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"When you sit around your office and realize things aren't right, you feel like you're the only person in the world suffering those things." -- Dan Armbrust
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Well-written software can change a 19¢ floppy disk into a $199 floppy disk. Unfortunately for a cash-poor start-up, however, to a loan officer the latter looks identical to the former. "Banks don't understand the concept of intellectual property," Softworks Development cofounder Armbrust concluded in 1983. Therefore, the then-21-year-old college dropout decided to capitalize his ambitions solely on their merits -- plus a few hundred dollars of his own.
Armbrust put the cash into a Commodore computer, two disk drives, and a packet of blank diskettes. In the corner of a bedroom, he transferred the program he had written onto each blank diskette and shrink-wrapped it in a household Seal-a-Meal. To get the first rank of distributors back in 1983, Armbrust "sat on the phone" and made cold call after cold call. Following up on the possibles, he'd bring in his program and plug it into the customer's computer. Impressed by either Armbrust's program or his cheek, some bought 5, some 10; all paid COD. "I'd hop in my car and drive the filled order back down and pick up the money," he recalls. For all the distributor was told, Armbrust was merely the rep for that territory.
One technique for keeping the wolf from the door, Armbrust learned from his part-time job at United Parcel Service, was to buy from out-of-state vendors and have the goods shipped COD via UPS. The cashless and creditless buyer pays by check, which the UPS driver relays to the supplier by ordinary mail. It can take as many as five days for the supplier to get paid; clearing the check through the banking system can take another four. Deftly maneuvered, that positive cash position can be parlayed into inventory turnover or easy interest many times over. "Whenever you can get a few days on a few grand," Armbrust instructs, "seize the opportunity."
(continued)
Beaver Valley Inc.
Etna, Calif. Nature of start-up: manufacturing stuffed animals. Founded: 1983. Estimated 1991 revenues: $500,000. Employees: 18.
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"We didn't take money from the business until we actually had to, until the power was ready to be shut off or something absolute like that. For all the hours I put in in the beginning, I could have been earning more at McDonald's." -- Kaylee Nilan
* * *
When Ian got a rabbit, the toy industry got Beaver Valley. His mom promised to sew the best stuffed animal ever there was for Ian's fourth birthday, and if today's retail price is any indication, she did: an individual piece from Kaylee Nilan's line of collectible bears, bunnies, and beavers can cost nearly $2,000. The plush family was begotten when local artisans admired Ian's fanciful creature so much they insisted on bringing it to San Francisco to an arts-and-crafts trade show. A toy distributor saw it and ordered more of the same, contracting to pay in full within 10 days of receipt.
Output was a slender 20 to 30 units a month, but at about $300 each, it was enough to make ends meet. When Nilan had a falling-out with her rep, the fast-pay arrangement was seen to have a near-fatal flaw: "the problem was that at the end of the relationship, we didn't have a customer base, so it was like starting from scratch again."
Joined by her husband, Jeff Trager, who left a job as a wilderness ranger to handle accounts, Nilan learned the hard way about the hazards of selling direct. "A toy-store owner in Petaluma tried to con us into giving credit right off the bat. He could sense we were hard up for new accounts. We said, 'Sorry, the rule is that the first order goes COD.' " On the second order, however, the buyer was given 30 days. The next week the COD check bounced and the buyer disappeared with the goods.
At that point any contribution would have been appreciated. One came in the form of a request from an acquaintance to invest $10,000. The money was gratefully, if temporarily, accepted.
"We sold what we thought was a portion of the business. We didn't have a value," relates Trager, "so we called it 'five shares of stock for some future worth at $2,000 a share.' We weren't even incorporated then. None of us knew how many shares there were supposed to be, all told." The trusting stockholder waited for Beaver Valley to declare a dividend, then gave up and asked for her money back. The company bought the shares at the same $2,000 per, plus annualized interest. "In the early days you don't know what you're doing," Trager admits. "If someone offers you money, you take it."
* * *
Team Building Systems Inc.
Houston. Nature of start-up: preemployment testing for honesty. Founded: 1984. Estimated 1991 revenues: $2.8 million. Employees: 17.
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"After putting in an 18-hour day, when you go home you don't want to have a conversation, you want to get your head clear so you can get back to work the next day." -- Carl E. King
* * *
As director of marketing for an established security company in Houston, Carl King didn't have a worry in the world -- until he got laid off, in June 1984. The abrupt dismissal came as he was in the middle of negotiating for the rights to a psychological-profile test. No problem: King simply continued the negotiations on behalf of himself. Soon four others who had been laid off joined him, each kicking in $200.
If King isn't first to admit that when you start a business on naught you'd better have luck, he ought to be. His good fortune came via a rental agreement for office space. The footage was in a building with only seven tenants, which the lessor obviously wanted to fill and show on the books as occupied. He offered King the first two years free if King would pay for the first and last months' rent and sign up for three years at the full rate. A couple of months after the two-year part was up, the owner closed the building. All told, Team Building Systems paid only three months' rent for a tenancy of 27 months and was clear of three years' high-priced obligations. "Houston," affirms King, "is a great place to start a business."
