Stake Your Claim

Contrary to popular belief, there's no need to ante up a fortune when you're playing the startup game. Here's how 3 entrepreneurs launched high-cost businesses the low-cost way.

For most people, the idea of starting a business roughly equates to the idea of emptying your bank account, thumbing it to Vegas, and betting every penny on one hand of blackjack. You might be a blackjack guru; you might have even won big in the past. But no matter how carefully you plan, no matter what your cards looked like before, and no matter if the dealer tosses you an ace-you could still go bust.

That alone is enough to halt many would-be entrepreneurs in their tracks. Factor in the empty-bank-account factor, though, and many startups don't even make it out of the gate.

Would it surprise you, then, to know that sometimes your careful planning, meticulous business plan and brilliant marketing ideas don't have to go to waste-and don't have to cost a fortune? "I know it can be done. And that's one of the first things people need to understand," says John P. Hayes, co-author with Fred DeLuca, Subway's co-founder, of Start Small, Finish Big: Fifteen Key Lessons to Start-and Run-Your Own Successful Business. "It's not money that's in the way of you starting your business. It's a mind-set."

Even if your startup aspirations are as lofty as a fitness center, a car rental business or a hotel-not typically the cheapest businesses to start-you can start small without breaking the bank. (The big-growth part comes later.) So pull up a chair, and shuffle your own cards. Your next hand could just hit 21.

Starting a Fitness Center

It's a good thing Tom Hatten was just 21 when he started Mountainside Fitness in 1991. He needed all the energy he could muster to put together his Chandler, Arizona, fitness center-not to mention the energy to wash gym towels at home 'til 2 in the morning for the first year, until he could afford a washing service. "I worked 100 hours a week and kept my other job [painting houses] for six months," recalls Hatten. "As much stuff as I could physically do [myself], I did."

That self-starter approach is what helped Hatten stretch the $2,000 he had in his pocket at startup as well as the $15,000 he borrowed from a friend and another $15,000 from his local bank, where his good credit on a car loan served him well. That $32,000 covered computers, advertising, and about half of the equipment for the 4,800-square-foot facility; money for the remaining equipment was raised through membership pre-sales totaling $12,000.

How did Hatten, 36, manage to equip a gym on a budget? "I bought all used equipment," he says. "Just clean it up, get it painted-get ones that have warranties. If it doesn't look shoddy, members only care if it works."

While cutting costs is important, it shouldn't be your sole consideration. "Instead of cutting costs, it's best just to make a wise investment," says Jon Giswold, an author, industry veteran and founder of JMG Management, a New York City fitness-center management company. "Do some research. Investigate what it would [cost] to buy directly from the manufacturer. They'll tell you if you can get a better price if you buy directly."

Before you consider buying machines, though, think about your location. "I put my club where there was no competition," says Hatten, who now has five clubs with sales totaling approximately $7 million, 400 employees, and a membership roster 21,000 clients long. "From there, I tried to give a lot of service that wasn't [standard] in the industry"-such as no contracts, no reservations for child care, parents' night out, free family day on Sundays, and other perks.

Giswold advises you to take a careful look at the space in your club: "Look at the floor layout," he says. "Do machines consume the whole space?" Is there enough room for yoga or ab work? With elliptical trainers being so popular, do you need a lot of stair-climbers? "Really what people like to use is a treadmill," he adds. "They're always used-with the second [most popular] being elliptical machines."

Once you decide on machines, arrange them logically-even novice users should know what to do. "If you start at one end and try every machine in succession down the line, [you should get] a good workout," says Giswold, noting the success of the Curves concept.

Deciding whether to offer classes, child care and other extras depends on your available startup funds and your appetite for growth. Check out the local competition's offerings, and go from there. Says Giswold, "What I've seen is that the big clubs are offering services, like certain classes, for additional fees."

Yes, you will break a sweat getting started. But ask Hatten, and he'll tell you it's worth it. "You gotta love what you do, because you're married to it," says Hatten, who hopes to open three more clubs in Arizona and then expand his business out of state.

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Karen E. Spaeder is a freelance business writer in Southern California.

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This article was originally published in the July 2004 print edition of Entrepreneur with the headline: Stake Your Claim.

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