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STRATEGY

Five Years Later, Inc. 500 CEOs Reflect on Lessons Learned During the Financial Crisis

Since 2008, fast-growth entrepreneurs say they do business differently. Here's how.

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The Lehman Brothers bankruptcy, the largest in history and the kickoff event most associated with the global financial crisis, marked its fifth anniversary on Sunday. Today, the economy seems to be on the mend, but some of the toughest times entrepreneurs have seen seen since the Great Depression left a lasting impression and taught them to do business a new way.

Like lots of other companies that survived, fast-growth entrepreneurs could not rely on easy access to credit and capital, so they had to manage a lean operation and keep cash on hand. They also learned four recession-resistant strategies: to get to profitability right away, compete with a true differentiation like lower prices, believe in themselves despite the naysayers, and to quickly adjust to the market needs.

Best of all, businesses that started in 2008, or managed through that terrible year and its aftermath, learned that they can make money in almost any environment.

We checked in with the Inc. 500 from 2012--the companies growing most quickly since 2008--to find out what lessons they continue to carry with them five years later.

"We had to learn to be profitable out of the gate." 

Campus Books
Location: Ogden, Utah
Industry: Online book sales
Employees: 110
Estimated 2013 revenue: $40 million

Campus Books opened its doors in August 2007. The Ogden, Utah company bootstrapped with $250,000 in credit card loans at a time when credit was flowing fast and furious. But that all changed fast.

"When money was not flowing, we had to think really hard and get smart about our business and understanding our consumers, rather than raising capital and spending money," says  Alan Martin, founder and CEO.

That meant Campus Books had to build a cutting-edge "just in time" inventory system that understood the right balance between inventory, customer demand, value pricing, and profitability, as well as a warehouse from which to ship the books.

As it turns out, it was a great time to launch a business that promised big savings for financially-strapped students, giving them the option to rent their textbooks, rather than buy them. This could save 50 percent on a portion of educational expenses.

The company earned nearly $300,000 in 2008, and almost $4 million the next year. During that time, no banks would take a risk and give the young company a loan or credit line. Martin had better luck structuring a debt deal for $175,000 with a small local private equity company, which offered a loan that didn't require equity.

Today, the company ships books to over 1 million students at 6,000 U.S. colleges and universities each semester. And though Martin says the company might have grown faster if it had started before the crisis and had access to more money, that might have led to unwise overexpansion that could have crippled the company once the financial collapse did hit.

"We had to learn to be profitable out of the gate," Martin says. In 2010 Campus Books raised $11 million from a second private equity firm and this year is on track to hit $40 million in sales.


"We had to win our jobs with low prices."

Graybach
Location: Cincinnati, Ohio
Industry: Construction
Employees: 12
Estimated 2013 revenue: $7 million

Perhaps no industry was harder hit during the financial crisis than construction, since it was so tied to the bursting mortgage bubble. But Tyson Grace and Pete Subach, co-founders of Graybach, a provider of residential, commercial, and industrial construction services, opened for business in 2008, the year the crisis began.

"We don't know any different," says Grace. "We had to win our jobs with low prices."

With so many construction competitors rapidly closing their doors, they were able to win bids by offering value prices for jobs, while managing razor thin margins.

The founders learned to keep a close watch on all projects, making sure each one stayed within budget. They also learned to keep plenty of cash in the business, and paid vendors and subcontractors early, in less than 10 days, rather than the standard 30. That proved to be an incentive to work with them.

"We got subcontractors who wanted to work for us, and suppliers who offered trade or early pay discounts," Grace says.

Graybach was also able to pick up top-notch employees, such as carpenters and project managers, from the other construction companies that went under all around them.

In 2011, Graybach was finally able to take out a175,000 line of credit, and is now on track to hit $7 million in revenue, a 50 percent increase over 2012.


"People told me I was going to fail but I believed in the company." 

Tenon Tours
Location: Stoneham, Massachusetts
Industry: Tours in Scotland and Ireland
Employees: 18
Estimated 2013 Revenues, est: $4.8 million

The period following Lehman's collapse was also tough for serial entrepreneurs. Bryan Lewis, founder of Tenon Tours, had previously helped run a student travel company that focused on college vacations to Mexico and the Caribbean, but sold his stake and used $50,000 from it to open up Tenon, which focuses on travel to Scotland and Ireland, in 2008.

The odds were stacked against Lewis, as luxury expenses were the first things consumers tossed out the window in their efforts to stay afloat. Banks were also unwilling to fund a new company, especially one in the travel industry. And Lewis' social and professional networks eyed him dubiously when he talked about his latest enterprise. 

"We ran out of money very quickly because banks were not willing to give me any credit, and I did not have a paycheck," Lewis says. "I couldn't get credit anywhere and I couldn't have borrowed five dollars if I gave them my own mother."

It was also far cry from the heyday at his previous company, when 50,000 students in six months easily booked his package tours, and money flowed easily. But Lewis increased his focus, and buckled down to work all the harder.

Still, Lewis had conviction his company would succeed because Scotland and Ireland were two of the most hospitable destinations in Europe, and people spoke English there. Lewis also knew that people who gravitated toward tours were seeking more flexibile itineraries, and his company was built on customizing the tour process.

For several years, Lewis kept his new company afloat from his personal assets and from family members who believed in his vision. Hard times taught him to run lean operations. That required making difficult decisions, like laying off a high-salaried financial manager he couldn't afford, and bringing on a financial expert who accepted a partnership in the company instead of a salary.

But in 2012, Tenon sent 3,000 people on its tours, and in 2013 the company, which now has 18 employees, will notch about $5 million in sales.

"People told me I was going to fail, but I believed in the company, and lack of access to funds didn't stop me from making it succeed," Lewis says. "It took me a bit longer with some of these bumps, but we are still going."


"Entrepreneurs need to be able to pivot quickly." 

Full Circle Marketing & Sales
Location: Fort Lauderdale, Florida
Industry: Lead generation, marketing and sales, and client acquisition
Employees: 15
Estimated 2013 Revenue: $4 million

When Full Circle started out about eight years ago, it was in a strong position because it provided its marketing services to litigation attorneys who specialized in mortgage foreclosures. When Lehman Brothers and the mortgage market collapsed in 2008, Full Circle's founder and chief executive Adam Stephens, who had built up a database of real estate litigators and thier connections, saw the next big opportunity. He saw that his software should evolve to help the real estate industry, so he quickly tweaked the company's software platform to help hurting real estate agents and brokers too.

"Entrepreneurs need to be able to pivot quickly," Stephens says. 

Stephens learned that these people were willing to spend money during the crisis, as long as they saw the value of the money they were spending. That usually meant showing them how Full Circle would save them money or make them money down the line.

"It's not hard to get people to spend money if you show them the value of the technology, and that the technology allows them to save money by having just one paralegal, not six," says Stephens.

That approach let Stephens bring in a few hundred thousand in sales in 2009, and nearly $4 million for 2013. 

IMAGE: Randy Le'Moine
Last updated: Sep 18, 2013

JEREMY QUITTNER is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.
@JeremyQuittner




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