Inc.'s guide to creating your own workplace in the '90s
OK. You've made the decision. You're leaving the corporate world to start your own company. No argument here. Sure, it's a gamble. So is staying put. Not even IBM is offering job security these days.
But do us a favor, and take this article with you. For what you'll find -- as experienced entrepreneurs have already found -- is that there's no such thing as a generic small business anymore. Small companies, sure. But these days they come in a startling variety of shapes and sizes and structures, and they're tailored as much to their owners' objectives as to the markets they serve. Before you begin, you'd better know what kind of company you want to build, and where you expect to be in 5 -- maybe even 25 -- years.
Which means you'll have to plot a careful course. To help you along, here's Inc.'s map of the rapidly changing small-business landscape.
This is not Your Father's Oldsmobile Dealership
(and other notes on the transformation of small companies)
Maybe you remember yesterday's small businesses. Corner drugstores and Cadillac-Olds dealers. Family-owned print shops and two-man insurance agencies. They had a lot in common, those companies, and not just the vintage cash registers and black rotary phones. Their customers were local, their objectives limited. Marketing meant playing golf with a prospect. Management meant meeting the payroll on Friday.
And today? Well, as Dorothy said to Toto, we're not in Kansas anymore. Small companies today are as numerous and diverse as the inhabitants of the Land of Oz.
Measured by tax returns, for example, the number of businesses in the United States rose 54% during the 1980s. Yet the population grew only 10%. In 1990 the Internal Revenue Service counted 4.4 million corporations, 1.8 million partnerships, and 14.2 million sole proprietorships. Most of these companies are tiny. Only about 7,000 U.S. companies boast a payroll of more than 500.
Within the small-business universe, moreover, is a startling degree of diversity. Three dimensions of difference:
What they do. As in the past, plenty of small enterprises are service companies and run-of-the-mall retailers. But some are on the cutting edge of any number of fields, and not just in computers. Clamshell Buildings Inc. (18 full-time employees) manufactures and markets hangarlike aluminum-frame structures that can be assembled or disassembled in a few hours. Dozens were used by the military during the Gulf war. Advanced Engineering Associates (7 employees) was last seen exploring energy-development projects in Ulan Bator. (Ulan Bator is the capital of Mongolia.) Here at home, two of the fastest-growing small-business-dominated industries are school-bus manufacturing and medical and dental laboratories. So don't jump to conclusions about what entrepreneurs can and can't do.
Where they're headed. R. Timothy Leister, president of TL Care Inc., in San Francisco, started his infant-products company in 1985. By 1995, give or take a couple of years, he plans to be running a $10-million business. So it is with many new companies: they aim to grow beyond "small" as quickly as possible. Still, for every believer in rapid growth there are plenty of apostates. In Boston Tom Simons quit the 45-employee advertising agency he had helped found and started a new one, this time with a staff of exactly 4 full-time people. Richard Koehler shrank his Houston-based international marketing company, IKR Corp., from 6 employees to 2 -- his wife and himself.
How they operate. Small companies these days can be hotbeds of sophisticated technology. TL Care is plugged into its largest customers (Toys R Us, K Mart) through a computerized data-interchange system. Orders come in (and invoices go out) in the blink of an electronic eye, anytime of day or night. Koehler of IKR uses CD-ROM databases, instead of clerical help, for information gathering. But it isn't just machinery that has proliferated; it's invisible networks of business relationships. Small companies are nodes in networks of subcontractors, of franchisees, of joint ventures and strategic alliances that can span the globe. Elizabeth Locke's 7-employee, Millwood, Va., company, Elizabeth Locke Jewels, is the link between a network of goldsmiths in Bangkok and big U.S. outlets such as Nieman-Marcus. Every tiny Mail Boxes Etc. storefront is allied (1) with other Mail Boxes Etc. franchises; (2) with the San Diego-based franchisor, which has operations in half a dozen countries; and (3) with giant United Parcel Service, which currently owns 12% of the parent.
How to find your own niche in this mix-'n'-match world? Relax: start by typecasting yourself according to the following guide. Maybe you're the cautious sort and will be happy with an old-style business. (If so, there are a few things we want you to know.) Maybe you're ready to plunge into rapid growth. (Ditto.) If you're setting out solo, do you want to stay completely on your own -- or are you willing to trade a little independence for a little equity? The capsule descriptions beginning on page 5 ("One Industry: Four Very Different Companies") show how far-reaching such choices can be.
Type One: The Traditionalists
Who they are. Traditionalists start restaurants, retail stores, landscaping businesses, cleaning ser vices. They buy family-owned manufacturers and distributors, and plan to keep things pretty much the way they've always been. ("Buying a job," it used to be called.) How many are there? The government counts 5.7 million businesses with employees in the United States, up 21% from 1980. Experts such as David Birch of Cognetics Inc. estimate that two-thirds of these companies start small and stay small. Most are run by traditionalists.
What you'd better be good at. A little of everything, of course, just as the how-to-start-a-business books say. Watching the cash. Writing ads. Negotiating with suppliers. But there's one big thing you'll have to do a whole lot better than everything else, and that's hiring and firing. Traditional companies depend on their workers to pump the gas, handle the checkout counters, mow the lawns. Unlike other businesses, they don't have much to offer the help. Wages are low because margins are low. Opportunities for advancement are scarce.
The bleak result: you'll be dependent on kids, part-timers, transients, and other not-always-reliables, and you'll turn your employees over regularly. "There's no loyalty in a small business," says Don Rielly, who once ran a restaurant and now works as a management consultant. "People take the job for as long as they have to; then they're gone. It's expensive for owners -- they're constantly hiring and training people."
Prognosis. Poor. For one thing, the pool of low-wage (read: young) employees is shrinking. For another, traditionalists are now up against sophisticated and deep-pocketed competitors. In Cambridge, Mass., David Johnson expands his self-service laundry by adding a postal and business-services center, only to see a Mail Boxes Etc. franchise open up across the street. Suddenly, Johnson is competing with a well-financed, highly visible national company; it has tie-ins not only with UPS but with the likes of Nintendo. (Parents bring busted Nintendo sets to a Mail Boxes, which sends them out for servicing.) Of the 1,600 outlets it has franchised in the last 10 years, only 3% have failed.
Then, too, most traditional companies are selling goods and services to consumers. That's a market, Birch argues, that won't grow even after the recession. The big baby-boom generation has cut back on consumption in favor of saving for college and retirement. The generation following isn't nearly as big. "If you're trying to sell automobiles or houses or flowers or food, well, the growth rate in new-household formation is dropping like a rock," says Birch. "If you're going into a business like that, you're bucking a countertrend."
"The name of the game nowadays for a small-business person is just survival. Especially when you're in retail or service." -- David Johnson,
Icon Postal Center
Most promising variation. Well-managed franchises. Also, any expertise or specialization that sets you apart from the crowd -- and that you can communicate to your employees. Your knowledge of horticulture won't help you with customers if your ill-trained gardeners butcher the camellias. But a landscaper known for careful work and a knowledgeable staff can prosper where others fail. Ed Laflamme of Laflamme Services Inc., based in Bridgeport, Conn., regularly sends his 16 key employees to training seminars and has involved them in six quality teams. Such tactics have kept the landscape company profitable despite a harsh New England economy.
Type Two: The Job Creators
Who they are. The ambitious. Those who want to build a business, not just buy a job. "I had a lifelong desire to have my own company," muses TL Care's Tim Leister, who nonetheless spent 12 years climbing corporate ladders. What company builders like Leister are doing as a group, of course, is putting people to work. Small, growth-oriented businesses produced most of the 18 million private-sector jobs added to the U.S. economy during the '80s. Recent government estimates say they're now accounting for 90% of new jobs.
To read the newspapers, you'd think all job-creating companies were like giant Microsoft Corp. or computer maker Gateway 2000 (which topped last year's Inc. 500 list), technowizards capitalizing on brand-new markets. But forget the stereotypes. Apple South Inc., of Madison, Ga., has nothing to do with computers; the 14-year-old company owns and operates Applebee's and Hardee's restaurants. Yet it now employs some 3,500, up from only 146 five years ago. Most such companies, to be sure, aren't rocket ships like Apple South; they're Piper Cubs, growing from 5 workers to 25, or 100 to 300. The Harmony Schools Inc., for example, a Princeton, N.J., company that operates three child-care centers, has grown from 20 to 105 employees since 1986.
And though the central characteristic of job-creating companies is an ever-expanding payroll, there's more than one way to measure employment. Valerie Skonie of the Skonie Corp., in Sausalito, Calif., has only 6 full-time staff members. But she works regularly with some 80 independent customer-training specialists, brokering their services to corporate clients nationwide. Jim Carpenter's Wild Bird Unlimited Inc. employs only 12 at the corporate headquarters, in Indianapolis. But Carpenter has spun off 93 franchised stores in the United States and Canada. That brings Wild Bird's "jobs created" figure well into the hundreds.
What you'd better be good at. Nope, it isn't hiring -- that's easier than it might seem in a fast-growing company. Opportunities abound, so you'll attract good candidates. Also, we'll take for granted that you're good at selling; otherwise your company won't ever make it into this category.
The missing ingredient: managing cash. You may not need a lot of money to get started -- surprisingly, most fast-growth companies do not -- but a growing business's money tends to flow out faster than it flows in. Reflexite Corp., the company whose CEO and employees won the Inc./Ernst & Young/Merrill Lynch Entrepreneur of the Year award in 1992, has seen revenues quadruple in five years and has enjoyed margins so high that (as the chief financial officer puts it) "financing isn't really a problem." Even so, money is rarely far from president Cecil Ursprung's mind. "When you're growing at 34% or 38% a year, you'd better manage your balance sheet, or you're going to run out of cash," Ursprung says. "You'll be profitable. But you'll have no cash."
Prognosis. Good. On the entrepreneurial supply side, the recession has brought the corporate world a new round of layoffs, thus producing yet another generation of high-powered business-starters with savvy, contacts, and severance pay. And though both banks and venture investors are still skittish about backing small companies, enterprising company builders have found a variety of alternative avenues to financing. (See "How to Finance Anything," No. 04920501, April 1992.) On the demand side, large companies are once again pulling back from new markets and new technologies. That opens up more niches for growth-oriented companies to expand into.
Sign of the times, high tech: small computer companies such as Thinking Machines Inc., in Cambridge, Mass., and MasPar Computer Corp., in Sunnyvale, Calif., are outpacing their giant competitors in the development of so-called massively parallel computing, which is thought by many to be the field's next great advance. Sign of the times, low tech: small railroads are operating more and more of the nation's tracks (24%, up from 6% a couple of decades ago).
"Growth sucks up cash like crazy. You're always scrambling to get enough inventory to meet the demands, to get enough financing to pay for the inventory and finance the receivables. In our first year of growth we increased our line of credit three or four times. Every time, I had to go in and rejustify what was going on and hold their hands." -- Tim Leister,
Tl Care Inc.
Most promising variation. Companies that grow not simply by hiring labor but by creating owners. All five finalists in this year's Entrepreneur of the Year contest encourage employee stock ownership. A young Minneapolis-based life-insurance company called LifeUSA has leapt to $114 million in sales in only four years -- thanks in part, says chief operating officer Maggie Hughes, to its system of widespread ownership. LifeUSA employees and sales agents take part of their compensation in stock. An "owners' council" representing both groups makes sure they are heard in the corridors of power. The system breeds high performance. "We process with 274 people what others process with thousands," brags Hughes.
Type Three: The Soloists
Who they are. Sole practitioners. On their own. You know them as consultants, free-lance professionals, independent brokers, and manufacturer's reps. What they sell are their own (usually) high-priced services, meaning their knowledge and contacts and experience. How many are there? According to the Labor Department, the number of self-employed rose 23% during the '80s, to nearly 9 million (excluding farmers). The fastest-growing occupational group: managers and professionals, which now account for more than one-third of the self-employed.
Feeding that boom is the information revolution. No longer are vendors of knowledge limited by their own experience and the local library; any self-respecting free lance can tap into a dozen databases to boost his or her stock-in-trade. Nor are they limited by local marketplaces. Armed with a fax and a modem, a manufacturing consultant in Cleveland can evaluate drawings for a company in Dallas. IKR Corp.'s Richard and Inga-Marit Koehler offer marketing help in countries from Saudi Arabia to Singapore and accept clients from all over the United States. Most of their projects begin with extensive computerized research. "There are things on CD-ROM that are incredible in terms of producing information," says Richard.
What you'd better be good at. Need it be said? What you do. There's nothing else, after all -- no partners to fall back on, no brand loyalty, no reason at all for anyone to do business with you if you screw up. On the other hand, that's a pretty powerful selling tool. "Somebody asks me, Why should I go through you, why shouldn't I go direct to Humongous Printing Company?" says Bill Farquharson, who operates a solo print-and-forms brokerage out of his suburban Boston basement. "I tell them, It's my money. If I screw up, I have to go upstairs and tell my wife, Honey, I just lost $5,000. Sure, people can go out and get a cheaper price. But if they're out of forms on Friday and they need 'em on Monday, a low price doesn't do them much good."
Then too, if you are good at what you do, you won't need to worry about much else. Money will pour in, and the only hired hand you'll have to pay is your accountant. Clients will materialize, fed by personal recommendations. "I haven't made a cold call in five years," says Farquharson. "I increase my business through word of mouth or through somebody I've worked with moving to another company."
Prognosis. Excellent. Commentators from Paul Hawken (in The Next Economy) to the Japanese essayist Taichi Sakaiya (in The Knowledge-Value Revolution) have observed that information is the coin of today's realm; those who gather and broker it will find they command ever-higher value in the marketplace. That holds true not just for highly technical skills such as computer programming or investment counseling but for seemingly mundane abilities such as Farquharson's. Few organizations today can keep on their payroll all the experts they're likely to need, whether the experts are employee-benefits specialists or print buyers or telecommunications consultants. But businesses can't afford to do without the experts' services, either.
"I take monday mornings off. This morning my little daughter and I went skating. I don't have somebody else's problems; I don't have another salesman out there I have to worry about motivating.
"The drawback? Motivating myself. I loved the camaraderie in the office. When you make a big sale, you come home and there's nobody to tell. And as soon as the phone stops ringing, your mind plays tricks on you. I think to myself, the party's over. I'm going to have to get a real job. It scares the hell out of you."
-- Bill Farquharson,
Advanced Form Systems
Most promising variation. Call it the soloist as people broker: he or she channels other experts to clients with multiple needs. An example is Stefania Aulicino, sole proprietor of Chicago-based Capital Link Inc. Working with entrepreneurs seeking to raise money, Aulicino noticed inevitable lacunae in her client companies, such as an absence of marketing or financial expertise. She also noticed that scores of experienced businesspeople were contacting her in hopes of finding a growing company to involve themselves with.
Soon Aulicino found herself creating an informal network of experts -- "my brain trust," she says -- and for a small fee introducing entrepreneurs to experts and vice versa. Some of the introductions may lead to full-time jobs, others to advisory or consulting relationships. In one recent case, a medical-reimbursement lawyer offered to design some critically important marketing software for a medical-products company. Bolstered by the experts, Aulicino's companies are more attractive to investors, which en ables her to do her own job better.
Type Four: The Minimalists
Who they are. Minimalists typically work with only a few employees -- but unlike the soloists, they're building companies, not just careers. The key distinction: sole practitioners such as Farquharson and Aulicino are the business. Take them out of the loop, and the whole thing collapses. Minimalists, by contrast, create small but durable organizations, which themselves represent value. Examples: Charlie Woglom and Sarah Barnes of Big Hed Designs Inc., in Thetford Center, Vt., design specialty T-shirts, get them screen-printed in nearby towns, and market them through trade shows and a nationwide network of reps. The value isn't just in the shirt designs, it's in the whole manufacturing-and-distribution network. In Alexandria, Va., Bill and Andrea Ritchie and a few others operate $2-million Binary Arts Inc., which develops and sells a line of sophisticated games and puzzles. The products are developed by independent inventors and manufactured in the Washington, D.C., area and the Far East. The Ritchies oversee marketing.
Growth? Sure. Binary Arts, for example, was on the Inc. 500 last year. But most of the minimalists rein in growth when it threatens to compromise what they like about staying small. "I never wanted to have a lot of employees," says Bill Ritchie. "I don't like managing a lot of people. So I had this vision . . . of keeping it small, keeping it lean, and keeping the overhead down."
What you'd better be good at. Managing people? Not really -- the few employees you'll have are likely to be self-starters. Money? Sure, particularly if you're juggling a growing set of receivables and payables. But the minimalist's key skill -- the value he or she brings to the table -- is marketing. Take Nancy Judson, founder of TripBuilder Inc., in New York City, which provides travelers to Europe with custom-designed tour guides based on any of a dozen interests. Judson hires researchers to gather and write the information. A telephone-answering machine takes orders. High school students assemble chapters and mail them out. Nothing too fancy.
What makes TripBuilder hard to compete with, though, is the tiny company's elaborate marketing relationships. Judson establishes partnerships with the tourist boards of every country she enters, ensuring that the board will distribute her brochures with its own packets. She draws financial and marketing support from big travel companies such as British Airways (which collaborates in a direct-mail marketing program) and British Rail (which includes information about TripBuilder in its guide for travel agents).
Prognosis. Probably pretty good, though it's a little early to say. Minimalists -- some have called them networking companies -- are a new phenomenon, an offspring of the '80s. Pushing them onward is the trend toward specialization at every level of the business world. No one tries to do everything anymore; everyone's looking to subcontract as much as possible. Specialty manufacturers are likely to be looking for marketers, marketers for manufacturers, and both for specialized service providers (order-fulfillment houses, telephone sales reps).
On the negative side, the minimalists, unlike traditional small companies, are pursuing lucrative national markets, which means larger competitors may be looking to muscle them aside. Plenty of catalog merchants proliferated in the past few years only to fall to the likes of Lands' End and Sharper Image.
"There's the core business, Binary Arts, the people on our payroll. But there's also a community of professionals that can be central to our business without being on our payroll.
"This is the central thing we contribute, a sort of choreography of people that are good, talented, professional. We become like a lens. And the fun part is, the lens we happen to be is where the lion's share of the money gets made." -- Bill Ritchie,
Binary Arts Inc.
Most promising variation. Tom Simons thinks of it as the Hollywood model. A small core of key employees. A regular stable of on-call specialists, called in like a film crew for specific projects.
Simons's first advertising agency, which at one point hit 50 employees, was a perfect example of a grower. Simons, however, wasn't happy. "I was out of the manufacturing," he says, meaning he was spending so much time selling and cultivating clients that he didn't get to work on any campaigns. When he founded Partners & Simons, in 1989, he decided to do things differently. Today his permanent staff numbers exactly four, with another 10 to 15 independents called upon for project work in any given month. Simons isn't simply a matchmaker, however; while on a job the independents are working for his company, thereby building Partners & Simons's value as an organization. It's a network that ultimately could survive Simons's departure.
Does it work? Simons reports 1991 as "superb," despite a brutal recession in New England, and claims pretax margins between 50% and 75%. "I was able to learn a great deal in my first experience, to replicate the things that were fun and avoid the things that weren't. My face hurts from smiling."
ONE INDUSTRY: FOUR VERY DIFFERENT COMPANIES
Which of the companies outlined here would suit you best? The sooner you know the answer to that question, the better off you and your new company will be
No matter which industry beckons, you must consider the character of your fledgling company -- what you want it to be when it grows up -- as carefully as you scope its market. Too many people adopt business models that are poorly suited to them. They go for growth when what they really crave is control, seek stability when they dream of wealth. The result: a bad fit and a schizoid company. We've selected four companies to illustrate how founders can shape very different businesses even within the same industry.
Type One: The Traditionalist
Chad and Stacy Mitchell, age 35 and 34, respectively
Great Wave Software Scotts Valley, Calif. Started in 1984
Business Publisher and marketer of a line of educational-software products.
Number of employees 15.
Revenues About $2 million.
Strategy Long-term, not rapid, growth. Keep a tight focus on a small market and wait. "We make more money by focusing on one or two segments that are profitable for us rather than spreading ourselves too thin." Maintain market share. Leave themselves time to raise four kids.
Skills and background She's a marketer. He's a Ph.D. in computer science.
Role of founders Torn between managing people and pushing product out the door. "When you have two or three employees, you're primarily solving business problems," Chad says. "As soon as you have more than 10, you're primarily managing people." Newly hired CEO will take over management of a company that's already grown too big to feel comfortable to the founders. "I don't really want to be Mr. President. I never wanted to manage a big business."
Financial return Until recently, modest salaries. Earnings are retained. Getting acquired looks like best bet for cashing out. But no hurry.
Working relationships Rely on contractors and keep hiring to a minimum. Look for smarts and versatility: employees who can work in any department as needed. "There's a certain amount of mind-share that goes with each employee. A smaller number of more talented people will save you a lot of management overhead."
How financed Out of earnings. Reinvest every cent. Must scrutinize patterns of profitability. "Never spend it until it's in the bank."
* Sanity. By shunning growth, ensure time for family and community. "I drew a line in the sand. Here is the point to which the business will control our lives and no further." Result: a well-rounded life.
* Bootstrappable. No outside capital required. Only a few thousand to start; earnings have done the rest.
* Size. A bigger company with hundreds of employees would never turn a profit in this market. Welcome to the "nice-little-company" club.
* Financial rewards. They're on the late train. Wealth can come only if the company grows or is sold.
* CEO's role. Demands a split personality. Company's too small to layer with managers and too big for a craftsman-founder to manage comfortably.
* Boredom. If the game is standing still, how exciting can it get?
Type Two: The Job Creator
Pat Sullivan, age 39
Contact Software International Carrollton, Tex. Started in 1985
Business Sells line of software products allowing salespeople to manage contacts.
Number of employees 85.
Revenues $12 million, growing 70% to 90% a year.
Equity Held by venture capitalists, angels, partners. CEO is majority shareholder. Employees get options.
Strategy Stoke growth. Gain mass distribution through retail channels quickly. Dominate the market. Go public by 1995.
Skills and background Sales management and computer retailing. Self-taught as a programmer.
Role of CEO No longer hands on. Must delegate decision making down the line. Growth won't allow him to overcontrol. "It's reached a point where managing everything myself is too much to handle." Focuses his energies on marketing and new-product development. Spends half his time in the marketplace and more time on "internal issues" than he'd like.
Financial return Could be worth millions with a public offering.
Working relationships Meets weekly with team of seven managers, including founding partners. Board members (one of them a mentor) advise regularly. Employees: he signs their checks biweekly but knows the names of fewer all the time.
How financed "Our original venture-capital firms were Visa, MasterCard, and American Express." Two individual investors. A venture-capital firm bought in for $2.5 million. "Fast growth consumes a lot of cash."
* Building something. Especially wealth. A proven way to make millionaires.
* Resources. A steep growth curve is a thing of beauty to investors. Growth tends to attract higher-caliber employees, bigger customers, maybe even bankers.
* Excitement. "Trying to conquer a market and to compete on a worldwide scale is pretty heady stuff."
* Costs. Even if the offices are spare, the expense of adding people and opening offices can be staggering.
* Impersonal. It's hard to maintain the same camaraderie when the staff balloons from a few to 85. "There was someone here last week going through my files, and I didn't even know who she was. You can't possibly get close to so many people."
* Stress. The hours. The decisions. The change. Not everyone's cut out for it.
* Less Control. Predicting sales and profits gets tricky. "It can be astounding some months. Other months you're sucking air." It can feel as if the company's out of your control. Especially once you sell off equity. "Now I have to go public."
Type Three: The Soloist
Don Selesky, age 44 Westford, Mass. Started in 1986
Business Software. Writes programs for the Lotus aftermarket; distributes through a third-party publisher. "I'm an author. People publish my work for me."
Number of employees 0.
Revenues $50,000 to $100,000 yearly in royalties.
Equity None. A royalty stream instead.
Strategy Improve personal financial position without holding a job. Avoid the capital investment and competitive disadvantages of self-publishing.
Skills and background Programming and marketing, most recently at Lotus.
Role of CEO If you can call him that. Yet, he's the boss all right -- his own, anyway. He gives up margin in return for sales and support from the publisher. Handles technical tasks, research, and development. Spends most days keying code into his computer.
Financial return Limited, unless he hits the best-seller lists with a new product.
Working relationships Not many. He's home alone most of the time. Meets regularly with his publisher and his product manager. Canvases computer-user groups to gather intelligence. But on a day-to-day basis, he's a one-man show.
How financed Out of savings and an advance on royalties.
* Size. Itty-bitty niche keeps big competitors at bay. "At this size you keep your head so low, it's hard to get hit."
* Control. Designs the product, researches its market, exercises complete control over its quality. "I take on more risk to have more control."
* Flexibility. Sets own schedule and milestones. Nobody to report to or manage. "I can go to a Wednesday afternoon matinee, take a four-day ski weekend when I want to." Works 50 to 60 hours a week.
* Income. Consistently equals or surpasses what he could take home in a regular paycheck.
* Negligible cost of entry. Almost no capital required. Plus, no employees, no creditors, and no investors mean no sleepless nights.
* Not the way to build wealth. Lives quarter to quarter on royalties.
* Loneliness. Working alone can be isolating. "It's the worst part of the job for me." Misses Friday afternoon office parties. "I could go out and buy my own pizza and six-pack, but it wouldn't be the same."
Type Four: The Minimalist
Michael Cahlin, age 39
The Financial Software Co. Los Angeles Started in 1989
Business Publisher and marketer of a single financial-software program. Acquired the product rights as payment for a bad debt.
Number of employees One part-timer.
Revenues Slightly less than $100,000 last year.
Strategy Eliminate costs and maximize earnings. Build market share and equity, without loading up on employees. Then sell the company within three years. "My goal is not to hold power and control over hundreds of employees' lives," he says. "It's to put out a great product, make a lot of money, and get out."
Skills and background Public relations. Introducing and promoting new software products.
Role of CEO Marketing and sales. Cuts deals with bigger software companies to push the product into wider distribution. Stuffs envelopes, shrink-wraps product, supervises himself.
Financial return Deferred. Running the company leanly so every penny -- including what he might pay himself -- goes back into the business. Intends to collect when he walks.
Working relationships Big-company partners who bundle his product or offer it as a premium to their customers. Vendors: solo flyers who work from their homes via fax, phone, electronic mail. Ties are electronic. "Without the technology I have on my desktop, I never would have been able to do this." Wife gives legal advice. Programmer works cheap in exchange for equity.
How financed Out of pocket. A second business, his PR firm, keeps bread on the table.
* The potential payoff. A shot at one jumbo return on investment.
* Minimal overhead. No payroll. "I can cut almost any deal I want. Because my expenses are so low, I can afford to make a quarter on a deal if it will get me exposure."
* Control. "Everything I do is mine. I have no investor to dilute me or take part of the proceeds when I cash out."
* Bootstrappable. Manual, sales material, press releases, packaging all designed on a desktop and produced in-house.
* Size. Petite company can piggyback with larger partners who have the resources to help build a customer base.
* Vulnerability. Easy prey for large competitors. "They could kill me if they wanted."
* Lack of resources. "You know if you had any money, you could really go places. Some days it gets so frustrating I fire myself. Then I beg me to come back."
* Paltry income. The price of a minimalist approach: a miniature take-home.
-- Anne Murphy