Eventory bankruptcy blamed on timing

By Staff -- Industrial Distribution, 12/1/2000

Newton, Mass.-From the viewpoint of Peter Madsen and a handful of other distributors, bad timing doomed Eventory, Inc.

Late last year Eventory was one of the early Internet startups to generate interest among distributors of MRO products. The Bedford, Mass.-based company, which called itself an application service provider, built and hosted online storefronts for small distributors so they could conduct e-commerce with customers.

After a promising start, the company fell victim to the market crash among dot-com startups in March, which shut the door to financing. Investors suddenly wanted to see profits even before Eventory's system had been completed, and the company's co-founder said that not enough distributors and manufacturers were ready to take the e-commerce plunge. Eventory filed for bankruptcy at the end of September with less than a million dollars in debt and about 30 customers.

"It's a signal that the industry is not ready for e-commerce," said Barbara Cohen, Eventory's former chief financial officer and a co-founder. "There was actually nothing about our business model that people weren't taking to, but the way we devised our revenue model, we couldn't take in enough revenue to keep us going."

Cohen said the company, which raised $500,000 in a first round of financing last year, realized in late April that it was unlikely investors would ante up again. She said Eventory was later offered several million in financing. But Cohen and her husband, former CEO Jon Cohen and another co-founder, Bharat Mirchandani, knew the business wasn't going to grow fast enough.

"The funding for Internet startups had dried up, and that's where they got caught," said Peter Madsen, owner of Madsen & Howell, a distributor in Perth Amboy, N.J., that was one of the first to sign up. "They hadn't completed their startup operation when the funding door closed."

"One of the first things that the dot-com funding people hit them with was, 'You need to have an up and running site with revenues and then we'll look at you,'" he said. "They said, 'We're not there yet' and they said, 'Too bad.'"

Madsen and Michael Baygood, CEO of Industrial Network, Inc., said Eventory's business model held promise-and still does. The firm charged transaction fees of about two percent and a small signing fee, and focused on building upon small distributors' existing customer relationships, rather than being a buyer-oriented exchange.

"We liked the solution," said Baygood, whose company is an alliance of more than 40 regional distributors. "We were just starting to dig in."

"It matched the way we go to the marketplace, there was a pretty decent culture mix," Baygood continued. "It's a setback for us, and we're currently evaluating alternatives."

Madsen said his firm was up and running as an Eventory test site and a few months away from doing seamless transactions when the company folded. He said "kinks" in the system such as getting all inventory items online and operating a search mechanism were being worked out.

"I think the idea, the principle, is still valid, but the problem is these things take a lot of time to create," he said. "I thought we'd get a lot of venture capital to create a solution for distributors to use. These sites are way too expensive for distributors to create by ourselves."

Holden Lewis, a senior equity analyst with CIBC World Markets, said Eventory's approach offering distributors a way to take their current relationships online differed from many of the MRO exchanges. But he cited competitors like EqualFooting.com and Prophet 21 who were better financed.

"There's room for these products but I guess Eventory couldn't grab enough customers," he said.

Cohen said the signups of big manufacturers like Norton and Regal Beloit late last spring validated Eventory's idea. But many distributors moved more cautiously than the founders anticipated.

"I think in the industrial distribution business everyone's from Missouri, the 'show me state,'" said Madsen.