Thursday, November 20, 2008

White collar crime going unpunished is disgusting

My sister Minnie, like so many other moms of young children, was looking for a social group for new moms. She left her Silicon Valley web developer job of 8 years to stay at home with her baby, and could not afford to pay for any extra child care. She found out about Blue Sky Family Club from an advertising flyer at the Emeryville Market in the San Francisco East Bay, announcing a new family club.

When she went to check it out with her free visit coupon from the flyer, her baby had a great time. Blue Sky was an upscale cafe, with coffee, beer, and wine, and a big play area with a kids' and babies gym and great toys. "It was a large open space with natural light. They had a living room area with couches, an art area, a play house area, rock climbing wall, and gym, alongside the cafe." Sounds great, doesn't it? Minnie made the decision to pay the $170 fee for a 14 month unlimited membership.

One month later, Minnie got an email. The club would be shutting down. Membership fees would not be returned.

When Minnie first told me this story I assumed it was a sad tale of some half-assed Oakland hippies trying to create a co-operative. However, a little research uncovered a completely different story.

Blue Sky is the brainchild of Sheryl O'Loughlin, a marketing executive and former CEO. She is a high powered executive type who has now defrauded an unknown number of East Bay moms of their money. This is a person who has made a profit and a successful career from marketing to women and specifically to mothers. Apparently she and her husband Patrick are very concerned with "saving the planet" and making mindful decisions about buying organic produce. At the same time as they screw the "little people" out of their hard earned cash. What a great business plan!

Everyday I make my daily decisions mindfully – with an awareness of their potential impact on the environment. Whether it’s supporting my local farmers market and buying local, organic food for my family or working with my colleagues to source a new organic ingredient; I know that every decision matters. Each choice I make is a moment of reflection and an opportunity to lessen my impact on the environment. Through consistent, thoughtful and sustainable decisions, we are collectively changing the world.


Nice.

The O'Loughlins announced the closure of their business, but apparently have not filed for bankruptcy.

In June 2007, bizjournals.com reported on the O'Loughlins' plan for Blue Sky to become a local, then a national chain:
It will cost $3 million to open the first club. In addition to investing $100,000 of their own funds, the couple has managed to raise about $300,000 from private individuals in the last three months and they are continuing to look to angel investors and potential restaurant partners for backing. They expect roughly $1 million in leasing and tenant improvement funds from their future landlord. Their goal is to open four additional locations in five years.

Sounds like their venture capital money ran out. I can sympathize with an idealistic business plan and the financial turmoil that comes when an ambitious business plan fails. However, of all the creditors resulting from business failure, the *club's individual members*, and their target market, should be paid back.

How many members were part of Blue Sky Family Club? I can't imagine that membership was more than a few hundred. Say it was 300 members paying around 170 each - that's about $50,000, probably less if you prorate the months of membership that passed for members who joined at different times. Let's call it 35K. Do we seriously believe that Blue Sky's founders don't have that 35K? Why don't they put their money where their business plan was?

Sheryl O'Loughlin should make the ethical business decision, sell some of her stock or put a second mortage on her house and pay back her investors. She has committed fraud and theft plain and simple. It is the kind of scam that upper class people get away with all the time. And they shouldn't. Instead they go from board of directors to board of directors, scamming and keeping right on with their ski vacations. While someone who shoplifts a block of cheese goes right to jail and gets their life fucked up even more than poverty already has done. It's disgusting.

"Doing a startup like this takes a tremendous amount of patience," she says. "As a business person used to having things happen very fast, it's like, take a breath, you're going to get a million nos. You just have to keep plugging and believe in your ideas."


This is a professional who wants to continue working in parenting-related products and marketing. She is now on the Board of Directors of a eco-food business called Nest Naturals. O'Loughlin's bad business ethics should be exposed. Why would parents, her target market, trust her business sense after this spectacular failure of capital and basic decency? Who folds a business that has hundreds of members -- members who in effect are micro-investors -- and doesn't even bother to declare bankruptcy? There are laws to protect creditors; in this case, a class-action lawsuit seems quite possible.

Blue Sky and other businesses who serve moms of young children should sit up and pay attention - and should not alienate their client base. Studies show that women pay more attention to the advice and information they get from their friends, whether online or off, than they do to corporate marketing or even other media channels. Moms talk, and moms listen to other moms. I would advise the (former) Blue Sky operators Sheryl O'Loughlin and Patrick O'Loughlin that paying back their customers' membership fees is more than just ethical. It's good business sense.

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8 comments:

Haasiegirl said...

I think its utterly ridiculous to ever take someones money and not return it. Even when a business goes bad, you have to have as much responsibility as possible in even being a decent human being and doing the right thing.

While returning all money is not always a feat a company can do due to bankruptcy and funds being gone,sometimes an "im sorry" works just as well.

Its that corporate is just that, corporate, and runs with their tail between their legs, rather then facing, head on, the situation.

Quite often with bad customer service, I just want someone to acknowledge me, and when I am not treated with respect, Im more likely to become hostile and angry.

Its just a shame that its so easy for people to start up a business, take money, fold, and in a lot of cases, reopen with no repercussions.

I am sorry your friend got hurt, I am sure she is joined by millions.

trisha
momdot.com

Magpie said...

Wow - that smacks of bad faith. I hope the mom community rises up and bites them.

Brandon said...

I think it is great to see that someone has finally written about this kind of fraud. I hear about it way too much, and after a few days you don't hear about it anymore. It is so sad that people do these kind of things to other people and think it is okay. It's even sadder that our government let's these people get away with it. For example.. A similar type of fraud happened to my grandmother about a year ago and when she went to the police they pretty much just apologized and said there was nothing they could do. How is there nothing they can do? I think a better reason is that it's not their money, so why should they waste their time hunting down the people.
I love America, but I don't understand why the government likes to protect businesses and CEOs over ordinary people. It's so obvious and is even more evident in the past month. All of these big corporate firms are being bailed out by the government because they screwed up. All these businesses were greedy and tried to make a lot of money and they failed, yet our government comes in and says "that's okay, we'll give you all the money you lost." Why is this okay? I don't have someone paying me back my money every time I gamble and lose, why should these businesses get paid back for their mistakes. Instead, why don't the CEOs of these companies sell their million dollar houses and their expensive cars to make up for their mistakes? The government has just been sending a message to businesses that they can take risks and get away with it and not lose anything. It's amazing what some people will do for money.
I know I got a little away from the point but I think this is just one example of how the government will let corporations get away with anything. Our government is supposed to be by the people, for the people, as Abraham Lincoln said in his Gettysburg Address. What he should have said was by the businesses, for the businesses because that seems more realistic. If the government cared about the people then they would make it harder for these businesses to steal money from innocent citizens.

If I were to win this prize, I would donate some of the computers to a few children at the Ronald McDonald House. I would love to make their Christmas great by giving them the ability to communicate with their friends and family. It would be great to make a difference for these children, especially when their life hasn't thrown them the greatest hand of cards.
http://www.rmhc.com/

http://twitter.com/byoung424

Auriette said...

I ran a small business for awhile, and all the books and guides say to pay yourself first. The problem with this is, if you're ethical, you want to pay your bills and do right by everyone else. Then you take your cut, if there's anything left. I couldn't do that. I'd rather screw myself than screw other people. That's why I never got ahead in business.

fidget said...

This post just made me sputtering mad! Some very similar recently happened around her. A gym designed for parents and kids was flogging their unlimited monthly memberships, giving away birthday party packs as incentive for buying several months of unlimited membership and even offering them up as raffle prizes for local charities.

Then one day, they closed down. Like bandits in the night, they emptied their storefront.

There was nothing. No letter, no emails to their members, no phone calls NOTHING. they just up and disappeared with a lot of families money.

Even more heinous? Several of those families have special needs children and where using the gym for therapy type activities.

I *think* it is currently in litigation and I'm hoping that these folks can recover at least SOME of their money

As far as your contest goes, I want to thank you and HP for hosting such a generous giveaway. I'm hoping that if I win, I can share the computers with my daughter's classroom. She is currently bussed to a different town so she can attend a special autism program. One of the best therapies she's had while there is a program called Fast Forward. It is a computer program that helps retrain her brain so she can interact with and comprehend the world better. Unfortunately, she only gets a bit of time to work on this program because there simply aren't enough computers to go around (massive education budget cuts due to an ill-conceived "tax break" that is not helping anyone, just breaking our vital services.. oops that's a different rant). Mira is expected to remain in the program through 5th grade with partial mainstreaming (my kid is a math WHIZ!) I would love her to have free access to Fast Forward so she can continue making leaps and bounds towards a more independent life.

Pamela Vest said...

Starting a new business is risky to say the least. If it grows then it was a great investment, if not well you know the out come there. From what I know (which is not impressive) there are safeguards and insurances for protection. Why were they not utilized here? I am really shocked there isn't a line of attornies a mile long outside each members door. What are the scorned members waiting for? It is time we the consumers stand up and say "if we want to get screwed we'll get a hooker"!!!!!

Anonymous said...

Legally speaking, they did nothing wrong. I agree that it totally sucks. I was an employee and was completely blindsided by the closure. We were given no notice.

There were a few people that asked when they signed up for memberships what would happen if we closed. The owner told them straight out that they would more than likely NOT get a refund. Did people actually read the contract that they signed? I'm guessing not. Nothing was ever guaranteed.

This was not a case of someone trying to take advantage of anyone. It was a sincere business effort and management was deeply saddened when the decision to close had to be made.

Yes, it's upsetting, but a lesson to be learned- there is always a risk when "investing" with a new company......heck, there's risk with old companies too, especially in times like these.

Bottom line though......there was no crime here, just a series of unfortunate events for everyone involved.

minnie said...

Oh Hai Anonymous former employee.

I'm glad to see you are goggling the former min. wage job employers that screwed you over! OR are you actually the former owners of Blue Sky?

In all fairness these people did actually eventually pay everyone back! Good for them.

Next time I suggest you WARN people that you are closing and send them more than a 2 line email at 10pm Sunday night. That really made you seem CREEPY and JERKY.

Anyway, I'm not sure which contract you are talking about. I didn't sign anything and have no contract in my records for this place. All I have is a receipt for the money I paid you. Paying you money isn't a contract allowing you to steal from me.