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Taking On a Business Partner: Karla & Karen’s Key Move

In 2001, these identical twins were living the identical-twins life: both young mothers, each coping with the caregiving demands of a little child. And each had the same complaint: the kids’ drinks would fall on the floor and create a mess.

So Karen sat down at her sewing machine and made a device that tightened around a baby bottle or sipping cup with Velcro, attached to a tether that could be looped around a seat belt. Other moms began begging for the innovative little device too, and Karen would make them while watching Oprah. The sisters gave away hundreds of the things for free.

Soon the sisters were taking their invention, dubbed NoThrow ®, to big retail chains including Jewel/Osco supermarkets in Chicago . They got orders for thousands at a time. They found a manufacturer. NoThrow ® began to retail for $5 to $11 apiece.

Then the Peter Principle kicked in: Karla and Karen reached their level of incompetence as startup business owners. Costs were a problem, growth was going crazy, and they just weren’t equipped to handle the business decisions or management.

“We knew we couldn’t get any bigger just with the two of us, but we wanted to compete in a larger market,” Karla recalls.

Karla and Karen’s Key Move: Taking On a Business Partner

The twins’ problem was a common one: they needed to keep their business viable while moving it to the next stage. Karla and Karen’s solution was to find a strategic business partner who could help take them to a higher level.

By 2003, their small business Twin Beginnings was selling thousands of NoThrows ® a year, but the sisters were struggling. Among their problems: expanding retail distribution, and paying their annual $10,000 liability-insurance bill, which was so huge because they were dealing with a baby product.

So they began thinking about taking on a strategic partner, preferably a professional investor who could provide both financial resources and experienced business savvy to help Twin Beginnings grow. Their finances were so thin that they couldn’t afford simply to hire a consultant instead.

Then they found out about Larry Stern. He was an investor in early-stage companies who knew Karla’s husband, a corporate banker. As luck would have it, Larry had heard about Twin Beginnings through a newspaper story. Karla called Larry and told him that she and Karen would be interested in his participation as a business partner. They got together.

“We were only making enough money to run the company without having to put more money in,” says Karla, “and I was 100% honest with him about that. We didn’t want to say we were making money hand over fist. We told him all we could offer was equity.”

A few weeks later, Larry agreed to help out Twin Beginnings. The first step was to agree on his compensation. The sisters’ impulse was to offer him half the company, but Larry said “he would be uncomfortable taking that much of it.” So they agreed that Larry would receive a one-third stake in Twin Beginnings for an initial investment of more than $10,000 – and, perhaps even more important, his active participation in taking the business to the next level.

Larry had lots of ideas, Karla says, for growing Twin Beginnings, and the company began to implement nearly all of them.

They had been turned down several times for patent protection for the nifty NoThrow ®, so Larry sacked their patent attorney and found a new one who got the job done quickly.

The twins were facing pushback from retailers on pricing because their product wasn’t much more complicated than other “child accessories,” so Twin Beginnings’ margins were being squeezed. Larry lined up a less expensive manufacturer in China .

Karla and Karen had used simple and unattractive cardboard packaging that was stapled together. Larry got a package designer and graphic artist to put together an attractive new package that conformed to the shape of the NoThrow ®, helping explain its function to shoppers, and that bore a photo of a child using one.

In the year and a half since Larry partnered with Karla and Karen, Twin Beginnings’ sales have quadrupled.

“He streamlined our business and brought us to the next level,” Karla says “We had a great idea and an interesting story, and he’s the rest of the package.”

Karla and Karen’s Bonus Insight

When you’ve scheduled a meeting with a huge retailer that represents the biggest potential customer for your product, be prepared!

When Karen met with a buyer at Jewel/Osco headquarters in Chicago , Karla says, her sister was woefully unprepared. “She went in with our product and our packaging, which we stapled together at a Kinko’s,” Karla recalls. “And she sees all these salespeople coming in with their charts and portfolios, and her hands are sweating. Our company must have come across as two people who had no idea that they had no idea!”

“The buyer happened to be a guy who had a little child and realized what a great product it was. He said he’d buy them from us if we came back and did things differently. We got a second chance – and we prepared ourselves thoroughly. We didn’t blow it.”

Jewel/Osco ordered 12,000 NoThrows ® from Karen and Karla, sending their startup business on its way.