Killing the American Dream: Bureaucracy conquers small business

MINONK, Ill. — High school football players pitched in with dads and farmers over three weekends to move the bulky sewing machines and fabric to Valerie Lilley's new factory.

Local government was so keen on her idea to resurrect a tailoring business that could create upward of 100 badly needed jobs that the small city of Minonk lent her $20,000, Woodford County $98,000.

Mayor Bill Koos said what he liked about Lilley, a 43-year-old former Marine sergeant, went beyond her business plan and acumen (she had already launched a successful costume business). “She brought with her, above and beyond, what paper couldn't show us. It was that passion in her eyes, and you can't disguise that,” Koos said.

Lilley got the break she needed: a contract to produce 240 coats a month for five years for the Navy.

Yet, three years later, Lilley faces bankruptcy and foreclosure on her home. The demise of her Toluca Tailoring illustrates the challenges entrepreneurs — and local governments — face in trying to stimulate the creation of jobs. Everyone from townspeople to local banks did just about everything they could to keep her business alive, but they woefully underestimated how slow-moving bureaucracy at the federal level could starve a business to death.

“They don't understand how a small business runs,” Brad Close, vice president of federal public policy at the National Federation of Independent Business, said of the government. “There seems to be no understanding that a business doesn't just pick up and stop based on when a government bureaucrat decides to place an order.”

For Lilley, the situation has been nothing short of surreal. In August, following months of agonizing missteps and delays, Lilley gave the keys to the factory back to the bank and notified the military that she could no longer honor her contract. But the government's wheels continued to roll on.

In mid-September she received a nine-page evaluation of her sample coats, listing dozens of “deficiencies” — a bulging lapel, improperly sewed buttons, decorative stitching omitted from a sword vent — as if she could fix those mistakes.

Last week, she received a “modification” letter via e-mail, extending the deadline to complete an order for coats she'll never make. “This is really weird,” Lilley said. “I already told them I was going bankrupt.”

Keith Ford, deputy director of clothing and textiles for Defense Logistics Agency Troop Support, which manages $13.4 billion in military contracts, confirmed that Lilley's contract is still in place. In fact, the agency wants her to submit a formal plan to “get well,” he said. Meanwhile, Lilley has been filling out job applications and busily preparing to sell household items in anticipation of having to move out of her home.

Only three years ago Lilley was a successful and driven entrepreneur. Her Sofi's Stitches was shipping $850,000 a year of meticulously researched garments to Renaissance fairs across the United States, and practically ran itself. For a while she tried hobbies like motorcycles and was considering taking a cooking class, but she found she couldn't stand sitting still.

That's when a business contact told her a local bank was looking to sell off machinery from the defunct Toluca Garment Co. in Toluca, Ill., a dozen or so miles away from Minonk. The company had made custom suits for everyone from sumo wrestlers to basketball star LeBron James.

Lilley figured she could pick up where the failed business had left off. She put everything she had into the business, including pledging her house as collateral. Her biggest outlay was $114,000 to install water lines for the steam fabric presses, and by the time her business collapsed 2 ½ years later, she would have amassed more than $377,000 in debt owed to Woodford County, Minonk, Morton Community Bank and Innovative Bank. She'd spent $115,000 of her own cash and sacrificed her retirement account.

There were troubles from the beginning. Getting the equipment and factory in shape took longer than Lilley anticipated. Instead of opening in January, as she'd told her potential customers, she opened in May. By then, many of those customers had left for competitors. Others were under financial pressure themselves. Some later canceled contracts.

In July 2008, Lilley began to explore the possibility of mass-producing postal pants, but that fell through, as did a plan to make skirts. Reflecting on her time in the Marines, she said she wondered who made clothing for the military.

And that's when she made the fateful decision to compete for a nearly $1 million, five-year military contract to make dress coats for the Navy.

In December 2008, Lilley submitted her proposal. And the waiting began.

“It's unbelievable,” said Craig, her mentor. “You get the solicitation, and you get 20 days in normal cases to submit it, and it can take six months to a year to hear back, and it's difficult for a small company.”

Finally, in January 2010 — more than a year later — the military awarded Toluca Tailoring a contract to make 240 coats per month for the Navy for the next five years.

“I remember walking out of my office and just falling to my knees and going, ‘Thank you, God, it's actually going to happen,' ” Lilley recounted.

At the time, Toluca Tailoring hadn't made a loan payment in seven months, but Lilley figured that she could get started on the contract and the company could get back on its feet in months. “Everybody worked with us. The banks worked with us, the county worked with us, the city worked with us — everybody who we owed money to.”

But major hurdles remained.

Because Toluca had never fulfilled a military contract, government inspectors said they would visit the factory on Feb. 22 to observe the production of two coats from start to finish. “We want our manufacturers to demonstrate that they can make the coat efficiently on a full production line before they begin production,” said Ford, at DLA Troop Support.

By then, Lilley was down from 25 employees to six and a master tailor. For a group accustomed to working on custom suits, moving to mass production presented a steep learning curve. None of the 120 steps it took to create a single coat was a straight stitch. Employees had to master sword vents, hand-stitching sweat shields, the operation of special high-volume machines for a single lining or a breast pocket. They studied the military's specifications, which Lilley said were ambiguous.

But still the inspection never came. And the factory was running out of fabric to practice with as well as time. Debt piled up.

“People's emotions were on a wire, hanging by a thread. Fuses were short because we all knew — we're standing on the edge of a cliff,” Lilley said.

The military agreed, against usual protocols, to send the components for her to assemble yet another coat for them to evaluate. And more than a year and a half after she first submitted her proposal, Lilley received her first order: 48 coats, not the 240 per month in her contract. The factory had shed another two employees, who left for more stable hours and less stressful work.

In June, the military sent Lilley a letter, listing a number of “deficiencies” in her coat that needed to be corrected before they could begin full production. Additionally, they would need to see more sample garments, the military said.

“We're spending public dollars and we're charged with the stewardship of those dollars, and there's a lot of rules and regulations that apply to government contracting that don't apply to the private sector,” Ford said.

In early August, Lilley sent the military four coats to inspect. With just three employees left, the processes and quality control she'd put in place months before had been obliterated. And within a week, the bank moved to foreclose on her house. Lilley had nothing left to pay her workers.

“I said, ‘Come in Monday to get your last paycheck,' ” Lilley said.