How to Start an Inc. 500 Company: Six Common Questions

Six Inc. writers each examine one common question about starting a successful business.

1. How Do You Get Credibility?
Before making that first sale, before winning that first cash infusion, even before putting a product into production or hiring employees to perform a service, most start-ups struggle to establish credibility. Suppliers, customers, and investors all need a little coaxing to trust an unproven entity. The job is even tougher when you're 22 years old, with no experience in your chosen market.

That was the problem Don Winter faced in 1988, along with partners Michael Travin and Larry Gelfand. They had invested a total of $1,000 of their own money in Resident Publishing (#207). Their plan was to start a controlled-circulation community newspaper for New York's tony Upper East Side. Half their cash went for a mock-up of the tabloid, which they would use to sell area retailers on the idea of prebuying advertising.

But when the mock-up arrived, it wasn't what they had envisioned. "It was pitiful," Winter says. "Four pages. The logo was childish. Showing it on a sales call would have been a blow, not an asset." So now, not only were the founders young and inexperienced, but they also had no sample product with which to augment their sales pitch.

Even if the retailers did chance an ad, it would be only at the 30- or 60-day terms typical for a start-up business. And that would not give the partners the cash they needed to get the paper started. With so many strikes against their credibility, they decided the only way they'd walk out of a sales call with cash was to appear to represent a fat, happy company run by smooth professionals.

"At age 22, when you say, 'This is a tremendous product,' there's a confidence and credibility problem," Winter says. "Instead, we created the illusion that we were part of a larger group, not just three guys out there selling. We couldn't have carried it off if we'd said, 'Hey, we're the owners.'

"First, we spent months conceptualizing so there'd be no vascillating during sales calls," he says. The partners ended up with a typed list of their proposed publication's six "points of excellence," which included strengths such as community focus and cost effectiveness.

So they'd look like three cogs in a reassuringly larger machine, their business cards read "account executive." Prospective customers who asked, "Who are you?" were told, "We're the sales reps." Which, Winter insists, they were. They also just happened to be the owners. "If anyone had asked if we were the owners, we'd have said yes. But we came across as sales reps, and we had such an ambitious idea that we gave the impression it was a big company."

Their tactic worked. Within three months they'd sold more than $15,000 in advertising for the first issue, over half of which was in cash, and 80% of the buyers had committed to three more issues. Then they put on the same act to get favorable terms for the $4,000 print run. "We went to 10 or 12 printers," Travin recalls. "The one stipulation we had was that we needed credit terms." They got 30 days from one printer, who assumed they were a bigger operation. Resident Publishing has been running on cash flow ever since.

Three months after the first issue came out, the monthly became a biweekly, and after a year the owners added a paper for the Upper West Side. It was followed in subsequent years by papers for the Midtown and Downtown areas. Making the first few Upper East Side deliveries themselves to area residential buildings, the owners had chatted up doormen and concierges. "We told them we were the distribution managers," Travin says, and notes that the trio, dressed in jeans or shorts, had left plain company business cards behind.

Winter, Travin, and Gelfand finally came clean at a community meeting. Two years into the business, Resident Publishing was asked to cosponsor a local safety seminar. "We felt the time had come," says Winter. "We needed to be more than salespeople and to use the paper as a real vehicle to enhance the community." When they stepped up to the podium as the owners, Winter says, "the people we'd sold to early on were amazed." But fortunately, they weren't angry. "One person said it was nice to know that the same people who were working so hard could actually take home a piece of the company."

Establishing credibility is a critical issue for any start-up, says Travin. "If you go to a retailer and sell them, they'll go tell their neighbor. You get word of mouth. If it's good, you're in business. If it's bad, you might as well close your doors."

Winter agrees. "In New York people are so skeptical. Businesses come and go, so people are looking for credibility. We never said we were backed by someone larger; we just gave that impression. And we're proud of it. Three people created the illusion of being a big, strong company." Now, six years later, Resident Publishing is finally just that. -- Phaedra Hise

2. Can You Really Do It All from Home?
Zoning laws and space limitations notwithstanding, starting a business from home is a cheap and convenient route many entrepreneurs take. Carve out household space for the desk, the files, an oven, some baking sheets . . . That's what the Hopmayers, founders of Original American Scones (#331), did in 1986. Jeffrey Hopmayer was 22 when his parents started baking scones in the basement of their home, in Wilmette, Ill., for Chicago-area grocery and department stores. They hired Jeffrey to help bake and to learn the business. After he became president, in 1988, he grew Original American Scones to a $93-million company with national distribution.

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