Around the block : the business of a neighborhood /
Tom Shachtman.
1st ed.
New York : Harcourt Brace, c1997.
325 p., [8] p. of plates : ill. ; 24 cm.
More Details
New York : Harcourt Brace, c1997.
general note
Includes index.
catalogue key
A Look Inside
First Chapter




Man Yohn Lee, the dry cleaner on Eighth Avenue, complains that during the recent downturn, male customers wore shirts two days instead of one before taking them to be cleaned--his weekly intake of shirts dropped from 700 to 500--and female customers tried to get the spots out of their own dresses rather than having them professionally done. The dry cleaner on Seventh Avenue, Lee's competitor, also had problems. To lower expenses, the Seventh Avenue cleaner returned 400 square feet of avenue frontage to the landlord. The decrease in counter space seems not to have adversely affected traffic in this dry-cleaning establishment, but it has shaved his expenses and enabled him to repair the clock on the wall, which had lost its hands, and to fix a sign whose letters had fallen off.

Four hundred square feet is not enough space to accommodate every type of retail business; most clothing and food retailers need more. In this modest-priced location, however, the sale of just a few pairs of eyeglasses each day may prove sufficient to meet the week's overhead for an optician who has just rented the place for a spanking new business.

We used to take for granted that the American ground was so fertile and American capitalist climatological conditions were so favorable that almost any business crop planted was likely to flower. Today's failure rate for new businesses is one in three, and most failures occur in the first year of an enterprise; statistics like these could lead us to the belief that our economic soil has been depleted, compromised, or is at least in need of ever-more-powerful fertilizers, and that the economic weather seems suitable only for certain crops at certain seasons. So a central question for our future becomes whether the American dream of starting a business and becoming self-sufficient through it is not only still possible in the United States, but is also a reasonable expectation for new entrepreneurs. To begin examining the question of whether the American dream can still become a reality on a regular basis, one can look at the half-dozen locations around this block where, in the spring of 1993, something new is replacing something old. The back of one is the face of another, says an Irish proverb. Is there any other relationship between the two?

Sight on Seventh, scheduled to open May 15 on the east side of Seventh Avenue, is the brainchild of a former Long Island science teacher. Myron Michaels retains the studious and inquisitive air of the science classroom, leavened with ebullience and energy. Middle-aged, fleshy, with thinning hair, Michaels wears crisp shirts and, of course, very stylish eyewear. Before signing his lease, he recalls, "I went down to the Bureau of Records at City Hall and worked the computer, calling up demographic data, foot-traffic patterns, that sort of thing." The results of his research excited him: The residents in the area were for the most part middle class, relatively young, but with significant disposable income. To be just a few steps from Barneys, he believes, will mean many potential customers already primed to buy quality, stylish merchandise.

There is competition two blocks south, a branch of a four-unit chain called Myoptics, but Michaels considers it far enough away so as not to detract from his own business. His customer base, he believes, will come from the many apartment buildings and businesses around here. He reminds a listener that the American population is aging and that older people need eyewear and that younger people are also spending more money on eyewear, conceiving of it as a stylish clothing accessory.

Only time will tell whether Michaels's assumptions about his location and the population he can serve are right or wrong, but at the outset of his venture Michaels is upbeat and has a specific reason for optimism: He is on an approved-provider list of the Traveler's, the insurance company that covers many Nynex employees--and a Nynex facility is right across the street.

"You have to have certain minimum spatial requirements to properly measure how the patient reads the letter chart," says Michaels, bounding up to gesture at the dimensions. The smallness of his space has been an intriguing design problem. It's been a challenge to fit in the examining area for the optometrist who will come in one day a week, the display counters, the storage space for frames, and still have enough room so that customers won't feel crowded.

Optical work, with its emphasis on mathematics and precision and the principles of physics, appeals to Michaels. Also, he reasons that if he could deal with teenagers in the classroom, he should certainly be able to satisfy customers for eyewear. His first optical business was as part of an HMO on Long Island, but the organization failed. He then worked for an optician near Eighth Avenue and 23rd Street--as the crow flies, not far from here, but in a part of Chelsea where the clientele (and the merchandise in the shop) was less upscale. At that time, he had wanted his own shop but hadn't been ready. Then "this opportunity came up" in an area that he liked.

As with most entrepreneurs, Michaels is reluctant to divulge to an outsider the precise financial details of his tenancy or his capitalization, but he reports that he has signed a multiyear lease that he finds "comfortable." In New York, most commercial leases contain a clause that permits the renter to stop paying and vacate the space if the business fails, an important comfort to a start-up venture. Most storefronts in this area rent for around $75 per square foot per month, which would put his rent at hypothetical $3,000 per month. Rents have been creeping up, and in the process, changing business assumptions: Whereas in the past, businesses could figure that rent would cost them one-quarter of their gross income, now they must figure it at a third of their gross or more. The hypothetical $3,000-a-month rent will likely require that Michaels sell something like twenty pairs of glasses just to meet it, and twice again that many pairs per month in order to meet his other expenses, pay himself a modest salary, compensate his optometrist for coming in one day a week to conduct exams, and begin to amortize his start-up costs, which neighborhood observers estimate at between $35,000 and $75,000.

The start-up money, Michaels says, came from his own savings and from "people who believe in me"--investors, he points out, not partners. Very few small businesses begin with bank financing or investments from individuals who do not personally know the entrepreneur. But Michaels certainly appears to be a man on whom friends might reasonably bet: He has a business plan and is experienced at his craft, if not completely as an entrepreneur, and he has what is probably the correct philosophy (and budget to match), one that recognizes it will take time to build a client base and that for a while outgo will likely exceed income. Whether his shop will be different enough from the competitor down the avenue to be commercially viable, say, within the year, is a toss-up.

Directly across the avenue, another shop is due to open shortly, and from initial walks by it, it appears it will be a retail clothing store, like the previous two occupants, which sold funky retro clothes.

Recessions expose weaknesses in businesses that good times conceal. The dry cleaner found out that he had more space than he could sustain--a relatively minor weakness--but the women's clothing boutique on the west side of Seventh learned the consequences of a deeper flaw. It had aimed at the wrong sort of customers for this area of the city--a cardinal mistake. Didn't the shop owners have enough sense to recognize the mismatch between the neighborhood and their desired customers before opening up? Many observers of the blocks of this city and the Main Streets of the country have been chagrined to find that new entrepreneurs evidence an inordinate degree of blindness to history. You've seen it, too: People open restaurants in spaces where a string of previous eateries have gone bust or decide that a great place to sell shoes is the location where a hat shop, a foundation-garments shop, and a gloves-and-scarf shop have earlier failed, one after the other. When such new enterprises do not produce enough revenue to stay afloat, the proprietors are invariably puzzled as to why their good ideas are not being embraced by consumers, but they seldom admit their failure to take into account the site's history. Knowing the recent past of this particular site on Seventh, and in light of the knowledge that two clothing boutiques gave up the ghost right here, there is concern among neighborhood observers that a third boutique may be making the same mistake and will suffer a similar demise.

Walking past the site a week later, passersby see a floor-to-ceiling window that features a four-foot-high, black-and-white cartoon of a muscular male lifeguard carrying in his arms another equally muscular and widely grinning male. Within is a boutique not for the usual sort of men's clothing, but for skimpy, formfitting shorts, shirts, slacks.

Manager Tim Cass is an Australian-born architect in his late thirties with a crew cut, an open countenance, and the look of a man who takes very seriously his daily workout in a nearby gym. The shop he has helped design is mostly black, chrome, and mirrors--a sleek and minimal backdrop for the clothing. For the past several years Tim has been allied in a manufacturing enterprise with clothing designer Raymond Dragon. The Dragon line draws on Dragon's expertise with Lycra, a clingy fabric, Cass tells me, and is aimed "mostly at gay males." For the last four years, the Dragon company has been successfully manufacturing clothing and wholesaling it from a loft in midtown to twenty gay-owned and -operated boutiques around the country--and that, in the midst of a recession. Often, businesses that sail through recession feel so strong that they believe they can easily expand. A year ago Dragon determined that he would like to open a store that sold only his own merchandise. Instead of manufacturing a garment for $12.50 and selling it at wholesale for $25, Dragon will now be able to sell it at retail for $50, a markup of 300 percent.

That neither Tim nor Ray has ever before owned or managed a retail enterprise may not be much of a drawback to operating a store: On this block several other clothing boutique operators entered the business without retail experience. As for location, "We didn't want to be on Christopher Street"--in Greenwich Village, a half mile to the south--"because that's become too touristy." But they did want to be near a gay population center, which Chelsea is, although it has a preponderance of straight residents. They knew the history of the site, but because they were planning to appeal to a different clientele, it did not deter them.

This decision to pioneer rather than to locate in a known gay shopping area seems ingenuous or arrogant. Both qualities are underscored by Tim's tale of discussing the proposed location with Barneys. There have been persistent rumors that when Barneys opens its big uptown department store in the fall of 1994, the flagship location at 17th Street and Seventh Avenue will be downsized--an eventuality that would negatively influence the decision of any clothing boutique to move near the 17th Street store. Barneys executives, Tim reports, told the Raymond Dragon principals that any downsizing would be minimal, and the Dragon partners, believing them, decided to go ahead and open their boutique.

While optician Michaels is betting his life savings and that of his friends on his new shop--a considerable risk--the Raymond Dragon boutique is taking much less of a risk because it is bankrolled from the retained savings of its manufacturing business and the partners are continuing their main line of work while they try operating their own boutique. But Michaels can rely on the drawing power of the Armani and Calvin Klein names and frames he puts in his window, while the Dragon partners don't have big names to do the marketing and advertising for them. They must hope that their particular customers will act as most in-groups do when they make purchases--that is, pass information quickly within the group and patronize merchants known to be sympathetic to the group or to be members of it. Ray Dragon and Tim Cass will sell inexpensive "party clothes" that can be worn once and thrown away, and they hope customers will return often to buy outfits for specific occasions or purposes. To emphasize that notion, the partners plan to change their eye-catching, outrageous window displays every two to three weeks.

One optimistic theory about the future of the American economy, especially relevant to small business, is that this rich culture of ours is going to make possible more and more--and narrower and narrower--niches in which to position an enterprise. But successful niches have usually been defined much more broadly than that containing the relative handful of men who are gay, between the ages of eighteen and forty, and who can afford and who want to squeeze into formfitting "play" rags. If such a narrow-focused niche holder as the Raymond Dragon boutique can prevail where other, more generalized clothing stores have failed, it will be a powerful argument in support of the niche-holding theory of future enterprise.

There's a saw in the restaurant business that anyone who wants to do something other than what he or she is doing opens a dining establishment. That makes for lots of amateurs in the business and for results that are often disastrous. Fifty percent of the restaurants that open in New York shut within three to five years, a failure rate that is even higher than the basic failure rate for businesses. To run a restaurant entails a daily outflow of cash much greater than that of a clothing store, in which the stock is replenished only when items are sold and the owner is the mainstay of the staff. Moreover, restaurants also have to obtain licenses, pass inspections, and maintain considerably larger staffs. But if a restaurant becomes popular, it can generate profits in the hundreds or thousands of dollars a day, depending on its size. To obtain such intangibles as ingenuity of cuisine and atmosphere, customers of restaurants are used to paying substantial fees.

Behind windows covered by brown paper, in a small, garagelike building on Eighth Avenue, Pat Rogers and Bob Barbero are busily destroying their dream restaurant, Rogers & Barbero, and making way for a new one. About half of all new small businesses are begun by people whose previous small enterprises have not done well but who believe they've learned enough to do better the second time around.

A labor of love that encompassed everything the partners liked in a place to dine, R&B opened in the fall of 1983, when the area was in the first flush of gentrification. Rogers & Barbero was a brave outpost of haute cuisine among bars and delis catering to the working-class poor, a lushly appointed, candlelit, romantic hideaway serving classic French and Continental dishes and featuring a formidable wine list, as well as one of the first computer systems in a restaurant. An article in the New York Times then put the cost of construction and start-up at a quarter million dollars; ten years later, Bobby Barbero advises with a shrug that the tab was closer to a half million and included innumerable unpaid man-hours of the partners' own labor.

Theirs was an ingenuous gamble of considerable proportions, but the investment was rather rapidly amortized because, Barbero recalls, "We did very well, at first." He was then thirty, a wiry man who hoped to leave behind his work in real estate forever. Pat Rogers, the computer expert, was a bit older and beefier. Their restaurant drew a sizable dinner crowd, mostly couples: "Everyone ordered at least a bottle of wine." Lunchtime was profitable as well. R&B was close to 111 Eighth Avenue, a large office building that takes up the entire blockfront between 15th and 16th; and, Barbero remembers, "At least 30 percent of the lunch checks were paid for by a Cahners credit card." Their best year was 1987.

The stock-market crash of October 1987 wasn't nearly as devastating as 1929's, and so people beyond Wall Street tended to dismiss it. They hadn't understood the consequences, one of which was that by early 1988 even companies not directly connected with the securities industry were cutting back on discretionary expenses such as lunches at fine restaurants. That hurt R&B, as did the ensuing recession. Here, too, the downturn exposed a weakness: The restaurant was "too pricey for the neighborhood." But this understanding did not dawn on the partners immediately. In 1988-89, R&B still seemed to be riding the crest of a wave, the willingness of corporate managers to spend money on themselves; and so, at first, in reaction to the slowdown in business, the partners looked for an easy and inexpensive way out. Reasoning that the interior was too dark, "We lightened up the place, let the high ceilings take more focus, put in a big window, made the interior more inviting from the street." A few more customers came in because of the cosmetic surgery, but not enough.

Most of the problems renovation couldn't fix. For instance, wine rose considerably in price because of the declining purchasing power of the dollar in international markets, to the point where most restaurants, instead of doubling the wholesale price of a bottle, could only charge customers 60 to 70 percent more than they paid for the bottle or risk the wine being so expensive that diners wouldn't order any. Then, too, when a recession takes its toll on a small entrepreneurial business, Barbero explains, "You still have to pay your suppliers, your floor and kitchen help, your taxes, whatever; the last people to get paid are the owners." By 1992, to stay afloat, the R&B partners were spending most of their time working outside the business, Barbero as a real estate broker and Rogers as a consultant to a company that helps computerize restaurants. They continued to open R&B's doors every evening but knew they couldn't go on losing money much longer. Battlefields often produce survivors who stagger away from combat, apparently in one piece, only to later pitch over from the previously ignored effects of the struggle. In many ways, the Rogers & Barbero restaurant was this sort of casualty of the recession.

Should the partners simply admit defeat and fold their tent? That would waste their most valuable asset, the extensive renovations already made and paid for. But something had to be put in to replace the money-losing R&B. Ten years older than their first time out and "a lot more savvy about the restaurant business," Pat and Bob set about charting their new course. It was then that they acted on the realization that R&B was too pricey for the neighborhood. The final nudge in the precise direction they took, Barbero recalls, came from a friend who casually reported that he and the group of gay young men who had gone out to celebrate his twenty-fifth birthday would have done so at Rogers & Barbero, but it was too expensive. "I realized that young people like to go out several nights a week, and they have some money to spend, but they don't want to spend a lot all at once." This understanding led to agreement among the partners that whatever they did next, it would not be a "tablecloth" restaurant, and that the tab for dining must not be high. The cafe on the corner, called Eighteenth and Eighth, had recently been using such a formula with good results, and the most successful restaurant in the immediate area, Cola's--almost directly across the avenue from R&B--had also kept its prices relatively low.

Their hard-won experience now permitted Rogers and Barbero to translate their notion of a modest-priced place into a host of secondary decisions. Costs would be pared by having no table covers or linen napkins to launder and by not going overboard on renovations. Potential profits would be raised by junking the extensive wine list, which had been Rogers's joy, and selling mainly beer and margaritas, on which the markup was higher. The risk would be minimized by taking in a third partner as the chef, a man who had originally started as a salaried chef at R&B and had gone on to Cafe Luxembourg on the Upper West Side. His presence would trim Pat and Bob's potential profit but would also reduce the amount they would have to invest and the weekly salaries they would have to pay. All this would be done in order to price entrees at less than $10, even grilled tuna, for which other restaurants regularly charged $15 and up.

After proposing and rejecting hundreds of suggestions for a name, the partners chose one reflective of the new establishment's stripped-down style. Bob and Pat's first restaurant had been elegant and done for love; Food/Bar, designed strictly for business, would resemble "a nice diner." R&B closed on April 12, and the partners quickly dismantled the interior, brought in chrome and gray Formica tables and plain chairs; Food/Bar opened on April 26.

It was full the first night, and the flood of customers has hardly ebbed since then. At lunchtime Food/Bar draws its customers from the heterosexual population in the various office buildings nearby; in the evenings it becomes a young gay hangout.

The gay community that is the basis of two new enterprises, Food/Bar and Raymond Dragon's boutique, is only one of seven or eight distinct communities that have strong elements on this block. Theorists believe that successful enterprises are increasingly going to be those based within, or that have ties to, specific groupings. Clusters can be based on social factors or strictly economic ones. In this case the gay community and the number of schools create two clusters based on social factors. The "restaurant row" along Eighth Avenue, the printing-related companies in or near the 216 Building, and a cluster of bookstores are grouped along economic lines. An equally vibrant cluster is both social and economic: the one made up of blue-collar enterprises associated with the building trades. In the blocks adjacent to this one are wholesalers of electrical goods, roofing supplies, and tiles, and on this block proper are two plumbing supply depots and a lumber depot. It is within this last cluster, in the last-named enterprise, the lumber depot, that a particularly dramatic renewal is in process in the spring of 1993.

In December of 1992, the proprietor of Maxwell Lumber, Alan Bernstein, committed suicide on the eve of his sixtieth birthday. Notes that he left behind made clear that he had killed himself in order to ensure that his adopted son Marc would be able to purchase, renew, and continue the Maxwell Lumber business.

That rebirth almost did not take place; in the days after Alan's death, Maxwell Lumber was very nearly closed and shuttered. The tale of how it survived takes us into the block's past and into the often brutal interplay between large businesses and small ones. Maxwell Lumber inhabits a drab four-story building on the uptown side of West 18th. Unfinished doors, newel posts, moldings, Sheetrock board, and the like are piled around on the ground floor, as are displays of tools for use with wood. From a cockpit near the front, a clerk deals with customers who pull up their trucks. In an inner office, two women handle the telephones and other office chores. Marc Bernstein is a clean-shaven, freckle-faced man of about thirty, whose earnest look is almost belied by his attire, casual polo shirt and slacks. His office, slightly larger than a cubicle, is adorned with pictures of his adoptive father, Alan, who sports a large, bushy beard, and of Alan's father, Max. "My grandfather started the business in 1935," Marc says, pointing to a plaque on the wall that contains 84 [cts.] in coins and a paper-bag receipt that records Maxwell Lumber's first sale, fourteen board feet of pine. "Today, that amount of lumber would cost almost $50." For thirty years, Maxwell Lumber had three stores in Manhattan, two on 18th and another on 15th. Land values in Chelsea were relatively low then. In the early 1960s, thousands of small enterprises throughout the country moved out of center cities to near suburbs, where rents were lower; in 1963, the Bernsteins closed down two of their stores and opened a warehouse in Long Island City, across the East River, in a factory district. From there, the elder Bernsteins could service the building trades easily and still keep a single store in Manhattan.

"I started working here when I was nine," Marc recalls; that was shortly after Alan had married Marc's mother. "I used to sharpen pencils and take my father's shoes to be repaired." Although Alan had six children, three from the second marriage and three that he had adopted from his wife's first marriage, Marc was the only one that entered the business. He never entertained a thought of doing anything else. After he formally joined the firm in 1985, his father became his tutor, "a wonderful teacher who forced me to do every job here." To master any business, it helps to work through fat years and lean ones, and the late 1980s and early 1990s provided both. The company grew at more than 25 percent each year in the good years of Marc's apprenticeship, until it employed two-dozen people and had an annual gross in the millions of dollars. A fleet of a dozen Maxwell trucks left the warehouse every morning to make deliveries to various construction and renovation sites or to the offices of woodworking companies or department stores and hotels that had their own wood shops. Maxwell Lumber's specialty came to be clear molding, that is, molding without blemishes or knots, made from a single piece of lumber. "If you're going to paint, you can buy cheap molding made from small pieces glued together, since the paint will cover it," Marc explains, "but if you want to stain, you can't buy cheap molding because you want a continuous look to the wood." Marc and Alan bought raw lumber from all over the world and had it shipped to a clear-molding manufacturing mill in North Carolina, which shaped more than three hundred patterns for them to sell to their own customers.

In the fall of 1992, Marc and Alan were noting signs that the company's growth would soon resume. After seven years, Marc was still pleased to be working with Alan, "my best friend" and a tutor in far more than business, a man who started work at 6:00 A.M. each day, worked hard, and exuded an infectious enthusiasm for life.

Out of the blue, a letter arrived from their bank, the branch of Republic National Bank on 14th Street at Eighth Avenue. In the late 1980s the Bernsteins had taken out revolving lines of credit, known as notes on demand. Alan had been doing business with this particular bank branch for decades, since before it had been taken over by Republic. The letter came by regular mail and with no warning: It was a notice that Republic was calling their loan. "We couldn't believe this was happening, so we went to see the bank."

There were rumors that Republic had decided to get out of the small-business-loan game and was calling all loans in that category. The Bernsteins didn't know whether or not this was true; they only knew they were being asked to pay up--immediately.

Although they didn't know it--and would not have been able to act differently even if they had known it--the Bernsteins were on the wrong end of a whip that was being snapped by the bank in reaction to problems encountered by much larger borrowers. In the go-go days of the mid-1980s, banks all over the country had loaned billions to real estate developers; by the early 1990s, many multimillion-dollar loans were in trouble because of a decline in real estate prices throughout the country. New York was especially hard hit because it had been vastly overbuilt in the 1980s; the glut of space made real estate values decline precipitously. In turn, this caused banks to be overextended, especially on their loans to big borrowers, such as developers Donald Trump and Peter Kalikow. The banks had a problem with very big loans because the face amounts exceeded the capacity of borrowers to pay since the property assets pledged for the loans had declined so sharply in value. In the early 1990s it was really anybody's guess whether a big skyscraper in midtown Manhattan was worth the $1.2 billion that the developer had paid for it (with a bank loan of $960 million) or the $800 million he could obtain for it on the open market, since there were no customers for it at the higher price. The banks, unable to collect on their loans on big properties, had to swallow hard and wait for payment on those mortgages until the real estate market recovered. Foreclosure was usually not an option because the banks didn't want to operate the real estate, either. While the banks waited, however, they were under pressure to find money somewhere, and this pressure turned many of them in the direction of their smaller borrowers. The smaller borrowers' properties--warehouses, small loft buildings, mini-malls--were valued in smaller numbers of dollars, but these properties were also more likely to be salable because they were less costly. In fact, the values of the properties put up as collateral for these small loans were usually in excess of the loans' face amounts. So, all over the country, banks called in their small commercial property loans. That such actions could cause immense difficulties for borrowers like the Bernsteins--even to the point of shoving their commercial businesses out of existence--was shrugged off as an inevitable social cost of doing business.

The Bernsteins tried to demonstrate to their branch of Republic that Maxwell Lumber had had a few difficult years but that its loans were being paid off in a timely manner, that the loans were cross-collateralized and secured by four different pieces of wholly owned property worth three times the amount of the loans. When that display did not convince anyone, Alan and Marc pleaded for a few months in which to liquidate the loan, because otherwise, in order to raise the cash, the Bernsteins would have to sell the lumber business and/or their properties at a time when the real estate market was depressed. "But the bank wouldn't work with us," Marc says. "There were no negotiations."

On Thursday, December 17, 1992, it became obvious to the Bernsteins that the bank was going to do something drastic if the money was not turned over immediately. The Bernsteins discussed bankruptcy as a strategy for getting out from under the loan. It would also mean deliberately not paying suppliers or employees. Therefore, though it was a legal option, it was not one that Alan could ethically choose.

"That Friday, there was a big storm in New York that blew down our sign over the building," Marc remembers, believing in retrospect that he should have considered it a bad omen. Alan had flown to Florida for the weekend. The Bernsteins had formed a Florida corporation and had talked about opening up a branch of Maxwell Lumber in Boca Raton, possibly changing the family's lifestyle by moving part of its operations to the resort community. Marc and his brothers and sisters had plans to meet Alan there on the following Wednesday to celebrate his sixtieth birthday. On Saturday, however, Alan purchased a gun. He was able to pick it up from the gun shop on Tuesday--one day short of the three-day waiting period--and that same day used the gun to kill himself.

The suicide stunned the family because it was completely unexpected; it was especially hard for them to believe that a person who had always seemed so full of life would end his own existence. A funeral service in New York drew 500 people, and another in Florida, almost as many: Marc discovered that Alan had often helped others without seeking or receiving recognition for his assistance. Only in the wake of Alan's death did the stories start coming out. For Marc, they deepened the tragedy.

The special circumstances of the suicide bolstered the Bernsteins' belief that if a proper waiting period had been observed by the gun dealer before Alan was able to pick up the gun, they might have been able to convince him that there was another way out of the difficulties. Incensed at the gun dealer's complicity in getting around Florida's state law in this instance, the Bernsteins became strong advocates for the passage of the Brady bill, being considered by Congress in the early months of 1993.

Alan left notes directing Marc to use certain attorneys and accountants to work out the mess that would follow his death. Reading the notes, it became apparent to Marc that what pushed Alan to suicide was his concern about how to continue to "take care of everybody, as he always had." Some of the advisers suggested that Marc sell Maxwell to competitors who were offering to buy it. Marc also had job offers, but "the more I thought about what my father had done, the more I became convinced I ought to keep Maxwell Lumber going." When an insurance policy has been in force for many years, the insurer is obligated to pay out even if the insured person dies a suicide. So, in January of 1993, Marc was able to use the insurance proceeds to pay off the loans to the bank and to buy Maxwell Lumber from his father's estate. "What happened, in effect, was that by his suicide my father gave me my chance to own my own business."

Maxwell Lumber opened its doors again, and there was little that would have told passersby, or even some regular customers, that the firm had changed hands. The routines didn't change, and that helped preserve continuity. It was not difficult for the employees to accept Marc as the leader because Marc had been with the firm a long time and had steadily taken on more and more responsibilities. In the spring of 1993, though, in the small inner office he had previously shared with his father, Marc experiences an emotion he has never before felt in that place: He is lonely.

Like the Maxwell Lumber building, the one now occupied by the design firm known as Gear Holdings, Inc., on Seventh Avenue, was once a stable--Macy's stable; you can still see a plaster horse head high up on the small building. Gear, too, in April of 1993, is at a moment of large change. But while Maxwell Lumber struggles to maintain an old-line and very straightforward type of business, Gear is struggling to transform something old into something quite new and possibly quite relevant for a future in which manufacturing becomes steadily less important to the U.S. economy.

Gear's future direction is being shaped at this moment, in part, at a site many hundreds of miles from the block, in the display halls of a sales convention in North Carolina. High Point bills itself as the furniture capital of the United States, and at conventions held there in April and October of each year, decisions are made by department store and furniture store executives that will essentially determine what new furniture and furnishings Americans will buy in the coming year or two. At this particular convention, Gear Holdings is introducing a full line of Gear-designed furniture to be manufactured by the Lane Company of Virginia, whose name will also be on the furniture.

During economic downturns, most people (as well as businesses) postpone the buying of durable goods, which are defined as those big-ticket items expected to last for at least three years. The United States is a large producer of big-ticket consumer items--automobiles, home appliances, furniture. One of the problems contributing to the length of the current recession is that it has been accompanied by a sharp rise in the prices of certain materials essential to the making of durable goods. In the furniture business, the most worrisome price rise was in lumber and wood, whose cost went up drastically on all of the world's markets; those raised costs, in turn, translated into a need to have new furniture bear higher price tags than similar pieces manufactured in the past. The need to raise product prices by itself deepened and lengthened the recession: During 1991-92 that need surfaced as a reluctance on the part of designers and manufacturers to go to the expense of bringing out entirely new furniture lines, for fear they might molder, unbought, in warehouses and retail stores. Fewer products manufactured meant layoffs at factories, and less work and pay, too, for truckers transporting the furniture, and so on, down the line.

In the second half of 1992, polls and sales figures began to show that families all across the country were beginning to decide to replace that worn-out bed, to brighten up the living room with a new coffee table, or to buy a new set of chairs for the dining room rather than re-cover the old ones. It is such mundane, individual actions that in the aggregate usually help pull the country out of recession and that have given hope to the spring 1993 convention at High Point.

Gear has high expectations for the Lane line, whose style is American old-fashioned, though the specific details are modern--a conjunction Gear refers to as "fresh traditions." At High Point, representatives of furniture retailers walk through mock rooms furnished with the Gear-designed line of tables, chairs, mirrors, beds, storage chests, armoires, dressers, credenzas, sofas, chaises, and other pieces, trying to decide whether or not to carry the entire line or substantial parts of it, or to pass over this collection in favor of competing lines. Gear's hopes are high not only because popularity of the line will mean substantial income, but also because the line's success will solidify a direction that has involved collective soul-searching within the company. A success will recertify to Gear's principals that they made the right decision in 1990 to move the company entirely out of retail and solely into the design of furniture and furnishings.

A half-dozen years ago, Gear's retail operation occupied a large storefront opposite Barneys. Raymond Waites, Gear's principal designer, and architect James Harb designed an interior that was a delight to browse: a roomy, high-ceilinged, bright place in which Gear's wallpaper, rugs, bedding, and bric-a-brac lined the walls and counters. Children's furniture and furnishings were encased in a walk-in miniature clapboard house toward the back of the space.

Gear Holdings had begun in 1978 as a venture between two friends: Waites, who had worked as a chief designer for Marimekko of Finland, and Bettye Martin Musham, a former marketing executive for Louis Vuitton. A third partner was Bettye's husband, William Musham, then vice-chairman of a multibillion-dollar-a-year electrical products manufacturing firm.

Bettye Martin Musham, the company's CEO, is an energetic and charming middle-aged woman whose hair is kept short, in the style of women who wish to project an air of business. Although she has lived in New York for many years, her voice retains a touch of North Carolina. Gear's first product, she recalls, was a line of luggage. While they marketed luggage, the partners developed the "total home" concept. They wished to design many products that would go together in a room--to have complementary patterns, colors, and looks--so that a retailer could offer the multiple component items for sale in a single display. "It was difficult for any store to buy into the idea," she explains, "because when you put lamps and wall coverings and furnishings into a furniture department, you are mixing departments, mixing salespeople on commission with those on straight salary, causing all sorts of bureaucratic havoc." Bloomingdale's and several other big stores turned down the concept, but in 1980 Macy's tried it. Customers could envision how this wall covering would go with that chair and a particular lamp, throw rug, and pillows; consequently, they bought more items. Macy's was delighted.

By 1983, Gear Holdings had licensed their designs to a dozen manufacturers for products ranging from children's furnishings to shower curtains, made a private-label line for Sears, had a presence in the European Economic Community through an alliance with the Boots Company, and signed an agreement for Isetan, a Japanese department store chain, to carry Gear-designed products. "The Japanese love American country-styled rooms," Bettye marvels.

Gear Holdings had begun life, in part, with a start-up loan from the federal Department of Commerce. It was one of the last such loans to be given out, because the program was an early casualty of the Reagan reforms that sought to get government out of private enterprise. In the mid-1980s, searching for new capital to expand, after paying off this Commerce loan, Gear found it from a private source--the Crowns of Chicago, one of the wealthiest families in the United States. "We're the fly on the backside of the elephant to them." Martin Musham laughs. She believes that the disparity in size is why the Crowns have been content to allow the original Gear partners to maintain day-to-day control of the company's operations. By the mid-1980s, the number of different items for the home designed by Raymond Waites neared a thousand: beddings, textiles, wall coverings, ceramics, and frames, as well as furniture, dhurrie rugs, decorative plates, stationery, and gift wrapping. It was then that Gear Holdings made the decision to open a retail store.

It seemed like a good idea at the time, but as a retail venture the store did only "OK," Bettye recalls. One reason for the store's modest performance may have been the partners' inexperience at retail and lack of passion for it. "Our background and our strength was not in retail," Bettye admits. And since it bore an annual rent of $100,000, the store was a very expensive venture. At lease-renewal time in 1990, Barneys, who owned the storefront, wanted to raise the rent; the Gear Holdings partners decided that this was too high an overhead and closed the retail operation.

It was probably the smartest and luckiest move they could have made, for by the end of 1990 the country was already deep in recession, and continued operation of the retail store would likely have become a serious financial drain on the company. As Gear discovered, the avoidance of potential losses can be as important to a company's financial health as the direct making of profits.

Moreover, the closing of the store reinforced the partners' desire to refine the company toward being "software producers for the big manufacturers." Knowing that their major competitors were manufacturers and retailers as well as designers, Gear determined not to duplicate what Ralph Lauren and Laura Ashley were doing but rather to accelerate in the direction of becoming an all-purpose design firm, with an extra dose of marketing savvy thrown in.

"The role of the home has changed," Bettye Martin Musham explains. "In the '50s, a man's home was his castle; in the '60s, it was a pit stop; in the '70s, it was an investment. Then in the '80s the investment became a showplace, a status symbol. Home in the '90s is still an investment, but rather than being a symbol of status, it's a refuge, a retreat from all the uncertainty that fills our lives." This sort of positional thinking merged with design expertise and sense of style has enabled the company to grow. Although Gear Holdings is not considered a large company, its licensees sold almost a half billion dollars' worth of Gear-designed products in the past year, so its influence and share of market are considerable.

At High Point in April of 1993, the general buzz is that the Gear Collection by Lane is the most exciting entry into the market of the past several seasons. Floor samples of the furniture will not begin to arrive at retail stores until August, though, and another year will have to pass before the figures will reveal whether large enough numbers of consumers are buying it.

In making the choice to become solely a design firm, Gear has seized on a formulation for a business that may be the most effective future model for all purveyors of knowledge-based products and services. Old models of doing business are being rendered obsolete by a tectonic shift in the structure of the economy. Most observers agree that the American economy is heading toward becoming information based and away from straight manufacturing. In this realignment of mountains, valleys, and prairies, new landscapes are created, but it is not always obvious how to colonize them. Gear Holdings, however, has recognized that as a result of this shift, the design component of almost every product or service is likely to assume even more importance in regard to ultimate salability than the manufacturing component. Thus, Gear has shifted into being a "software" designer in the furniture and home furnishings field.

A few months ago, when the telephone in their apartment rang once-too-many times at the wrong moment, and their life seemed overwhelmed with the details of Helen's business from early morning until late into the evening, Niko C. finally put his foot down and insisted that his wife move her fledgling computer-game design enterprise out of their two-bedroom apartment and into an office. "This was part of our New Year's resolutions, actually," Helen recalls. It took her an additional month to convince the landlord of a nearby building on their block to rent to her, on a month-to-month basis--no lease--one of the studio apartments he had been warehousing toward an expected conversion of the building to co-op ownership.

Because of the nature of the rental arrangement, as well as the secrecy that she insists must surround the product line she is developing, Helen does not want her full name used. In most other ways, however, she appears the prototypical IBM engineer--early thirties; eyeglasses with thick frames; rather drab though neat clothing; and an air of distraction about her, as though her mind was elsewhere, perhaps contemplating a design problem even as she converses with a visitor.

Offered a buyout in mid-1992 from what had once been her "dream employer," Helen jumped at the severance package because she had conceived a project that she hoped would make her fortune. If her earlier dream had been to work for the giant in the field, the company on the cutting edge, and thereby make a contribution, after a decade had passed that dream had been overtaken by a new one. As with many people deeply versed in the design and use of hyperspace, she had been impressed by the stories of a few dozen game designers around the world, such as the two American brothers who designed Myst on their own, then sold it and saw their creation go on to make them millions of dollars. After almost a decade at Big Blue, Helen came to believe two things. First, that "the future is in software, not hardware," and second, that "I know as much as anybody about writing programs that fully use a PC's capacities." This knowledge would enable her to "design games that can take full advantage of microswitching capabilities, yet not take up too many kilobytes." Approximately translated into non-geek language and practical terms, Helen's belief was that she could design games that have greater numbers of choice branches resulting from each decision and that would also enable the game character making the decision to have his or her physical and mental attributes changed as a consequence of the decision--make a wrong turn in the maze, for instance, and you are reduced to blindness. Furthermore, her expertise would permit her to fit a complex game on only a disk or two, which would keep the cost low, thereby making the game more affordable to consumers.

Using her severance pay and insider's access to buy equipment and templates, Helen began work in the second bedroom of the family apartment. She very quickly learned that her idea required other sorts of talents beyond her own, so she enlisted those of friends--for which she had to pay in order to retain full ownership of her project. Even more specialized materials and techniques were needed. With Niko's agreement, to pay for these things she began to dip into the money that the couple had been saving toward the purchase of a home they hoped to buy when they had children.

Helen is betting her rainy-day money on her own talents, of course, but also on being in an industry that is itself on a phenomenal rise, most of it a cluster centered in Silicon Alley, the area of Manhattan south of 41st Street on the West Side in which "new media" are being developed. No one is certain of just how many new media companies are in existence, because entities like Helen's not-quite-formed business can't really be counted as yet, but estimates by those trying to track the trend put the number at several thousand, which employ an estimated 10,000 people. By contrast, the long-established book publishing industry employs about 13,000 people.

At the four months' mark, a crisis arose for Helen. She had constructed a rough prototype to the point that a sophisticated outsider might be able to look at it and judge it. Sworn to silence, friends and habitual game players tried it and were enthusiastic. It was good, but rudimentary, and obviously needed a great deal more work. Software giants like Broderbund were known to sometimes look at new products in such rough form, and occasionally to make offers for them in that form, relatively low offers--not enough money to cover the costs already incurred, just a modest advance against a small percentage royalty on future games sold because the product would have to be completed and touched up by the big company's in-house designers. A much better price and a higher royalty schedule was usually paid by a game-marketing company for a designer's completed product, but since the full development costs of such a product can run into the hundreds of thousands of dollars, many first-time game developers cannot wait until they remove the last glitch from their program to offer it for sale. For Helen C., the question became whether to try to sell her game in the rough stage, and possibly never see a cent beyond her initial payment, or hold out for the higher price she could hope to obtain for a completely developed product, and in the meantime keep pouring money and time into the project. Helen and Niko decided that she should continue her development process even though that would eat up the remainder of their savings and send them into credit-card debt. At the very least, they reasoned, even if the game did not sell to a marketer, its ingenuity would most likely net Helen a job offer. In the spring of 1993, Helen feels she is only a few months away from completion of her game--but her savings are almost gone, the credit-card costs are mounting, and she has no income.

Full Text Reviews
Appeared in Publishers Weekly on 1997-07-14:
After a year interviewing small business owners in one Manhattan community, Shachtman (Skyscraper Dreams) suggests we could do worse than become a nation of shopkeepers. His template is West 17th and 18th Streets (PW's neighborhood), including the surrounding avenue blocks; the time frame is 1993, with a follow-up in 1997. An animated writer with a talent for characterization and dialogue, Shachtman, who lives in the area, turns his interviews into human-interest stories. The neighborhood is low in density and ethnically and economically integrated, with a large gay population; the anomaly of the study is that its shopkeepers live elsewhere. Paying only token attention to the two corporations on the block, Nynex and Reed Elsevier, Shachtman focuses on the competing plumbers, kitchen/bath designers, video stores, health clubs, delis and myriad restaurants; the single antique shop, one millinery, lumber mill, liquor store, unisex clothing boutique, dry cleaner, day-care center and Catholic homeless shelter. The shopkeepers, initially apprehensive of the growing dominance of Barneys on their fringe (the upscale retailer has since filed for bankruptcy), talk about their marketing strategies, plans for expansion, difficulties obtaining financing. It seems amazing that most of the stores Shachtman wrote about originally were still in business when he made his follow-up visits. Risks aside, he sees shop-keeping as the salvation of the downsized work force, the best option for the middle class to maintain itself in postindustrial capitalism. If he wanders-one vignette, for example, takes readers to the graduation of an English class for foreign-born students‘Shachtman's involving anecdotal study will hearten and instruct would-be entrepreneurs. Photos. (Oct.) (c) Copyright PWxyz, LLC. All rights reserved
This item was reviewed in:
Publishers Weekly, July 1997
Kirkus Reviews, August 1997
Booklist, September 1997
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Main Description
In Around the Block, Tom Shachtman makes Adam Smith's "invisible hand" visible in the daily life of a number of small businesses in an ordinary, middle class block in New York City. Looking at The Block's economic life over the course of a year, Shachtman explores the everyday tragedies and triumphs hidden from view behind the shop windows and in offices. Behind the abstractions of economists, a single block in the Chelsea section of Manhattan is the stage for the personal commitments and risks of small business-a father commits suicide so that his business can avoid bankruptcy; a Korean liquor store owner finds himself caught between tow worlds; a computer game programmer leaves her job and risks her career for an idea of her own. Shachtman puts a human face on the challenges that businesses weather every day. We see how small business is integral to America's national health, responsible for job growth while building social ties in a country mired by polarization. In this very human story about work and community, Tom Shachtman writes not the economics of textbooks and graphs but the stuff of our lives.
Main Description
In Around the Block, Tom Shachtman makes Adam Smith's "invisible hand" visible in the daily life of a number of small businesses in an ordinary, middle class block in New York City. Looking at The Block's economic life over the course of a year, Shachtman explores the everyday tragedies and triumphs hidden from view behind the shop windows and in offices. Behind the abstractions of economists, a single block in the Chelsea section of Manhattan is the stage for the personal commitments and risks of small business-a father commits suicide so that his business can avoid bankruptcy; a Korean liquor store owner finds himself caught between tow worlds; a computer game programmer leaves her job and risks her career for an idea of her own. Shachtman puts a human face on the challenges that businesses weather every day. We see how small business is integral to America's national health, responsible for job growth while building social ties in a country mired by polarization. In this very human story about work and community, Tom Shachtman writes not the economics of textbooks and graphs buth the stuff of our lives.
Table of Contents
Prologue: Slipping into the Streamp. 1
The Back of One Is the Face of Anotherp. 11
Blue-Collar Strophep. 36
Braving the Elementsp. 50
Signs of Capital Changesp. 74
Big Fish, Little Pondp. 86
Going Head to Headp. 112
What's That Got to Do with the Price of Apples?p. 129
Public Goodsp. 144
Technological Innovationp. 176
White-Collar Futuresp. 212
Restraints on Businessp. 236
Unwelcome Eventsp. 260
Expansion, Stability, and the Middle Classp. 272
Epilogue: This Will Only Take a Minutep. 291
Postscript: Later Onp. 295
Indexp. 311
Table of Contents provided by Blackwell. All Rights Reserved.

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