Liquidator: 6,500 tech firms among 'walking dead'

Tech company 'doctor of reality' expects another busy year

By David Lidsky

In 1960, Irving Pichinson's businesses got into deep trouble. At the time, he owned some supermarkets and meat markets in Spring Valley, N.Y. Eventually he went bankrupt. "Oh, yes, we lost everything," says his son Martin, who was about 14 at the time. The Pichinsons even lost their house, which their neighbor bought and let them stay in.

"I use a lot of that history with my clients now," says Martin. "My dad tells me the reason it happened was that if he needed a new scale, instead of buying one scale, he bought new scales for all his stores. He bought too many trucks. Shouldn't he have known that he needed only one scale? Instead of having a hotshot salesman selling him 20? Overexpansion, the typical entrepreneur overreaching."

The younger Pichinson knows what he's talking about. After all, he's turned his father's experience into a lifelong calling. "I am one of the best fixers of broken things," he says with characteristic humility. Over the past four years he has built up a thriving consulting business called Sherwood Partners, profiting from the same kind of entrepreneurial overreaching that once ruined his father. Pichinson, 57, is a mop-up man extraordinaire who raked away well over 100 dead tech companies in the aftermath of the bubble's burst. Most famously, he shuttered Kozmo.com, which—in case you've managed to forget—unprofitably delivered ice cream and flicks to lazy urbanites. Formerly a sleepy $1 million restructuring firm focused mostly on the garment industry, Sherwood Partners has grown to a $14 million tech-company undertaker. Pichinson gave the dot-com bust a face, and he seemed to embrace every nickname given to him, from Dr. Death to the Terminator.

Now he's hatching the kind of grandiose plan to expand his consulting firm that could well leave him right where his dad ended up. Pichinson, who resembles a bantam rooster in carriage and appearance with his spiky salt-and-pepper hair and boldly striped Faconnable dress shirts, has personally stopped handling closeouts and restructurings. Instead he's devoting himself to reincarnating Sherwood as a full-service consulting firm that uses the lessons he's absorbed from failure toward a better end: helping venture capitalists successfully accelerate startups. "We're the entrepreneur's best friend," he declares, trying out a slogan that's hard to swallow from a guy who's made a fortune feeding on their carcasses. "Who better knows and can guide a company to success than one that has helped hundreds of companies steer clear of disasters?" The idea sounds plausible—or at least marketable—on the surface. But think about it: Would you go to a coroner for your annual checkup?

One factor in Pichinson's favor is that he understands entrepreneurs—having been one and worked with hundreds. He started his first business in fifth grade, selling newspapers, and eventually delivering phone books and mowing lawns. "Anything to make a dollar," he says.

While at Columbia College in Chicago, he studied marketing and played drums in rock bands. After graduating he pursued his goal of being "a doer and a creator" by touring with a band, The Reveles, but soon found he enjoyed booking gigs more than playing them; he eventually moved to Los Angeles to manage acts. Among them: then-forgotten R & B vets like the Miracles (sans lead singer Smokey Robinson), Lou Rawls, and Bill Withers.

Then, "as I was just starting to fly, I got divorced," he says. His 1978 split from his wife of five years led him to take a break for 18 months at Lake Arrowhead, Calif. Eventually he got back in the game "doing grunt and operations work" in a consulting business. He also worked for Famous Amos Chocolate Chip Cookie Co. "I became the guy who brought down the cost of goods sold," he says. "They were using real vanilla, which loses flavor in ten days if not used. Artificial doesn't. They were paying like $82 a gallon. I got it down to $26."

Through that work "I discovered my knack," he says. He spent the rest of the 1980s working in garment businesses, doing management buyouts, cleaning up the companies, and getting out. "What I did that no one else did—I would always talk to vendors, and the vendors would tell me how things worked," he says, "and I would learn how to save money." That ultimately led him to co-found Sherwood in 1992 in Los Angeles with friend Michael Maidy, a CPA, to do garment-company restructurings.

He had always liked technology, but in 1994, when he met Nels Nelson, an attorney from a Silicon Valley intellectual-property firm, he saw an opportunity. Pichinson opened up a small office in San Jose and started going there two days a week. He spent years cozying up to the moneymen, lawyers, and landlords of Silicon Valley. "He took 12 contacts and turned them into 2,000," says Nelson. (Pichinson now claims to have 2,800 contacts.) Pichinson didn't get his first assignment until 1999, when Silicon Valley Bank asked him to shut down Wilma911, a dot-com that offered tour information about nightclub bands, bringing Pichinson full circle.

Many more gigs followed as Pichinson became the preeminent shutdown artist—people in Silicon Valley still talk about the June 2001 page-one profile of him in the San Jose Mercury News—by popularizing a financial technique known as an assignment for the benefit of creditors (ABC) that he had used in the garment business. Legal in 36 states, an ABC is a winding down of a company's assets that takes place outside the judicial system. The company's assets are given to someone (the assignee) who proceeds much like a bankruptcy judge but without the bureaucracy and delay of the courts. An ABC is far more expensive than a bankruptcy—$75,000 on average, vs. $5,000 for a Chapter 7 filing—but venture capitalists have been more than willing to pay because board members of a company shut down through an ABC don't have to disclose financial information in the way required by federal regulations for companies that proceed through the courts.

Quite apart from his technique, Pichinson's style stands out. In a world of one-note tough guys, he has at least two gears. He can be a rational conciliator, everyone's friend who works toward a common goal (when he's in that mode, he'll reach across the table and playfully slap your hand, usually while asserting that he's a friend), and if need be, he can be the hard-ass who fires off thunderbolts (best represented by a fierce glare over his half-glasses).

Pichinson's unique talent, say those who've worked with him, is his instinct for knowing whether to save a company or shut it down. "He's street smart," says Ross Dove, CEO of DoveBid, a global auctioneer. "I was on a deal with him, and as we left the building, he turns to me and says, 'These guys are dead.' How did he know? 'Can't you just get the feeling that these people have lost their soul for the business?' " For most dot-com detritus, the decisions were easy. "When you have a company running out of money, and they're not close to having even a deal memo for a big sale," Pichinson explains, "you can quickly figure out where they're going to hit what I call the zone of insolvency."