Rags-to-riches entrepreneurs don't usually brag about crashing on a friend's couch and eating cheap food. But John Vechey, 28, proudly recalls the early penny-pinching days of his Seattle gaming company, PopCap Games, which he co-founded with partners Brian Fiete, 29, and Jason Kapalka, 36, in 2000. After leaving their steady jobs at gaming companies, the trio pooled $100 to purchase business cards, used their own computers and convinced a friend who owned an ISP to give them server space for free. Working first from Fiete's condo, then from Vechey's apartment, they started with a simple business model--to make games and license them to websites.
Then the ad market crashed, rendering their model insufficient and teaching the partners the first lesson of bootstrap entrepreneurs: flexibility. In 2001, based on feedback on their first game, Bejeweled, they created an enhanced, downloadable version. Instead of charging sites like Yahoo! to host their games, they offer the web versions for free in exchange for having the sites direct people to PopCap's site to download full versions of the games. "At first, we were making $5,000 to $10,000 per month. Then it was $30,000 to $100,000," Vechey recalls.
Vechey and his team raked in more than $10 million in 2005, and they now have 13,000 square feet of office space in downtown Seattle, a studio in San Francisco and a satellite office in Dublin, Ireland. They employ 118 people and have more than 30 different games.
In doing research for his book, Bootstrapping Your Business: Start and Grow a Successful Company With Almost No Money, Greg Gianforte found that less than 1 percent of startups raise money. A bootstrapper himself, Gianforte started RightNow Technologies in Bozeman, Montana, in 1997, went public in 2004 and had 2006 revenue of more than $110 million. He says having an open mind and experimenting are key. "Once you have scale and mass, you do things differently," Gianforte says. "In the early startup phase, you can throw things up against the wall and see what sticks."
That's what Amy James did. After selling her first company in 2000, the former teacher negotiated the right to retain a database of state learning standards that she had spent two years typing into a Microsoft Access file. In 2001, James decided to take advantage of that year's No Child Left Behind Act and put her database to work. "I made a flier saying I could align curriculum with learning standards and faxed it to publishers," she says. "Scholastic called immediately. Then LeapFrog. Then others."
For the cost of office supplies--about $100--James was in business, launching SixThings from her New York City apartment. She made $30,000 her first year, consulting with publishers, reviewing educational programs and curricula, and writing reports analyzing how these measured up to state and federal learning and testing requirements. James ramped up significantly in her second year, hiring two curriculum development employees and one computer programmer. In addition to analysis, the company now sells electronic databases of learning and testing requirements and licenses software that provides compliance reporting along state and federal guidelines.
But James was struggling to pay her rent and knew something had to give. Her mother was a retired teacher back in her hometown near Oklahoma City, and James could tap her mom's friends as workers. So she moved into the same apartment complex as her mother.
"It just made sense," says James, 40. "My mom's friends were starting to retire. My dad was a principal. They were all on state benefits and had a great work ethic." With her mother as her first Oklahoma employee and her father as a sounding board, she began to rebuild her business.
James used open source software and worked from home for the first three years of business, finally moving into a 6,000-square-foot Oklahoma City office space in 2004. She furnished that space, including the refrigerator, she says proudly, for a mere $1,900 by visiting vacated offices and offering cash for the abandoned furniture. She continues to pinch pennies, even after bringing in sales of more than $2.1 million last year. Of her 20 full-time and 43 part-time employees, the vast majority are her parents' retired friends. She has also re-established an office in New York City.Think Big, Spend Small
Of course, one of the secrets to bootstrapping is choosing a business where you can do the work yourself. Ajay Goel, 29, was living with his parents in 2000 when he created the first version of JangoMail as a side project for a client who needed a web-based e-mail marketing solution. Because he had a computer and no overhead, Goel was able to fine-tune the product, then take it to market.
JangoMail, with its web-based e-mail broadcasting and marketing system that allows companies to create, send and track e-mail campaigns, projects sales of $5 million for 2007. While the four-person company works virtually, Goel invested in 900 square feet of office space in Dayton, Ohio, to give the company a home base and employees a place to work when they come to town.
JangoMail has grown mostly through referrals, networking and search engine advertising, landing clients like the American Cancer Society and Nokia. Instead of expanding through additional products or line extensions, JangoMail remains the company's sole offering, available through its website. Goel is constantly tinkering and adding features. "I wanted to operate with a salesperson-less model," he says. "We are there if [customers] need us, but they can buy the product on their own."
The same model works for Vechey's company, with customers buying games online. While Vechey and his partners still work on attracting advertising partners, they don't have to compensate a sales team.
That type of strategic cost cutting is smart, says Ryan Allis, author of Zero to One Million: How to Build a Company to One Million Dollars in Sales and co-founder of Broadwick, an e-mail marketing company. Founded in 2003, the Durham, North Carolina, company expects sales of $6.3 million in 2007.
Allis says it's also possible to save by bartering for business counsel and services. He advises bootstrappers to think creatively about their business deals. For example, when he needed legal and accounting assistance, he found that, in exchange for a small percentage of equity in his business, the firm might waive its fee or delay payment for a year--instead of eating into his precious cash reserves.
A little help from friends allowed Maureen and Jeff Kendall to launch their San Jose, California, T-shirt company, Little Ruler, with about $1,000 for their first run of 100 T-shirts. Jeff, 39, was a well-known figure in the skateboarding world when the couple had their first son, Cole, in 2001. They received tiny T-shirts individually screened with skateboard industry logos as gifts. Seeing people's reactions to the shirts inspired them to launch their own line of children's clothing featuring logos licensed from hot skateboard companies. As word got out about their idea, friends offered to help design the T-shirts and their website for free, saving the couple big bucks on some basic startup needs.
Gianforte advises entrepreneurs to keep a close eye on cash reserves. In the early months, cash-flow projections are key. Simply create a list of the cash coming in and the cash that needs to go out week by week. "Then scrutinize every single outflow," he says. "Ask: Is there another way? How can I avoid making that expenditure?"
Another strategy is structuring payment so you get your money right away. Gianforte knows of a maker of high-end massage tables who requires a 50 percent deposit to cover his materials and labor. When a large retailer offered to purchase 100 tables but would only pay after delivery, the table-maker said no deal, since he'd have to carry the expense for several months between his initial outlay and final remuneration--not to mention the potential risk that he might not get paid at all.