Behind the success of any enterprise lies positive cash flow. And because of the vagaries of living on the edge, that's all the more so in bootstrapping. Practitioners have devised various rules to defend against sudden negative turns: One, deal only with vendors who offer credit terms, but don't tell them that's why. Another, when goods are ready to be delivered, deliver them yourself and collect on the spot. The secret is not to get involved in goods or services that take overly long to execute. This is how bootstrapping cash flow ideally is executed: buy material from a vendor on 45 days' credit, turn it into goods that morning, and send them out COD that afternoon. A dedicated producer could cycle cash 45 times over before the inventory bill came due.
Almost by definition, a bootstrapper must avoid industries that call for lots of equipment. A truck or two, maybe, because vehicles sometimes can be financed through an auto loan from the same bank that refuses a business loan. Often the shading is subtle but significant. The advantage of men's clothes, for instance, is that styles rarely change. What a savings in capital expenditures for Nicholas Graham, founder of Joe Boxer Corp., whose machines have been stamping out the same underpants pattern for five straight years.
More discreetly than their sufficiently capitalized brethren, bootstrappers use the system to beat the system. One such aim is to delay by any legal means a check's getting deposited into the recipient's bank. Certain check-writing strategies gain as many as 10 business days -- a significant boost to cash flow.
For all their garrulousness, bootstrappers tend to be an individualistic, solitary lot. Else why, when faced with the prospect of friends wanting to invest in his enterprise, did Physicians Weight Loss Centers' Charles Sekeres spurn them entirely? Beaver Valley founder Nilan took in $10,000 from an acquaintance, held it unused for a while, then returned it when the donor became impatient. A third, Richard A. Kenney of Kenney Communications Inc., reports at first feeling crushed, then ebullient, when a start-up partner quit and withdrew $2,000 in working capital.
"What I like about all this," sums up Fred DaMert, "is it's attainable. We're not talking space shuttles. I happen to have had a great product, but anyone could have thought of it."
Joe Boxer Corp.
San Francisco. Nature of start-up: manufacturing neckties. Founded: 1983. Estimated 1991 revenues: $22 million. Employees: 46.
"I'd go in and make the sale, then rush back and sew the goods. A day later there they'd be, delivered! Customers got the impression that I had dozens of employees, that phones were ringing off their hooks in New York and Chia go and L.A."
-- Nicholas Graham
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As a performing musician, Nicholas Graham had ample opportunity to observe peculiar sartorial trends. For his taste, not peculiar enough. So at age 24 he toured some local fabric stores, buying up patterns he considered "more interesting." On a sheet of plywood set atop his bed, he cut and sewed the swatches into ties. The finished goods were sold to specialty shops, cash-only. "I took in $100 and made $100 off it," he liberally gauges, "because overhead was nonexistent."
The neckties-out-greenbacks-in cycle kept up for two years. One day a buyer at Macy's suggested that if the fabrics Graham was using for neckwear were made into underwear, he would generate more money. There went the necktie business, folded, as it were, into Joe Boxer. "The name popped into my head," he claims, "and took over everything." Including major department stores in the United States and factories in the People's Republic of China, where today the corporation has silk prepared to order.
In his first year as Joe Boxer, Graham took in $600,000, "hired some labor," retired the plywood, and subcontracted the sewing. Soon he signed onto a factoring arrangement by which the company would be paid 80% of an invoice on the day an order was shipped and the bank would own the receivable -- a typical arrangement in clothing and furniture manufacturing. "You get cash quicker, which fosters faster growth," Graham explains of the sometimes-suspect financing mode. It certainly does: six months into Joe Boxer's second year, sales had already topped $1 million.
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ProForma Inc.
Cleveland. Nature of start-up: brokering printed business forms. Founded: 1978. Estimated 1991 revenues: $30 million. Employees: 65.
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"When I was young and worked for someone else, I always ended up getting fired. I had one dependable job; it was with my father, the manager of a large company. He told me, 'Greg, I'd fire you, too, except you're my son.' " -- Gregory P. Muzzillo
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It took a mere six months at a (then) Big Eight firm for Gregory Muzzillo, just out of college at age 23 and trained as an accountant, to decide he "was not keen on a career path that demanded such a drawn-out process to make partner." His roommate wasn't fond of the job he had as a salesman, either. So Muzzillo pointed out, "You're a marketer, and I'm a bean counter -- the perfect combination for starting a business!"
And what handier business than brokering forms, standing between a customer's needs and a printer's ability? "Every business uses forms," Muzzillo reasoned. "You don't have to go far to find millions of dollars' worth of orders." The founders' initial capital, such as it was, went mostly into a telephone-answering machine. With that, relates Muzzillo, "we merely declared ourselves in business." The next step was to design letterhead and use it to apply for credit from printers, typesetters, paper suppliers, and such. "To get started selling the products we wanted to sell, we had to get an open line with about 25 plants," Muzzillo says. "We wrote each one that we'd just graduated from college and were bright fellows. That took gumption, but the vendors seemed impressed with our earnestness."
