Just how low can you go when bootstrapping your start-up? The founders of Stacy's Pita Chip Co. can tell you.
Just how low can you go when bootstrapping your start-up? The founders of Stacy's Pita Chip Co. can tell you.
"Waste not, want not" might well be the mission statement of Mark and Stacy Andrus as they build their snack-food company
The first clue to the bootstrapping mind-set at Stacy's Pita Chip Co. is the factory's exterior signage.
There isn't any.
Well, actually, out at the end of the driveway there is a thin wooden slat with letters not much larger than those on the company's snack-chip bags. And there's a sheet of paper taped to a side door, identifying the brown-brick warehouse as the home of Stacy's Pita Chip Co. That's all Mark and Stacy Andrus, the founders and co-CEOs of the company based in Randolph, Mass., are willing to devote to labeling the space they rent from a local contracting company.
Inside, Stacy's is spotless but utilitarian. There's no lobby: walk in the door, take a few more steps to the right, and you're standing outside the Andruses' tiny offices. You'll notice immediately that the founders didn't waste money decorating, either. Their work space features white cinder-block walls, a beige tile floor, folding tables, and decor stuck somewhere between Late College and Early Yard Sale. And if Stacy Andrus's straight-backed wooden desk chair looks as if it came from somebody's cast-off dining-room set, that's because it did -- her aunt's.
The spartan surroundings reflect the CEOs' absolute dedication to making every penny count, both by design and by necessity. Both Andruses were once headed for careers in the helping professions -- Mark as a psychologist and Stacy as a social worker -- careers they dumped to bake pita chips. Mark, 36, still owes more than $100,000 in student loans for his advanced degrees in psychology. He and Stacy, who is also 36, owe about $370,000 in bank and federal business loans. They drive old cars, wear sweatshirts and jeans to work, and pay themselves what they call scavenger-level salaries. " Everything goes into the business," says Stacy. While she considers herself a natural risk taker and adventurer -- outside work, she's training for a 350-mile bike ride to raise money for a charity -- neither she nor Mark wants to run up any more debt. So equipping, promoting, and growing their business on the cheap continues to take creative footwork.
But all those efforts have finally paid off. With sales in 37 states, Stacy's hit $1.3 million in revenues last year -- more than double 1999's revenues. For the first time, thanks largely to deals with big chains like Stop & Shop and Shaw's supermarkets, as well as a private-labeling arrangement with Trader Joe's, Stacy's is profitable.
" Everything goes into the business."
Both native New Englanders, Stacy and Mark grew up in families of doctors, psychologists, and social workers. As undergrads both separately studied psychology; for graduate work, both separately went off to California. They met in the early 1990s through Stacy's brother, David, who was also studying psychology. Mark -- quiet, reserved, given to thinking carefully before he talks -- received a doctorate in psychology. Stacy -- lively, outgoing, a quick speaker with a ready laugh -- earned a master's in social work. They seemed set for a lifetime of private practice, except for one thing. Secretly, both longed to cook.
The Andruses, it turned out, were both lifelong foodies. In college they'd worked part-time in restaurants -- Stacy as a waitress and manager, Mark as a bartender and waiter. And they realized something else: they no longer wanted to work for anybody else. Says Mark, "I had the sense I could do my own business and not spend a lot of money."
So the pair returned to New England, planning to open a bistro specializing in the fresh California-style fare they'd come to love. "There weren't a lot of smiling faces," Mark says of their families' reaction to their plan. Instead of a bistro, the debt-laden Andruses settled on buying a pushcart from which they sold hot dogs, sausages, and chili at local festivals and events. Eventually they graduated to Boston's Financial District, where they abandoned their fair fare in favor of "Stacy's D'Lites," handmade pita-wrap sandwiches. They figured that roll-ups -- in combinations like roast beef and cheddar with roasted-red-pepper dressing, or chopped vegetables with crumbled bacon and feta cheese -- would go over better with the downtown crowd.
They figured right. On their first day they sold out of what they had, not expecting the turnout they got. When they got the system down, they routinely made and sold 200 fresh sandwiches in two hours. But those folks waiting in line -- sometimes stretching to 30 or 40 people -- created a new problem. Even when the Andruses hired several helpers, they couldn't roll up those made-to-order sandwiches fast enough. "Invariably, the last people in line would trickle away, so we wanted to do something to get them to wait," Mark says.
What he did not only created the company's loss leader but was in keeping with the pair's frugal mind-set: he neatly recycled each day's leftovers. Every night, he took the extra pita bread, dusted it with cinnamon sugar or parmesan and garlic, chopped it into wedges, and baked it. The next day he and Stacy handed out chips to the people waiting in line. Soon customers showed up specifically asking for the crispy, low-fat chips.
At that point, late in 1996, the Andruses faced a decision: stick with making sandwiches or switch to snacks? The pushcart had promise, thanks to the couple's location in Boston's business district: financiers were already offering to help them franchise the sandwich carts. "They were eating there every day, and they saw those lines," Stacy says of the potential investors. But after poring over trade journals, quizzing industry brokers, and talking to other snack makers, the Andruses decided they could mass-produce and store their pita treats and sell them nationwide. "We thought we could get bigger faster with the chips," says Stacy.
"I had the sense I could do my own business and not spend a lot of money."
Initially, production was low-tech and, no surprise, low budget -- except for what they spent on ingredients, the Andruses say, an area in which they never scrimped. Orders came in on a fax machine at home. Following a chance conversation with a pushcart pretzel vendor, the pair rented space at the Boston Pretzel Bakery, getting the space cheaply by using it during the other company's downtime. After finishing each day's sandwich sales, they cut, seasoned, baked, bagged, and labeled their pita chips entirely by hand. Their sole piece of equipment was a heat sealer that, Stacy says, resembled a 19th-century sewing machine driven by a foot pedal. "You insert the bag in the sealer part, push the pedal, and hold it for 30 seconds to seal the bag," she says. With a top production rate of about seven cases of chips per 10-hour day, it was no wonder the Andruses' take for that first year barely hit $25,000. But as they grew more efficient and began investing in automated packaging equipment, sales grew steadily. They gave up the sandwich cart in 1998, and in early 1999, Stacy's brother, David, joined the couple, quitting his private practice as a psychologist for a $7-an-hour job and a share of the profits. Later that year, with chip revenues exceeding $450,000, they moved their business into its own headquarters inside a contracting company's suburban warehouse.
However, the Andruses still faced cash-flow headaches. "With the cart, we were getting paid in minutes," Mark recalls. As a manufacturer, he says, "you're getting paid in 30 days -- if you're lucky." So in true Stacy's style, the founders cleaned, stripped, painted, and caulked the new 10,000-square-foot factory space themselves, using supplies they hauled from Home Depot. Stacy and Mark shared the only existing office; David, who now oversees sales, built his own cubicle from plywood that he salvaged from a shipping crate for a packaging machine.
The couple had no track record; their sole business education was that Stacy had taken a few classes in a local college's entrepreneurship program and Mark had read From Kitchen to Market: Selling Your Gourmet Food Specialty, by Stephen F. Hall. Meanwhile, of course, there were all those expenses.
Not missing an angle, the pair initially made Stacy the majority owner so that they'd be eligible for funding for female-owned companies. That decision paid off quickly. In 1998, when they began buying automated packaging equipment and supplies, they discovered that BankBoston had a Small Business Administration-backed loan program to assist women in business. Stacy requested -- and received -- $60,000. Six months later she applied for an additional $500,000. The bank balked a bit; for that amount its loan officers wanted equity in Stacy's. The Andruses didn't want to share. So they settled on $300,000 -- still no small change. How did they get the loan? Stacy cites just two ingredients. "I had a good, solid business plan," she says. "And we also had demand." As proof she included with her application a letter from an airline executive saying his company would happily buy a million bags of pita chips if Stacy's could make them. As it turned out "we couldn't do the job or meet that price," Stacy admits. But according to the Andruses the airline's interest was enough for the bank to approve more than half the amount she had requested.
The loan brought two unexpected bonuses. First, Fleet Bank (which had bought BankBoston) named Stacy and Mark its Entrepreneurs of the Year. Then one day in 1999 Stacy arrived home to an answering-machine message from a honey-toned White House social secretary who said she was calling on behalf of President Clinton with an invitation to attend a small-business-awards ceremony in Washington. "I thought it was a joke," Stacy says. "We started going through a list of our friends" trying to figure out who might be perpetrating a hoax, Mark adds. "I said, 'It could be my friend Bob ...."
But the call was no joke. A few weeks later, Stacy attended the well-publicized ceremony and met Al Gore. To this day she keeps that voice-mail message on her computer so she can listen to it whenever she wants; she still laughs uproariously when she hears the secretary say, "The number here at the White House is ..."
Meanwhile, the Andruses continued plowing their revenues and their borrowed money into the company. When the business got too brisk for cutting pita bread by hand, they looked for an automatic slicer. They couldn't find one. Nor could they afford the $100,000 to have one custom designed and built. Before spending even a quarter of that amount, Stacy says, "I'd have had 100 people out there cutting pitas with knives." They spent a year calling manufacturers and haunting used-equipment auctions before they found a carrot-cutting machine that had been owned by the Campbell Soup Co. for nearly 40 years. Even that wasn't exactly a bargain, Stacy says: "$18,000, and the machine's older than I am."
At first the chopper -- a squat, industrial machine -- didn't perform perfectly either. Its blades had been spaced to cut carrot chunks, not pita chips. The bread "just shot right through to the other end and came out as dust," Stacy recalls. But Mark modified the machine by spreading the blades and slowing the slicing action; today every Stacy's Pita Chip passes through that machine.
After moving into their own factory, the Andruses found themselves in the market for an oven. And not just any oven: one with a conveyer belt and adjustable temperature, velocity, and airflow controls. That's because not all Stacy's chips are created equal; Parmesan Garlic & Herb chips, for instance, require more time and heat than Cinnamon Sugar. Again, they couldn't find the right used equipment. And they couldn't afford the $150,000 to $160,000 price tag to build something from scratch. So they came up with a deal a Boston-area oven company couldn't refuse. They paid $80,000 for an engineer to build two new ovens to their specifications. They took one. The oven company kept the other, using it as a prototype for its own future sales.
As demand kept growing, the couple bought a used oven from a bankrupt bakery, forking over just $13,000 rather than the $120,000 the same machine would have cost new. Although they could justify the expense, they knew no bank would lend them any more money. "So," Stacy says with a sigh, "we just whipped out a credit card." But that particular investment eventually allowed them to quintuple their production. "Now we can do 700 cases a day," Mark says. "On a single shift," Stacy adds.
The Andruses' penny-wise approach is by no means limited to capital expenses. Their staffing, for example, is a variant of just-in-time management. Stacy's employs about 15 people, bringing in extras as needed to fill a big order. And initially the couple hired a few consultants. But now, Stacy says, they rely more heavily on the kindness of unofficial advisers and mentors from elsewhere in the industry. Through networking they became friends with people at other natural-snack-food companies, including Terra Chips, Boulder Potato Chips, and Smartfoods. Although all three might be considered direct competitors, "we were pleasantly surprised because not many people we approached were closed off or perceived us as threatening," Mark says. Through arrangements that they negotiated with Babson College, the two also brought in several unpaid summer interns who not only built the company's Web site (www.pitachips.com) but maintain it as a class project. In exchange, Stacy frequently speaks on the business school's campus, 25 miles away.
The Andruses have done relatively little advertising; instead they give away samples in person at trade shows, cooking demonstrations, public appearances, and grocery stores nationwide. "I haven't unpacked since January," Stacy said in late May, referring to her frequent travel. Mark, who oversees product development, often loiters in supermarket snack-food aisles, watching what people pick up, put back, and drop into their carts. From that -- and from such standard sources as snack-food-industry trade journals -- he gets a sense of what's selling: "Barbecue? Are corn chips hot? Is organic hot?" The company has also benefited from serendipity, such as the time one of its distributors got its chips into the luxury boxes at the Super Bowl and again when leaders at Weight Watchers meetings began recommending Stacy's products as low-calorie snacks to their members.
Earlier this year Stacy and Mark's story took another twist when the couple decided to divorce. But they insist they intend to keep running Stacy's as a team. "Mark and I are great partners -- and great friends," Stacy says. "We share this love for the business. This business is everything to both of us." Neither Stacy nor Mark, who are now 50-50 partners, has regrets about their choice of career. "When we talked about starting our own business, we thought, If we don't do it now, we're going to someday look back and think, 'I wish I had," Mark says. "The only regrets you have are for the things you don't try," Stacy adds. Still, they're not ruling out moving on -- at the right time, for the right offer. Maybe, Mark says, when the company reaches the $20-million mark. And that's all the more reason to keep bootstrapping now.
Anne Stuart is a senior writer at Inc.
Chipping Away at Costs
By scrounging for used equipment and making deals of one sort or another, the Andruses saved a bundle.
|Modified pita cutter||$82,000|
|Prototype convection oven||$70,000 to $80,000|
|Used backup oven||$107,000|
|Intern-built Web site||$5,000 to $15,000|
|Total savings||$264,000 to $284,000|
The First Sale
In 1997, Mark and Stacy Andrus, co-CEOs of Stacy's Pita Chip Co., took off for a weekend. While they were gone, a pipe burst upstairs in their home, a town house in southeastern Massachusetts. "For three days it poured like a fire hydrant from the third floor to the basement," Stacy recalls. "When we got home, we saw water coming out the front door." They waded in and began cleaning up.
Then they heard the fax machine grinding out a message in their home office, which had largely been spared from flood damage. Together the Andruses sloshed upstairs and watched as the machine printed out a request for $40.80 worth of Stacy's Pita Chips. "We were getting our first order," Stacy recalls. "At that point, nothing else mattered."
Ironically, that first customer -- a Boston-area gourmet-food store that subsequently went out of business -- never paid its bill. But to this day the slightly watermarked missive remains posted in a place of honor on the factory wall.
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