As for initial plans, roughly equal numbers of respondents planned to grow slowly, planned to grow fast, and didn't plan at all. What should we make of that?
Worse, the Inc. 500 CEOs weren't always happy with what they did do. More than a third, for instance, said that they went out and found partners as one of their first steps, and fully half reported that they got help from partners in developing and implementing their idea. But later, when we asked what had gone wrong with their plans, "trouble with partners" was the single most common refrain. "Have no partners," advised one, mincing no words.
And yet -- there was a surprise or two buried in the developing-the-idea section of the questionnaire. We expected "spouse" to rate high as a source of help; we were right. We also expected "potential backers" and "professional advisers" (lawyers, accountants, etc.) to score high. We were wrong. Instead, respondents told us they got help from potential customers and colleagues in the same industry; nearly a third cited potential suppliers. What gave them their competitive edge, we discovered, was that they had the contacts and knowledge necessary to weave familiar threads into new patterns.
Take Jim Hanahan again, founder of the company that administers self-insured health plans. After 23 years with Connecticut General, Hanahan knew how much his target customers were paying in insurance premiums. He knew how much their rates had gone up, and how much, on average, went to pay benefits. He had the contacts to arrange for caps on potential customers' liabilities through Lloyds of London.
His early discussions with prospects were simple. Imagine you bought in with us today, he'd say, and we'll track your premiums and potential savings over the next 12 months. His first full year in operation generated only $100,000 in revenues. But five years later he was up to $4.5 million.
Others told similar stories -- of knowing an industry and the people in it well enough to utilize suppliers effectively and to create exactly what customers were looking for at a particular time.
Neil Kleeman, of Solution Systems Inc., watched one of his previous employer's customers increase their computer usage to the point where it made sense for them to set up an in-house system. That was when he approached them and offered to sell them equivalent data-processing services for 30% less than they'd been paying.
Robert W. Howe, CEO of Atlantic Data Services Inc. (ADS) in Quincy, Mass., was working for a bank-owned data-processing center when bank deregulation began to take hold. Observing that banks were looking for more and more customized software, he began making contacts both with software vendors (who could supply programs tailored to each customer's needs) and with potential customers. When he went out on his own he had two clients ready to sign up.
To our minds, it took surprisingly little time to set up an Inc. 500 company, in most cases a few months or less. What it did take was intimate knowledge of a market. The first steps followed logically from that.
MONEY
How Much Money?
Amount you estimated you'd need to launch your company:
Less than $50,000:
35% $10,000-$49,999
34 Less than $10,000
More than $50,000:
12% $50,000-$99,999
10 $100,000-$249,000
9 More than $250,000
Amount you actually needed:
50% About what I figured
26 More than I figured
14 Much, much more than I figured
10 Less than I figured
Where the Money Came From
Most important sources of capital (% of respondents relying mainly or significantly on this source):
75% Own resources (cash)
35 Mortgage of own assets
33 Corporate loan from bank
29 Partner's assets
23 Personal loan from bank
20 Parents or other relative
Who Kept the Equity?
Amount of equity that the founder and family now hold in company:
39% All
18 75%-99%
22 50%-74%
21 Less than 50%
Anyone who hasn't done it knows how to raise money for a start-up. You work out detailed financial plans, figure out how much you'll need, then double it. You take your plans around to friends, relatives, other potential investors. You stay away from banks; banks don't fund start-ups.
According to the experience of Inc. 500 CEOs, that view is wrong, wrong, and wrong again.
Detailed financial plans? Not here; only 15% had full workups, while 41% relied on informal estimates. Another 37% said they didn't make financial plans at all, just wanted to start with as much money as they could lay their hands on.
In most cases, moreover, they didn't begin with much. More than a third of our respondents started their fast-growth businesses with less than $10,000. More than another third started with between $10,000 and $50,000.
Naïve, you say. Babes in the woods. Nope -- we thought of that possibility, and asked them how much they actually needed. "Less than I figured," said 10%. "About what I figured," said another 50%. Nor was there any statistical correlation between low initial estimates and needing more later.
The money wasn't hard to find: usually it was their own. Three-quarters checked "own resources" as a significant or most important source of capital; varying percentages also checked "mortgaging own assets," "personal loans from bank," and the like. When they did get an initial infusion of capital from the outside, it was much more likely to come from a bank (in the form of a corporate loan) than from a friend, relative, or equity investor. And the decisive factor, in most cases, was once again that network. "Personal relationships or business contacts" and "extensive experience in industry" were by far the most frequently cited reasons for success in raising money.
