How to Get Your First Great Idea

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Traditional sources of financing were reluctant to lend Delaney and Leder money because of the difficulty in valuing medical accounts receivable. Each insurer had its own policy on repayment, making it tough to figure out the value of the receivables. Finally, the partners found a factoring company in Texas that was willing to extend them credit.

Securing the money "was a key to our success," Delaney says. And what he and Leder had to go through to get it sparked an idea. Factoring, in which a company borrows against its receivables, was especially valuable to small but fast-growing medical businesses that didn't have access to credit, they realized. "We were all collectively intrigued with that business," Delaney says. With their legal counsel, who became a partner in the new business, they began brainstorming ideas for setting up a finance company.

Delaney and Leder sold part of the home-care infusion business. Soon after, they started HealthCare Financial Partners, having realized several advantages they had: no factor of any size was focused on the small- and midsize-company segment of the medical-finance business, and there was a barrier to entry--specialized knowledge of receivables. Since Healthcare Financial Partners leaped into that void, the company has grown to 70 employees; its financed receivables increased from $6.2 million in 1994 to $219 million in the first nine months of 1997. "We want to be the GE Capital of health care," Delaney, the company's CEO, says. "That sounds ridiculous, but we don't think it is."

Rule 5
Ask the right questions

Company: Compression Inc., in Louisville.
Time from idea to start-up: Six months
Initial investment: "Insignificant"

William Verity and Bob Leasure knew the kind of company they wanted to start. They just didn't know what business it should be in.

In 1992 the two men, a former investment banker and a former chief financial officer, owned an injection-molding company, which--much to their chagrin--had become a commodity business. What they were looking for was an opportunity that would have just the opposite attributes: something unique enough to command a profit; situated in a growing market, so they wouldn't have to steal market share; and capable of diversification, so they could sell more and more to the same customer base.

With those criteria in mind, they systematically began asking engineers and customers about what business they should go into. The answers bubbled up slowly. "It really comes down to listening to customers and the people who work for you," says Verity. Over time an idea began to take shape. "We found that almost every company we talked to had this urgent need to develop better products faster," Verity says, adding that a six-month delay "would be the difference between dominating a market and missing it completely." The bottlenecks were not in production but in design, engineering, and prototyping.

Within six months he and Leasure had hired two specialists in product development, design, and prototyping, and opened up Compression Inc. Besides wanting to produce products more speedily, companies were also looking to outsource product development. Since 1993, Compression's sales have risen from $700,000 to $30 million. "We tapped into a much larger need than we initially anticipated," says Verity.

Managing that growth has required some fancy financing; so far the two have raised a total of $30 million in several phases to systematically grow the company. A business idea, after all, is only as great as an entrepreneur's ability to execute it. Just ask Zalman Silber. Though his simulated helicopter ride seems like a natural winner--so much so that he's opened a virtual-reality arcade in Times Square--his losses totaled nearly $3.5 million last year. Plans for a $10-million private placement collapsed last summer, and he's now involved in a legal battle with the owners of the Empire State Building. Not that any of that has tempered his enthusiasm. This year he's hoping to open another location, in Sydney, Australia. All he needs is the money. Ideas, after all, are the easy part.

Samuel Fromartz, a freelance journalist based in Washington, D.C., writes a column about entrepreneurs for Reuters.