Of course, not everybody will be able to afford to sing that tune. The Logues held a series of going into business sales -- first the car, then the house. After chasing investors for the first five months, they realized, "If we keep this up, we're not going to have a business to finance." They decided to sink their savings into getting a product out the door. "We had $20,000 to $30,000 in Julie's 401(k)," Kitson Logue says. "We just had to bite the penalty on cashing it out." While they eventually secured a bridge loan and a line of credit through a state revolving fund, they nonetheless sold one car, the Mercedes, for $13,000, and sold their house for considerably more. "In the end we put in well over $100,000 of our own money," notes Julie. "I invested every single penny I had."
From Partners. Few founders in the spartan '90s will be able to afford going it alone. So more will resort to partners as the best, perhaps only, source of equity. The price of taking on partners can be high: less equity (as a percentage), less income, and less control. But for some there's little choice. If they can't romance a banker or an angel, and can't pay for the talent they need, they may be forced to buy it with equity. Someone else's savings and skills may be just the propellant needed to launch the business.
In many cases, it's not just the capital that runs in short supply. It's the skills and man-hours required. "It just cannot be done by one person," contends Bettinardi, whose partner brought sales prowess. Michaels agrees. "You just need more than one person to start it. I can't imagine having worked more hours than I did at the beginning. The business needed two, sometimes three, of me."
Michaels recruited a minority partner who holds 37%. (Her husband holds 12%.) "I wanted someone with no family obligations, $30,000, and the willingness to work her butt into the ground." Her partner -- she interviewed three prospects -- ran the shop for most of year one while Michaels kept her job in television -- "for the visibility," she explains -- and handled sales and marketing.
Look for partnerships, a time-honored tradition in American business (even Sears needed Roebuck), to be on the rise. A partner can add complementary skills and compensate for weaknesses. Growth companies, especially technology start-ups, have long recognized the advantages that partners bring. More than half of them have been founded by teams of two or more, research shows. In the '90s, fast-growing or not, companies will live and die by the expertise of their founders. The more founders, the savvier.
They'll Run Their Companies Differently
Outsourcing
Bootstrapping
Selling Internationally
Using Technology
Controlling Growth
Since time began, start-ups have hatched in the cracks and crevices that bigger companies overlook. But niches aren't simply small these days. They're subatomic. Take the Logues' dietary dog biscuits. While 40% of U.S. dogs may be overweight, the market is still petite. Bettinardi knows that his market -- the legally blind -- taps out right now at 2 million, tops. And Michaels's is, well, a specialized specialty shop.
But wee niches don't mean stunted growth. In a highly competitive pet-food industry, dominated as it is by a couple of Saint Bernards, Kitson Logue says a microniche and alternative channels of distribution are what enable him to grow. Nonetheless, to keep good growth and margins, management strategies during the '90s will rely on a variety of techniques barely visible in the '80s.
Outsourcing. When large companies took to outsourcing, it helped fuel growth in the '80s. Farming out work once done in-house created opportunities for new players. While that practice is expected to continue, start-ups won't simply be beneficiaries of outsourcing. They'll be skilled practitioners. Outsourcing is becoming the strategy of choice for more and more companies.
Even if capital weren't the issue (and it is), the tiny niches these start-ups inhabit allow no room for capital-devouring equipment or capacity. There are no economies of scale to small production runs and micromarkets, so start-ups can't afford to sink cash into bricks, sticks, or paychecks. "We want variable costs instead of overhead," says Kitson Logue. "The less fixed cost you have, the more survivable you are." That means keeping a light balance sheet and thriving on a limited diet of capital equipment and employees. Some companies are already outsourcing everything. Rather than tie up cash building a product, they let others -- manufacturers peddling excess capacity -- worry about making it.
The Logues have doubled sales in each of the past three years, closing in on $1 million. They've grown their specialty-pet-food business without a factory, without a warehouse, without a sales force or employees. They shoulder a payroll of one. "We're sellers and marketers; we don't want to have to worry about the rest," says Kitson.
From the Logues' three-room office in South Bend, 10,000-pound shipments of dog biscuits are shuttled around the world with one fax, two phones, and a PC. One vendor ships a premix of the product to the couple's manufacturer, who sends the biscuits on to the packing warehouse, where workers customize orders and send them out to distributors and reps in five countries. A direct-mail house handles samples. A free-lance artist designs the packaging and some advertising. "We are at the hub, directing traffic," says Kitson.
