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BOOTSTRAPPING

No Debt for Us, Thanks

We grow only with cash flow, and I'd recommend it to almost anyone. Here's why.

When my husband and I agreed to risk our life’s savings so I could open a yarn shop (yes, a yarn shop!), there was only one point of non-negotiation: We would never take on outside debt or invest more of our own money into it. I had to make the business run and grow organically. If I couldn’t do that, I’d have to find a real job.

Fresh from the trenches of the dot-com bust, we had seen too many of our friends take out second mortgages, pour money into their failing businesses, and still eventually lose everything. Maybe it’s because of that Silicon Valley experience. Maybe it’s because of the stories that my 95-year-old grandpa tells me about his Depression-era upbringing. But we decided to run our business (and our lives!) the old- fashioned way. If we can’t pay for it with cash, we can’t afford it. Eleven years later, I’m convinced more than ever that you don’t have to take on debt to run and grow a business.

Believe me, I know that this approach is contrary to everything fast-growth entrepreneurs and consultants will tell you.

But for those of us who didn’t attend an Ivy League business school and/or come from a long lineage of savvy business owners, there’s still the option of starting and building your business the way we did: through lots of hard work, and by using the cash created from the business to fund future growth.

I realize that this approach isn’t for everyone. It’s not as if we were creating the cure for cancer and needed to get to market as soon as humanly possible. But here’s why we did it, and why it has worked for us.

1. Think organic

Growing the business organically means that it will grow more slowly than a business that can afford to hire 100 people on day one. That can be good, especially if you’re like me and have absolutely no idea what you’ve gotten yourself into.

At 27 years old, I was barely able to manage myself, much less a group of employees. By 30, I was able to manage a few people. At 34, I was learning to manage managers. And now, at 38, I’m learning to run a team of senior managers. It’s a whole different ballgame, but growing slowly and organically has allowed me to grow slowly and organically as a leader. I understand that there are plenty of people out there who come out of the womb knowing how to run business and manage growth and employees, but I’m not one of them.

2. The devil is in the details

When you’re forced to grow the business with cash, you learn to do things yourself. For the first few years, my unwritten rule was that I could spend money on things to grow the business, which mostly meant inventory. Everything else--cleaning the shop, bookkeeping, purchasing, marketing, public relations--I’d do myself.

Yes, I worked nonstop. The unintended side effect was that by doing all of these things myself for so many years, I developed a unique understanding of the business. That means that I can do a better job of teaching, directing, and evaluating other people as I slowly (and finally!) let those tasks go.

3. Healthy Cash Flow

Our biggest financial investment is inventory. For the first few years, figuring out how much to buy at any given time was a total crapshoot. I made lots of expensive mistakes (primarily because I got sucked into paying via terms, ended up buying too much, had negative cash flow, and well… that’s a story for another post).

Now we have a monthly budget for inventory that’s based on what we think we’re going to sell that month. This helps immensely, because we can react quickly. We adjust our spending in real time. If sales drop, we cut back. If sales increase, we buy more. As a result, our cash flow stays healthy.

4. Live it up

Whether or not it’s smart in a purely business sense, we don’t want to be accountable to anyone else. Sure, our business might not experience 5000% growth over the next three years because we didn’t take funding, but my husband and I can sleep at night knowing that the only person we report to is sleeping right next to us.

That said, it’s not like we are running a “lifestyle” business and aren’t interested in being the next big thing. We’ve been on the Inc. 5000 four times. Between our shop and our web site, we have $8 million in sales and 45 employees. We live and breathe our business, seven days a week.

But there’s a big difference between living and breathing our business seven days a week and working seven days a week because we’re stressed about letting down a bunch of investors. We relish our freedom. After all, who starts a business so they can work for somebody else? Not us.

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Last updated: Jul 11, 2013

LAURA ZANDER | Columnist | Founder, Jimmy Bean's Wool

Laura Zander is co-founder and co-owner of Jimmy Beans Wool, a market leading yarn and fabric retailer that?s earned a spot on the Inc. 5000 for the last four years in a row (and counting). She and her husband, Doug, were both dot-com software engineers in Silicon Valley before moving to the Lake Tahoe area and opening their shop in 2002.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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