Cover Story
Are you too broke to afford the inventory you think your start-up needs, and wondering if you could have squeezed more out of your next-door neighbor for that comfy armchair you sold him? Go ahead, put down that bowl of dinner (when, exactly, did rice get reclassified as a meal?), and growl it out loud: "Nobody told me it would be like this."
Nobody did, but there are people who could have. We questioned a group of die-hard bootstrappers, and their answers reveal some essential truths about bootstrapping. We faxed our poll to founders of companies that grew fast enough to make the Inc. 500 in 1995 or 1996 but had been started with little or no capital.
They told us what we wanted to know. But they couldn't address the one question that every bootstrapper must learn to live with as surely as debt: Will it all be worthwhile in the end? Truth to tell, there's only one way to find out.
| INC. SURVEY: The Bootstrapping Experience* |
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| Is This What They Call Zero-Based Budgeting? "During the start-up, my wife and I eliminated all current spending," says Ric Edelman, founder of the Edelman Financial Center, a financial-planning business based in Fairfax, Va. "We sold everything and moved into a one-bedroom garden apartment. I told my wife, 'Don't worry, we'll be out of here in three months.' We moved out four years later." |
1. The company's virtually nonexistent amount of start-up capital came about--
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2. Amount of prior experience founders had in running a business:
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No Money Down! No Experience Required! No doubt experience has its payoff, but it isn't money. Nor, apparently, does experience inspire anyone else to contribute money to a new business, either. More than half the poll's respondents had had at least some experience running a business--but had to start their current venture without much capital anyway. | |
| So That's What the "B" in "Plan B" Stands For Bootstrapping, at its most philosophical, is more than just a response to a financial predicament; it's a belief about what fuels the most worthwhile ventures. While about 45% of the founders of all 1996 Inc. 500 companies started with business plans, only a paltry 28% of bootstrappers did. "People do what they do because of something that compels them--a sense of competition, or of wanting to fulfill yourself," says Audrey Quackenbush, founder of White Line Trucking Inc., in Jacksonville, Fla. "It's a passion, not a plan." |
3. The start-up--
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4. Sources of cash (respondents could select more than one as needed):
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5. First business site:
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Sorry, Officer, Was I Growing Too Fast? Given their lack of formal forethought, it's no surprise that for this breed of company builders, clarity begins at home--compared with the 1996 Inc. 500, only 45% of whom started their companies where they lived. Still, this question yielded one result that stands out as a challenge to the next generation of bootstrappers: none of the founders said they had started their companies in their cars. | |
| Of Rice and Men Life without payroll can be instructive. Bob Cooney, founder and CEO of Laser Storm, a maker of laser-tag games, explains: "Six months after I started, we had just spent the last money we had, and I went out and bought a 40-pound bag of rice. I ate rice six days a week for four months. I was in the best shape of my life. Once a week, we'd go down to the grocery store with money we'd scrounged from here and there, and we'd buy an onion and stir it into the rice." Ric Edelman says: "My wife and I were able to live for a week on $25 worth of food. Not only did we learn about ourselves, but we learned something about the supermarket." |
6. Interval from start-up date to when founders first paid themselves:
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7. Interval from start-up to hiring of first paid employee:
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8. Interval from start-up to realization that business was here to stay:
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Forever Young Like your child, your company is probably a prodigy. But if you've been at the business for a decade and it's yet to show a growth spurt, consider the encouraging words that economist David Birch offered in these pages back in 1988 ("Live Fast, Die Young," August): Researchers, Birch wrote, having followed the trajectory of about 1 million businesses between 1983 and 1987, concluded that "most companies do not even begin to grow until after their first four years." Even more surprising, more than a third of the companies that experienced growth had been in business 11 years or more. Birch's sobering advice to start-up entrepreneurs--"What you must be prepared for is a long, tough road"--appears especially relevant to bootstrappers. | |
9. Compared with the time their companies were started, founders believe that to start with virtually no capital today is--
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Kids These Days Have It So Much Harder Than We Did Say this for these bootstrappers: despite their success, they haven't lost touch with the harshness of what they endured. And they don't even pretend that their suffering has made it easier for those who've followed in their footsteps. For every founder who thinks today's bootstrappers have it easier, there are six who say bootstrapping is harder now. | |
| Come In, Sit Down, Make Yourself Uncomfortable "One of my biggest problems is conveying the sense of paranoia to employees now," says John Heaton, founder of Pay + Benefits Inc., the $12-million professional employer organization he started in 1990. "We're still a pretty small company in the industry, but people here are starting to feel successful, and therefore they don't watch the pennies. They feel complacent, but I'm still scared." |
10. Percentage of founders who said that since the early days, the company's internal culture had--
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11. Percentage of founders who said that since the early days, the nature of the company's product had--
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| If You Answered Dishonestly, You're Cheating Only Yourself Nobody's saying that all bootstrappers do whatever it takes to stretch their suppliers out as far as possible. But we have known it to happen. Subscription cancellations ensued last year when some readers thought a cover story ("Basic Instincts," September) celebrated less-than-savory penny-pinching techniques. One reader who defended the honor of bootstrappers insisted that he hadn't done--and wouldn't do--anything worse than tell suppliers that his check had been lost in the mail. Not that he had, technically speaking, even written it. Fraud? We're not saying. But from what we've seen, bootstrappers do tend to make their own rules. |
12. Percentage of founders who believed that by definition, bootstrapping--
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13. If they had had more money to start with, this is what founders would have done differently (respondents could choose any):
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The Best Defense Against Going Broke? Being Broke Some folks don't know how lucky they are. At the time she was launching Megabyte International, which sold computer-memory products, Kathryn Douglas was a 23-year-old mother who couldn't afford as much product inventory as she wanted--and as a result inadvertently saved her company from oblivion. "I thought that if I could carry more inventory, I could do more sales," she says. "But the way prices change in the computer industry--all of a sudden, the market drops out from underneath you and you're stuck with half a million dollars of inventory at 25% more cost--we would have gone under if we hadn't been in a bootstrapped mode." Operating so close to the ledge, it seems, gives bootstrappers a heightened understanding of business. |
Resources
EDELMAN FINANCIAL CENTER, Ric Edelman, 12450 Fair Lakes Circle, Suite 200, Fairfax, VA 22033; 703-818-0800 61
LASER STORM, Bob Cooney, 7808 Cherry Creek S. Dr., Denver, CO 80231; 303-751-8545 61
MEGABYTE INTERNATIONAL, Kathryn Douglas, 6040G Northbelt Dr., Norcross, GA 30071; 770-449-8630 61
PAY + BENEFITS, John Heaton, 110 N. Center Pkwy., Suite B, Kennewick, WA 99336; 509-735-1143 61
WHITE LINE TRUCKING, Audrey Quackenbush, 9800 Normandy Blvd., Jacksonville, FL 32221; 904-695-9091 47, 61