversmith and jeweler, only received the first month’s commission check, though she was selling hundreds of dollars worth of jewelry through the store.

She had moved Christina Nicole Studios with her husband from South Carolina in part to join the incubator – but she found herself disillusioned by Kindred’s dysfunction, and the seemingly outdated advice of the business mentor EntreDot assigned her.

“Because she was from a different generation … she didn’t understand the point of my blog, or why (there) were so many images,” Nicole said.

Shuttered

News of Kindred’s closing shocked its artisans and customers early in January. Smith knew that bills were running late, but she believes that she had the sales volume to keep the place afloat if EntreDot had properly arranged funding.

“The great irony of the thing was that the space was actually financially successful,” she said.

Hathaway, who describes himself as an expert in business turnarounds, said it would have taken at least six months to put Kindred on solid ground. He attributes the failure to several conditions.

“Our real estate prices went up. At the same time we took on a payroll, and we didn't have a corresponding income stream to offset those new expenses,” he said. “In my dealings with (Smith), I had the perception that ... she didn't feel like we had ever actually capitalized it. She felt we had never properly accounted for what it takes to open a retail store. From her perspective, it was probably underfunded from the start.”

Hathaway “would not disagree with that,” he said.

“It didn’t work, and we ended it very quickly,” said Bill Warner, co-founder of EntreDot. “It's unfortunate, it’s painful. People are not happy about it, and we weren’t happy about it either.”

Recovering

As Kindred cratered, EntreDot prepared a move into more familiar territory. The company this year has launched a series of mini-incubators, installing branch offices in office rental suites in North Raleigh and Chapel Hill, along with a freestanding EntreDot Innovation Center in Chatham County.

The nonprofit has honed its niche, now serving small businesses that generally stay small. “We're not looking for meteoric growth,” Hathaway said. “We think if you take away the pressure to grow quickly, you can build a more solid business that’s sustainable.”

EntreDot so far has served more than 120 entrepreneurs. Its clients pay for services, but the company does not pay any money out to either its management team or its mentors, Hathaway said. The nonprofit also has worked with students in local schools and plans a distance education program.

The company is finding success and revenues by sticking to its expertise, according to its management. Hathaway and Warner acknowledge their unpaid debt – but they say EntreDot’s new ventures will pay down that sum.

“It’s frustrating for them,” Hathaway said of those owed money. Repayment isn’t happening as fast as EntreDot had promised, but the nonprofit is “fully committed to repaying every dime.”

Some artisans have received belated checks for the goods they sold at Kindred; Christina Nicole has not, but she is holding off on legal action.

“It’s clear EntreDot is making an effort to reconcile,” she said.

And Smith, who also is owed money, is giving EntreDot “the benefit of the doubt.”

Kenney: 919-460-2608; Twitter: @KenneyOnCary

Cary News is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service