The Secrets of Bootstrapping

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GETTING BACK THE FEVER

For established businesses with entrenched and sometimes profligate habits, it can be tough to regain a resource-thrifty mentality. Here are a few first steps toward a bootstrapping make-over

Most companies, like most people, grow fatter with age. How do you recapture the passion for making do that characterized your business's climb toward fiscal viability? Try these recommendations from CEOs who have nurtured a culture of bootstrapping even while growing their companies large:

* Adopt zero-based budgeting. To distinguish between necessary expenses and excess, demand that every budgeted line item be justified instead of allowed to grow by percentages. For Tom Golisano, founder of Paychex Inc., a payroll-processing company with 450 people at its Rochester, N.Y., headquarters, the annual budget process consumes up to 60 hours of his time each spring -- and the same amount for other Paychex managers. "It's a lot of time," he says, but it's needed to analyze key numbers such as cost of goods sold and selling expenses, to compare them with prior years, and to be certain that budgets rise only if they have to.

* Consider each new project a start-up. Pat McGovern, chairman of International Data Group, a Boston-based company that has launched more than 186 magazines and newspapers and 46 trade shows, provides each new project team with a fixed amount of capital and its own location -- "in a low-rent district, in a loft, somewhere that says, 'limited resources,' " and where people won't be working next to more mature ventures. "We've had people go to the wall," says McGovern, "but the advantage of running out of cash is that they always find a way to survive. We haven't had to blink yet on our refusal to give out more money." People running the projects get phantom equity, which presents the opportunity for big earnings.

In McGovern's view, people "succeed best if they spend most of their time with customers and if they are forced to adjust their product to the needs of the market." Giving new, bootstrapped ventures some autonomy, he says, spurs them to do those things; it also forces the people heading the projects to become entrepreneurs themselves, requiring them to understand and accept the discipline of business plans, manage cash flow, keep costs in line, and create a work style that reflects competitive rigor. "If there's an umbilical cord to the corporate treasury, people will think of a thousand reasons to delay."

* Spread budget accountability throughout the company. Give complete autonomy and responsibility for hitting budgets to as many people as possible. For companies with, for instance, branch offices, that can mean setting up incentive bonuses for the managers who stay within their budgets -- providing "built-in encouragement to be thrifty and make good value judgments," says Golisano.

* Artificially restrict cash resources. Don't keep all available cash in operating accounts; change the way cash reserves are perceived by labeling them differently. James McCann of 800-FLOWERS, a mail-order flower company in Westbury, N.Y., puts cash that isn't immediately needed for working capital into a separate account, forcing the company to think of that money as a distinct asset. "Psychologically, it's not cash that's available. As individuals and companies, we go through a cycle of not being as good as we should be at managing money, and we get into trouble with control. With a separate account, it's easier to focus on that money's not being available for the short term."

* Evangelize about bootstrapping. At Cabletron Systems, in Rochester, N.H., cofounder Craig Benson uses a slide show "to remind people what you stand for; you can't expect someone to understand your philosophy unless you communicate it to them." Though Cabletron has grown to $290 million in annual revenues and has a work force of 2,300, it remains notorious for its metal desks, ratty cubicles, and bare-bones ethic. Benson, the president, and CEO Bob Levine claim to spend 20% of their time promoting and explaining the company's culture of frugality. -- Leslie Brokaw

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