Robin C. Paterson, 41, is an unusual entrepreneur. After all,
how many guys do you know who have started a bank?
In 1998, Paterson and his four partners-Leon Blankstein, 44;
Donald P. Johnson, 57; Robert F. Schack, 56; and Wes Schaefer,
52-pooled their money and co-founded American
Business Bank in Los Angeles with $50,000, each contributing
$10,000. Then they raised the rest of their start-up capital until
they had accumulated about $14 million.
That doesn't seem like a hardship, but when you're
opening a bank, $14 million isn't a huge amount. In their first
month in business, they lost $212,000; the next month, they were
another $228,000 in the hole. Paterson, senior vice president and
chief credit officer, says that for the first months when they were
still raising money, the five of them worked in an 8-by-10-foot
office with one desk and two chairs, and nobody drew a salary.
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After they opened in 1998, it took them 13 months to make their
first profit of $2,365. "Once you've made that first
dollar, it's no longer a dream," says Paterson.
"You've become a real business. You've crossed
over."
The priority for their profits was to bring in more employees.
"That's still our biggest challenge, to find good people
to help us continue to grow," says Paterson.
In the beginning, of course, you may hardly be able to pay
yourself, let alone somebody else. Which is why employee
recruitment expert Clark Waterfall recommends nepotism. "Your
brothers or sisters or in-laws have some free time, and you can pay
them on the cheap, and they'll work out of your basement,"
he says. "This can work for the very early stages of a
business." But even though they're your relatives,
don't hire them unless they can be professional.
Once your business starts to grow, then you can worry about
finding better talent, adds Waterfall, managing director and
co-founder of Boston Search Group Inc., a Boston company that
recruits executives and professionals in technological fields.
"Turning over employees across the growth curve of a
company is not a bad thing," explains Waterfall.
"It's like clothes. You don't wear the same clothes as
a teenager that you wore when you were a toddler. You have
different needs [as your company grows], and very few employees
have that much Spandex, or elasticity, in them."
Even with $14 million fueling them, these bank founders could
only afford one teller when they really needed three, so the
executives helped out when necessary. Because they only had one
teller, Paterson says, their bank couldn't offer all the
services you'd expect from a full-service bank.
And while they wanted to hire a full staff, they operated
conservatively and didn't hire a second teller until six months
had passed and business was thriving. Nine months later, they
reached their magical number three. Admits Paterson,
"We're in reactive mode when it comes to
overhead."
The Land of Milk and
Money
Today, American Business Bank manages $350 million in assets, and
while Bridge Technical Solutions and Fox & Hounds aren't
anywhere near that level, the entrepreneurs behind both businesses
feel they're on solid ground.
Wright is careful to make sure he earns enough to treat himself,
and Kershner, who routinely jets off to places such as London and
Hong Kong to meet with her manufacturers, enjoys the travel that
has become one of the perks of her business.
Additionally, "I've been able to give bonuses and
raises to the staff, which was wonderful," says Kershner.
"And we can do nicer things for the staff, like stocking the
refrigerator with sodas."
In short, Kershner's business is thriving because she had a
little foresight in the beginning. She was cautious with her money
and tried to see what the future could be with it. Thanks to her
foresight, her future looks bright.
| Be Good to
Yourself |
| You might think it's a
rich man's world, but the point at which your company finally
makes a profit is not the time to start living high on the
hog.
"Making a profit after not making a profit for a long
time—it's like a drug to the brain," says Brian
Tracy, a prolific author and publice speaker on numerous business
issues. "There's a natural tendency to associate spending
or buying stuff with rewards—Christmas, birthdays, getting a
new car. Sometimes entrepreneurs will take an expensive trip; often
they'll buy a house. It's a very heady thing, to make your
first profit." Of course, that doesn't mean you can't be good to
yourself—just remember to do it within reason and, even
better, make sure there is a reason. James Wright, president
of Bridge Technical Solutions LLC in Providence, Rhode Island,
fondly recalls blowing a significant wad of cash on a big holiday
dinner last December. "We went out with my partner's wife
and my girlfriend," says Wright. "But it wasn't just
about pampering ourselves. It sent a [positive] message to my
partner's wife. Here are two guys who feel comfortable to do
this and can talk positively about their business. It was important
that we did that." But going out for dinner every night or every week? That may not
be such a good idea. "Now that you have won, it's
important you don't lose," says Tracy. "I have a
friend who is an entrepreneur. He bought a BMW, a $40,000 car, and
the next month his business took a dip, and he went into a complete
panic. A few months later, his business was gone. Once you put the
cash in a new car, you can't get it back." |
Geoff Williams
makes a living as a full-time freelance journalist and is sometimes
even profitable.
Originally published in the November 2003 issue of Entrepreneur Magazine
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