Bootstrapping Tactics: A Bootstrapper's Primer

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Credit Cards
It's expensive money, but plastic is often the bootstrapper's only option.

Credit cards financed Mike Hosford of PCs Plus Computer Center. At times he had $40,000 outstanding, having maxed out 8 or 10 cards. "My partner and I had cards, and we used my brother's and my girlfriend's. We weren't picky," he says.

Bill Dayton, Phil Cooper, and Larry Lee started Encore Productions in 1988, when they foresaw a boom in audiovisual shows for conventions, stockholder meetings, and the like. All three had production-related jobs at the Tropicana Hotel and Casino in Las Vegas. The missing ingredient was capital. "We were savings-avoidance people," Dayton confesses. Each of them could ante up only $1,000.

"It was during the height of the credit-card frenzy," he says. "We had good jobs, so we were getting all these applications. We filled them all out and mailed them at once, and the three of us got about 100 cards and $500,000 in credit lines. Customers' deposits didn't cover our out-of-pocket expenses, and without the cards we would have faced a cash-flow crisis. We used the credit lines and paid them off quickly to avoid the interest charges, and then we'd use them again." Encore is now a $16-million company, and Dayton laughs at the absurdity of his credit-card collection; he had 35 in his name. "Somebody gave me a photo album for them as a joke," he says.

Business Location
A bootstrapper needs a place to call home. Indeed, his business often is in his home. Unless a formal setting is indispensable, as it is in retail, starting at home eases cash-flow anxieties when money is more urgently needed for product development, sales, and marketing.

When Allen Shatto started his consulting firm, in 1988, renting office space was out of the question. He worked from his house in Bel Air, Md. When he could no longer shoulder the workload, he hired four engineers and a scientist, who worked from their houses. To give the modest venture a luster of loftiness, Shatto added an "adjunct staff" of 15 freelancers who worked out of their homes.

"My first big purchase was a personal computer," Shatto recalls, "and we tore the doors off a closet to construct a workstation. When I later hired a part-time secretary, she worked in the closet." Only after he won a big federal contract, in 1990, did Shatto move into commercial offices. Finally, he says, "I had to face fixed operating costs." But he furnished his new digs on the cheap. "There was another defense contractor whose lease was six months out of sync with his contract," Shatto says. "I let him share our office space for free, and at the end of six months, I took title to all his furniture. So we furnished the office for free."

One benefit of working from your house is that help -- that is, your family -- is close at hand. When Richard Caudle founded Rock 'n' Learn, in 1986, he had only $500 to launch the educational-audiocassette business. He set up shop in his home in Amarillo, Tex., later moving to Conroe, Tex., and continuing operations in his new home. For the first big shipment to Barnes & Noble, in 1990, trucks jammed Caudle's garage, and he and his family worked frantically, hoping the neighbors wouldn't complain. They didn't, but the company, which is growing like fertilized kudzu, has moved to its own facilities, employs 11 full-timers, and contracts out warehousing and fulfillment.

Mark Ozkan's neighbors weren't so patient. His company, Vektron International, in Grand Prairie, Tex., distributes mail-order computer equipment. It's now a $25-million business, but in 1989, starting with only $3,000, Ozkan staged operations from his house. In 1991 the city objected to the 18-wheelers going through the neighborhood and cited him for a zoning violation.

Gary Berman remembers how it was in 1988, when he started Market Segment Research & Consulting in a tiny room in his rented house. "Every morning, I'd wear a suit, tie, and wing tips," he says. "If I turned left from my bedroom, I was in my little office. I bought a cassette tape, Office Chatter, with sounds of keyboard strokes, muffled conversation, and even pagings. It wasn't to deceive callers. I had to convince myself that I was really in business."

Seven years later Berman's ethnic-research firm, in Coral Gables, Fla., is a $3-million business. But he had no money in 1989, when he hired his first employee and needed office space. "I was looking for deferred rent while I got the company going," says Berman, who called himself "director of begging." ("That's how I dealt with rejection. It was in my job description.")

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