In Jan. 2000 Karina Birch and Cam Baty purchased Rocky Mountain Soap, a small soap company nestled in the mountains of Canmore, Alta.
After two years, they scraped together enough money to open a retail location on the main street of the popular tourist destination Banff. The store proved to be a success and within 10 months was on track to exceed the sales of the original store in Canmore.
Unfortunately for them, their neighbour – a chocolate company – complained to the landlord that the smell of soap was invading their space. As a result, Rocky Mountain Soap lost the lease to its cash-generating location and $50,000 they poured into leasehold improvements.
With all of their money sunk into the opening of an expensive store that was no longer generating revenue, how could they pursue their dream of opening 10 retail locations in Canada?
In Aug. 1999, Ms. Birch moved to Canmore after deciding she wanted the freedom and flexibility of starting her own Human Resources consulting company. Most of Canmore's hotels did not have a full-time HR person on their staff and she found that they were eager to hire her.
It was while she was running her HR company that her then-boyfriend, Cam Baty, purchased her some Rocky Mountain Soap products for her birthday. Drawn to natural care body products, Ms. Birch loved the gift.
In late Dec. 1999, she found out that the owner of Rocky Mountain Soap was trying to sell the retail store she had just opened because her husband had been transferred overseas.
An avid user of the product, Ms. Birch believed the company had great potential and in Jan. 2000, she joined forces with Mr. Baty to purchase the business.
"When you are naive you have an advantage – you don't know how tough things are and you jump in with both feet. I was armed with just enough information to give me confidence to say to myself 'why can't I do this?'" said Ms. Birch.
Within six months Ms. Birch wrapped up her consulting company and was working full-time on the Rocky Mountain Soap Company.
In Oct. 2001, Ms. Birch and Mr. Baty got married and decided that he would also work full-time on the business.
In Jan. 2002, the couple decided it was time to open a retail location in Banff and just three months later, signed a lease for a retail location on main street.
Opening the store meant tapping into the company's $50,000 cash reserve. It also meant spending four weeks of late nights to design and construct the store, while at the same time increasing production to fill the store with products.
Within 10 months, the store was generating the same revenue as their three-year-old store in Canmore.
Unfortunately, just one month later, the landlord sent a letter saying the scent of their soap products was infiltrating the chocolate store next door and that their lease would terminate in 30 days.
With not enough time to recoup the money invested in leasehold improvement, there was no cash, and now no cash flow to fund the opening of a second Rocky Mountain Soap store in Banff.
Not wanting to put the company at risk if future stores had similar challenges, the couple decided to create a separate company that would own the next store in Banff and began asking friends if they would be willing to join them in opening their second store.
"By this time our friends and family had seen the success of our initial store in Banff and we soon had two friends who were willing to become partners in second attempt at a retail location in Banff," said Ms. Birch.
Retail space on the main street of Banff is desirable, so it's never advertised. Ms. Birch and Mr. Baty asked all of the other landlords in town to see if they had any leases coming up and it turned out that one had a tenant who would not be continuing their lease.
The couple quickly signed the lease and then sold 30 per cent ownership in the store and its future cash flow in order to fund the opening costs for the store.
It took six months for the second Banff location to generate cash and Ms. Birch and Mr. Baty started to look elsewhere to apply their shared store ownership model.
In 2005, they opened stores in West Edmonton Mall and Southgate Mall in Edmonton. In 2006 and 2007, they opened retail locations in TD Centre and South Centre Mall in Calgary using the same model.
Rocky Mountain Soap Company now has eight stores and a growing list of loyal customers who have skin sensitivities or are concerned about toxic ingredients in body care and are looking for natural products or safer alternatives.
Revenue has climbed from the original $86,000 to over $7.8-million, and they now have more than 100 employees.
They also have an online store which makes the product accessible to those who don't live near or visit their retail stores.
"I started being naive which some might call an uninformed optimist. There was only one way to go – up. I survived on naivety, effort and passion. My experience with the initial store in Banff made me a bit of an informed pessimist. But with passion, patience, and persistence, Cam and I are now informed optimists and can't wait to open stores in both Toronto and Ottawa," said Ms. Birch.
Craig Elias is the founder of Shift Selling Inc. and an entrepreneurship instructor at the Haskayne School of Business at the University of Calgary. This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Small Business website.