Bulgarian Kalin Pentchev leaned into his cell phone conversation as he scribbled numbers onthe top ap of a shipping box.

Speaking quickly in his native tongue, the big man jabbed theair in front of him for emphasis. Look, I w ill te ll y ou t his. I f y ou come dow n on y our price , I w ill s ig n a cont ra ct toguarantee that my company will purchase one hundred thousand pounds of your cheese inthe coming year. He drew circles and blocks around the numbers as he listened to the impassioned responsefrom a feta cheese producer 3,500 miles away. Y o u n e e d t o t h i n k a b o u t t h a t ? K a l i n s a i d a t l a s t w i t h a f a i r a m o u n t o f e x a s p e r a t i o n . W e l l , don t think too long; it s already April and this year 2003 isn t getting any younger. You renot the only producer in Bulgaria, my friend, and you must understand that I will be signinga favorable volume agreement with someone, and soon. Right. Okay, you get back to me. Kalin smiled as he clicked off. No matter that he had no idea how he could possibly sellthat much cheese in a year, or that he was playing hardball with one of the only producers hefelt he could trust back in his homeland. As was his nature, Kalin was moving forward like atightrope walker performing daring feats without a net, protected only by a supreme faith inhis own ability to overcome whatever challenge he encountered or set for himself. As he res ume d pa ck ing orde rs of East Europea n food products to be shipped to hiscustomers all over the United States, Kalin shook off concerns about the pile of neglected tasksback at his apartment: paperwork for a sizable UPS shipping credit, his U.S. tax return, and afew applications for debtconsolidation loans. WithhisNewJe rsey base dim port business ,Ma lincho.com ,g row ing expone nt ia llyduringa slump in the economy, Kalin wasn t going to let those pressing tasks slow him down. Afterall, to someone who had grown up under a communist regime, this business of capitalism in America seemed almost like child s play

Coming to America In t he spr ing of 1998, Kalin was awarded a small scho larship fro m St ockton Co lleg e in New Jersey. Eager to get to the United States in advance of classes that would begin in September,Kalin jo ined a few fr iends who were headed for work wit h a su mmer camp in Maine. Aft erdiscovering that his employer asked much and paid little, Kalin journeyed south: I left the camp because I had some disagreements with the boss; they were paying way toolow ... He treated us like we were white slave labor from Eastern Europe. I mean, we might be poo r, but we are not slaves.... I went to At lant ic Cit y where I had a fr iend in t he universit y where I was going to study accounting. We lived in a community of about 20 people fromBu lgar ia.... So we found work pushing chairs on t he boardwalk. Kalin graduated in 2001 with a degree in nance and accounting. Soon after, he appearedt o ha v e la nd ed a jo b w it h a na n c ia l ac co u nt ing r m. I n a t w ist o f fat e, h e i n s t e a d f o u n d himself at a wedding in the Czech Republic, discussing the import/export business: A nancial accounting rm almost hired me. They showed me the ofce, everything. They asked if I wanted to take the summer off before starting work like Americans usually do when they nish school. But I said, I need some money here now. I stopped sending resumes,because I considered myself hired. I dont know what happened. I called them two weeks later toask for advice on a place I could rent in their area, and they said, you know, we found somebody else. I said, why didnt you call me? I mean it was ridiculous. I was very upset.Right after this I went to the Czech Republic. I have two cousins there and one was getting married. A dear friend of mine from Bulgaria had come over for this wedding, and on the day we would t alk.... We st art ed t alk ing about export ing damaged European- made car s fro m America back to Europe. So he said, when you go back to the United States nd out how we cant r a n s p o r t t h e s e cars.... Back in t he St at es, it didnt t ake Kalin lo ng to lear n t hat t he high t ransport fees wo u ld make it near ly impossible t o build a prot able damaged-aut o export bu siness. His research, however, led him to the idea of importing feta cheese and selling it to fellow Bulgarians on theEast Coast a growing, t ight -knit co mmunit y t hat he knew was hu ngr y for a t ast e of ho me(see Exhibit 1.1).H a v i n g d e c i d e d t o f o r g o lo o k in g fo r a jo b in fa vo r o f b u i ld in g an e nt er p r ise fr o mscr at c h, Kalin held ont o a part-t ime jo b he had all t hrough school as a br e ak fast wa it er at a p o p u lar Gr eek r est au r a nt alo ng t he bo ar d wa lk . I n J u l y 2 0 0 1 , K a l i n t o o k t h e f e r r y t o New York to meet with a former school classmate whose father owned a high-prole Bulgarian winery: They own one of the best wineries in Bulgaria and have been in the import-export business along time. They sell wine all over the world and have ofces in Switzerland and England. Sothis guy told me, Look, I am exporting cheese now from Bulgaria to Switzerland. If you are thinking about the cheese we can go ahead and do it. He tells me it works like this. Everything is on the phone. You just call the producer and youorder the cheese. You say this has to come here, this has to go there. You pay this guy this, you pay this guy that. You stay home on the phone. The container comes to you, somebody unloads it,and then you have to sell it. Thats it.Then he says, you know, you will have to buy a whole container of cheese; not just one pallet,and a shipping container is like a whole room full of cheese And so, I started thinking about the cheese.

Resear ch and the Wine Guy Ka l in a lr ead y k ne w t hat t he st yle o f che es e k no w n as fet a was i n v e n t e d i n t h e T r a k i a peninsula in southern Bulgaria. The Bulgarians called their version white cheese, while theGreeks created a mystique by using the word feta . Alt ho ugh t he Greeks were now t rying t olegally prevent other countries from using the term feta , most cheese connoisseurs agreed thatby any name, t he Bulgar ian product especia lly t hat made fro m sheeps milkwas t he best in t he world. Kalin lear ned t hat who lesaler s so ld t he cheese eit her vacuum-packed in var io usretail sizes or as loose portions stacked between sheets of special paper inside sealed tin bucketsof salty brine.Dur ing t he su mmer o f 2001, Kalin spent a good deal o f his t ime searching t hrough t hev a s t r e s o u r c e s o f t h e U . S . C u s t o m s D e p a r t m e n t b o t h o n l i n e a n d a t t h e i r g r o u n d - o o r o f c e s in t he Wor ld Trade Cent er co mp lex in New York Cit y. A young cust oms clerk, int r igued with Kalins enthusiastic quest for information, saved Kalins time and money by offering herhelp in sorting through the myriad of import regulations, restrictions, and fees associated withfood imports. Kalin had always assumed t hat he would be import ing an excellent grade o f co ws milk f e t a , s i n c e i t w a s n e a r l y a s g o o d a s s h e e p s f e t a a n d l e s s t h a n h a l f t h e p r i c e . T h e c l e r k , however, po int edout t hat t he U.S. gover nment lev ied signicant t ariffso n import ed dair y cow products as a way of protecting domestic producers. The best-quality sheep feta was duty-freeand would therefore be a cheaper import. All t he while, Kalin cont inued t o brainst orm wit h his Bulgar ian winer y co nt act about developing a business where Kalin would receive, sell, and distribute containers of cheese that were funded and exported by this well-heeled and experienced professional. Since a minimums h i p m e n t o f a b o u t 2 8 , 0 0 0 p o u n d s o f c h e e s e w o u l d c o s t $ 4 0 , 0 0 0 , K a l i n g u r e d t h a t t h i s arrangement would work well until he was able to save some money and gain more experience. After that, he imagined that he would make an offer to buy his partner out. He never got thatchance. As t he summer dragged on, Kalin began t o suspect t hat t his businessman was morestyle than substance: I was doing my research about the cheese: how we can sell this cheese and so on and so forth.But it took this guy with the wine very much time to nish everything. He said he had a producer, he had the connections, so all we had to do was to agree on what to order and send. But he kept saying he was busy with other things, so at some point I got fed up. I said,Look, we have to do something. Time is going. The cheese business is seasonal since youcan only milk the sheep from April to August. The rest of the year I dont know. A short time later I was disappointed to nd out that he was not actually exporting cheese toSwitzerland like he had said. He was only helping a friend do it. He didnt even know the price of the cheese. As Kalin began to press his would-be partner hard for substantive action, he got a warningcall from his trusted friend who had been investigating the auto-export opportunity. Bulgariannewspapers were report ing t hat t he fat her of Kalins wine guy no t o nly was millio ns o f do llar s in debt but also was about to be indict ed on charges relat ing t o a host of quest io nablebusiness practices. Kalin acted fast: So I called the wine guy and said, Look, why didnt you tell me you are in deep trouble? He said, I have nothing to do with the winery. We have sixteen other rms that dodifferent kinds

of things. He said they had a scheme where they can take the money out of the winery and put the cash in through other rms so they end up with the money in the end. He says they are ne, very ne. I mean no problem. So I said, you are what your father is, and I dont buy any of this. And he said, oh, you doubt me? I am a big business man,and you are nobody. With no savings and precious little knowledge of the import business, Kalin tried one lastt ime to fo rce t he man int o act io n: I gave him three options. First, you can pay for the whole container since you are a big business man, and Im going to sell that cheese here and we are still in business together. Second optionwas a fty-fty split where I would raise half the money. Or third, I would cover his expenses upto that point.I told him that all this money, this forty-thousand dollars, I have to raise from somewhere. I dont have it in my pocket. I just graduated school and Im in debt already. He said, Look, I am going to give you a chance. You pay for the rst container as a test. If you can sell this container, this means that you are a good businessman. Anyway, for a second container youre going to need the same amount of money because you have to overlap the containers. By January, if you sell everything Im going to join in with the big money. Okay? Not okay. Kalin hung up on him and began calling everyone he knew.

The First Container Kalin had been t alkingt o peo p le inhisco mmunit yabout his import business for so met ime, so many of the calls he made were to friends who had expressed interest and encouragement. Heexplained that he needed to raise $40,000 in cash, since, as many of his Bulgarian compatriotsalready und erst o o d, credit cards and bank draft s would not be accept ed. Cash meant cash. Kalin described his pitch to raise money. All my friends were students, working hardsome working two jobs. They have money in the bank, but it is for tuition. I told them, look guys, together me and my girlfriend have over forty-thousand dollars as a line available on our credit cards. What we are going to do if this thing screws up is take cash from those cardsnever mind about the big interest that they will charge usand at least we are going to pay your tuitions with those credit cards. I mean, I never lied to anybody that I have money on the side, or that my father is rich or something. In one hour Kalin had exhausted his contacts and had raised six individual investments of $5,000 eachall int er est free. St ill, he was $10,000 shy o f t he cash he wo u ld need t o o rder ashipment of cheese. Then he had an idea: I called up a friend of my family in Bulgaria. Tania was a businessperson for real. She operated one of the best restaurants in the second biggest city, and she was like an aunt to me.She said, Okay, I am going to put ten grand into this. Now, I knew that I couldnt send all this money to the producer because I didnt know the producer. So I told Tania that all money goes through you, you pay him and make sure you see the things loaded on the container. She said ne.On the fteenth of August, my friends gave me the moneyve days later I sent thirty-thousand dollars to Tania in Bulgaria. So she paid the guy: one-third when we placed the order, one-third when they began packaging our order, and the last third when they loaded it into the container. After the producer has his money, he forgets about youright away.

Lose Your J ob? Buy a New Car On t he last morning o f August , Kalin report ed for his wait st aff jo b at t he rest aurant as usual, b u t d i s c o v e r e d t h a t h e h a d b e e n t a k e n o f f t h e s c h e d u l e . E a r l i e r t h a t s u m m e r , K a l i n h a d ment io ned his business idea t o t he o wner o f t he est ablishment (a wealt hy Greek gent leman who at t he t ime was t he largest landowner in At lant ic Cit y) in t he hope t hat t he businessmanmight o ffer so me helpful advice. He didnt , and when he lear ned t hat Kalin had gone ahead w i t h o r d e r i n g t h e c h e e s e , h e h a d h i m t e r m i n a t e d b e c a u s e h e w a s a fr a id t hat Ka l in wo u ld beco me d ist ract ed and unr eliable. Kalin recalled t hat his init ia l anger at t his lat est cur veball was almost immediately overtaken by a desire to hit a homerun: I had been working there nearly four years; I brought them so many Bulgarian customers and workers! I got so upset I wrote the Greek guy a letter. I said that he should have at least warned me. So he called me and says that his aunt is running the place and she had a bad moment and decided to take me off the schedule. He said it was okay, that I could come back. I said forget about it.Then I said to myself, Look, probably this is good, because I will never stop working at the restaurant because it is cash on the side. I was going to be importing-exporting, so I had to forget about that job as a waiter. My car had just broken down, and my girlfriend and I were fed up with buying old cars that get broken all the timewith dealers and mechanics always screwing you and never xing it right. Also, when you run a business, you have to have a decent car. So on the fourth of September we ended up buying a brand new Maximathe perfect car. My container is at sea,and I buy a brand-new car. Having virtually no cash on hand, Kalin put the $3,000 dow n p a y m e n t f o r t h e M a x i ma o n h is c r ed it car d . Wit h no fu r t h er pa yme nt s due fo r 45 da ys, Ka lin w a s det er - m i n e d t o m a k e t h e mo st of t his grace per iod. His r st jour ney in the new car w a s t o a lar g e r e fr ig er at ed war e ho u s e 3 0 mi le s awa y in No r t h Jer se y, since he underst ood t hat t he y wo u ld ne ed a n est a b l is h ed st o r ag e fac i l it y t o accep t d e li v er y o f h is c hee se a ft er it c le ar e d cu st o ms. Kno w in g a lso t hat t he se bu s in e ss e s t yp ic a l l y w o u ld no t w o r k w it h st a r t u p s o r ine x p er ie nc ed c l ie nt s, h e wo r e a su it an d t ie. Dr e ss in g fo r success might haveh a d some impact, but, he recalled, it was his new set of wheels t h a t r e a l l y m a d e t h e difference: My car helped me to get the storage, because the owner, Tony, was from a rural area and he judged people by their cars. So I come there with a brand-new car. I am younghis age and I had a better car than he did. He had some truck, and his sisterwho owned the storage place with himwas driving a Nissan Sentra. And I drive up in a Maxima with almost nomiles on it.So I told him that I had started doing the cheese, and that it was a good business. He showed me the storage, and we started talking about the cheese. He was thinking we are big; he didnt know it was only me. Then he said look youre not dealing drugs, right? I said, come on now, I am not dealing drugs. He was thinking I am Russian. 1 I said no, I speak Russian very good, but I am not Russian, and we are not dealing drugs. After that he said he wanted us to go there. I told him the container was already on its way.

Kalin co nt ract ed wit h a cust o ms broker whose jo b it was t o expedit e t he paperwo rk andprocedures necessary for the cheese to clear customs. She explained to Kalin that since this wasa r st -t ime import , t he cont ainer would likely be t horoughly check ed before it was released. As ner vous as an expect ant fat her, Kalin made it clear t o her t hat he want ed to be not iedt he mo ment t he cont ainer passed cust o ms so t hat he could be at t he st orage facilit y when it arrived. Then, on September 11, 2001, while Kalins container of cheese was still somewhere o ut in t he middle o f t he At lant ic Ocean, t errorist s ew a pair o f passenger p lanes int o t he World Trade Center buildings in New York City.

Welcomes to the Business I n t he co n fu s io n fo llo w in g t he at t ack s, Ka l i n s br o k er had bee n a b le t o g et h is co nt a iner r e le a sed w it ho u t d e la y. T he bad new s wa s t hat she never called t o give Kalin t he g oo dnews. On Sept ember 25t h, K a l i n g o t a h e a r t - s t o p p i n g c a l l f r o m T o n y , t h e o w n e r o f t h e st orage bu siness. The co nt ainer had been delivered to his facilit y, but when he opened it (to check for drugs), he discovered a sme lly mess o f leaking bucket s of cheese. Kalin ju mpedi n h i s M a x i m a f o r t h e l o n g , n e r v e - r a c k i n g d r i v e . W h a t h e f o u n d w h e n h e g o t t h e r e w a s not good: The producer [in Bulgaria] had packed eighty square metal bucketsthey weigh forty-four pounds apieceone over another in eight rows. Now they are not using perfect metal because they want to keep the packaging cheapand the salt kills the metal. Youcan imagine the bottom two rows; these big cans were cracked, and the white salty brine was all over the oor. It smelled, and Tony wanted to know what I was going to do about it. And I was thinking, on my god, what am I going to do now? Kalin ro lled up his sleeves and went to work. Ho urs lat er he was r e l i e v e d t o n d t h a t less t han 5% o f t he order had been damaged in t ransit . Once t his t allyjust under 1,000poundswas co nr med, Tony dir ect ed his wo rkers to help Kalin t oss t he broken cont ainersinto the dumpster. Kalin took Tony aside: I asked him to allow me to repack this cheese. There was a lot of money there, and also, I was brought up that you cant throw away food. I told him that when I was young, I used to starve, and my father used to starve. You always ate everything on your plate. As an American person, Tony was thinking that because the insurance will pay, why bother repacking, just throw it out because you will get the money anyway. I was thinking that since it was insured in Bulgaria, there is no guarantee that I am going to get this two-thousand dollars. So I told him I cant throw the food away; I cannot afford todo that. Despite a state law prohibiting nonemployees from entering a transfer-warehouse facility,Kalin prevailed. He rushed ho me t o recruit some fr iends t o help him out , and t o give t heproducer in Bulgaria a call: I called up the producer and said, how did you load this? I pay you for cheese that is supposed to be in a package good for sale, not for repack. Also, out of six different kinds of cheese just one of them was matching the invoice number. Most of them were less, some of them were more. This is ridiculous. I said, come on! I paid you everything; you send me less, and then we have

damage because you arranged the cans like this. All he said was,Welcomes to the business. Can you imagine this? But he did give me the recipe for brinewater, salt and lemon extract. With two friends helping, it took us a week torepack those broken cans piece by piece.

On the Road No w t hat he had his invent or y organized and secur e, Kalin began t o sell t he qualit y cheesel o c a l l y a t v e r y l o w p r i c e s . A s h o r t w h i l e l a t e r , h e r e c e i v e d s o m e i m p o r t a n t a d v i c e f r o m a Bulgarian feta producer: I was doing anything to sell, because I had to sell the cheese, but this guy from Bulgariareminded me that the milking season was over for the year. He said that to be in this business, you have to sell the cheese slower, and at a higher price. If I sell at 5% margins, he said that youare going to end up getting no more merchandise from us.So I said okay. I make a brochure, I rent a truck, and I went down to a Bulgarian church in[Washington] D. C. where people were getting together. A lot of friends were helping me because they spread out the word to the community, and I was delivering the cheese to peoples houses with the truckno matter the gas. Rea l iz i n g t hat Bu lg ar ia n fet a was p r iz ed t hro ugho ut t he Midd le East and East ernEuro pe, Kalin cru ised t he et h nic ne ighborhoods around D.C. in search of rest aurant s,delis, and g r o cer y st o r es. S ince h is mo b i le met ho d o f d ist r ibut io n a nd sa le s s e e m e d t o invit e a t ype of st reet -side haggling co mmo n in open-air mark et p laces around t he wor ld,Kalin found himself st ruggling t o maint ain his pr icing st ruct ure. At one st op, a Lebaneses t o r e k e e p e r d r o v e a p a r t i c u l a r l y h a r d b a r g a i n f o r a s i z a b l e b u l k o r d e r . A f t e r K a l i n h a d unlo aded and packed t he order neat ly in t he sho ps co oler, he found t he man wasnt nishedhaggling: He looks in his drawer, and he says, You know, this price too much, Im going to give you less,because you never called me, you never sent me samples, you never did anything. So come on,come on, Im going to be buying only from you from now on. I got back in my truck after and I said I have to be out of my mind. I mean, if for the rest of my life Im going to deal with people like this, Im going to go mad. Worse than the constant haggling was the realization that while these retailers were sellingh i s p r o d u ct fo r at lea st d o u b le t he ir co s t , Ka l in se n se d t hat t he t r u ck r ent a l a lo ne wo u ld eat u p mo st o f t he 2 0 % mar g in s he wa s st r u g g lin g t o u p h o l d . F o r a l l h i s h a r d w o r k , h e suddenly fear ed t hat he might even end up wit h less mo ney t han what he had st arted out with.Desperat e and det er mined, he st art ed calling lar ge- vo lume cheese buyer s alo ng t he East Coast int ent on pre-selling so me orders before he set out again. Kalin explained t hat it wasin late October of 2001 when he had a major breakthrough: So, I call this one big company in FloridaI think they were importing from Greecebut the guy wanted to see the cheese. He asked me to UPS him one small round can. Oh my gosh, I thought. I immediately called a friend and told him that I sold all of my cheese. He said, really? You sold the cheese? I said no, but if I can send samples on the ground with UPS, then I knew that I am going to sell everything I havethrough the mail and online.

Kalin mo ved quickly. Aft er UPS and Federal E xpress bot h assured him t hat t hey had no rest rict ions against shipping cheese product s, he est ablished a Websit e named Malincho ap layfu l Bulgar ian nickname for a lit t le bo y. T hen he set about t o nd a so urce o f eco no micalshipping containers: I didnt want to spend money on boxes, so I go to all my friends to see if they had recently bought a TV, a microwave, or had other boxes around. My rst two orders I sent to a friend who works in a pizza place in Boston ... I just put the can in the boxno cushion; nothing else. I gure this can is very tough so Ill just put the label on the box. I just dropped it at UPS, and it was perfect. My friend called and said the can got herewith no damage, thank youvery much. Three weeks aft er Kalin ma iled out t hat rst package, a UPS represent at ive paid a vis it t o t h e w o r l d h e a d q u a r t e r s o f M a l i n c h o . c o m t h e s m a l l a p a r t m e n t K a l i n s h a r e d w i t h h i s gir lfr iend and t wo ot her fr iends. Kalin exp lained t o t he young salesman t hat ever y few da yshe would ll up t he Maxima at t he co ld st orage facilit y and t hen st ore and ship t he producto n t h e b a c k p o r ch be cau se it st a yed co ld o u t t her e. T he r ep w ho had bee n se nt t h e r e t o open a business account wit h Malincho before t heir co mpet it or FedEx mo ved inseemedsurpr ised and a bit amused by t he meager surroundings. Co ndent t hat he would be wipingthat smile off the lads face soon enough, Kalin served up strong coffee and laughed right along wit h him.

Credit Sales B y No ve mb er , Ka l in wa s d r iv in g cu s t o mer s t o Ma lin c ho . co m b y wo r d - o f- mo u t h a nd w it h s ma l l a d ver t is e me nt s in Bu lg ar ia n n ew sp ap er s. He set u p t he s it e t o accep t ma jo r cr ed it car d s, bu t d isco ver ed t hat m a n y o f h i s f e l l o w c o u n t r y m e n w e r e r e l u c t a n t t o p l a c e orders online: The holidays were coming, and people were visiting online. But many of these Bulgarians had won the green card lottery and they came here not knowing English or anything about America. In Bulgaria there is a lot of credit-card fraud, and people had heard that some of the criminals were using Websites to get credit-card numbers. And they think that my site smells like Im going to get their credit card and start charging for this and that. And if that happens, they think, How am I going to dispute the charges if I cant even speak English? So then, they dont buy. T o o ver co me t h is o bst ac le, Ka l in d e c id ed fo r a t ime t o bu i ld h is b u s i n e s s o n t r u s t . Cust omers would receive a Malincho invo ice wit h t heir delivered order, alo ng wit h a not erequest ing pro mpt payment for t he cheese p lu s shipp ing charges. Kalin carefully t racked hisreceivables and found that if it had not been for one woman in Ohio and a shopkeeper in New Hampshire, his bad debt account would have been zero. Many of his friends were shocked tolear n t hat he was shipping orders, so me o f which t ot aled hundreds of do llars, on fa it h. Kalin was not as surprised, though, since Malincho.com was fast becoming an online community of people who lit erally spo ke t he same language; and back ho me, st ifng a vendor was a ser iousoffense:

My buyers were thinking: here is this Bulgarian guy importing cheese. He should be big,or if hes not big, he has somebody powerful behind him. And if I dont pay him, he can get tomy relatives in Bulgaria and beat them up for the money.So I gure, why pay over 2% to Visa or MasterCard when with this cash payment method customers appeared to be coming, and paying? And besides, it was helping me build the business

Expansion The early part of 2002 was a very busy time for Kalin, who was doing deals all over the board.In January he purchased several pallets of Lutenica, a Bulgarian condiment, from a woman inD. C. who had given up t r ying t o sell o ff a cont ainer t hat she had import ed a couple o f yearsear lier. Kalin added t he spread product to Malincho.co m at a high mark up, and when it so ldvery well, he rolled his cash on hand into a container of 20 pallets of other assorted dry-storageit ems like mar ma lade, roast ed red pepper s, and t hin wafer s. Wit h t he help o f a $5,000 salefrom Florida and a similar sale to an import group in Chicago, by April, Kalin had nearly soldout his inventory of cheese. A s t he weat her war med up, t he Maximasplat t ered t hroughout w it h c h ee se a nd b r i n e began to reek. Not wanting to degrade the car any fur t h e r , a n d n e e d i n g a la r g e r t r a ns p o rt ve h ic le a n yw a y, Ka l i n t o o k o u t h i s c r e d i t c a r d o n c e a g a i n t o p u r c h a s e a Chevy van.The changing seaso n also meant t hat t he back porch o f his apar t ment would no longer w o r k a s a r e fr iger at ed s hipp ing ar e a, but Ka lin had no t bee n a ble t o co nvinc e T o ny t o r ent Ma linc ho r e fr iger at ed r epack ing spac e. Aft er Ka lin ha d p l a c e d a n o r d e r f o r a t h i r d co nt ainerall cheese, like t he r st he appro ached an est ablished import er who was leasinga cold-room from Tony: This one French guy was renting one of the rooms but it was too big for him. So I suggested tothe French guy that we split the roomand I would pay Tony extra money. I told him I didnt need much space; just enough so I can pack and ship. But Tony got very offended because to himit looked like I was trying to work out a side deal with the French guy. I said no, no, I amwilling to pay you extra to do this so I can get my business going. He refused, and then he said,its time for you to nd another storage place. Out o n t he st reet wit h anot her 28,000 pounds o f cheese chugging t oward New Yo rk,Kalin went to see a Russian sausage maker in his neighbor hood t hat he had heard had morer e f r i g e r a t i o n a n d d r y - s p a c e t h a n h e w a s u s i n g . T h e y c a m e t o a n a r r a n g e m e n t t h a t K a l i n explained was far from ideal: The Russian guy said, okay, you can use my place here for six-hundred a monthcash under the tableoff the books. But thats itno key, because, he said, look, I make sausages here; youcan come here only when I am here. Thats it, end of story. He doesnt know me, and I dont know him, and now I am going to put my product inside his place. I was thinking that once I get all my cheese in there, he could lock the door and say get off my propertyI dont want tosee you. Sometimes, though, you have no choiceyou just have to make decisions on trust. Even wit h t he shipping depart ment moved off t he back porch, t he st eadily incr easingsales had begun t o st rain life in t he small apart ment . Kalin and his g ir lfr iend soon movedt o a n a p a r t m e n t o f t h e i r o w n c o m p l e t e w i t h

e n o u g h s p a c e t o r u n t h e b u s i n e s s s i d e o f Malincho.In advance o ft hesummer mo nt hs, Kalin set out todevise an insulat ed shipping co nt ainer. Aft er much resear ch and running around, Kalin purchased a bulk order of boxes and precut st yro foam insert s. Realizing t hat t he sausage maker would never agree t o accept nu merouspallets of packaging materials, Kalin convinced the box seller to inventory the supplies. Kalin w a s p l e a s a n t l y s u r p r i s e d t o d i s c o v e r t h a t o n c e h e s w i t c h e d f r o m u s e d a p p l i a n c e b o x e s t o insulat ed container s wit h ice pack s, sales sp iked by more t han enough t o cover t he addedshipping costs. By the fall of 2002, Kalin had negotiated volume-customer pricing with UPS and with hisc o r r u g a t e d b o x s u p p l i e r . H e h a d a l s o c o n v i n c e d h i s B u l g a r i a n s u p p l i e r s t o p r o p e r l y s h r i n k - w r a p all of his orders onto pallets that conformed to U.S. standards for size and construction. Mostimport ant ly, t hose supplier s had agreed t o help Kalin co nt ro l his invent or y ow by shippingmixed orders containing a variety of different products. A report er fro m US A To day called in t he middle o f t he bus y Chr ist mas season. Kalin was at t he sausage p lant , and VladimirMalinchos self-t aught (and vo lunt eer) Webmast er who had st ud ied account ing wit h Kalin back in Bulgar iaanswered t he phone in his nat ivetongue. The reporter didnt call back, but he did visit Malincho.com (see Exhibit 1.2). Kalinrecalled the thrill of having his young enterprise mentioned in the national press: People called me from Bulgaria because one newspaper in Bulgaria literally translates everything from USA Today . I couldnt image that we had been in business for just one year and a half and here we are being written up in that newspaper, Newsweek magazine did an article and quoted me, and then there was another article in a Bulgarian newspaper called Capital t hat reporter didnt even call. He found us online. It was amazing.

Funding Challenges Bolstered by press coverage and the strategic use of search-engine tags, Malincho continued toadd cust omers t o it s core base o f about 2,000 lo yal regular s. S ince many o f t ho se cust omersst ill wer e not willing or able t o shop online, Kalin produced a simp le invent or y pr int out t hat was sent with each order.B y F e b r u a r y o f 2 0 0 3 , K a l i n h a d h i s o w n k e y t o t h e f a c t o r y , a n d o n l i n e s a l e s o f h i s l a n d l o r d s sausageslist ed under Meat Product s on Malincho .co mwere more t han cover ing t herent for t he shar ed space. Sales were averaging $16,000 a mo nt h, invent ory on hand was just under $60,000, and t he ft h and sixt h co nt ainers wer e on t heir way. Kalin was packing andshipp ing mo re t han 100 orders per week t o customers who were now requir ed t o prepay by check or credit card. All o f t his act ivit y had ballooned his need for short-t er m cap it al, and alt hough Kalinhad paid back half o f t he people who had ext ended

him fu nd ing for t he rst cont ainer, hehad found it necessar y t o borrow more cash in o rder to keep his invent or y current . Kalinsummarized his nancial situation: Right now I owe about forty-thousand to credit cards, and sixty-thousand to people. I also have a ten grand personal loan from Fleet Bank. A while back I went to them and said that I wanted to consolidate the debt on my credit cards. When they gave me money, I put it into the business.Now I want to consolidate for real this time, but the banks say I need three years tax returnsI havent been here that long. I gure I need about one-hundred grand to consolidate my debts, and another fty-thousand dollars so that I can get my own place for storage and packing. Then I could hire people to work for me so we could grow faster. Kalin was in that enviable yet difcult point on the new venture curve where his growingb u s i n e s s w a s t o o s m a l l t o n a n c i a l l y s u p p o r t e v e n o n e f u l l t i m e e m p l o y e e , b u t w a s l a r g e enough to require his every waking hour. He described a typical day: In the morning Im taking orders, making labels, calling people, and playing big busi-nessman. In the afternoon I am just a worker who has to check the orders and pack all the packages. Its not easy, but its worth it. Physical labor is healthy labor. I am not ashamed of doing anything because its what you have to do to grow.

Not Going to G o Down Kalin sealed up and labeled the last box for that day. Grabbing a chocolate-coated Mura waferbar fro m invent ory, he hopped up ont o a pallet o f Lut enica for a short break befo re headingho me. Long days. Precar io us nances. It was t ime t o make so me decis io ns as t o how best tomove forward. Alt ho ug h Malincho.co m had beco me his main source of sales, Kalin was weig hing ot heropt ions as well. Ret ail mar gins, for example, were so much hig her t han who lesale t hat he wasconsider ing opening a st orefront locat ion. Who lesaling, on t he ot her hand, was a no-fr illsbusiness model t hat worked well wit h Kalins need t o meet wit h a var iet y of key who lesaler s,retailers, and suppliers. Although Kalin knew that getting better control over his nances wascritical to the survival of his growing venture, he had discovered that it takes more than money to grow a business: I know that a small business can go down for three reasons. First, if you give up, thats it. Youhave to refuse to give up. The second big reason is the money. If you dont have the cash ow to pay your bills, you die. But the most important thing is you. Because if you believe in something,and you can nd other people who believe in the same thing, youre going to be able to do it, nomatter what.

Preparation Questions 1. Apply the Timmons entrepreneurship framework (entrepreneur-opportunityresources)t o a n a l y z e t h i s c a s e . P a y p a r t i c u l a r a t t e n t i o n t o K a l i n s t r a i t s a n d h o w h e g a t h e r e d r e s o u r c e s for his venture. 2. What bu siness models ar e open t o a food-product import er? What st eps shou ld Kalintake to position his company for the next phase of early-stage growth?

3. I mag ine you are a pot ent ial invest or and Kalin has just given you his rocket p it ch. What are your concerns? Would you help him out?