Like Stewart Pet Products, the Logues' vendors are small. Largely local businesses, they "don't know the meaning of minimum order" and consider Stewart a "decent piece of their action." Although the Logues pay a premium for farming out so much, they eliminate inventory-carrying costs and win a furlough for their cash. "We give up some margin and some control," Kitson concedes. Plus, outsourcing the bulk of their operations requires vigilance. They police quality closely, talking to vendors every day. "Our job is to put a stick in their ribs and do to some degree what GM does. You have to write specs telling vendors every step of the process. It's an endless sequence of small details."
Bootstrapping. Life on a low budget may prove a chronic condition, not just a passing phase for start-ups. Welcome to innovation's real frontier in the '90s: cash flow. With start-ups self-financed and lean for life, the point of the game of business will be making sure cash goes out later, and preferably only after a product is successful. More art than science, the practice of bootstrapping will call for a panoply of techniques including long terms from suppliers, advances from customers, presold orders, rampant subcontracting, royalty financing, and equipment that is used or leased or, preferably, both. And don't forget the credit cards. At one point Kitson Logue could barely fit all of his into his wallet and comfortably sit down.
Rather than tie up too much cash in product development, founders such as the Logues will experiment on inexpensive trials and small runs. "You won't make a lot of money on them, but you'll find out if something works." They'll concentrate their resources and their efforts on distribution, making sure that once in the channels, products move off the shelves. "We pay a lot of attention to distributors and sales reps. They have 2,000 products. We want them to talk about ours," says Kitson.
To cut expenses, the Logues produce most of their own marketing and advertising material for the veterinary channels. A photo in one recent brochure illustrates that: "The vet behind the counter is Julie, the customer is a free-lance graphic designer, and the dog is ours. I was off camera waving a french fry at the dog to keep his attention." Naturally, taste testing is done in-house -- by Sharley, the collie.
Kitson claims even his location in South Bend is a bootstrapper's paradise. "You'll find a better-than-average hourly work force. Companies that have left town have left some decently trained people behind." The cost of living is low enough that "on a decent wage you can live like a king." And a 500-square-foot office, located in a state-designated enterprise zone, goes for $500 a month.
Not many will overlook the value of free publicity. Susan Michaels leverages her media savvy to garner lots of PR, which inevitably builds traffic through her shops. "I've had so much publicity, it's incredible." Her store additions are do-it-yourself jobs that cost $4,000 instead of the $20,000 that others might spend.
Though cheap, bootstrapping exacts its price. In opportunity costs, for example. A founder is bound to pass up chances to grow, for lack of financing. "We have to take the easiest and cheapest opportunities we can to get the furthest the fastest," Kitson Logue says. "That means smaller markets where we can get distribution more easily."
Often the costs of bootstrapping are paid personally. "We have had our backs to the wall plenty. Times when we couldn't make a house payment, couldn't make a car payment," says Kitson. "It takes sheer determination and resourcefulness to grow a business this way."
Selling Internationally. More start-ups will find their primary markets far from home. A growing chorus of economists forecasts that the economies of Europe and Japan will grow twice as fast as the United States' this decade. Latin America's will grow even faster. What it means for start-ups is a precocious pursuit of international sales. They're going to have to tap overseas markets sooner.
"If you don't go global immediately," notes Patricia McDougall, associate professor at Georgia Institute of Technology's School of Management, "you don't have an international spirit in your company. When you eventually do go global, you've got a lot of domestic inertia in the company, and it's harder to do it."
But selling internationally requires more capital. Kitson Logue, who began selling abroad in the company's second year, admits to the overseas opportunities, but says, "They're just harder to finance." Currency exchange is inhibiting. And foreign customers want longer payment terms. "It really sucks up the cash," he laments.
Using Technology. There's no dispute: technology has lowered the cost of entering business. Why, $5,000 easily gets a phone, a fax, and a computer today. For the lion's share of start-ups -- services -- that's enough to put them, at least marginally, in business.
No longer simply a basic tool, technology has become a more critical competitive advantage for start-ups today. Computer control enables companies to customize products and compete for new customers in ever tinier niches.
For Susan Michaels, her information system is her link to the hearts, minds, and hemlines of her customers. She tracks everything from inventory to her customers' birth dates on her computer: She knows each one's dress size; height; weight; age; waist measurement; shoe size; and preferred colors, styles, hemlines, necklines, and sleeve lengths. She knows which formal events they attend and when. She can guarantee identical dresses aren't rented for the same event.
