Profile of 13 companies which were started for less than $1,000.
Everybody complains that capital is drying up, but most businesses are started on a shoestring anyway. These 13 companies demonstrate how
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Long ago some aboriginal entrepreneur launched the world's first profit-making concern. There was no cash in those unenlightened times. Therefore, he or she did for business what the Big Bang did for the universe: got it going from nothing. Since then any number of corporations have lifted themselves by their bootstraps out of the same primordial ooze. The once-impoverished founders of Kelly Services, Hallmark Cards, Oscar Mayer Foods, and many other enduring household names tell stimulating start-from-scratch stories. [See quiz, "Guess Who?" below.]
Inc. magazine has been rubbing elbows with ingenious self-starters from its very beginning, too. Our premier issue (April 1979) carried an article about a garage-born computer company tentatively nursed to life by a couple of guys in their twenties who whimsically named it Apple. Then again, in our corridors severely undercapitalized but now successful founders have been rubbing elbows with another bootstrapper: Inc. descends from no-money-down origins, its 24-year-old corporate roots traceable to a humble pamphlet on sailing.
Nowadays, it seems, a new business is apt to be a Compaq or MIPS kind of thing, hitting the ground fully capitalized, fully researched and developed, fully located, fully staffed, and fully positioned to rake in a few hundred million dollars within the first three years. A tendency away from garages and into vestibules became evident a decade ago, when, thanks to the generous backing of venture capital, Lotus Development Corp. was able to spend $3 million promoting its first product. That formidable sum was assumed to have made it impossible for new software companies to even think of beginning with anything less.
For reasons about to be generally explored, however, it wasn't assumed formidable by one Philippe Kahn. Just off the boat from Europe, Kahn was unschooled in how investment flows in the world's leading economy. He didn't realize it's not supposed to flow to naïfs like him.
And it didn't. Barely a year later the penniless Kahn decided to go it on his own without even a corporate identity. (In a winning bootstrapping move, the one he eventually concocted was designed "to sound like an important company.") Kahn was so simplistic as to believe that despite a total lack of capital and the concomitant inability to borrow any, he nonetheless could take on well-heeled competitors like Lotus and make himself a bundle.
For a start he gathered a troupe of clued-in helpers, set up a battery of fake telephones, and to impress visiting potential vendors, pretended to be a briskly thriving business. You'd dismiss the stunt as totally ridiculous, if it weren't for the fact that, hard on the heels of its well-financed rival, Borland International Inc. is valued at $680 million, a mere eight years later.
What's impressive in terms of the above references is not only that any of us could have pulled off the same feat but that many of us still are. The ranks of shoestringing hopefuls who passed through Inc.'s corridors in the 1980s remain undiminished in the 1990s. And like their famous predecessors, the business breeders profiled in these pages -- a gamut that runs from manufacturers of goods as low-tech as stuffed beavers to services as specialized as psychological testing -- began with pocket change. In some cases not even that, and in no case with more than $999.99. Each undercapitalized start-up chosen is now at least six years old. As the founders attest, the financial system that was accessible to earlier bootstrappers such as confectioner William Wrigley Jr. in 1891, carmaker Henry Ford in 1903, Reader's Digest publishers DeWitt and Lila Wallace in 1922, and high-technologist An Wang in 1951 remains equally accessible today.
The Elements Of Bootstrapping
When you catch onto the rules of bootstrapping, access routes to other people's money abound, though not necessarily for the coin of the realm. The capital of credibility -- other people's willingness to hear you out, to grant credit extensions, and to barter (or merely to lend an empty after-hours desk) -- does a bootstrapper as nicely as cash. To attract such implicit investment, bootstrappers have to exude confidence both in themselves and in their products. "A rush of adrenaline that still hasn't gone away" is how DaMert Co.'s Fred DaMert describes that attribute.
Self-belief -- some call it chutzpah -- inspired ProForma Inc. founder Gregory P. Muzzillo and partner one day simply to "declare ourselves in business." To break the news to the rest of the world, they printed official-looking letterhead. Cost so far: $49.95. For another $25, letters were sent to 100 prospective suppliers, from whom they solicited both understanding and 30 days' credit. Enough said OK to launch the duo into their next stage.
Wearing one's heart on one's fiscal sleeve is also an effective bootstrapping ploy. Marc H. Ostrofsky of Information Publishing Corp. recognized early that "a lot of times when you need something, if you explain to people why -- tell them a critical supplier has to be paid by noon tomorrow, for instance -- they'll cooperate."
Plant Technical Services Inc. founder Amin Bishara asked for -- and got -- $125,000 in loans from prospective employees to fund their own pay for a while after he founded a business to hire them. They were offered two points over then-current money-market rates, which no doubt was enticing but which actually equaled prime -- the rate banks charge their most solid customers.
No bootstrapper can go far with an inferior product. Beaver Valley Inc.'s Kaylee Nilan knew her new business was on the right track when established competitors began ripping open her stuffed animals to reverse-engineer their solid construction.
All bona fide bootstrappers indulge in a little pretense now and again merely to stay alive. Nothing that would send up a chief executive for fraud, mind you, but maybe using a telephone for a while at residential rather than commercial rates. Ditto floor space. Marc Sirkin of Secret Identitee Merchandising ran his business out of an apartment, which cost less than renting industrial-park footage. (It helps if the neighbors are away all day working in said industrial park.) Economically distressed cities like Houston are spawning grounds for cashless businesses, whose hard-up CEOs can dictate surprisingly favor able real-estate terms to even harder-up landlords.
