Wednesday, July 16, 2008

Signature Days - The Facts

On March 06, 2008 Signature Days, a company I founded, sadly went into bankrupcy. This is our story.

Signature Days was founded in my apartment in November 2004. At the time there were similar models in the United Kingdom, Australia and New Zealand which were reasonably small but seemed to be thriving. The best known was called Red Letter Days and actually they themselves went into bankruptcy in 2005 but were quickly re-capitalized and brought back into operation by a group of insiders. There were two players already in the US market: Great American Days and Xperience Days. I felt that these two US competitors were still small and that there was plenty of room for some quality competition. My vision was to build something more creative and, by making better use of technology, something more scaleable.

After we were founded, two more credible competitors came into the market. The first was Cloud 9 Living and the second was Excitations. These latter two actually came out with very nice websites and Cloud 9 Living quickly came to be a viable competitor. Excitations had limited geographical reach which held them back to a certain extent. Of the original two, Great American Days seem very corporate focused so we never saw them much and XperienceDays simply got outclassed by the new comers. All four however, currently exist and compete, so all credit to them.

Within 2 years Signature Days, in my opinion, had the best looking site, very broad coverage and by far the best distribution with cards in CVS, Walmart and Costco and distribution deals with Hilton Honors and United Airlines. All credit to the excellent team that we had assembled. Unfortunately this rapid growth would eventually undo us.

After our launch in June 2005 we started well with a great 2005 holiday season and a fantastic 2006. With all guns blazing we were growing fast and had to start building capacity to handle the growth. By capacity I mean more people, a real office space and better technology. We did this in 2007 while we were seeing around 30% growth month on month over the previous year.

However as we progressed into the latter part of the year our super growth, turned into mild growth and by the last month of the year we saw a decline over the prior year. This was about the time that people first started talking about the mortgage crisis. People were worried and they were spending less on luxury, non discretionary services. At least from our point of view they were.

The holiday shopping season of 2007 was a bad one. Few retailers remained unscathed. Early 2008 saw The Sharper Image going bankrupt as well as Utix, another experiential aggregator that focused mainly on Golf and Skiing. We tried to reduce our burn by making some quick and painful cuts in January which helped. But as we marched into February we realized things were looking grim.

I quickly met individually with 3 or 4 seasoned executives who I have known and trusted for many years. The consensus was, to paraphrase, something like this:

“This is not going to end well. Although Signature Days is currently not out of money, it probably would be by the summer. While we still had some assets and some cash in the bank the right thing to do would be to file for Chapter 7 Bankruptcy and allow the courts to distribute the leftovers in an efficient and legally equitable way.”

This was very hard to hear but a little voice inside me knew they were right. Once I was convinced I did not hesitate with the painful actions that lay ahead. We filed and with that I said farewell to my initial $400,000 investment and the sweat equity of working the first 2 years for free.

So contrary to some misguided opinions I did not run off with anyone’s money, this was not a scam and no one benefited from our demise.

Monday, July 14, 2008

The Gift Card Holders

The plight of the gift card holders gives me the most pain. While in operation, we took great pride in addressing each and every customer issue and doing our best to make things right and give the customers a truly great experience. So having all our gift card holders left hanging was, is and always will be very, very disappointing. I wish things could have been different.

On a slightly brighter note, a card holder is actually treat as an unsecured creditor. So once the trustee has worked through the process there is a chance you might get some money back. As far as I know to date you have only received a notice of bankruptcy and not a claim form.

In truth, I have no idea if there will be a payout or if it will be in any way meaningful. There are simply too many unknowns and I am no longer in the loop.

I will do my best to keep abreast of the situation and publish any more news here regarding the claim form and how the trustee decides to handle the situation.

Saturday, July 12, 2008

The Bankruptcy Process

Once we finally faced the realization that the end had come a company essentially has 3 options.

1. Pay the final tax return, dissolve and simply close the doors
2. File for Chapter 11 Bankruptcy
3. File for Chapter 7 Bankruptcy

Close the Doors
The first option only works if say, you are a technology company and you never really took your product to market but simply ran out of money - for whatever reason. This is quite common in the technology industry.

Chapter 11 Bankruptcy
Chapter 11 is essentially a restructuring of the company with a view to bringing it back to life as a going concern. Often this is when there are some powerful debt holders who are senior to the creditors and the stock holders. They will have to decide whether they can do better by continuing to operate the company rather than liquidating the assets. In this case the investors and trade creditor usually lose out and someone, often the senior creditors, will end up injecting more capital into the business.

We did not have this option.

Chapter 7 Bankruptcy
Chapter 7 is when a reorganization is unlikely to yield a better result and so the company is essentially shut down and liquidated.

At Signature Days we chose a Chapter 7 because we felt we needed a proper court appointed process to treat all creditors fairly.

Once the filing is done i.e. March 06, 2008 in our case, the court appoints a Bankruptcy Trustee. For Signature Days:

Catherine Steege
Jenner & Block LLP
330 N Wabash Ave
Chicago, IL 60611

Now at this point any prior shareholders, employees managers are completely out of the picture. We have no further influence whatsoever. Essentially ownership is transferred to the trustee. Now its also important to note that this is not a fast process. The trustee usually has multiple cases at a time and speed is simply not a requirement.

The trustee will contact the creditors to serve them notice of the bankruptcy and to offer them the opportunity to file a claim if they think sending out the notice is worth the cost vis-a-vis the value of the remaining assets. At the time of writing I understand that in the case of Signature Days, only the notice has been sent.