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Start-Ups on a Shoestring
By Colleen DeBaise, Sarah E. Needleman and Emily Maltby You don't have to break the bank to start a business.For many would-be entrepreneurs, money is the insurmountable hurdle. They hunger to strike out on their own, but don't have a big pile of cash to invest in a start-up that might not churn a profit for years to come. And they're reluctant to stake what cash they do have while the economy is still shaky.We decided to see if you could launch a venture for less than people think. A lot
less. We set out to find bootstrapping business owners who started companies in recent years—without shelling out more than a couple of hundred dollars.The ground rules: The entrepreneurs had to be either paying themselves a salary or reinvesting substantial profits in the business, as well as planning to continue down the entrepreneurial path for some time to come. We also nixed people who opened consulting firms in fields where they had already built careers. While that's certainly entrepreneurial, we wanted people who were truly starting from scratch.What did we discover? With creativity, commitment and resilience, an entrepreneur can turn even a small investment into an impressive business.The stories we found contain several common threads. Hard work is one. If you don't have a lot to spend, expect to put in a lot of time and energy. As Jeff Swedarsky of Alexandria, Va., put it, he started his food-tour business for "$100 and 100,000 hours."But the bootstrapping entrepreneur can also get help from lots of technological tools. For instance, professional-looking websites and automated phone-answering systems can speed sales and make a start-up look more impressive to potential customers.Technology, in fact, is a big reason it's possible to launch a business so cheaply. Thanks to the proliferation of the Internet and the accessibility of once-costly technology, start-up costs "have plummeted in the last 10 years," says Bo Fishback, vice president of entrepreneurship at the Ewing Marion Kauffman Foundation, a Kansas City, Mo., nonprofit devoted to entrepreneurship. "It's gotten so much easier to reach mass markets and test out ideas. This is something that's becoming accessible to anyone with an idea."Of course, there are limits to what hard work and tech savvy can do. Babson College has estimated that on average it takes about $65,000 to start a business, a figure that can include everything from buying equipment and inventory to paying employees. Some industries come with even higher price tags, according to the Kauffman Foundation—$82,000 for construction, $98,000 for retail and $175,000 for manufacturing, to name just a few.And even if you get your business off the ground for pennies, there's no guarantee that you'll keep rising. About half of all start-ups close within five years, and most research indicates that's usually due to lack of capital.Those are the risks. For a look at how three entrepreneurs are navigating them—and finding rewards along the way—read on.
Live Worldly LLC
Started with: $40In 2007, Kael Robinson received an unusual gift—a flimsy cotton bracelet with Portuguese lettering on it and instructions to make three wishes while tying it on. She didn't wish that the wristband would lead her to a successful business venture, but that's exactly what happened.The good fortune didn't arrive immediately. Six months after she received the gift, Ms. Robinson got laid off from her public-relations job and was putting in a few hours a week as a lacrosse coach at a Denver high school. During this stretch, she took a family vacation in Argentina, where she made an interesting discovery: Her bracelet was a hot item there. "I saw everybody wearing them," the 27-year-old recalls.Ms. Robinson, who had gotten a taste of entrepreneurship in college selling handmade jewelry, had a hunch about the accessories. After she returned home she bought 100 of the bracelets for $40 from a wholesaler in South America. Wearing five of them herself, she offered them to her student athletes for $2.50 apiece and quickly sold out, prompting her to invest in another 100 units. "I thought about what would be my target market and how high school is where trends start," she says. "The girls immediately hopped onto it."Ms. Robinson soon had more orders than she could fill—at a new retail price of $5 per bracelet—giving her enough confidence to purchase another 1,000. She then began cold-calling local businesses and several agreed to resell her product on a consignment basis.Gradually, retailers throughout the state and beyond began calling and emailing her to place orders. But she also took on some big expenses that cut into her profits. She donated 20,000 bracelets to charities, retailers and others to get the word out, for instance, and committed 20% of her sales to the nature nonprofit Plantabillion.org—a pledge she says helps drive business.By the summer of 2008, Ms. Robinson had earned enough to pay for a professional website and logo for the company, now known as Live Worldly LLC. She also hired a publicist friend who helped her write and distribute press releases. CosmoGirl became the first of several magazines to publish a blurb on her company.Ms. Robinson says the press attention inspired her to contact high-end boutiques: Barneys New York, Fred Segal and Kitson. She sent each of them a copy of the short article and 50 bracelets in a "really cool glass bowl so they could take it out of the box and display it," she says.The stores sold out of the free samples within a week and began ordering more. The following winter, Ms. Robinson says, she started asking foreign buyers—individual consumers and retail shops—if they'd be interested in distributing her product in their respective countries, and many agreed. She also began expanding her catalog to include jewelry and apparel from around the globe, all with special meanings or cultural value, she says. For instance, she now offers necklaces, bracelets and earrings from Tibet that have been blessed by monks.These days, her products are for sale in more than 500 stores world-wide. The company has a more sophisticated website and two full-time employees who handle order fulfillment, new-business development and bookkeeping. Last year, Live Worldly racked up $60,000 in profits on revenue of $160,000, compared with $10,000 in earnings on revenue of $50,000 the year before.Ms. Robinson says she made some mistakes along the way that ate into her totals. For example, she says she wasn't asking enough for shipping; at first, she charged $8.99 to ship 20 or more bracelets to stores in the U.S., and now she charges $12.99. She was also paying printing costs of 35 cents per bracelet tag; about six months ago, she switched to a cheaper printer and now pays 20 cents per tag.Ms. Robinson says she hasn't yet begun paying herself a salary and is continuing to put her earnings back into her enterprise. She says she lives frugally and relies on savings and income from coaching to make ends meet. She advises others looking to follow in her footsteps to create a list of objectives with deadlines when starting out. "That helped me a lot," she says. "It made me work hard to get those goals."
Food Tour Corp.
Started with: $110By day, Jeff Swedarsky is a self-described paper pusher at the Department of Homeland Security, where he works in ship acquisition for the U.S. Coast Guard. But by night and weekend—pretty much the rest of his waking hours—he's the director of Food Tour Corp., the company he created that offers culinary excursions of Washington, D.C., neighborhoods."I'm huge into food," says the 29-year-old Mr. Swedarsky, who runs Food Tour out of his Alexandria, Va., home. "I've traveled to 41 countries now—and every time I go someplace, it's all about food and doing it the local way. Food is one of those things that brings people together, no matter where you go."Mr. Swedarsky got his first taste of entrepreneurship during a post-college stint in Slovenia, when he helped to develop a now-defunct smoothie company. After finishing his M.B.A. in 2006, he was ready to start a business, inspired by a newspaper article about culinary tourism, but he lacked the dollars he needed. The solution, he soon realized, would be to take a 9-to-5 job to pay his bills and build Food Tour organically.In 2007, Mr. Swedarsky outlined the Food Tour concept in a brief written presentation, and used that to hook local restaurant owners' interest. The plan: He would bring in small groups for special tastings, during the slow period between lunch and dinner, and restaurants would make them smaller, customized dishes that weren't on their usual menu and that reflected local history, such as Virginia ham."Once [restaurants] understood that we were going to pay them and bring in folks, they were on board," he says.Mr. Swedarsky then paid $100 in filing fees to register his business with the Commonwealth of Virginia and $10 to buy his online domain name through GoDaddy.com; he created a website himself. "I had free Web-design software and Photoshop that had been given to me years ago," Mr. Swedarsky says.Mr. Swedarsky gave his first official tour in May 2008 with just two people along for the ride, "cute ladies who must have been in their 50s, from New York," he says. "They did a Google search and found us."After that, "it started to pick up speed," he says. Food Tour garnered a mention in the Express, a free newspaper that's given to commuters jumping on the Metro. After about six months, Mr. Swedarsky hired his first part-time employees to lend a hand. "I knew I was getting burnt out," Mr. Swedarsky says.These days, Mr. Swedarsky employs 23 part-time staffers, primarily tour guides, and he rarely gives tours himself. Instead, he focuses on expanding the company, which now offers several tours, lunches and pub crawls in Washington and Baltimore, and is preparing to acquire a competitor in Annapolis, Md. Generally, tours are limited to about 12 to 14 people, and tickets cost about $50 to $60.Mr. Swedarsky hopes the company will clear $300,000 in sales this year, though he's not yet paying himself a salary or quitting government work anytime soon. "Keeping the day job has ensured I don't have a life," he says, but the steady paycheck allows him to reinvest profits into the company.He advises other wannabe entrepreneurs to pursue their ideas but "make sure it's something you absolutely love." Count on needing to finish projects at "11:45 on a Sunday night—you are going to have to push yourself," he says. "If you can do that, the money will eventually come."
Floor Works New York
Started with: $145
Marc Ringel says that he was "really scared" when he first started his flooring company in July 2007. "The thing that freaked me out was that I had no margin of error," he says. "I had no money."Before he struck out on his own, Mr. Ringel, who is now 32, had never been able to build up savings. For several years, he was a math teacher in New York City, a job he landed after struggling to find openings suited to his computer-science degree. He enjoyed helping the students and "doing something good," but he was barely making ends meet.So, he jumped at the opportunity to work for a colleague who ran a flooring company on the side. The job, which entailed finding new clients and marketing for the company, wasn't terribly lucrative. Mr. Ringel made only $2,000 in commissions his first year.Still, he was so discouraged at his teaching job that he moved to the flooring company full-time in 2005—and took the chance to learn everything he could about the business. He observed how a small enterprise operated and watched the contractors to better understand the trade, even helping them occasionally.At the time, sales were booming, and Mr. Ringel thought the company had the potential to soar even higher, if it implemented systems and processes that would better organize and dispatch the contractors. But the owner didn't have the same vision. "I could see fundamental differences in our philosophies," Mr. Ringel recalls. "And I wasn't moving forward."Against the advice of friends and family, he decided to start his own flooring business in the summer of 2007. It was a risky time; many contractors were feeling the impact of the housing-market bust. Mr. Ringel had to act fast to get his own firm up and running while it was still a busy season for repairs and renovations.The problem: He didn't have the licenses or insurance that contracting companies require—nor could he afford them—and he had only a cursory knowledge of how to lay a floor. He did, however, have a solid network of contractors and he knew how to attract new clients. So, Mr. RIngel says, he approached a licensed and insured freelance contractor and asked to solicit work for him, in exchange for a cut of the profits. The contractor agreed. Mr. Ringel set up a phone line, with a voicemail system that left callers thinking that they had dialed a fully staffed company, he says. It cost about $20 a month. He also bought new business cards for $25. Finally, he spent $100 for the hosting and domain name of a new website, which he designed himself.Within days, Mr. Ringel had signed three jobs for the independent contractor, most of them referred from Mr. Ringel's clients at the other flooring company. And he was careful with the cash that came in. "I constantly reinvested" earnings, Mr. Ringel says. "I would take money out of the company only if I really needed it."By August 2007, the Astoria, N.Y., start-up had $7,000 in reserves. Mr. Ringel spent the money on formally incorporating the business, as City Works New York Inc., which does business as Floor Works New York, and filing for his own proper licenses and insurance. He also partnered with a number of other flooring contractors.With all that in place, he was able to land a large job with an 8,000-square-foot art gallery in September 2007. "The pitfall was that a big influx of money can make you think, 'Oh, I'm rich now,' but that's when you need to be careful," Mr. Ringel says. "Winter got very slow."To push him through the season, Mr. Ringel decided to try for free advertising, encouraging the public to rate Floor Works, on sites like StreetEasy.com, UrbanDigs.com and AngiesList.com. The good reviews attracted new clients, and Mr. Ringel made a point to be present at the jobs, to increase his understanding of the business, he says.By the middle of last year, Mr. Ringel had started paying himself a regular salary. And when winter rolled around, he was ready for the slump, adding painting to his services to supplement the flooring work. He declines to disclose his revenue.Mr. Ringel's career jump wasn't easy, but for others who strive to do the same, he suggests having the safety net of a secure job, the way he did when he was making the transition."Making a mistake—or a string of mistakes—doesn't mean you're a failure; it's part of the learning process," he says. "There's no magic formula for building a business, you just need a willingness to do lots of hard work and a high tolerance for agita."
Ms. DeBaise is The Wall Street Journal's small- business editor, and Ms. Needleman and Ms. Maltby are staff reporters in the Journal's New York bureau. They can be reached at firstname.lastname@example.org, email@example.com and firstname.lastname@example.org.