Innovation Economy

Failed start-ups quietly disappear into the shadows

Email|Print|Single Page| Text size + By Scott Kirsner
April 27, 2008

Successful start-ups have one hundred fathers, someone almost said. But flameouts are orphans.

IMO was an idea that seemed to click from the start: bring together in one retail outlet a vast selection of mobile phones and service plans - and help consumers compare them.

But after four years and about $10 million in funding, IMO quietly closed its two stores - in Framingham and Columbus, Ohio - earlier this year. No one issued a press release, and the company's name vanished from the website of its single backer, Highland Capital Partners of Lexington. Tom Stemberg, the founder of Staples, scrubbed the company's name from his bio. (He'd served on the board.) And IMO founder Mort Rosenthal moved on to a new business - this one supported by a $20 million allowance from Microsoft Corp.

Rosenthal's new company, Enterprise Mobile Inc., is geared to creating custom software for corporate cellphone users, tailored to run on Microsoft's Windows Mobile operating system. The story of his previous venture illustrates how hard it is to succeed in consumer-oriented businesses - and how assiduously failures are swept under the rug.

Rosenthal built his reputation in the 1980s as a software salesman and entrepreneur, helping to nudge programs from Microsoft, Adobe, and Lotus Development Corp. into offices everywhere.

The company he cofounded, Corporate Software based in Canton, also provided service and support. It went public in 1987, and was doing about $1 billion in annual sales when it merged with the printing company R.R. Donnelley & Sons Co. in 1995. In 2001, Rosenthal was inducted into Computer Resellers News' Industry Hall of Fame, alongside such luminaries as Apple Inc.'s Steve Jobs, Microsoft's Bill Gates, and Andy Grove of Intel Corp.

Rosenthal's first project after Corporate Software was a misfire. Wellspace was an alternative medicine clinic in Cambridge that offered acupuncture, yoga classes, and foot reflexology. Rosenthal envisioned it as a national chain.

Though the company raised about $6 million, the lone location closed in November, and Wellspace filed for bankruptcy in January. "It's hard to innovate in healthcare," Rosenthal says now.

By 2004, though, he'd moved on from Wellspace, shacking up in the offices of Highland Capital Partners to develop the idea behind IMO. (an abridgment of "Independent Mobile.")

Rosenthal's vision was to make the process of choosing a mobile phone and service provider more rational, and he wanted to emulate the aesthetics and helpful staff of Apple's retail stores. Highland partner Jon Auerbach, a former journalist, led the investment, and Stemberg, another partner at the firm, joined the board.

There was a strong emphasis on technology: IMO hired an independent firm to drive 5,500 miles of roads around Boston to test the signal strength of various mobile carriers, and computers in the stores would allow customers to enter their ZIP codes to evaluate coverage where they lived and worked. One area of the store focused on teaching customers how to use the features of their new phones, such as e-mail and contact databases.

The company's first outlet opened in Columbus in November 2005, and a second store opened at Shopper's World in February 2006. IMO racked up favorable stories in USA Today and Business 2.0 magazine, which dubbed the concept "The Starbucks of cellphones." Rosenthal said his goal was to have a presence in 125 cities by the end of the decade.

But inside Highland, there was concern about the expense of setting up the stores and the choice of locations. While the idea of bringing together multiple carriers in a single place had successful precedents in Europe, some at Highland wondered whether Rosenthal had been too slow to hire team members with extensive experience in retail.

Rosenthal said that he wanted to quickly open several stores in each market "so that the carriers would notice, and feel it was important." (That kind of scale might also lead to more favorable pricing.) But Auerbach and Stemberg "wanted to get the model to work first," he says, working out the kinks and getting close to profitability with the first two locations before expanding. Rosenthal also suggests that Stemberg was "biased against the idea," since he'd tried a similar comparison-shopping approach within Staples.

Rosenthal tried raising money from other venture capital firms, to broaden the range of opinions on his board. But nothing fell into place, and he left the company in May 2006. Another executive, Bill Nebes, took on the chief executive role, but soon after, Highland ran out of patience waiting for the business to win over consumers.

"Turned out to be too challenging to change consumer behavior," Highland cofounder Paul Maeder writes in an e-mail. Others in the wireless industry point out that mobile carriers had no incentive to offer IMO all of the same sales and promotions they offered consumers at their own retail outlets.

Stemberg declined to talk about his involvement with IMO. But through a spokesman, he confirmed that he wanted Rosenthal to prove the concept before opening additional stores. Auerbach didn't respond to multiple e-mails and calls seeking comment. In December, he left Highland to take a new position at Charles River Ventures, a Waltham venture capital firm. (One venture capitalist with knowledge of the wireless sector suggests that in addition to IMO, Auerbach's departure from Highland may have also been linked to his decision to invest in Amp'd Mobile, a company that burned through $360 million before declaring bankruptcy last June. This venture capitalist requested anonymity because his firm occasionally does business with Charles River.)

Shortly after leaving IMO in 2006, Rosenthal got a call from an executive at Microsoft, suggesting that he explore the possibility of starting a business to help corporations create software for Windows Mobile phones and PDAs - essentially a software development consultancy.

Rosenthal flew out to Redmond, Wash., and eventually secured funding for Enterprise Mobile. Having dealt with Microsoft chief executive Steve Ballmer and chief software architect Ray Ozzie at Corporate Software didn't hurt.

"This makes Microsoft's enterprise mobile business richer, so it has strategic value for them," Rosenthal says, adding that Microsoft holds a minority stake in the company. As an example of the company's work, he says, it recently developed an application that allows Au Bon Pain area managers to use their phones to review sales at individual stores - what's selling and what's not.

Based in Watertown, Enterprise Mobile has 75 employees and satellite offices in Dallas and Bellevue, Wash.

Rosenthal says Enterprise Mobile is the only example he knows in which Microsoft had been the sole founding investor in a start-up. And helping a big software company expand its reach within the business world, he says, feels "exactly the same as Corporate Software," his first big hit.

He contends IMO "still remains a good idea" and expects that another company may succeed at it. A Michigan company, Wireless Toyz, has been going gangbusters with a similar idea, with nearly 200 franchised outlets.

The address is now for sale. The current owner suggests that it might be used "to allow the funeral care industry's client families to share cherished memories, re-live unforgettable moments, revere loved ones, and pay tributes." IMO, the seller notes, stands for "In Memory Of."

Scott Kirsner can be reached at

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