Risky Business

Ready to take off on their own adventure, the first hurdle for Paul and Bourne was getting the company they were working for to support their breaking away. "It was difficult," Paul says, "because we were dealing with people who were the best in the business, who knew they'd given us everything." But in the end, the company's owner gave the duo his blessing, Paul says. "He told us, `Congratulations. Most people only talk about doing this.' And he wrote us an absolutely outstanding letter [certifying our experience and expertise]."

Thanks to the sterling, no-loss reputation of the company they'd worked for (and the letter of certification), the fledgling partners' first application for liability coverage was approved by an A-rated company. The pair was grateful for the lucky break until they got the premium quote: It was in the $10,000 range.

Paul and Bourne's only available start-up cash, culled from their savings, was roughly $12,000--barely enough to cover one quarterly premium at the rate they were quoted. With no client base to speak of and minimal financial assets, the would-be entrepreneurs realized they couldn't afford the premium rates charged by an A-rated company. So after going through two brokers and applying with 17 insurance companies, the partners finally landed a B-rated company (a firm with less assets available for claims than premiere, A-rated carriers).

With policy in hand, Paul and Bourne were off and running. Within weeks of formalizing their partnership, the partners negotiated a large contract with the U.S. Department of Justice. Operating on a shoestring budget, they purchased equipment for the business in stages and paid themselves next to nothing. Word-of-mouth and referrals kept the duo busy. Their dream was unfolding on schedule.

But to their dismay, it was soon time for another lesson in Insurance 101: Their insurance carrier decided to abandon the adventure-training industry. "We learned that every year, some [B-rated] companies stop offering liability insurance to [adventure-based learning companies]," says Paul, because of the number of such companies that experience losses.

With only two months' notice before their coverage would be canceled--and trainings already scheduled for months ahead--Paul and Bourne scrambled to find another insurance company.

Returning to the drawing board, the partners trudged through the application process and finally found another B-rated carrier to issue them one year's coverage. They could control their own safety protocol, but what they didn't have any control over was whether their new carrier would stay in the adventure business beyond that year.

This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Risky Business.