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Amid the American subprime mortgage crises, a period considered to be one of the most devastating in U.S. financial market history that led to a severe economic recession, many companies in the financial industry took the opportunity to further prey on consumers who previously fell victim to creative mortgage schemes that increased mortgage default rates.
In early 2008, when the subprime meltdown affecting consumers visibly impacted businesses, with millions losing their jobs and triggering a broad economic decline due to a widespread drop in spending, many companies experienced reduced sales and profits, cash flow issues, and a credit crunch due to stricter lending standards. The largest impact outside the financial sector was on small businesses that were forced to lay off employees and eventually dissolve or file bankruptcy.
According to the U.S. Bureau of Labor Statistics, 18% of small businesses in the United States fail within their first year, increasing to 50% within the first five years. During the 2007-2009 recession, small businesses experienced a 74% increase in closure and bankruptcy. While most small businesses fail due to poor management and an ineffective business plan, even the best-managed companies were failing due to a lack of capital.
In August 2008, after spending nearly eight months speaking with hundreds of small business owners, Michael Grosheim recognized a commonality among the majority of small businesses facing closure – outstanding brands with great products and services and experienced management teams (a recipe for success) were failing to do an inability to fund marketing and growth, poor worst-case scenario planning, and a failure to adapt.
On October 15, 2008, Michael launched Grosh Incorporated d/b/a Cross & Fitch with the sole purpose of providing small businesses with brand development services and separating this service from competitors with a pay-for-performance model with no upfront cost to small business owners. Michael would embark on this solo venture venture from his kitchen table with nothing more than a laptop and $500 cash.
For most startups and small businesses, capital is limited to personal savings or investments from friends and families; and, due to a lack of experience and business credit, outside funding is typically inaccessible. The biggest hurdle would be an inability to prepay for necessary services – web designers and developers required a deposit, marketing agencies required payment upfront, as did brand development companies. Michael's biggest intellectual struggle was the concept that brand developers required payment in advance without any guaranteed outcome. He knew the only solution was non-cash development investments of time and resources rather than capital.
Within the first 30 days, Michael built a small portfolio of 21 brands each showing sustainable growth, and the rise of social media marketing would continue to fuel the pay-for-performance model well into the second quarter of 2010. Between 2008 and 2010, Cross & Fitch grew its portfolio to over 120 companies across a broad range of industries; apparel, arts and entertainment, food service, education, technology, real estate, and online retail, being the majority.
In January 2010, Cross & Fitch experienced a sharp decline in new clients, and by June 2010 its portfolio of over 100 clients dropped by nearly 60%. As the market began to rebound after The Great Recession, an increase in consumer spending led to increased sales, profits, and cash flow. Continued expansion of social media coupled with emerging utilities provided a competitve edge; for example, drag-and-drop website builders, built-in marketing tools on social media platforms, and the "gig economy" with online marketplaces to hire low-cost freelancers. Small businesses no longer needed to focus solely on bootstrapping techniques and could incorporate new strategies into their business plans and hire an employee to focus on brand development.
On June 19, 2010, Cross & Fitch hired an independent contractor to continue providing services to existing clients but ceased day-to-day operations to reexamine its business model, the need for services by small businesses, and outline new opportunities for future clients.
Automation opened new opportunities for increasing productivity while reducing overhead, engaging in the "gig economy," and providing increased value at a reduced cost compared to in-house brand development.
In December 2010, Michael began accepting new clients providing the same brand development services, eliminating bootstrapping strategies, and replacing the pay-for-performance with an equity-for-service model continued to provide a no-upfront-cost solution to small business owners, and created additional value by creating a partnership.
"Pay-for-performance tied brand development success to the service while equity-for- service tied brand development success to the company. Time and money are both investments and commodities. So, it would stand to reason that you can spend time the same way you would money. If I can purchase an item with cash, as a commodity, then I should be able to pay with time, as an investment. The objective is to give cash and time the same value. When the amount of time invested is equal to the amount of money spent, you no longer have a contractual obligation, you have a partnership."- Michael Grosheim, Owner, Grosh Incorporated
On August 14, 2014, having grown a portfolio of nearly 300 clients and being unable to continue to operate as a soloprenuer at scale, Michael sold all of Cross & Fitch's equity it had accumulated through the equity-for-service model to a private investor for $100,000, approximately 10% of its value, and temporarily ceased operations.