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The incredible shrinking ice cream company Add to ...

The one-storey brick building in an industrial park just north of Toronto sure doesn't look like the head office of what was, as recently as three years ago, North America's third-largest ice cream company, with revenues of $450 million (U.S.). On a crisp February morning, just five cars are parked amid dozens of empty spots in the lot in front of the main entrance. On the other side of the building, the employee lot is completely vacant. The main doors are locked; a handwritten sign requests that visitors press an intercom button. When you do, a recorded announcement asks you to leave a message.

Welcome to CoolBrands International Inc.-or what's left of it. The company has packed an astonishing series of ups and downs into the two decades since brothers Michael and Aaron Serruya, then aged 20 and 18, opened their first Yogen Früz frozen yogurt stand at the Promenade Mall north of Toronto. At the peaks, in 1998 (when the company's share price on the Toronto Stock Exchange soared over $14) and in early 2004 (when the price hit $27), it was an inspiring Canadian entrepreneurial success story. This family-controlled business acquired the rights to such marquee American ice cream brands as Eskimo Pie, Chipwich, Godiva and Weight Watchers, and then competed head-to-head with two Goliaths called Unilever NV and Nestlé SA.

At the low points, in 2000 and late last year, CoolBrands' share price sank below $1. Both times, the slide was accelerated by often-fierce criticism on Bay Street of CoolBrands' governance, particularly the multiple voting shares that allowed the Serruyas and other executives to maintain control, despite their modest ownership stake. And in both cases, family intervened in an attempt to arrest the slide.

It seems there won't be another recovery. Now, all the marquee brands are gone-the last of them sold off by chairman and CEO Michael Serruya in late 2006 and early 2007 as bankruptcy loomed.

How did the CoolBrands empire melt so quickly? Serruya declined to be interviewed. But conversations with company insiders, as well as with analysts and money managers who have followed CoolBrands over the years, suggest some classic lessons: The U.S. market is not a pushover. Don't count on buying your way to greatness. Turning over your family-built firm to professional managers is like crossing the Rubicon. Consumers are fickle. Investors are too, especially when you're getting rich and they're not.

And, oh yeah: When everything goes wrong, blame the dead guy.

The Serruyas arrived in Canada from Morocco in 1966, escaping growing anti-Semitism. Michael and Aaron's father, Sam, launched a successful typesetting business in Toronto. As teenagers, the brothers, already budding entrepreneurs, shared a paper route and sold T-shirts. After Aaron saw how popular frozen yogurt stands were on a visit to Florida, the siblings decided to launch one of their own in 1986. They made up the name Yogen Früz, which, like Häagen-Dazs, sounds classy and European, but means nothing. Financing was provided by Sam Serruya.

After the first stand in the Promenade Mall was a hit, the brothers decided to franchise the concept. They avoided the U.S., which was well supplied with both yogurt stands and franchise opportunities, and concentrated instead on South America and Asia. In 1989, their younger brother, Simon, then just 18, joined the business in a junior role (he eventually dropped out of the company). By the end of 1995, the Serruyas had almost 1,000 stores. That expansion required hardly any debt, because the franchisees bore all the start-up costs, including the equipment and supplies they had to buy from the company. However, Yogen Früz's profit potential was limited-Canadian franchisees paid royalty rates of 6% on revenue, foreign ones just 2%.

Emboldened by success, the Serruyas figured they could keep expanding rapidly, even into the U.S., if they went public. In 1995, Yogen Früz debuted on the Toronto Stock Exchange at 50 cents a share. The brothers used the proceeds of that issue-$30 million-and a private placement afterward, to acquire more franchise businesses. In June, they picked up Bresler's Industries Inc., a frozen-treats franchiser, for $8 million. Buying the I Can't Believe It's Yogurt! and Java Coast Fine Coffees chains for $14 million (U.S.) doubled the size of the company in the U.S. in 1996. The deal added 1,344 outlets in the U.S. and Europe, as well as a 35,000-square-foot ice cream and yogurt packing plant in Dallas. But the substantial fixed costs of that plant, and of several others acquired over the next few years, boxed in the Serruyas. It was now a game of scale: To keep making money, the company had to push as much product as possible through the plants, whether its own brands, or those they'd bought licences for.

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