Shoestring start-ups may be the soundest
Geoffrey Kessler is intent on debunking the notion that it takes big money to start a business. Just $100 can launch many firms in today's flourishing service and information economy, he insists. ``Less is more. There's almost a direct correlation between starting with a lot of money and failure,'' says the Los Angeles-based small-business consultant. His firm, Kessler & Associates, works with some 750 clients.
Indeed, the annals of corporate America are packed with meager beginnings:
In 1973, Leone Ackerly bought $7 worth of cleaning materials and a mop. Then she started scrubbing. Her hands-on research produced a fast, thorough residential cleaning system which she dubbed Mini-Maid International of Marietta, Ga.
``We made a profit from day one,'' Mrs. Ackerly boasts. Her 111 franchises cleaned up with $11 million in sales last year.
Elmer Doolin, the founder of Frito-Lay, bought the recipe for Fritos corn chips for $100. He cooked batches at night in his mother's kitchen, then sold them from his car by day.
Bookkeeper Henry W. Bloch and his brother Richard started preparing tax forms as a side business with a single ad in 1954. Customers flocked in. Eschewing a $5,000 loan from their aunt, the Blochs' capital for growth came only from the fees customers paid. Today, H&R Block Inc. has more than 8,800 offices, and it grossed $608 million in fiscal 1986.
Lest enthusiasm obscure sound judgment, statistics show that many entrepreneurial ventures are also notoriously short lived. Still, little or no capital can be a blessing, says Jeffry A. Timmons, professor of entrepreneurship at Babson College in Wellesley, Mass. ``I've seen more people making a muck of things when they had a lot of money.''
Experts say an abundance of cash tempts people to start enterprises that are bigger and more complex than they can handle. Often just learning the ropes of dealing with suppliers and customers, and the chores of marketing, production, and accounting, are enough to keep novices busy.
Starting out with little money makes an initial flop easier to recover from. ``It's like riding a bicycle on the sidewalk,'' says Mr. Kessler. ``If you fall down, you can keep trying until you get it right. But if you start out on the freeway, there's no room for mistakes.'' How zucchini butter spread
Having insufficent funds often ensures a proper incubation period for premature products, forestalling failure on a large scale. Kessler cites two Orange County, Calif., women who were looking for $30,000 to buy a large machine to manufacture their home-brewed zucchini butter. Instead, he directed the women to the local supermarket. They asked the store manager for permission to give away samples of their zucchini butter on crackers. They promised to sell no product, just entertain the customers.
Dressed in gingham skirts and bonnets, the two women doled out samples for two weeks. Customer reactions produced several crucial changes in the recipe. But by the third week, people were eager to buy the butter. The two refused to take orders. They simply told all comers: ``Talk to the store manager.''
Seeing the demand, the store manager contacted a food broker. A manufacturer was found to produce the butter. And the local store paid for the first order. The women put up no money. Within two years, they sold their rights to the product for more than $100,000.
But what if plenty of cash is readily available? Many banks are courting small businesses more aggressively, since larger concerns can get better interest rates elsewhere. Don't take the loan, even from friends or relatives, says Kessler.
Why? Entrepreneurs often make overambitious sales projections. ``Taking a loan can put you on an unrealistic time schedule. You make commitments you can't keep,'' Kessler says. ``When the loan starts to come due, your attention span shortens. You worry about the banker instead of your customers. You start working defensively, working longer hours, and giving short shrift to creativity. Your thinking is all wrong.''
Also, banks often issue ``demand'' loans, which means that if the business hits a rough spot, the bank may demand the entire sum within 30 days.
Entrepreneurs with plenty of financing tend to fall into the ``fat-and-happy syndrome,'' says Professor Timmons at Babson. ``They become lax. Give less attention to careful management and cost controls. They don't ask, `How can we do this for less?''' How to scrounge office space
Working with little capital forces people to be more innovative, to consider several solutions to a problem. If you lack a manufacturer, office or storage space, just ask for it. Talk to local business owners, says Kessler.
``Don't ask how much it is, ask how you can get it for free,'' he says. He suggests offering your services in return, or paying for the space once your business is off the ground.
Why would someone give office space away?
Many business owners have an excess, ``and it builds their egos to help someone getting started.'' Kessler says he has found that successful people enjoy offering advice and space to a budding entrepreneur. And those relationships can be more valuable than capital. Kessler has started a capacity-exchange program in Los Angeles.
Zenas Block, a New York University management professor, agrees with many of Kessler's concepts. But Mr. Block says a thin wallet can be a recipe for disaster. Indeed, ``lack of capital'' was cited as the primary reason for failure by nearly half of small-business owners surveyed in a Minolta/Gallup poll that was released on March 4.
``If your business grows rapidly, and you can't finance your growth, success can ruin you,'' Block says.
But Kessler contends that having too little money forces a business not to grow too fast. ``You're learning the business as it builds. All too often businesses fail because a person's ability is outrun.'' Kessler recommends that if a business is growing too quickly, it raise prices and sell fewer products. ``If the product is good, the volume will be there later when you can handle it.''
Crucial to a low-cost start-up is high-quality service or product, Kessler warns. If it only costs $100 to launch, competition will emerge quickly.
Kessler publishes a six-issue-a-year newsletter stuffed with ideas for entrepreneurs. (For a free copy, write Kessler Letter, PO Box 67A47, Los Angeles, CA 90067. The annual subscription fee is $5).