Home · Articles · News · Cover Story · Wipeout!
May 21st, 2014 CAMBRIA ROTH, BRENT WALTH | Cover Story
 

Wipeout!

Jorge Guzman had an idea for a better surfboard. He says his instructor at Portland State University stole it.

lede_4029(scroller)IMAGE: Will Corwin
In a town filled with dazzling startups, few new businesses in Portland look as fun as Yana Surf.

The company, founded last year by local entrepreneur Wilson Zehr, sells “heirloom-quality” balsa surfboards that could pass as works of art. With price tags as high as $3,500, some collectors might want to hang a Yana Surf board on their wall rather than take it into gnarly waves.

Yana Surf has landed world-class Brazilian surfer Maya Gabeira as a spokeswoman. And it’s pushing green cred, selling boards made of renewable Ecuadorian balsa rather than the environmentally harsh plastics that go into most boards.

“We are well on our way,” Zehr says, “to creating an important, sustainable surf brand.”

Zehr, 53, says he got the idea for the company from a student in a business course he taught at Portland State University. Zehr says the branding, design and strategy for Yana Surf are all his creations.

The former student from whom Zehr got the idea tells a different story. He says Zehr stole his business.

Jorge Guzman says he had already launched a company to sell balsa boards with the basic strategy Yana Surf is now using. He says he shared his idea with Zehr, who was his class instructor at the time. Then, he says, Zehr ran with the idea, took control of the company’s assets and shoved him out of the picture.

Zehr says Guzman’s business had no hope of going anywhere. He responded to his student’s pleas for help, and purchased the assets of Guzman’s surfboard company before starting his own. “The idea of selling surfboards,” Zehr says, “was hardly original.”

But records, emails and other documents provided to WW by Guzman contradict many of Zehr’s statements. The records raise doubts whether Zehr bought anything from Guzman and his partners, and they suggest Zehr made financial promises he has never fulfilled.

Guzman, 34, acknowledges he was naive and inexperienced. “I trusted him as my instructor,” Guzman says, “not knowing that this was going to be the result.”

With more than 29,000 students, PSU is the state’s largest university, and it has even grander aspirations to become a national-class center of higher ed. Key to that strategy are PSU’s School of Business Administration and its ambitions of becoming an incubator for business innovation.

But Guzman’s experience raises questions about the extent to which the university looks out for its students who come up with commercial ideas. As Guzman later learned, PSU, unlike many universities, has no policy that protects its students’ intellectual property.

Guzman says he has spoken to lawyers who say he’s got a strong case, but they won’t take it on without a retainer of as much as $10,000, which Guzman says he can’t afford. One of the lawyers who looked at the case, Ashley Bannon, says Zehr’s actions are troubling but that PSU’s failure to protect Guzman is even more worrisome.

“It just seems completely egregious, with a vulnerable student who is trying to learn from a professor and someone he thinks he can trust,” Bannon says. “The university has basically no rules or regulations to prohibit a professor from taking advantage.”


HOT BALSA: Jorge Guzman with one of the original Yuyana surfboards.
IMAGE: Will Corwin


Jorge Guzman has always dreamed of owning his own business. Growing up in Querétaro, Mexico, he watched his parents work as proprietors of a tortilla business. After they divorced, he moved with his mother to Independence, Ore.

He held a series of sales jobs, worked at an accounting firm and attended business classes at night, first at Portland Community College, then PSU, where he graduated in 2012 with a degree in marketing.

Today, Guzman works for Hacienda CDC, a nonprofit that provides affordable housing. He also co-founded Hispanicpros, a nonprofit network of 1,500 business people that helps Latinos advance their careers. His work brought him to the attention of Mayor Charlie Hales, who in January 2013 appointed Guzman to the board of directors of Home Forward, the city’s housing authority.

Guzman—who favors suits that never seem to wrinkle—has a soft, deliberate voice that often belies his intensity. He’s a stickler for precision, often repeating his points. 

What Guzman loves to do more than anything is surf. “I love the whole culture of it—it’s just nature and you on the board,” he says. “You can just be out there and forget everything.”

As Guzman recalls it, he’d been out one weekend in the waves near Otter Rock on the Oregon coast in 2008 when a friend told him about amazing surfboards he’d seen on a recent trip to Ecuador. They were crafted from balsa wood with inlaid designs—sleek and stunning. “They were so beautiful,” Guzman recalls thinking when his friend showed him photos. “I knew I really wanted one.”

Guzman thought if his desire for a balsa board was so strong, other surfers might feel that way, too. So Guzman started a company called Yuyana Surf with plans to export the Ecuadorian boards and resell them in the United States and Japan. 

Balsa surfboards are nothing new—many boards were originally made of the wood, instead of plastic or fiberglass, and a small percentage of those sold today still are. But in recent years, there has been a growing demand for boards with a smaller carbon footprint.

Guzman saw a business opportunity: attractive surfboards made of a renewable material, sold at a reasonable price. “I knew surfers are environmentally conscious, and this was going to be a big part of our strategy,” Guzman says.

He brought in two friends as partners: Ruben Barberan, who had first shown Guzman photos of the balsa boards, and Tom Bradley, who works in financial services at a local credit union. The three held equal shares of the new company, and each sunk a few thousand dollars in the venture. Barberan set up a website and traveled to Ecuador to talk to suppliers. Guzman spent time in Japan researching markets for the boards. They ordered four boards made and showed them around at surf shops on the Oregon coast.

But with full-time jobs, the three struggled to gain any momentum. In 2012, the partners agreed Guzman would finish his bachelor’s degree in business at PSU—and then turn his complete attention to Yuyana Surf.

In the summer of 2012, Guzman still had one major class to clear: BA 495 Business Strategy, the senior capstone course in which students help local companies develop business and marketing plans.

That’s where he first met BA 495’s instructor, Wilson Zehr.


SLICED: The Yuyana Surf partners say they never sold rights to their website (left) to Yana Surf, which is actively marketing surfboards and other merchandise with its site (right).
SOURCES: yuyana.com, yanasurf.com


PSU, like many universities, is turning increasingly to part-time instructors, called adjuncts, to teach courses. In many ways, it’s a cost-saving measure: Universities often pay adjuncts a flat fee per course and often don’t have to offer benefits. In turn, students get instructors who—unlike many professors—are directly engaged in the field that they’re teaching. At the PSU School of Business Administration, 53 percent of the credit hours offered are taught by adjuncts.

Zehr, who had been teaching at PSU since 2005, in many ways had the career Guzman wanted. In various bios, Zehr calls himself a “serial entrepreneur” who claims to have turned $60 million of investors’ money into payouts of $160 million.

Zehr—round-faced, with spiky, sandy hair salted with gray—grew up in Pacifica, Calif., and after high school moved to Oregon, where he had family. At PSU, he earned a bachelor’s in business and an MBA, and completed coursework (but not the dissertations) for two Ph.Ds. He trained as a software engineer and worked for Sequent Computers. He says he fell into doing startups, proved to be good at sales and marketing, and by 2000 developed his own company, Zairmail.

The firm produced and sent direct-mail advertising. The innovation Zairmail offered: Customers anywhere in the world could design and upload their direct mail, and Zairmail would print and mail it. Zehr told The Oregonian in 2000 his business took off with about $1 million in seed funding from Timberline Venture Partners, a local venture capital firm, and an investment from Hewlett-Packard. 

The company was unprofitable and shuttered in 2004, two months after Zehr quit as president, leaving a long trail of debt and unpaid taxes. Zehr had to file for bankruptcy (see below).

Zehr is now CEO of Cendix, a revived version of his old direct-mail company. His resilience is one of his strengths, say people who have worked with him. 

“It’s his tenacity,” says John Griffith, who worked with Zehr at Zairmail and now serves on the board of directors of Yana Surf. “A lot of people lose their way as they go through hard times in business. He just stays with his path.” 

Zehr didn’t talk about his past business troubles in the course Guzman took. Guzman says during the opening class session, Zehr spent the first 30 minutes talking about his success running his businesses. “He talked about how he brought in millions of capital and made his investors rich,” Guzman says. “He did not lack for confidence in himself.”

Zehr says he doesn’t remember exactly when Guzman showed him his business strategy for Yuyana Surf. As he recalls, he didn’t speak to Guzman much about his idea while Guzman was his student.

Guzman recalls it differently. He says after the first class session he showed his idea and business plan to Zehr, hoping the instructor would have other students evaluate the idea. 

Within days, according to documents Guzman provided WW, Zehr emailed him. “I’m intrigued by the surfboard product that you showed me in class,” Zehr wrote June 28, 2012.  “Can you please send me some more information on it? Let’s see if we can come up with ideas.”

At first, Guzman says he was thrilled—maybe he could get his business idea evaluated in class after all. But it soon became apparent Zehr wasn’t interested in Yuyana as a case study for the class. 

Zehr saw something in Yuyana Surf that had the potential to make money—and he wanted in on the business.


RIP CURL: Ruben Barberan (right) says the Yuyana Surf partners trusted Jorge Guzman’s judgment in dealing with Wilson Zehr, because Guzman trusted Zehr as his PSU instructor. Giving Zehr assets of the company, Barberan says, “was a stupid thing for us to do.”
IMAGE: Will Corwin


As Zehr remembers it, Guzman sought him out. “He asked me: ‘Will you look? We would appreciate your advice,’” he recalls Guzman saying. “They wanted me to get involved in it. I said no.”

Guzman remembers it differently and says Zehr pursed him. “I felt pressure from Wilson to deliver what he wanted,” Guzman says, “because I didn’t want to see my grade or the student-teacher relationship inside class affected.”

But Guzman says his reluctance was overwhelmed by Zehr’s apparent business knowledge and track record. He thought Zehr might be the best thing that happened to his dreams of making Yuyana Surf a reality. 

In July 2012, Guzman and his partners met Zehr at Cha Taqueria in Northwest Portland, where over lunch Zehr told them he had connections to Red Bull and Nike, and he could bring in investors.

Guzman’s partners were not all that impressed with Zehr. “We left it up to Jorge, because he had worked the most on this,” Barberan says. “He felt he could trust Wilson because he was his teacher, and we trusted Jorge’s instincts.”

Zehr told WW that he saw their plans for Yuyana Surf as nothing special: The company would be little more than a pass-through for surfboards, not establishing its brand as anything that set it apart. What’s more, he says, the three partners lacked the experience to make the business work.

“It was completely dysfunctional,” Zehr says. “It didn’t have a prayer.”


Guzman never brought in an attorney or outside adviser to help him and his partners deal with Zehr, even long after the course Zehr was teaching ended in August 2012.

After what emails show to be a long and tortured relationship between Guzman and Zehr, the PSU instructor launched his own company to sell balsa boards. He called it Yana Surf, a name that simply dropped the first two letters of the one Guzman’s firm used.

Guzman’s accusation that Zehr did more than copy his idea—that he stole it—turns on two key points.

First, Guzman and his partners say Zehr took the assets of their company—including a website and one surfboard—after promising to buy them out. They say they never agreed to terms, but Zehr took the assets anyway. 

Emails show Zehr obtained the website because Guzman, trusting his former instructor, sent Zehr the codes and password before they even had an offer to sell.

“Giving Wilson control of the website,” Barberan says, “was a stupid thing for us to do.”

Zehr eventually offered $4,200 for Yuyana’s assets, payable only if his new company, Yana Surf, turned a profit in two years. He tells WW he has a signed agreement making the deal legal. WW requested that Zehr provide a copy of the sales agreement, but he declined to do so.

The Yuyana Surf owners dispute Zehr’s claim. Guzman signed the deal, but the other two partners—Barberan and Bradley, representing a majority of the shares—tell WW they never went along. “To say I signed anything,” Bradley says, “that’s laughable.”

Neither Barberan nor Bradley wanted to go into business with Zehr, but Guzman did. Zehr, in fact, had enticed him with an offer to become half-owner of the new surfboard company. Zehr promised in a Nov. 18, 2012, email that he and Guzman would share an “equal partnership.” In a later email, he promised Guzman they would be “50/50.”

Zehr says Guzman eventually turned the offer down. Emails show Guzman accepted the offer but grew concerned when Zehr alone made all of the decisions about Yana Surf. Zehr appointed himself president, named his attorney as a corporate officer and offered stock to others—without consulting Guzman.

Guzman reminded Zehr the sale of Yuyana’s assets had never formally gone through and demanded that he halt all operations until they could come to terms.

“You are really not in a position to give orders to anyone,” Zehr wrote back on Feb. 11, 2013. “Based on your response, we will assume that you will not be moving forward with us. I’ve really enjoyed working with you. I’m sure you will be successful in all your future endeavors.”

In an email, Guzman pleaded with Zehr—he didn’t want to be left out of Yana Surf. He just wanted what had been promised him.

Zehr shot back in an email: “Think we are done here.”

Jorge Guzman never heard from Wilson Zehr again.


Guzman had a lawyer send Zehr a letter demanding the return of Yuyana Surf’s assets. Zehr didn’t respond. (Zehr tells WW he doesn’t remember getting the letter.) Guzman then spent a year talking to lawyers before deciding to complain to PSU. Guzman wanted the university to take responsibility for everything that had happened with Zehr—especially while Zehr was his instructor.

PSU conducted an investigation and concluded that enough of the interaction between Guzman and Zehr took place outside the classroom to absolve the university of any liability. “These individuals met in class, but pursued a business relationship after the class was over, and beyond,” PSU spokesman Scott Gallagher says.

Gallagher says it’s not clear what more the university could have done to protect Guzman, who had many avenues he could have used to complain while enrolled in Zehr’s course.

Still, in its letter to Guzman, PSU did not address the ethics of a professor negotiating with a student about a business while he had the student in a class. “That would be a personnel matter, which we could not discuss publicly,” Gallagher says.

The Oregon University System doesn’t require its institutions to protect student ideas. OUS spokeswoman Diane Saunders says those decisions are left to individual schools—especially at PSU, Oregon State University and the University of Oregon, which won more independent status last year. “There are no system-level policies at all,” Saunders says.

The Association of American University Professors offers model ethics guidelines that focus largely on professors giving proper credit when using students’ work in academic collaboration.

“We can’t comment specifically on this case,” says Claire Katz, a philosophy professor at Texas A&M University and chairwoman of the AAUP ethics committee. “Any theft of ideas is wrong and unethical. This is unusual because it was a business.”

Most guidelines governing faculty and the rights of students deal with intellectual property—what the law usually defines as “creations of the mind.” A company can protect its name, trademarks and inventions, for example, but not necessarily its basic strategy and marketing plan.

What Guzman had was an idea—not essentially a unique one—that he and his partners had nonetheless spent time and money working to develop.

Unlike PSU, Oregon State has adopted protections for undergrads. Ilene K. Kleinsorge, dean of OSU’s College of Business, says her school already provided protections for graduate students, but she said OSU has gone further and protects undergraduates as well because of the large amount of time faculty spend helping them develop their ideas.

“Undergrad student ideas,” Kleinsorge says, “are off limits.”


WILSON ZEHR
IMAGE: WW Staff
Wilson Zehr doesn’t currently teach at PSU. But he’s landed instructor positions at Marylhurst University and OSU, where he will teach a course at the College of Business this summer. 

Without question, Zehr has taken Yana Surf far beyond what Jorge Guzman envisioned. The company has yet to sell a single surfboard to the public or to a surf shop, but he’s rounded up investors and plans to bring surfboard manufacturing to Oregon. 

Selling surfboards is besides the point, Zehr says: He wants to build Yana Surf as a brand to sell surfing merchandise, which is far more profitable than selling the boards themselves.

Zehr says he has spent his entire career building companies and helping others—including students—do the same without anyone accusing him of unethical behavior as Guzman has done.

“We do think that [Guzman] should continue to develop ‘his’ idea if he believes that it can be a commercial success,” Zehr says. “There is nothing standing in his way. Why isn’t he doing that?”

Meanwhile, Guzman says friends advise him to move on. 

“I should—emotionally, physically, it’s been tough,” Guzman says. “Wilson Zehr once told me that the business world in real life doesn’t work like they tell you in business school. I guess that is a lesson—that, and not to be as trusting as I once was.” 


Postage Due

Wilson Zehr’s official résumé doesn’t include a bumpy spot in his career that cost taxpayers and creditors more than $450,000.

He ran his direct-mail company, Zairmail, from 1999 until 2004, when it shut down. “He made a good go of it,” says William Kallman, who then ran Timberline Venture Partners, the investment group that eventually sank $2 million into Zairmail. “He never made a profit.”

At one point, Zairmail was doing so much business the company needed six full-time employees to handle all of the incoming orders with revenues of as much as $1 million a year.

Zehr acknowledges his company had cash-flow problems. “What startup doesn’t have those problems?” he says.

In July 2003, Zehr landed a $250,000 business loan funded by taxpayers through the Portland Development Commission. According to court documents, the loan went to Zairmail’s parent company, iPost, and later transferred to a firm called Launchpoint, also run by Zehr. He promised the loan would be paid back in five years.

Zehr says the loan helped the company make payroll and keep 25 employees working. “The deal we did at Launchpoint was a win for Portland,” Zehr tells WW.

Within months of the loan, Zehr’s company wasn’t making its payroll taxes. One employee recalls a Portland General Electric workman showed up one day to turn off the power because the company hadn’t paid its utility bill. Another former employee says Zehr canceled health benefits for workers without telling anyone. One worker was stuck with a $10,000 hospital bill when his wife had a baby soon after Zehr cut his insurance. Zehr declined to comment.

Zehr left Launchpoint and Zairmail less than two months before they shut down operations in October 2004. Five months later, he and his then-wife, Nancy, filed for Chapter 7 bankruptcy, which allowed them to walk away from debts of $214,000.

State records show Launchpoint still has liens filed against it by the state of Oregon for employment taxes ($5,244 in 2004, with interest accruing at 18 percent a year) and by the Internal Revenue Service for $11,867.

Zehr tells WW that another company, Best Strategy, bought Zairmail and assumed liability for its debts.

Officials at the PDC say that isn’t true. In October 2004, the PDC filed a notice of default on the taxpayer-funded loan when Launchpoint failed to keep up payments, and is still the debtor of record for the $221,000 balance.

When the city filed its default notice, the PDC took possession of Zairmail and Launchpoint’s intellectual property, including trademarks. In 2009, patent and trademark records show, the PDC let its claim expire.

The next year, Zehr got the trademarks back, and is again using the Zairmail name in his new business.

CAMBRIA ROTH and BRENT WALTH.

 
  • Currently 3.5/5 Stars.
  • 1
  • 2
  • 3
  • 4
  • 5
 
 
 

 

comments powered by Disqus
 

Web Design for magazines

Close
Close
Close