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MONEY

The Survivalists

How one company made the Inc. 500 list without outside financing.
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Is it possible to build a fast-growth company without outside financing? You bet it is

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If there's one crisis the companies on this list have all faced at some point, it's the lack of capital. Growth companies, by their nature, never get enough, and when they do, they swallow it whole. But even if tradition ordains it, the shortage of capital has rarely been felt more acutely than it has by the companies making this year's list. A sluggish economy, the retreat of venture capital, the weakness of banks, and the tightening of credit -- all of which began in the late 1980s just as this year's Inc. 500 class was ramping up to grow -- colluded to create famine conditions in the capital markets.

The effect has been the rise of self-propelled companies whose trajectory has been fueled with neither debt nor outside equity but with earnings. For those companies' CEOs, growth has been an endless Outward-Bound ordeal. And their habits -- staying liquid, eschewing debt, pursuing profits as much as revenues -- have prepared them (whether they expect it or not) to weather an economic ice age.

Among them, few exemplify those survival skills better than Bob Plath of Travelpro Luggage (#12), in Deerfield Beach, Fla. The company, with $12.6 million in revenues last year, has thrived on a very simple diet: internal cash.

For Plath, capital isn't about debt or equity instruments. Finance isn't a matter of orderly spreadsheets. He has never seen his company's balance sheet. "We just started generating regular financial statements three months ago," he confesses, when Travelpro's year-to-date sales had reached, oh, $23 million or so. He had never stopped to consider his ratios or the fact that his employees were producing a million a head in sales: "Oh yeah? Sounds pretty good."

Plath's secret? "It's called bootstrapping, and we've taken it to the nth degree." Sales are expected to top $30 million this year, netting Travelpro enough profit (a reported 23%, pretax, in 1992) to fill the biggest suitcase it makes.

OK, so a couple million a year in retained earnings helps. But only Plath's ingenious frugality can ensure that Travelpro will be solvent long enough to sell another day. The company's origins: as a sideline to Plath's job as an airline pilot. Its product: designed by Plath, who created the prototype at home. (He taught himself to vacuum-mold using an oven and an Electrolux.) Its sales strategy: the business has no direct sales force and has relied on airline crew members to seed the market and on independent reps to capture it. Its manufacturing: almost completely outsourced, primarily in the Far East, to which Plath traveled free until two years ago, when he quit flying Asian routes for Northwest Airlines. Its distribution facilities: abandoned warehouses leased at below-market rents. Its financiers: customers and suppliers. Its offices: until six months ago, one room crammed with 18 employees.

For all its humble virtue, devotion to cash does impose limitations. Maintaining adequate inventory, for one. "I buy it only when I can afford it," Plath says. Meanwhile, back orders pile up.

Still, Plath insists that growing out of income has tempered rather than hindered the company. "There are problems money can't solve, and some it makes worse," he says. "It takes time, not just money, to bring a manufacturing facility up to speed, to develop new products, to grow your organization to handle the influx of customers. If we'd had money, we might have grown too fast, without the infrastructure to support the growth."

As the business hurtles toward $50 million, Plath is no longer compelled to pay as he goes. It's the capital catch-22: "When you need it, you can't get it," Plath states. "When you don't need it, that's when banks are knocking down your door." Yet he still prefers to pay as he goes. "I learned to do it out of need; now I do it out of habit.

"I don't run a balance on my MasterCard, either," he says. -- Anne Murphy

Last updated: Oct 1, 1993




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