
When My Business Failed - harpalux
http://blogs.hbr.org/pallotta/2012/08/when-my-business-failed.html
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adastra
I'm friends with some people who have worked for Dan. Here's the best article
I could find that might give some insight on what happened. Short answer is
each year event per-participant expenses kept increasing (Pallotta has a bit
of a "spendy" reputation), until it got out of control. At his last event only
14% of the money raised actually went to the charities:

[http://www.commondreams.org/headlines.shtml?/headlines02/082...](http://www.commondreams.org/headlines.shtml?/headlines02/0827-08.htm)

Some more backstory: to his credit Dan Pallotta did create the AIDS rides and
cancer walks. They seem common now, but at the time they were innovative and
very successful in dramatically increasing the donations going to these
charities. Then expenses started to climb. Dan likes everything to be very
nice, luxurious even, for his participants. As the money rolled in, he spared
no expense on having the best facilities, logistics, design, etc. for his
events. At some point he screwed up his math, the expenses ate almost all the
profits, and the AIDS and cancer charities went ballistic. And they got the
press involved.

In addition, Pallotta Teamworks was set up as a for-profit company. This was
not what caused the controversy, but it certainly added to it. Also not
helping matters from a PR perspective is that Dan was known to pay himself a
very large salary and live the high-end L.A. lifestyle. He also spent a very
large sum (millions) on outfitting a warehouse into a unique, custom-designed
office space that was something out of a bond movie. He wasn't doing anything
malicious, but these things didn't help when the wave of bad press hit.

The sponsors found it easy to find people, including some of Dan's own
employees, who were glad to duplicate the events. Except this time they only
used non-profits, and guaranteed a minimum percentage of donations that would
go to the actual charities.

Update: pictures of the above-mentioned Pallotta Teamworks office space
(gallery at bottom of page):

<http://www.pallottateamworks.com/about_apostrophe.php>

~~~
001sky
_At his last event only 14% of the money raised actually went to the
charities..._

 _Pallotta Teamworks was set up as a for-profit company_

WOW...those are some good notes

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ghshephard
When I was working for Opsware, after it had just become a software business,
pivoting from Loudcloud, 90%+ of our revenue came from a single, very, very
large customer. (And, for the first 6-9 months, they were 100% of our
revenue).

At every several all hands, I would ask our CEO, "What happens if they decide
not to pay us?" - and his answer, at the time, was, "They will pay us" -
basically we were betting the company on it - but at least we all knew that.

There is a reason why corporations are required to identify if a significant
amount of their revenue from a single customer.

If you are getting all of your revenue from a single source, the question
isn't what to do "if" that revenue disappears, it's what to do _when_ that
revenue disappears.

~~~
pyoung
I was a bit disturbed that he seemed so surprised by this. It seems so
obvious. I work in consulting and we have a very diverse set of clients, which
theoretically provides some protection against the actions of any one client.
Even then we put a lot of effort in to maintaining good relationships with our
larger clients, as loosing one of them is the difference between a really good
year and a really bad year.

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snowwrestler
Pallotta Teamworks is a bit of a special case. As a private, for-profit
company who raised money for AIDS and cancer non-profit organizations, they
had a business model that was quite controversial. While their rides and walks
were popular with the participants, and they raised a lot of money, the entire
non-profit sector was ambivalent about them. They loved the money but hated
the commercial message, hated the profit angle, and was not happy with the
percentage of revenue that made it through to actual research. I would bet
this was a major factor in Avon taking control of their fundraising events.

~~~
guylhem
Why exactly is profit / commerce considered a bad thing - especially here?

Is it an ideologic war waged by charities?

I could believe such feelings to be popular in Europe, but in the US - some
deep ideological changes (of the business-unfriendly kind) must be happening
:-(

~~~
_delirium
I haven't found this mythical EU/US difference in overall attitudes, either in
history or the present, except on specific issues. Europeans generally have
higher taxes and better social-welfare systems, but not particularly different
attitudes besides that. Both pro-business market-oriented views and skeptical-
of-business populist views have long been common in both places. Heck, many
American founding fathers fought in the French Revolution, and some (like
Thomas Paine) wrote some of the more famous "left-wing" documents left by that
revolution. And Denmark has some of today's more successful multinational
businesses (Maersk, Lego, Carlsberg), which are quite popular domestically.
Yet somehow Europeans generally assume that Americans are all Randians, and
Americans assume that Europeans are all Marxists.

~~~
davidw
It's a matter of degree, with plenty of "outliers" on both sides, of course,
but it is there.

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vacri
The title is incredibly misleading. The article is about a private fundraising
company that does 3-day events, which folded when its customer withdrew. It's
not a company doing other things that tried its hand at philanthropy and died
in short order.

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fijal
"Dan Pallotta is an expert in nonprofit sector innovation and a pioneering
social entrepreneur. He is the founder of Pallotta TeamWorks, which invented
the multiday AIDSRides and Breast Cancer 3-Days"

What exactly is inventive in Breast Cancer 3 Days? The fact that you can walk
for 3 days and raise money at the same time? I guess I'm missing some
important detail here (honest, I'm not trolling, I genuinely can't see
anything too inventive).

~~~
erichocean
Sometimes, people use the word "invented" when they actually meant "created".
I suspect that's true in this case.

English is an immensely flexible language, for better or worse. :)

~~~
fijal
Ok, sorry, I'm not a native speaker and such nuances might very easily escape
me.

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mickeyp
An awful thing to happen, but an important lesson to any entrepreneur:

Never rely on just one client for the bulk of your work. You're a slave to
your client. This also holds for 1-man bands (such as myself) who does
consulting or contracting: if your client leaves, then you have no income and
must find a new one or, if it is at all possible, several new ones to spread
the risk.

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unreal37
I still don't understand how a 400-person company folded in 3 days. Like the
leadership team was not willing to put up a fight.

I once worked for a .COM company who similarly just closed the doors one day -
no warning to employees in advance. Where did the operating capital go? They
had paying customers - how could they not put up more of a fight?

In the OP, ex-employees started their own event businesses with a similar
model. Same with my .COM - ex-employees started companies and signed the
clients of the failed company.

Makes no sense.

~~~
pyoung
Assuming that leaders of companies always have the best interest of the
company in mind is dangerous. The type of personality that tends to succeed in
the business world is probably also the type of person that is willing to shut
down a company if it makes financial sense to do so, despite large job losses.

~~~
unreal37
You're right - in that the only people who really got screwed when my .COM
employer shut down was employees and investors, while founders and executives
had already enriched themselves from the various financing rounds. So their
willingness to fight was tempered by their desire for a long Caribbean
vacation.

When the s* hits the fan at Groupon, will the founders want to fight, or will
they look at the $1B they have in their bank account and decide to go to Italy
for a while.

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ams6110
Seems like a fairly straightforward case of having all your eggs in one
basket.

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entangld
FTA - "I've learned that the adage about innovation is true — that at first,
people say your idea is absurd, then they say it was obvious all along, and
then they say it was their idea to begin with."

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juddlyon
Sad story, I hate hearing about businesses going belly-up. But when I read
"the 3-Days were 75% of our business" it gave me pause...

