(FORTUNE Small Business) – In 1960, Irving Pichinson's businesses got into deep trouble. At the time, he owned some supermarkets and meat markets in Spring Valley, N.Y. Eventually he went bankrupt. "Oh, yes, we lost everything," says his son Martin, who was about 14 at the time. The Pichinsons even lost their house, which their neighbor bought and let them stay in.

"I use a lot of that history with my clients now," says Martin. "My dad tells me the reason it happened was that if he needed a new scale, instead of buying one scale, he bought new scales for all his stores. He bought too many trucks. Shouldn't he have known that he needed only one scale? Instead of having a hotshot salesman selling him 20? Overexpansion, the typical entrepreneur overreaching."

The younger Pichinson knows what he's talking about. After all, he's turned his father's experience into a lifelong calling. "I am one of the best fixers of broken things," he says with characteristic humility. Over the past four years he has built up a thriving consulting business called Sherwood Partners, profiting from the same kind of entrepreneurial overreaching that once ruined his father. Pichinson, 57, is a mop-up man extraordinaire who raked away well over 100 dead tech companies in the aftermath of the bubble's burst. Most famously, he shuttered Kozmo.com, which--in case you've managed to forget--unprofitably delivered ice cream and flicks to lazy urbanites. Formerly a sleepy $1 million restructuring firm focused mostly on the garment industry, Sherwood Partners has grown to a $14 million tech-company undertaker. Pichinson gave the dot-com bust a face, and he seemed to embrace every nickname given to him, from Dr. Death to the Terminator.

Now he's hatching the kind of grandiose plan to expand his consulting firm that could well leave him right where his dad ended up. Pichinson, who resembles a bantam rooster in carriage and appearance with his spiky salt-and-pepper hair and boldly striped Façonnable dress shirts, has personally stopped handling closeouts and restructurings. Instead he's devoting himself to reincarnating Sherwood as a full-service consulting firm that uses the lessons he's absorbed from failure toward a better end: helping venture capitalists successfully accelerate startups. "We're the entrepreneur's best friend," he declares, trying out a slogan that's hard to swallow from a guy who's made a fortune feeding on their carcasses. "Who better knows and can guide a company to success than one that has helped hundreds of companies steer clear of disasters?" The idea sounds plausible--or at least marketable--on the surface. But think about it: Would you go to a coroner for your annual checkup?

One factor in pichinson's favor is that he understands entrepreneurs--having been one and worked with hundreds. He started his first business in fifth grade, selling newspapers, and eventually delivering phone books and mowing lawns. "Anything to make a dollar," he says.

While at Columbia College in Chicago, he studied marketing and played drums in rock bands. After graduating he pursued his goal of being "a doer and a creator" by touring with a band, The Reveles, but soon found he enjoyed booking gigs more than playing them; he eventually moved to Los Angeles to manage acts. Among them: then-forgotten R & B vets like the Miracles (sans lead singer Smokey Robinson), Lou Rawls, and Bill Withers.

Then, "as I was just starting to fly, I got divorced," he says. His 1978 split from his wife of five years led him to take a break for 18 months at Lake Arrowhead, Calif. Eventually he got back in the game "doing grunt and operations work" in a consulting business. He also worked for Famous Amos Chocolate Chip Cookie Co. "I became the guy who brought down the cost of goods sold," he says. "They were using real vanilla, which loses flavor in ten days if not used. Artificial doesn't. They were paying like $82 a gallon. I got it down to $26."

Through that work "I discovered my knack," he says. He spent the rest of the 1980s working in garment businesses, doing management buyouts, cleaning up the companies, and getting out. "What I did that no one else did--I would always talk to vendors, and the vendors would tell me how things worked," he says, "and I would learn how to save money." That ultimately led him to co-found Sherwood in 1992 in Los Angeles with friend Michael Maidy, a CPA, to do garment-company restructurings.

He had always liked technology, but in 1994, when he met Nels Nelson, an attorney from a Silicon Valley intellectual-property firm, he saw an opportunity. Pichinson opened up a small office in San Jose and started going there two days a week. He spent years cozying up to the moneymen, lawyers, and landlords of Silicon Valley. "He took 12 contacts and turned them into 2,000," says Nelson. (Pichinson now claims to have 2,800 contacts.) Pichinson didn't get his first assignment until 1999, when Silicon Valley Bank asked him to shut down Wilma911, a dot-com that offered tour information about nightclub bands, bringing Pichinson full circle.

Many more gigs followed as Pichinson became the preeminent shutdown artist--people in Silicon Valley still talk about the June 2001 page-one profile of him in the San Jose Mercury News--by popularizing a financial technique known as an assignment for the benefit of creditors (ABC) that he had used in the garment business. Legal in 36 states, an ABC is a winding down of a company's assets that takes place outside the judicial system. The company's assets are given to someone (the assignee) who proceeds much like a bankruptcy judge but without the bureaucracy and delay of the courts. An ABC is far more expensive than a bankruptcy--$75,000 on average, vs. $5,000 for a Chapter 7 filing--but venture capitalists have been more than willing to pay because board members of a company shut down through an ABC don't have to disclose financial information in the way required by federal regulations for companies that proceed through the courts.

Quite apart from his technique, Pichinson's style stands out. In a world of one-note tough guys, he has at least two gears. He can be a rational conciliator, everyone's friend who works toward a common goal (when he's in that mode, he'll reach across the table and playfully slap your hand, usually while asserting that he's a friend), and if need be, he can be the hard-ass who fires off thunderbolts (best represented by a fierce glare over his half-glasses).

Pichinson's unique talent, say those who've worked with him, is his instinct for knowing whether to save a company or shut it down. "He's street smart," says Ross Dove, CEO of DoveBid, a global auctioneer. "I was on a deal with him, and as we left the building, he turns to me and says, 'These guys are dead.' How did he know? 'Can't you just get the feeling that these people have lost their soul for the business?'" For most dot-com detritus, the decisions were easy. "When you have a company running out of money, and they're not close to having even a deal memo for a big sale," Pichinson explains, "you can quickly figure out where they're going to hit what I call the zone of insolvency."

Perhaps because of what he suffered through with his dad, Pichinson prefers not to just close companies down. His arrival on the scene can generally secure a 60- to 90-day grace period from creditors, enough time to come up with a plan and dig through the sofa cushions. "I first met Marty in December 2000 when he was shutting down the free ISP Spinway, which was our landlord," says Tony Medrano, co-founder of DoDots, a dot-com that delivered timely data such as weather and stock information to desktops. "Marty said, 'Hey, you're not getting your security deposit back.' That was about $1 million," money DoDots desperately needed to survive, as it was spending as if there would always be more coming. (That's a fatal mistake startups make, according to Pichinson. For others, see the boxes throughout this story.) But that was cash Pichinson wasn't about to pass up. "I looked at every avenue to get that money back and tried to cooperate with him, but couldn't do it," says Medrano. Worse, DoDots now had to move. "I thought, 'Don't mess with this guy,'" Medrano says. Pichinson, of course, returned months later to shut down DoDots. "We'll cut anything to protect a client," Pichinson says. "We'll push it to the limit."

Buying time is crucial, says Pichinson, because the more runway he has to deal with creditors, the more likely it is that he can reach an amicable settlement and maybe keep the business afloat. He knows the creditors are mad--so he lets them vent. "They yell at us on the first call," he says. "They were getting paid, and now all of a sudden they're not." Pichinson dealt with plenty of shouting at DataDirect Networks, a storage equipment manufacturer that had five outstanding loans, about $4 million worth. Co-founder Alex Bouzari came to him for help in 2002 to clean up those debts after a failed expansion in which DataDirect launched an unproven product line and hired expensive senior management. "The company had an existing customer base," says Pichinson, "so if we reduced the debt that had piled up, it could become cash-flow positive."

Pichinson, says Bouzari, "went to these guys and said, 'If you push the company, you'll bankrupt it and get nothing. So you can work with us and get something or be nasty and get nothing.'" Most settled for between 50 and 60 cents on the dollar, which was key in rescuing the company. "Marty takes the human, emotional aspect out of it," Bouzari says. Pichinson says that creditors believe him because they see him on so many deals, and he works to find a solution that nets them more than they'd see in a bankruptcy. "Maybe we give them part of their money right away and then give them warrants in the company moving forward." Creditors, though, don't sound as happy after bargaining with Pichinson as Pichinson paints them. "It can be unpleasant to be on the other side of the table from him," says Doug Hamilton, who runs Silicon Valley Bank's Sand Hill venture services group.

If Pichinson's techniques sound as subtle as those of the cinematic Terminator, his arsenal of tricks does include more sophisticated weapons. With a company that still has potential, such as Qpass, a Seattle-based infrastructure software company, he will help validate its changed strategy. In 2002, Qpass had shifted from selling (rather, not selling) its software to cash-poor web companies, to peddling it to mobile-phone carriers that could use it to sell games, ring tones, and so forth. The company had some contacts with the carriers but no promise of a sale. "Everyone knew the company was in trouble," says Pichinson, "but the telecoms wanted the technology. We needed to make Qpass solvent so they would commit to buying the software." Pichinson used a sales commitment from AT&T Wireless to get creditors to back off from exercising judgments that would have shuttered the struggling company. The moves let Qpass raise $12.7 million from new investors, and it now has AT&T, Cingular, and Nextel as customers. "I would have made more money at Qpass shutting them down," Pichinson says. "But a dead company gives everyone nothing, and I feel like a failure."

Now, with the launch of Sherwood Partners' healthy-company practice, Pichinson runs the risk of ignoring lessons he should have learned both from his father and from working with troubled companies. Pichinson believes that his aggressive shutdown efforts--and his avid publicizing of them--turned Sherwood into a brand and will let him expand his business. Well, he's got a brand all right, but maybe not the one he thinks he has. "There's a stigma to working with Marty," says one Valley insider, who requested anonymity. "No VC ever wants to be associated with failure." Even Pichinson's partners, Michael Maidy, 59, the operations chief, and Harry Glazer, 47, who helms the East Coast practice, acknowledge that those shutdowns are now a hindrance. "Shutdowns were an accommodation" to customer needs, says Glazer. "It's not what we want to be. Sherwood did too much of it."

Although Pichinson insists that there are clients who have assured him they would use his new services, he declined to name any, citing non-disclosure agreements. "I consider Marty a friend, but I think there will be resistance to his pitch," says Nido Paras, senior vice president and division manager of the advisory services group at Silicon Valley Bank. Adds a venture capitalist who, naturally, refuses to be identified: "If the role of venture capital is being performed properly, there's not as much need for what Marty wants to do." And yet Pichinson and Maidy moved their families to Palo Alto this past summer to be closer "to the heart of the animal." Pichinson bought a $3 million house "down the road from Steve Jobs," and he's opening up new offices downtown. And though the offices are modest, the ambitions aren't. Pichinson and his partners like to throw around such phrases as "the next McKinsey."

So just what is Pichinson selling these days? Anything he thinks an emerging company might need. He has rejiggered the financial coroner's reports Sherwood writes about failing startups to be "wellness" reports. He formed a joint venture with a public relations firm he uses, Allison & Partners, to create Sherwood Allison, a PR shop that will help startups with product launches and marketing strategy. He has teamed up with Mark Goulston, a UCLA professor and emotional-intelligence expert, to perform sales training and team-building exercises. He is collaborating with someone who makes large, three-dimensional organizational charts for mid-market and Fortune 1,000 companies. He's also mulling an acquisition of a sales group to deliver warm leads to clients as well as deals for sales-plan evaluations. On paper, it sounds like an awful lot for the firm to absorb.

Pichinson himself recognizes that he needs some time. "Do I expect the smoothest sailing? No," he says. He claims that he has is working with five or six healthy companies, but his approach sounds similar to what he's always done. "A couple are strictly repositionings, renegotiating debt," he says. "A couple we're providing strategy advice to, and the others are reengineerings." And he seems to be peddling some of the same old strong-arm techniques. "Even a healthy company can threaten Chapter 11 if it's not getting the deal it wants," he says. "Maybe we won't get 40% to 50% savings, but we'll get 10% to 20%."

Perhaps Pichinson has contracted the hubris and egotism that killed so many of the companies he closed. After all, this is his take on the dot-com crash: "I don't believe that we're bigger than the market, but if we had been working with companies during the boom, those companies would have survived."

Meanwhile, some Valley moneymen think Pichinson should focus on what he knows: After all, there are at least 7,000 startups that Silicon Valley Bank estimates are poised to fail in the years ahead. "More pain is coming," assures Spencer Tall, general partner of APV Technology Partners, a venture firm in Palo Alto. "Every industry is overfunded. Wait until Wi-Fi shakes out. Marty's current model has legs."

Pichinson would be wise to think back to his father. And maybe, like his dad, he should learn to stick with liquidations. Now 80, Irving Pichinson still works, selling toy, houseware, and stationery closeouts. And according to his son, "he's never been happier."