Mohnish Pabrai reached an impasse in his corporate career in 1990. As a single guy with few fiscal responsibilities, it seemed the best time to start his own business. He collected $45,000 in credit on 14 credit cards and started TransTech Inc., an IT consulting firm in Downers Grove, Illinois.
After two years in business, Pabrai had clients--but no cash flow. To keep his tech venture going, he dove deeper into debt by convincing four friends to lend him $5,000 each from their credit cards. "And they were insane enough to do it," jokes Pabrai, 34. "When minimum payments came due, I would go to the next card and take a loan. I never missed a payment, so there were never any credit [problems]."
Pabrai's gamble paid off: He cleared his debts, and today, TransTech is a $30 million company with 250 employees. But not all entrepreneurs are so lucky. Credit cards may be the easiest attainable form of financing, but they come with a price: hefty interest rates, dozens of bills to juggle, and a possible 10-year purgatory of bad credit reports if you get in over your head.
"Entrepreneurs need to be careful they don't confuse their hopes with the true likelihood of growth in a business. When you get a loan from a bank, [you have] to develop a business plan with clear objectives and you go through it with somebody else," says Todd McCracken, president of National Small Business United, a small-business advocacy group. "That's usually a reality check people who use credit cards don't have."
But when banks say no and credit card companies say yes, should you go for it? "Many start-ups today don't have enormous capital needs. If you need a computer and some office furniture, it's not worthwhile to go to a bank," says McCracken. "But if you're going to be operating at a loss for some time and you're making upfront investments, you're going to have to get a pretty high rate of return on those investments to pay off 18 percent [interest on credit cards]."
Establishing debt seems to be an easier task than establishing credit, so before you fill out any of those ubiquitous card offers, plan your expenses and potential cash flow carefully to see whether the downsides of credit cards (interest rates of 18 percent and higher) are worth the upsides. ("You're breathing? Here's your platinum card.")
Who's In Charge
- 47 percent of small and midsized businesses used credit cards for financing in 1998, compared to 34 percent in 1997.
- 43 percent say they'll continue to use credit cards in 1999.
- 38 percent of small and midsized businesses paid their balances in full each month in 1998, compared to 59 percent in 1997.
- 18 percent of companies surveyed have two or three cards; 5 percent have more than four cards.
- 49 percent of businesses with fewer than 20 employees use cards "often," compared to 27 percent of businesses with more than 20 employees.
(Source: survey of small and mid-sized businesses, conducted by Arthur Andersen's Enterprise Group and National Small Business United)
Mr. Potato Head
By Michelle Prather
Sure, most people enjoy a pile of mashed potatoes to round off a hearty meal, but mashed potatoes as the star of lunch or dinner? You bet, says Brent McClun, whose feel-good Potato Mountain cafe will bring in $180,000 this year.
"[Mashed] potatoes have always reminded me of the great home I had growing up: a great mom and dad, great brothers, my grandma and the great heritage I have," says McClun fondly. His affection for the popular comfort food, coupled with his love of mountain climbing and skiing, inspired McClun to try to project those warm, fuzzy feelings to customers in a restaurant setting.
With just $1,500, last May McClun opened The Herbery/The Potato Mountain, a nine-seat restaurant/store that sells herbs, vitamins, candles, books--and mashed potatoes. It's the latest in a slew of entrepreneurial endeavors he's toyed with since age 18. "I remember thinking `This time I'll start two [businesses] at once to increase my chances,' " chuckles McClun.
Expecting the Lawrence, Kansas, store to profit from herbs on opening day, McClun was surprised when he "didn't sell one herb" but reaped nearly $70 in spud sales. Sales nearly doubled on days two and three. Then a local newspaper did a story on the start-up, sending business out of control. "I had to tell [the line of people snaking out the door] we were out of potatoes and it'd be an hour before we had any more," recalls McClun. He even offered to buy waiting customers lunch at the Lawrence eatery of their choice.
With demand at its peak, McClun had no choice but to find a bigger space for the cafe. He pounced on the first available location--a 45-seat restaurant just three blocks away--and opened it for business six weeks after launching his first location, which he's since turned into an old-fashioned candy store.
At press time, McClun had remodeled that second location by filling it with faux alpine trees, a trail through the dining area and a ranger's station for ordering, and was exploring franchising. Publishing house Doubleday has contacted McClun about a possible cookbook deal, and Dateline NBC has shown interest as well.
It appears that, like their towering counterparts in nature, mashed potato mountains (with such flavorful toppings as chicken, egg noodles and gravy) are giving customers a breath of fresh air as an alternative to the average dining experience.
That Was Then
Hot to wear: Dark suit, white shirt, rep tie
Hot to carry: Hard-sided briefcase
Hot to drive: Chevy or Ford sedan
Hot to order at a business lunch: Steak, 2 or 3 gin martinis
Hot networking: The bar
Hot to wear: Wide-lapel suit, pastel shirt, loud tie
Hot to carry: Calculator
Hot to drive: Sports car
Hot to order at a business lunch: Steak, 2 or 3 gin martinis
Hot networking: The tennis court
Hot to wear: Men - designer suit, suspenders, power tie.
Women - skirted suit, floppy bow tie, pearls.
Hot to carry: Filofax
Hot to drive: BMW
Hot to order at a business lunch: Salad, Perrier
Hot networking: The golf course
Hot to wear: "Business Casual" - Khakis, no tie
Hot to carry: Cell Phone
Hot to drive: Sports Utility Vehicle
Hot to order at a business lunch: Iced tea, fish... and steak
Hot networking: The gym
The Einstein Within
By Laura Tiffany
What's your sign? What does your business's name add up to in numerology? What color is your parachute? Answer those questions, and you still won't know why you're lost under a heap of paperwork you'd rather be doodling on, or why you're leading a sales meeting when you'd rather be designing the office's computer network. If you really want to analyze your entrepreneurial personality, you've got to answer these questions: Are you better at reading maps or understanding numbers? Do you prefer to create activities or carry them out? Would you rather spend spare time working on a jigsaw puzzle or a crossword puzzle? Do you tend to work best with open-ended tasks or a detailed timeline?
Jane Hurd developed the Discover Your Everyday Genius personality profile using questions like the ones above to measure how a person operates best in business and in life. As a co-managing partner of executive search firm Rollo Associates in Los Angeles, she found most personality tests just didn't do the trick. Testing whether an individual is right-brained or left-brained may tell you if they want to be an accountant or an artist, but it doesn't tell you their best work environment. "[For that,] you [need to] measure another aspect: How people tend to handle decisions--whether they like closure or like to keep their options open," says Hurd.
"Each of us has a natural `genius zone,' and when we're operating within that zone, everything we do is easy and comfortable," explains Hurd. "When you get outside your zone, it starts to feel like you have to put your nose to the grindstone to really accomplish anything." The Discover Your Everyday Genius profile questions determine which combination of left-brain/right-brain and process-oriented/closure-oriented you are--that is, whether you're a genius visionary, genius planner, technical expert genius or genius manager. (Discovering your inner genius doesn't come free; Hurd charges $300 an hour for her services.)
Knowing your genius not only helps you design a better work environment, it can also show you how to better relate to business partners, clients and associates. "It's important to recognize other people's geniuses--to not get in a position where you're trying to change people and make them think or operate like you do, but rather where you're leveraging everybody's contributions," points out Hurd. "It takes all four types [of genius] to make anything a success. It takes having the idea; it takes a plan of execution; it takes technical expertise; and it takes management skills."
So if you find out you're a visionary genius (i.e., you've got the idea), you may want to consider partnering with a genius planner who develops marketing and business plans, a technical expert genius who engineers the mechanical kinks out of your product, and a genius manager who can hire just the right sales reps. Says Hurd, "By knowing yourself clearly and knowing what your skills are, you know what kind of expertise you need to bring in to round out the picture."
For more information on the Discover Your Everyday Genius personality profile, e-mail Jane Hurd at email@example.com
Are you a woman age 21 or older with a brilliant business idea . . . but without the funds to get it off the ground? DeKuyper Peachtree Schnapps could help.
No, we don't mean getting soused on schnapps and lamenting your skimpy bank account. We mean entering the DeKuyper "Search for Enterprising Women" contest, which will award $5,000 each to three innovative women entrepreneurs to help them launch their businesses.
Contestants must submit a business plan of 250 words or less that includes a description of their product or service and explains why there is a need for this product or service; why you're qualified to start this business; and how the $5,000 would be spent. A panel of experts will judge entries on originality, creativity and feasibility.
For details, call (800) 360-3043; entries must be received by July 31, 1999. No alcoholic beverage purchase is necessary to enter, although you might want to celebrate with a toast if you win.
Potato Mountain LLC, (785) 842-1997, firstname.lastname@example.org
TransTech Inc., (800) 676-7374, http://www.trans-tech.com