From the February 2003 issue of Startups

It's happened to all of us. Sitting, standing or sleeping, we've all had that epiphanic moment when a bright idea for a great business becomes clear. But if you think it takes millions to start a successful business, you're wrong. Each of the following entrepreneurs started with relatively little money and parlayed it into lucrative ventures, cutting corners whenever they could along the way. Although times may have been tough working with little capital, these entrepreneurs prove that although money makes the world go round, you can't judge a business by the size of its start-up.

MooRoo Handbags: Less Than $40K
Talk about taking a dream and making it come true. After stay-at-home mom Mary Norton dreamt about three handbags one night during the summer of 1998, she recreated them the next day, spending about $50 in materials. Norton then let her baby-sitter, who happened to be a manager of a store in Charleston, South Carolina, take the bags to see how they'd sell. At $40 each, they were gone in 45 minutes. When people asked for the brand name, the baby-sitter merged the nicknames of Norton's two children and came up with MooRoo Handbags.

Norton never aspired to be an entrepreneur, but she continued making bags on her dining room table and wholesaling to local boutiques. To test the popularity of her bags with a larger audience, she called the New York Chamber of Commerce and declared innocently: "I heard y'all do trade shows and fashion shows. I was interested in doing that." They directed her to the Jacob K. Javitz Convention Center, from which she got the number for a company putting on a show. Norton, who had no fashion or trade show experience, learned about taking orders from a retailer quickly. Not knowing she could ship ahead, she hauled 14 duffel bags filled with purses to the show. Though she may have lacked trade-show savvy, Norton still walked away with $65,000 in orders.

With proof of orders, Norton, 39, got a $20,000 line of credit from a bank and invested, with her restaurateur husband, roughly $20,000 to rent a warehouse and buy equipment. With a limited budget, Norton recalls: "[We] bought discounted, damaged and used office furniture. But we did buy a good copier, fax machine and phone system. I knew they would be heavily relied on, so I didn't skimp." She even saved on HR costs by hiring her husband's head waitress, who now serves as the head of production for MooRoo.

In February 2001, MooRoo opened its first store on South Carolina's high-end King Street. In an agreement with the landlord, Norton renovated the building for $50,000 and received a favorable lease. Business was booming, with sales doubling each year since 1998 and a 40 percent customer base increase each season. Then September 11 hit. Orders dried up, and retailers grew nervous--including Norton. The water coolers were gone, along with some of the staff. But many employees stayed at half pay. After Norton asked God for a sign as to whether she should continue with the business, an article featuring MooRoo in People magazine suddenly showed up, and more orders came flooding in.

With projected 2003 sales of more than $2 million, the purses sell for $450 to $1,200 in boutiques worldwide and at El Portal, Fred Segal, Henri Bendel, NeimanMarcus.com and Nordstrom. Norton plans to open stores in New York City and Beverly Hills, and to add products such as wallets, as well as licensing for other products. But she's still not expanding some parts of her budget. She feels an in-house marketing team of herself and one other employee works best. "Being Southern, we have a softer touch. It's more personal."

Wing Warrior: Less Than $25K

Huntington Beach, California, is a surfer's paradise--unless, of course, the waves are flat. But what Tom Freas and Paul Keyte did to pass the time between sets became their full-time passion. Though Keyte had been flying gliders for 20 years, Freas started two years ago, interested in gliders made from the high-density foam EPP (expanded polypropylene) that had replaced the fragile bolsa wood the planes had originally been constructed of. "It's such an adrenaline high," he says, "like surfing or skateboarding."

Unlike the quality products the surf and skate industry offered, however, the gliders on the market were terrible, in Freas and Keyte's opinion. Employed at the same computer company, the two started working on and selling built-from-scratch gliders after hours, creating about five a day. But as their scratch builds became popular locally, that number quickly grew to 20.

Freas and Keyte began scaling back their hours at the office and investing more time in their passion. Freas, 31, and Keyte, 46, received a $10,000 business line from Wells Fargo, and with $15,000 from Freas' credit card added to that, Wing Warrior took flight in 2001. The partners bought a computer, an accounting package, a cargo van, raw materials and a machine to cut wings.

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To keep overhead low, Freas and Keyte worked in their four-bedroom house in Huntington Beach, where the garage was the manufacturing department, the living room was for packing and distribution, and the bedrooms doubled as offices. They enlisted Bill Stembridge, a surf-industry entrepreneur, as a mentor. "He understands the customer base, their buying patterns," explains Freas. "His input is invaluable, and it's free." Stembridge's friend Patrice Stark, a product marketing strategist, is also helping Wing Warrior with marketing and a formal business plan. And Freas, who majored in accounting and computer information systems, frequently calls former professors for free advice.

Wing Warrior's marketing efforts have also focused on low-cost strategies, marketing mostly through its Web site and a grassroots approach. Freas and Keyte attract new hobbyists with their Wing Warrior Team, which comprises eight guys with superior flying skills who travel to different California locales to, as Freas puts it, "spread the love." Armed with literature, catalogs and kits for sale, they head to popular flying or surf spots and show off their moves, winning over new fans wanting to try it.

Wing Warrior is looking to surfers as a promising demographic, one that competitors haven't targeted. "We understand them better," says Freas. Now that the company has cash flow, they've stepped up the effort by advertising in surfing and hobby magazines.

Retail store Hobby People placed Freas and Keyte's full line of gliders on its shelves in October, extending Wing Warrior's brand recognition beyond the beach and helping push projected 2003 sales to $1 million. The partners are also looking to open their first store. Freas acknowledges that, despite the dangers of starting a business with your credit card, it got them where they are today.

Blackboard Inc.: Less Than $5K

Some people can't wait to get out of school, but Matthew Pittinsky and Michael L. Chasen are doing everything they can to get into schools. Leaving their jobs at KPMG Consulting in 1997, Chasen, 31, and Pittinsky, 30, thought the Internet could enhance education and wanted to create software to make that a reality. With less than $5,000 from their own savings, they rented office space and purchased office supplies for their e-education software business, Washington, DC-based Blackboard Inc.

Within two months, Blackboard won a consulting contract to help a group of colleges and universities build systems much like what they were working to produce commercially. The company's office space consisted of 750 square feet, with Staples furniture they assembled themselves. A team of six consultants working for the client sat in one room, while four product developers in another room focused on building a prototype of the product Pittinsky and Chasen had set out to create. Cramped conditions and payroll periods where neither of them drew salaries constitute their earliest start-up memories.

Although they invested many hours in the project, Pittinsky and Chasen were consumed by the consulting contract and were never able to build their own e-education software as they had originally planned. As luck would have it, in June 1998, they found seven undergraduates from Cornell University who had built a product much like what they had envisioned.

Rather than try to beat them, however, Blackboard joined them by merging operations. "Sometimes, you don't have to do everything yourself," rationalizes Pittinsky. "Other people have great ideas, and you can combine [efforts] to get there that much quicker." The software product came to the market a year later, much faster than if Blackboard had continued to develop it inhouse.

Blackboard started growing quickly, and soon a cohort of 15 clients, including the University of Pittsburgh and Cornell University, began to provide references to other institutions, based on their satisfaction with the Blackboard e-Education Enterprise Suite products.

In a cutthroat market with 15 competitors when Blackboard entered the scene, there are now only three major players. Blackboard is one of them, with 2,700 licensees. The roster is diverse, with programs at institutions ranging from the Maricopa community colleges to Georgetown and Princeton--all using the software to build course Web sites, provide online student services such as registering and paying bills, and facilitate e-commerce on campus.

Now selling its products in 60 countries, Blackboard expects 2003 sales of more than $90 million and is currently building operations in Asia, Europe and South America.

Beating the Odds
  • Chris Irving left a director's job with a media company and turned down a position with the family business to start his graphic design firm, I THiNK Studios, in 2000 with $1,500 in savings. In the beginning, however, his father warned him about having a "pad" of capital that would last beyond the 30-day start-up phase he had allotted for. Irving countered, "You know what? Sometimes you just have to jump." Equipped with a computer and design software from his previous job, Irving's money went toward rent, phone and Internet as he started taking clients.

When the 30-day mark came and went, and one of his clients hadn't yet paid, Irving realized his father really did know best. Luckily, that client was Universal/MCA--he was designing CD artwork for one of its artists--and they paid soon after. With 2003 sales projections of $150,000, Irving, 27, has added music video director to his roster of services and doubled his profits each year.

  • When Scott Testa and Dave Christian decided to jump ship from a software company and start their own intranet business, they had only Benjamin to rely on--$100. All they bought was a phone, but it was their phone list that got things going. One contact from a Fortune 500 company offered them a project--they were honest about their money situation, and soon a $20,000 advance was on its way, allowing them to hire people and buy computers and more phones. Even with 2003 projected sales of $10 million, Testa, 36, can't forget the beginning. "We worked in the basement of my house, and I had a basset hound who used to howl. During conference calls, we'd put him in the car. In the winter, we'd put him in the car with the heater on; in the summer, the air conditioner." In six months, Mindbridge Software had closed half a dozen Fortune 500 accounts, allowing them to get new office space and, for the dog, peace of mind.