18 ways to grow or survive by substituting imagination, know-how, or effort for capital.
Tactics for the savvy but cash-strapped CEO: 18 ways to grow -- or survive -- by substituting imagination, know-how, or effort for capital
Q uick, name a sector that has added jobs in the recent past. Electronics? Retail? Automotive? Oil? Home construction?
Give up? The 16 unassuming companies described in the following pages did. They created some 1,075 jobs from scratch. Assuming that each company was operated at first by no more than two founders, that's an increase in new jobs of 3,260% -- generated in those same recession-struck industries, at that.
The distinction between capital-dependent and wit-dependent commerce has never been as apparent as it is today. Banks are now far more timid than they were in their lending frenzies of the 1980s; consumer confidence is virtually nil; venture capital has withered (not that a true bootstrapper panders to it any); suppliers don't take credit risks; markets are crowded and competitors cutthroat; and cost of entry into just about every endeavor from candles to computers is formidable.
If the past few years constitute unfertile ground for companies with money, they have to be an utter wasteland for those that lack basic access to it. Yet in the last decade many businesses that began with absolutely no capital have grown more briskly than businesses that were awash in it. Their currency: bent rules of thumb. By hook and, by some standards, by crook (see "The Ethics of Bootstrapping," September, [Article link]), their brilliance comes through figuring out how to tap the money of others, or how to substitute imagination, knowledge, or sweat for money in the first place. That's all bootstrapping is.
Still, today's bootstrapping founders don't seem quite as daring as the swashbuckling niche exploiters of the '80s. They're more likely to be microexploiters within a niche: offering a fresh twist on how someone else is doing something, a product that another has neglected to deliver, or a service that others don't provide. Understandably, the founders in these pages tend not to have had vast empires in mind when they started their companies, so much as the less-risky goal of securing a modest corner of entrepreneurial turf. No doubt this era has shrunk the American Dream to tough-times dimensions, and if sometimes founders' creations grew beyond that, it wasn't for those founders' lack of trying to keep their companies at manageable sizes.
There's no course book of bootstrapping techniques, but there ought to be. As the following advice demonstrates, the approach has much to teach -- and even companies that have progressed beyond their bootstrap days would do well to relearn some of the proven tactics. (See "Getting Back the Fever," September, page 6.) Here are 18 of the best:
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1. Get in on the dawn of an era. New niches pop up with regularity these days, but they don't come with ready-made standards for how to conduct business. Those practices develop over time, and until they do, bootstrappers have unique opportunities. When "900" pay-per-minute phone service was introduced in the late '80s, a flood of merchants entered the market at the other end of the line. It occurred to only a handful, among them Worthington Voice Services Inc., of Worthington, Ohio, to develop and market computerized systems to handle the incoming calls. Founders Gregory Speicher and De Trinh dropped out of jobs in the PC industry, pooled $800 to buy an accessory that allowed them to digitize speech, programmed the software, and constructed a demo. Working out of Speicher's mother's basement, the two cold-called profferers of 900 services. When they got orders, they asked for up-front deposits to cover the purchase of the hardware -- virtually the entire cost. "Our customers were as new to the game as we were," explains Speicher of the team's bravado, which wouldn't cut the mustard in ordinary commerce.
Top Bootstrappable Industries Recommended by Experts
* Consulting; desktop publishing; valet parking. -- Bernard H. Tenenbaum, director of the George Rothman Institute of Entrepreneurial Studies, Fairleigh Dickinson University, Madison, N.J.
* Outsourcing services for business.
-- Reid Gearhart, director of external communication, the Dun & Bradstreet Corp., New York City
* Group travel; mail order; specialty job shop.
-- Howard H. Stevenson, professor of entrepreneurial management, Harvard Business School, Boston
* Software; anything sold by subscription. -- William A. Sahlman, professor of entrepreneurial finance, Harvard Business School, Boston
2. Tap Vendors. In economically flourishing sectors, this put-it-to-'em tactic doesn't stand a chance. But when trade is off, not only can vendors and suppliers be cajoled into extending credit to the uncreditworthy; they can also be used as an inexpensive research-and-development arm. Ronald Jackson, founder (on $500) of Contract Manufacturer Inc., a maker of flatbed trailers and horse carriers in Madill, Okla., relied on sales-hungry suppliers to execute both his engineering and his budgeting. "Find someone who's looking for clients," advises Jackson. "Many suppliers have in-house expertise and big CAD systems. I tell them I'm coming out with an advanced product -- a new-style fender, for example -- and they say, Let us run it by engineering. So I give them a sketch, and they come back with the engineering and the design and the cost on it. It's not a paltry effort; I'm talking maybe $5,000 worth for nothing."
Like many bootstrappers, Randy Amon, cofounder of ABL Electronics Corp., in Timonium, Md., tried to get his suppliers to extend long credit terms even as he was persuading his customers to pay invoices promptly. "We expected COD from our customers, but we paid net 45 or net 60," he admits. "I don't see anything wrong with using your vendors to help fund your business."
