Making it...from Scratch!
How many businesses have been inspired by a vision of college dropout Steve Jobs and his partner Steve Wozniak in that tiny garage, putting together the first Apple I computers all by themselves?
They built something—a company with a market cap of $600 billion—from basically nothing, and perhaps you can, too. The idea that it takes money to make money has been contradicted countless times by modern business alchemists who’ve spun lead into gold.
Consider the case of Matt Lindner, a partner in Chicago’s well-established Cans Bar and Canteen. Lindner didn’t have a trust fund. Instead, he had a first-job-after-college experience that left him with a burning desire to be his own boss. Just 24 at the time, he borrowed $5,000 each from five college friends, promising them $800 a month repayment for four years.
Lindner’s first bar was called the Bird’s Nest, and it was quite literally a nest for him—he slept there and showered at his health club because he couldn’t afford an apartment. The money that came in didn’t go into living large, but to expanding and publicizing the business, and eventually opening Cans and clones of it in Milwaukee and Charlotte, N.C.
Lesson 1: Even without a lot of cash on hand, you should take the first step. As Isaac Newton pointed out, a body in motion tends to stay in motion.
Joshua Baer started his first business, an email service, from his fraternity house at Carnegie Mellon University in Pittsburgh. Because he read manuals and other students didn’t, he started picking up $20 an hour as a computer consultant and $50 a month to host customers’ email servers. By the time he graduated in 1999, the business—started with no investment—was grossing $200,000 a year. Baer, whose current venture is Capital Factory, a community for Austin, Texas-based startups, is a serial entrepreneur. But his big ideas that were supported by venture capital haven’t worked as well as his grassroots enterprises. “Inherently, when you’re raising money, you’re getting ahead of your skis,” he told Silicon Hill News. “Too many people think raising money is some sign of success. It’s not.” Many of Baer’s projects have been software-based, and he says the industry offers an excellent platform for creating something from nothing. “I love software,” Baer says. “You can identify a problem, imagine a software solution and then create it with limited resources or investment. As software has evolved, it has gotten more and more accessible to entrepreneurs with limited training. If the result of your work really meets a need, it can be a business.”
Lesson 2: Chase a dream. It’s the only thing that will make you willing to invest the time and sweat equity to launch a barely funded business. Your passion will be infectious, and as long as your idea is good and original, it will attract others to help you realize your vision.
Maryland resident Kevin Plank may have struggled academically, but he excelled as an entrepreneur. While at the University of Maryland in the early 1990s, Plank started a successful flower business, which provided $17,000 in seed money for his new enterprise, Under Armour, maker of moisture-wicking athletic shirts. He saw the need firsthand from his position as a sweaty special teams player on the school football team. Under Armour, financed in part with $40,000 in credit card debt, wasn’t an immediate success, and Plank ended up so broke he was forced to visit his mother’s home for all his meals. Office space was in the basement of his grandmother’s row house. But the company filled an important niche, and Plank figured out a great no-budget marketing plan—he sent sample shirts to a dozen college friends who’d become professional football players, and personally haunted college athletic departments. Soon an Oakland Raiders quarterback was on the cover of USA Today in one of his shirts. Growth was slow, but steady, and the company’s net revenue reached $1.47 billion in 2011. Today, Plank is worth an estimated $1.35 billion. “I was always naïve enough to not know what I could not accomplish,” Plank told the online research and business analysis journal Knowledge@Wharton. “If I had been out in the industry, instead of being a college kid who had an idea for another T-shirt, I would have been too scared to do anything.”
Lesson 3: Plenty of businesses (including many Internet or software businesses) supported by wheelbarrows of cash have crashed and burned. You can start from nothing but a good idea.
Seth Sternberg, a Stanford MBA and former IBM executive, was a co-founder of Meebo, a platform for web content that was recently acquired by Google. “Forget everything else and just get your product out the door,” he says. “No office. No phone system. No hiring. No press. No legal muck. No raising money. No looking for partnerships. The success or failure of your product is what will create 99 percent of the initial value of your company.”
Lesson 4: When starting a bootstrap business, everything you don’t do frees up more of your time to finish the work at the heart of the project—which is probably what you’re best at anyway. Franchises may not be your whole answer, but they can be part of the puzzle.
Warren Brown was a federal litigator, working for the Department of Health and Human Services, but he wasn’t happy. Instead of putting on a suit and tie and fighting healthcare fraud, the Brown graduate decided he’d rather be… a baker. So he turned his hobby (and passion) into his actual job. In 1999 his New Year’s resolution was to overcome his “fear of flour” and learn everything he could to make the dream a reality. In early 2000 Brown—who’d catered gourmet food parties in college—spent three straight days doing nothing but making cakes and cupcakes, enough for an open house to publicize his plans. With only some savings from his work as a lawyer and, eventually, a small business loan, he opened CakeLove bakery in 2002 (there are now three locations in the Washington, D.C., area), and Love Café the following year. Then the Food Network beckoned. Brown’s show, Sugar Rush, ran from 2005 to 2007 and gave him the acclaim to write a pair of cookbooks. Brown says the hardest part of starting CakeLove was convincing himself it was possible—he had to psych himself up in front of the mirror, preparing for long days of networking, marketing and, of course, baking. “But even though my bones and joints often ache and my mind becomes dizzyingly tired at the end of each day, baking lifts my spirits and rewards me in many ways,” he says. “In living my passion, when I wake up, I’m all go.”
Lesson 5: The product is king, so forget the expensive trappings and the need for a big war chest.
Sternberg points out that some of the most successful tech companies, including eBay, YouTube, Apple, Yahoo and Google, were launched before taking outside investment. Keep it basic, particularly if you’re starting from scratch. Lisa Sperow operates Legend Talent Management, a staffing and employee training firm in the Charlotte area, a people-oriented business, she emphasizes. “I believe that people should love what they do,” she says. “We spend too much time working to not love our jobs. When the right people are in the right jobs at the right companies, everybody wins.” Sperow’s business isn’t a franchise, but it benefits from one. Her company offers assessment tools for small-business owners to use in making hiring decisions, but she didn’t create them—Profiles International did, and she licenses them. It’s mutually beneficial. “I operate as my own entity,” she says. “I don’t answer to Profiles in terms of how I run my business. I do agree to abide by certain terms and regulations, but there’s a high degree of flexibility for me.”
Lesson 6: Don’t be afraid to use your connections. Your friends and acquaintances will go the extra mile to help you succeed. And don’t be disappointed if the pot of gold doesn’t immediately materialize.
From 1998—when he first heard of the idea—to 2002, British-born Julian Ellison struggled to bring the concept of LiveAuctioneers.com to fruition. The concept of bringing auction catalogs online for remote bidding was obvious, but didn’t immediately penetrate the stodgy and hidebound world of international auctioneering. Ellison thought he could make it work without the big money. He was down to $1,600 in the bank, but persevered, began working with new partner John Ralston, and finally found a small husband-and-wife auction house in Pennsylvania to try out the model. The response was overwhelming—10,000 people viewed the catalog and 5,000 sent in queries about the musical instruments it offered. It was proof that remote bidding could work, and that auction catalogs didn’t have to be guarded like the Crown Jewels. Soon after, eBay came calling and partnered with LiveAuctioneers.com from 2003 to 2008, splitting profits—if any—50-50. Ellison says he prepared for the early days to be lean. “My rent was paid up, and I bought a lot of tinned food and a six-month supply of toilet paper,” he says. “But we were profitable within three months.” Eventually, eBay decided to put its priorities elsewhere and sent Ellison a thank-you note, its blessing to continue the business, and a box of colored paperclips. Today the privately owned LiveAuctioneers.com is a go-to location for fine arts and collectibles. It is healthy and profitable, with an estimated $6.5 million in net revenue for 2012. Ellison is also branching out with other ideas, including Grand Prix Café, which will bring some of the same concepts he pioneered to classic car sales and service centers. “We’ll allow people to watch their Ferraris or Maseratis being serviced from their computers, and we’ll give them the option of going through online lists of possible upgrades,” Ellison says. “We’ll offer social networking in a club atmosphere. This is the garage of the future, where we bring passion and technology together.”
Lesson 7: There is life before—and after—a big partnership. Ellison says he learned from and values his collaboration with eBay, but the larger company’s exit was no reason to give up on a still-viable idea. The downside of working with eBay? “I had to reintroduce myself every six months or so, because the management there changed so rapidly,” he says.
Henry Ford—who had been left with just $900 after earlier efforts fizzled—started the Ford Motor Company in June of 1903 with $28,000 from 12 investors. Ford was so innovative in his approach to making and selling cars that the company was almost immediately in the black, earning $37,000 in profits by the end of October and paying a 10 percent dividend. By 1913, Ford had all the elements of the modern assembly line in place, chassis assembly fell from 12 hours to about 21/2 hours, and by 1920 the company was an icon of American business, producing a million cars a year.
Lesson 8: Genius often finds a way, even if false starts disguise that fact. Steve Jobs didn’t succeed at everything he did—at his startup venture NeXT, he spent more time designing fancy offices than building a viable computer—but his basic approach was so out-of-the-box that he ended up transforming two industries, computers and film animation. Your own startup doesn’t necessarily need a genius, but it needs people at the cutting edge of the field who anticipate and lead trends rather than just responding to them.
When Steli Efti had what he thought was a career-making Big Idea for a tech startup, he sold his possessions and bought a one-way ticket from Europe to Silicon Valley. He didn’t have many resources, but he had abundant personal commitment. The dream turned into a nightmare when the business didn’t pan out, but Efti wasn’t willing to move on. “I had bought into the idea that entrepreneurs succeeded through sheer hard work, and that meant an endless succession of very long days, falling asleep at the laptop, living on pizza and Red Bull, with no vacations or breaks,” he says. “I saw business shortcomings and investment challenges as a sign of personal weakness, and I ended up bankrupt, both financially and emotionally.” Efti says he pushed his failing concept for a year and a half too long. “I hit rock-bottom and had to admit failure,” he says. “I finally decided I had to go out and look for a job, which was hard for me—I’d never actually worked for someone else.” He also vowed to himself to eat better, get more rest and clean up his “computer hygiene,” meaning no more falling asleep at the keyboard and no more answering emails as soon as he was awake. Oddly enough, it was after all this that Efti stumbled upon a friend’s startup, and began casually helping as an adviser. “I wasn’t under so much pressure,” he says. “And I was able to tap into all the lessons I’d learned from my failed business.” The new company provided off-site, highly trained sales forces and sales infrastructure to new startups. Eventually named Elastic, it was the success that his original effort wasn’t. Eventually Efti got further involved and became a partner.
Lesson 9: It’s true that your willingness to work hard for yourself is one of the greatest assets a bootstrap startup has, but overdoing it can be really counterproductive. You have to know when it’s time to fold your hand and move on. Don’t lose yourself in the process. “Be happy,” Efti says. “At the end of the day, that’s all that really matters.”
Wes Moss, who wrote Starting From Scratch, says one of the keys of building something from nothing is to “find something you’re already very good at, that you’re naturally inclined to do—and do it over and over again.” That doesn’t mean you won’t have to pull all-nighters or fuel with Red Bull and pizza to make it, but it does mean you’ll be happier with your work and your chances of success with limited resources will be much higher.
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