(FORTUNE Magazine) – The late 1980s and early 1990s saw a lot of spectacular business flameouts--remember Michael Milken? The savings and loan debacle? Here's another from that list, less well known but almost as dramatic: L.A. Gear. Started in 1983 by a former hairstylist and wig importer named Robert Greenberg, who had no experience in the footwear business, L.A. Gear began selling aerobics shoes just as the exercise fad took off. By 1990 it was doing $820 million in sales and had become the No. 3 retailer of athletic shoes in the country, behind Nike and Reebok. L.A. Gear's stock, which started trading at $3 in 1986, made it up to $50 in 1990. Yet it all came undone almost as quickly. The aerobics trend died out, and Greenberg couldn't come up with another hot-selling product. Facing a cash crunch, L.A. Gear posted one bad quarter after another. A low point came in December 1990, when a Marquette University basketball player stumbled to the floor--on national television--after one of his L.A. Gear high-tops fell apart. In a bid to save his company, Greenberg sold part of it to outsiders, who turned around and forced him out. After limping along for another six years, L.A. Gear finally declared bankruptcy in 1998.

Greenberg, however, was undeterred. He and son Michael quickly launched another shoe company, called Skechers USA, and so far the parallels between L.A. Gear and Skechers have been almost eerie. Both are fun, youthful businesses that exploded to nearly $1 billion in sales in less than a decade. Skechers is now sixth among all U.S. footwear companies. And unfortunately, just like L.A. Gear, Skechers has run into problems. Its stock has slumped, falling from a high of $40 in mid-2001 to the single digits. That includes a staggering 42% one-day plunge in December, when Greenberg warned for the third time in three months that earnings would fall short of expectations. Britney Spears, who does ads for Skechers, recently filed suit against the company, and even that has a parallel: Michael Jackson had a similar dispute with L.A. Gear in 1992.

Admittedly, Skechers has a few things going for it that L.A. Gear did not, like a strong balance sheet, a roster of new projects, and a broad line of different styles that don't rely on a single trend or demographic. It also benefits from a strategy that you might call "fast and cheap" --Greenberg and his designers watch footwear trends and rush a less expensive version of what's popular into stores more quickly than competitors can. Still, with Skechers at a crossroads, some skeptics are wondering whether Greenberg, who's a proven master at starting companies, has learned from his experience and gotten better at keeping them around.

Born in 1940, Greenberg grew up in Boston working at his father's produce store and hating every minute of it. Immediately after high school he went to beauty school and then opened his own hair salon. Within a year, he notes proudly, he was making more than his father. Four other salons quickly followed, but his visions of going national faded a few years later when he hit on a new trend: wigs. As soon as Greenberg discovered he could sell a $50 wig for $350, he sold the salons and opened both retail and wholesale wig businesses, importing inventory from South Korea. By 1973 wigs were a $5 million business for Greenberg, and when they fell out of favor he switched to women's jeans, shipping them in from Asia and selling them to department stores. In all his businesses, even today, the common theme is fashion. "Things that change have opportunities in them all the time," he says. "Stodgy things don't change--no glamour, no dance shows, no hoopla."

In 1978, Greenberg left the jeans business and packed up his wife and kids for Southern California, with no idea what his next venture would be. He had enough cash in the bank to last six months. But on a family trip to Venice Beach, he was taken by something new: roller skating--and rental shops that couldn't meet demand. Ten weeks later Greenberg opened Roller Skates of America, taking in $20,000 his first week.

He attended his first footwear trade show in 1979 after getting the idea of selling sneaker-skates. But he saw something there that intrigued him even more--everyone looked rich. "In Boston if a guy didn't have any money, he would have these white salt rings around his shoes from the winter," he says. "I thought, 'By God! These footwear guys all have new shoes! When this skate thing goes away, I'm going into the shoe business!'" It didn't take long. In 1980, Greenberg says, Mattel closed its roller-skate business and liquidated more than three million pairs. The market was flooded with cheap skates, and Roller Skates of America was finished. But true to his word, Greenberg launched L.A. Gear.

He staged his entrance into the shoe business with what would become trademark razzle-dazzle. At a Chicago shoe show he drove a rented '56 T-Bird convertible onto the show floor and hired four men in black-satin L.A. Gear jackets to sell a single style of shoe in 12 colors. "Where's the variety?" buyers wanted to know. Why, Greenberg told them, the shoe comes in many sizes! "I ended up writing just $4,000 of business," he remembers. "Anybody else would have closed, but I came back happier than a clam. I had a new business."

L.A. Gear, the Greenbergs readily admit, capitalized on the rage for women's aerobics shoes. Drawing on his experience of adding glitzy back pockets to jeans, Greenberg started creating tasseled, sequined high-tops in silver, gold, and neon. Michael dropped out of college to become a sales rep. Every Saturday, Robert spent four hours waiting on customers at Sneakerland in a nearby suburb, observing who bought what. (He still likes to leave movies early and wait by the door just to watch the footwear streaming past and look for trends.) Sales shot from $11 million to $617 million in only four years. L.A. Gear pulled in celebrities like Paula Abdul and Belinda Carlisle, and in 1990 it ran ads with San Francisco 49ers quarterback Joe Montana and a single word of copy: "Unstoppable." Most people thought that was true.

But the company ran into big problems. Fashion flipped from 1980s glitz to 1990s grunge, and L.A. Gear's core aerobics product was out. Despite a concerted effort to break away from that narrow image, Greenberg never succeeded. Men's lines hawked by Kareem Abdul-Jabbar and Michael Jackson went nowhere. L.A. Gear built up a massive inventory surplus, more than 11 million pairs, most of which it was forced to liquidate. The shoes turned up at discounted prices everywhere, not only hurting margins but also antagonizing L.A. Gear's customers--the upmarket retailers still trying to sell the shoes at full price.

And there was more. In December 1990, L.A. Gear had received a $360 million line of credit from a consortium led by Bank of America. In it was a covenant stating that if L.A. Gear lost money in any quarter, the line would be pulled. Disastrously, the company posted a loss for the fourth quarter. "It was the most ridiculous covenant," says an irate Greenberg. "Whoever my financial advisors were in those days were not financial advisors." (That's a bit self-serving--he signed at the X, after all, and the company violated the covenant just weeks later.) But with no money coming in, he decided in September 1991 to sell a significant stake of L.A. Gear to Trefoil Capital Investors, a Burbank, Calif., fund specializing in turnarounds, for $100 million. He also lost his job.

"[Trefoil] stepped up with ego and power," says Sandy Saemann, Greenberg's No. 2 at L.A. Gear. "Robert was left alone with the dogs, and the dogs got rid of him."

Says Greenberg about Trefoil: "We were going to be great partners, blah, blah, blah. Sham City. They didn't know anything about the footwear business." His take on the experience: He was the only reason L.A. Gear worked, and when he left, the magic did too. "It was purely a matter of me and my abilities," he says. Greenberg's replacement as CEO, Mark Goldston, now the CEO of Internet service provider NetZero, offers a slightly different version. "The company was in disastrous shape when we took over," he says. "It was a draconian turnaround." And one that ultimately didn't work. L.A. Gear managed to stay solvent for seven more years, but sales fell steadily until 1998, when it finally filed for Chapter 11.

Within a week of leaving L.A. Gear, Greenberg had the idea for Skechers, and since then he's tried to avoid repeating his mistakes--even the ones he doesn't admit making. Instead of focusing on a single niche, Skechers is more diversified than any other U.S. shoe company, with 1,500 styles in 12 lines. There are steel-toed boots, high-heeled pumps, sandals, retro sneakers, and even roller skates. According to 2001 company data, its customers are 49% women, 30% men, and 21% children."That's never been done before," says Dorothy Lakner, an analyst at CIBC World Markets. "Timberland is primarily boots, Kenneth Cole is street shoes. There isn't anyone who's been able to build a business where the brand isn't tied to one specific kind of footwear."

What all Skechers shoes have in common is low cost. Greenberg's approach is to keep prices below those of the competition--most sell for $30 to $60. In the spring J. Crew catalog, for example, you'll find a pair of retro suede sneakers for $88, but Skechers sells a virtually identical version for just $48. (I bought a pair in maroon; call it research.) In addition, Greenberg pushes Skechers to operate faster than other shoe companies. His designers can spot a budding trend and get it onto store shelves in as little as four months.

Then there are the financials. Compared with the mess he left at L.A. Gear, the books at Skechers look healthy, with reasonable debt, a cash reserve of about $125 million, and good inventory levels. And so far he's resisted the urge to overlicense the Skechers name. L.A. Gear manufactured everything from beach towels to denim jackets, but by 1991 the products were money losers. This time around Greenberg vowed to keep Skechers focused only on shoes until it hit $1 billion in sales. In June 2002, after ten years in business, he finally announced the first deals to sell Skechers-branded watches, hosiery, and children's clothes.

For all their differences, Skechers and L.A. Gear share one big feature: public ownership. Initially, Greenberg did not want to stage an IPO with Skechers. Having already fulfilled his dream of being on the New York Stock Exchange, he didn't want the added scrutiny. "I truly was never going to go public again," he says, adding that what tipped him were his sons--all five work at Skechers--who wanted the experience. (That may be self-serving too; his Skechers stock is worth about $88 million.) Still, it hasn't been easy. "It's brutal out there, and being public adds to the brutality, which is what I like," he says. "I wanted to be a boxer when I was a kid. Wall Street beats me up all the time."

Especially lately. The company posted an $8.6 million loss for the fourth quarter of 2002, its first loss since going public. "We are pleased with our ability to maintain our share of the global footwear market ... despite the difficult economic environment," said CFO David Weinberg in a press release. That sounds reasonable enough, until you realize that other shoe companies, such as Reebok and Puma, are as healthy as ever. The U.S. footwear industry hasn't grown in nearly a decade--Americans still buy 1.3 billion pairs of shoes a year--so one company's gain means another's loss.

Part of Skechers' problem is simply competing against its past performance. It grew wildly in 2000 and 2001, and growth like that is harder to sustain the bigger a company gets. Skechers also had one product that did amazingly well in those years: a sneaker called the Energy, which sold tens of millions of pairs but has since faded in popularity. "Nobody's as good as Greenberg at coming up with hot items," says John Horan, publisher of Sporting Goods Intelligence, a newsletter. "But as you get up to the billion-dollar level, what's hard is to keep coming up with the same mix of hot items as when you were doing $300 million."

Moreover, Greenberg has yet to get out from under the shadow of L.A. Gear. "That's always in the back of people's minds," says Mitch Kummetz, an analyst at Wedbush Morgan Securities. "It overhangs the stock constantly." Even before the company's current problems, its stock traded at a far lower earnings multiple than those of its competitors. And a recent, well-publicized spat with Britney Spears hasn't helped. Skechers signed a deal to have Spears promote her own line of roller skates, but in December she filed a lawsuit accusing the company of using her name to promote its skates instead. Skechers plans to file a countersuit. But that echoes a similar fight during which Michael Jackson and L. A. Gear traded lawsuits over a signature line of shoes. That case was ultimately settled.

Greenberg, ever the fighter, says he has plans to get the company on track. Another 700 to 800 new shoe styles are headed to stores for 2003, and analysts believe the company's claim that its spring lines are selling well. Greenberg is even hatching entirely new brands, like the Michelle K collection of upmarket women's shoes that don't bear the Skechers name. With classic bravado, Greenberg sees Michelle K (named for the vice president of design, Michelle Kelchak, who appears in the ads) as the next Donna Karan and looks ahead to a line of cosmetics, handbags, and clothing.

Greenberg is also pinning big hopes on the international business. It's currently about 13% of all sales, but he'd like that to be closer to 25%. The company just opened a big distribution facility in Belgium. He has tried to cut expenses by closing a mail-order division, and he still stands--tentatively--by the goal he made public in 2001: $3 billion in sales by 2008. "Maybe 2010," he adds.

"I took it on the chin this year," he says, referring to the analysts and the less than flattering media coverage. "But greed is good. It brings them all back. When I have a big quarter, they all get back on again. Because they know I tend to--" he stops, and with a sound like a rocket ship, points his finger straight up.

However, given that Skechers is now in its tenth year, older than any company Greenberg has ever managed, it's not the "up" part that anyone doubts. It's his ability to handle the down.

For more coverage of small business, look at the latest issue of FSB magazine, now on the newsstands. On the web, log on to www.fsb.com.

Call 800-777-1444 to subscribe to FSB.