Wade Armstrong

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On A Shoestring

Posted Tuesday March 6, 2007 in Entrepreneurship

It’s tempting to spend money on your entrepreneurial dream; the problem is, money is finite and dreams are infinite. Unless you’re Mel Karmazin, investing billions in your new baby is out of the question. So how do you get off the ground?

For me, the answer is being cheap. I ran my first company on next to nothing, as we earned barely enough to cover costs for two out of the three years I was there. Rather than getting everything we wanted, we (most days) just got what we needed, and we stayed in business through some hard times. I’ve been running my current venture since November, and haven’t yet spent $10,000; momentum is building even without the big cash outlays. It’s not that I haven’t spent money — we’ve bought key capital and office equipment — but I’ve watched every penny as if it were my last.

Some will say that running your company on a shoestring is just a symptom of thinking small. I disagree; growing big is a function of time, effort, and sales, two of which are free and the third of which can be cheap, depending on how you do it. Time is the big killer of small companies — if you’re marginally capitalized, slow-to-develop opportunities can really sink the ship. And lots of opportunities can come slowly — according to legend, it even took Microsoft seven years after it opened to make a real profit.

And there’s evidence that the shoestring works. I got to see some on Saturday, at the Greif Center’s Networking Day. The featured speakers were the founders of Five Point Capital, a small-ticket equipment leasing company that just made the Inc. 500. From its founders’ initial investment of $10,000 each, Five Point has grown to a company with $12.1 million in revenues and 93 employees last year (both numbers have probably doubled this year).

Founders Dave Gilbert and Dan Feder told us of how they started in a 120 square foot un-air conditioned office in Chatsworth¹, and did everything to keep the costs down. They only had dial-up Internet, they took a desk from a Dumpster nearby, and they cold-called names out of a Yellow Pages that they got for free from a nearby Motel Six. Whoever had the best sales at the end of the month ate a nice dinner, with a budget of twice their usual meal expenses — because the worst salesperson had to give up dinner that night.

Now, that might be a bit extreme, but it illustrates the entrepreneur’s motto that “cash is king.” It really is — even with bills out there, a solid cash flow can keep you going for years at a time. The key, of course, is to know what causes that cash flow to change.

That’s where I am — five months and less than $10,000 into my company, I’m finding new ways to improve cash flow every day. I’m starting this thing on a shoestring, and I’m going to find clever ways to improve my cash flow every day. What are you going to do?

¹ This is about twice the size of my office, which is also not air-conditioned