The Innovators

On the Nose

No loan? No problem.

The Innovators


WE CELEBRATE AND ENCOURAGE INNOVATION.

Innovators push the boundaries of the known world. They're change agents who are relentless in making things happen and bringing ideas to execution.

Meet three more wily entrepreneurs who started successful businesses without outside funding

Venture capital fundraising was down by almost half in 2009, the slowest year since 2003. Although the SBA backed 37 percent more loans in the fourth quarter of last year, it was still just about half the 20,000 loans it backed in the final quarter of 2007. But you don't always need an infusion of cash to build a thriving business. Fabrice Penot proved it with Le Labo. Here are three other success stories that came to be without major outside funding. --E.W.

Ethan Lipsitz, Apliiq
In 2005, when Ethan Lipsitz was a student at the University of Pennsylvania, he took a swatch of fabric and sewed it onto a hooded sweatshirt, patchwork-style. It made the drab piece stand out, and soon Lipsitz was charging $50 for one of his appliquéd sweatshirts. After his mom and a friend taught him how to use a sewing machine, Lipsitz created the line Apliiq (pronounced app-LEEK', a mashup of "appliqué" and "unique"). And when he took his goods to a Philadelphia boutique, he discovered his business model:

"The guy was like, 'Those are cool--I'll buy three,'" he says of his first sales call. "And he paid me in cash upfront."

The deal helped Lipsitz, now 25, realize that he could turn an immediate profit by selling his sweatshirts solely made-to-order. So he built apliiq.com, a site that allows customers to choose their sweatshirt color, fabric pattern and design template. "I could sell and ship direct to the consumer without keeping inventory."

By spring 2008, he moved to Los Angeles with only his bicycle, which he would use to pick up fabric and sweatshirts from American Apparel's downtown headquarters. That June, a friend put Lipsitz in touch with Greg Selkoe, CEO of the popular streetwear website Karmaloop.com, who quickly picked up the line of quirky, patchwork wares. Business boomed and Lipsitz realized that if he wanted Apliiq to grow, he had to shift his focus to marketing and promotion.

Good, old-fashioned cold-calling led to write-ups on streetwear blogs, the New York Post's Page Six column and Spin magazine.

By March, Lipsitz could afford to rent a small storefront in downtown L.A., which, coincidentally, was on his bicycle route. He built out the store himself using rope and piping from Home Depot and whatever furniture he could scavenge. PayPal and a lockbox are still the company cash register. But today, Apliiq has a CFO, and the line has expanded to include dresses, T-shirts and collaborations with well-known streetwear brands including The People's Shoe.

And Lipsitz has never given up the skip-the-middleman approach: "I've dabbled with wholesale and consignment. But the time it takes to get paid for the product you sell and the amount of investment you have out there, it's a risk. I prefer getting my orders, then getting paid and then making the product. It's amazing."

Andrew Ritter, Ritter Pharmaceuticals
When doctors told Andrew Ritter that he would never be able to eat dairy foods, Ritter decided he loved ice cream too much to accept that. He pored over medical journals to learn about lactose intolerance, then brazenly called the top researchers. And--after getting return calls from Harvard Medical School and Purdue University--he began mixing vitamins and minerals to make a compound to ease his symptoms.

He was in the eighth grade at the time.

"They looked at me like I was crazy," says Ritter, now 27, of the L.A.-area pharmacists who sold him the ingredients. "I had to have my teachers write me a note."

A few years later, he had a formula that seemed to work. He paid volunteers $50 to test it and report the results. (This was funded by a job selling In-N-Out burgers, and legal because the product is a nutritional supplement, not actually a drug.) Still, "I don't know why these people did it," he says, laughing. "But it worked."

After landing some local press, Ritter began selling his supplement, a 34-day system designed to retrain the digestive system to better break down dairy, for $150 a pop. He put the profits back into research and development. By his junior year at the University of Southern California, he had his own office and was fielding customer service e-mails during class.

Today, more than 15,000 people have taken Lactagen, an over-the-counter derivative of the formula Ritter cooked up, and his company, Ritter Pharmaceuticals, is about to launch trials for a prescription drug to treat lactose intolerance--an endeavor that can cost upward of $50 million before the FDA gives its OK.

As for the Harvard and Purdue researchers he once cold-called? They now serve on the Lactagen board.

Timothy Downs, Shorecliff Communications
Today, the entire media world is scrambling to figure out what comes next. Timothy Downs had his epiphany 14 years ago.

Back then, Downs was an editor at Triathlete magazine, but closely watching the fallout of the Telecommunications Act of 1996, which transformed the phone, cable and broadcast landscape into the Wild West.

With his wife at the time, Andrea, he came up with the idea of a "live action" trade magazine for a slice of this new world: A conference on the cell tower industry. The potential margins were much bigger than they would have been with a print magazine, Downs says, with attendees paying as much as $800 to hear experts speak and sponsors ponying up at least $10,000 to involve their brands. "And the best part was," he says, "they would all prepay."

Downs sold a car to hire two employees and pay for a tiny office. He monitored the industry while Andrea was the public face of their company, which they called Shorecliff Communications. In 1996, Downs and Downs produced one conference for roughly 50 attendees. Two years later, they were up to three conferences with as many as 800 attendees each. "And it's still going to this day," he says.

Only today, the business no longer belongs to the Downses. They sold it to CMP Media in 2006 for $12.3 million. Downs says success came from listening to customers and following the industry closer than it followed itself. So when cell tower building slowed, Downs shifted into a new sector: broadband.

"I thought the word had a nice ring to it," he says, even though few at the time knew what it meant.

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This article was originally published in the May 2010 print edition of Entrepreneur with the headline: On the Nose.

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