So: how do you start a multimillion-dollar business on a small nest egg? Our respondents make it sound easy.
Bill from Day One. Robert Howe of ADS got a $30,000 loan from a friend, added in some of his own and his partner's money, and set up shop as a custom programming service for banks. Since he had his clients lined up, he had a revenue stream; and in six months was able to get a $10,000 short-term loan from the bank. Jim Hanahan, similarly, kept his expenses to a bare-bones minimum -- less than $50,000 -- until he had signed up some customers. He didn't borrow any money until it was time for him to buy a computer.
Develop a network of suppliers. Tom Scholl, who runs an advertising agency in Detroit, found that starting his business took more than the $10,000 he originally planned, particularly since a couple of seemingly sure customers backed out. What kept him alive was help from his friends: one who ran a recording studio, another with a broadcast production business, a third with a music company, all of them willing to work for Scholl, on spec if necessary, to help him develop his business along with their own. Jim Brett, cofounder of Brett Aqualine Inc., a California manufacturer of equipment for portable spas, took the network concept one step farther. Like Scholl he lined up support from suppliers, all of whom knew him from the industry. Then he went to one of his prime customers and explained that he needed a letter of credit in order to produce the goods. That, plus supplier credit, allowed him to begin.
Don't be shy of banks. Banks may always be skittish about start-ups, probably with good reason. But they'll often lend against hard assets to people they know and trust, even in a business's early stages. Bobby Frost, of Consolidated Glass & Mirror, estimates he and his brother got about $150,000 in bank loans in his company's start-up days, all of it secured by land, building, or equipment. All told, about one-third of our respondents got significant start-up money in the form of corporate loans from banks.
GOING TO EXTREMES
The typical Inc. 500 CEO started with a modest amount of money, most of it his or her own. Then there are the atypical start-ups:
* Thinnest shoestring. Bob Rodriguez, then 20, deposited a $50 check in the bank to start his sales promotion company. It bounced. Oh, well. Rodriguez and his partner had seven or eight credit cards, used them to run up about $10,000 in debt, then lost them all. Regularly overdrawn at the bank, they survived only because an assistant manager there believed they'd succeed. Finally they landed a big account -- Eastern Airlines Inc. Fortunately, Eastern accounted for only 4% of Rodriguez's sales when the airline filed for Chapter 11 protection.
* Most unusual source of capital. Frederick Baker was a regional manager for C.P.S. Cablevision in 1975 when company owner James Peno fired him. Eighteen months later Peno called and asked Baker to take on some installation contracts that C.P.S. couldn't handle. Peno even agreed to lease equipment to his former employee and to countersign a $1,700 loan. With that capital Baker started his own company; 10 years later he bought Peno out.
* Hanging in there the longest. James Read figured he could build a better screening plant -- a piece of heavy equipment designed to sift stone and earth -- than anything on the market. So in 1977 he sold his construction company's assets for $200,000 and proceeded to spend it all. Three years later he had been turned down by banks and venture capitalists, had mortgaged his house, borrowed money from friends, and spent his father's life savings -- running through $600,000 in all. But his fledgling company was still struggling: by 1982 it was $300,000 in debt, including $50,000 in back taxes. Read scraped together $20,000 and could find no more -- until, two days before the IRS's deadline, a customer plunked down an order and a check for $58,000. The immediate crisis over, Read watched The Read Corp. grow to current sales of $45 million.
* Biggest spender. Mark Ain raised $45,000 to develop his idea for a computerized tracking system for hourly employees. Then he sold $471,000 worth of stock to finance a prototype system and $608,000 worth to finance production. Once in production, he ran out of money and raised $200,000 more. Finally he realized he needed a national network to in-stall and service his systems, and he brought in two venture capital firms for a total of $800,000. His secrets? "People say I'm one of the best raisers of capital they've ever come in contact with," says an immodest Ain. "I'd set a date for closing [each] offering, then I'd tell everyone, 'It looks like we're oversubscribed.' " They came, they saw, they invested -- and Ain's company, Kronos Inc., is finally making money.
NETWORKING
Why It Worked
Success of company is mainly attributable to:
88% Exceptional execution of an ordinary idea
12 An unusual or extraordinary idea
Surviving Start-Up
Most important source of support for founder and family before company began generating income was:
43% Own resources, such as savings
20 Salary drawn from company's capital
17 Continued work at other income-producing activity
10 Spouse's income
2 Support from parents and relatives
8 Other
How nice it would be if all our questions -- about background and business ideas, about getting started and raising money -- led to some simple lessons: How to Create an Inc. 500 company.
Alas, we found no magic key. Did you think you hit upon an extraordinary idea for a business? we asked them. No -- only 12% thought so. Was it the carefulness of your planning? No again -- a sizable fraction said they didn't pl
