Not only did Michael Knowles start his security guard staffing company in the guest room of his house in Tallahassee, Fla., but he didn't relocate it to larger quarters for two years. Knowles, a former army sergeant, had worked for a friend's security company. In November 1993, at age 42, he decided to start his own. Borrowing $1,000 from a buddy, he founded Seven Hills Security Inc. The money covered the cost of a license, uniforms, and liability insurance.

Knowles shared the house with his wife, Evelyn, who served as de facto receptionist, and his cocker spaniel, whose enthusiastic yelps in the background often interrupted business calls. But unlike some home-based entrepreneurs, Knowles never pretended to be anywhere else, even when he was pitching his company in the most professional light to prospective customers. "I'd be honest and tell them I was working out of my home," he says. "People appreciated me for handling it that way."

To support his family during the lean start-up period, Knowles took a job as a security guard at a local hospital, working until 11 p.m. and making $7 an hour. "I'd get up at 8, sell like crazy on the telephone until 2, go to work at the hospital, come home and go to bed, then get up and do it again," he says. When Seven Hills landed its first contract, from a local car dealership, Knowles performed the work himself, adding a shift to his workday from 11 p.m. to 4 a.m. Most nights he slept two to three hours.

In early 1994 demand for Seven Hills security guards had increased enough that he was able to quit his hospital job and hire his first employees. Still, he was adamant about keeping the business at home. "Office space was expensive, and I wanted each part of the business to pay its own way," he says. He compensated for the lack of office space by floating from job site to job site, where his employees would hand in their time sheets and collect their checks. The car lot of one of his customers functioned as an open-air forum for discussing company business. The customer "didn't mind at all that there were more security guards around," says Knowles.

His frugality paid off. Seven Hills Security is now situated in a 20-room suite in a contemporary office complex in Tallahassee, employs 130 people full-time, and last year produced $2.1 million in revenues. That year it ranked sixth on the Florida 100, a list of the state's fastest-growing companies that's compiled by the University of Florida. And last spring Seven Hills Security (now called International Security Solutions) merged with three other companies, including International Research Bureau, a preemployment screening agency owned by Darrell Goodwin -- who, as it happens, started his business out of a garage with $1,000.

This article was adapted from material that first appeared in Inc. magazine in August 1999.