by Andrew Beattie, Managing Editor and Contributor
Monday, June 7, 2010
Starting a business takes money. Venture capitalists, angel investors and banks sometimes swoop in to help out a business at the start, but more often than not an entrepreneur is on his or her own unless they can catch investors' attention. However, having a large amount of start-up cash doesn't necessarily mean you can build a large business. The tech bust was littered with well-capitalized companies that died. In this article we'll look at entrepreneurs who started big business with very little start-up money.
Fred DeLuca -- Subway
Fred DeLuca is a case study in bootstrapping. In 1965, DeLuca received a $1,000 loan from a friend and opened up a sandwich store. DeLuca was 17 at the time, and he put ads in the paper for used appliances to get the necessary tools. DeLuca's Pete's Super Submarines -- named after Peter Buck, the generous friend -- was almost sunk when the city required a $550 sink to be installed, prompting a second $1,000 loan. DeLuca held on, opening three more stores in rapid succession.
Now known as Subway, DeLuca's sandwich empire has made him a billionaire. Peter Buck has also been rewarded with a fortune for trusting in his young friend. It's worth noting that $1,000 in 1965 would be almost $7,000 today. It's still an impressive feat to grow that into a billion-dollar business, and Subway is the startup story that all others are measured against.
Alex Aguila and Nelson Gonzalez -- Alienware
In 1996, the cost of desktop computers was dropping steadily as clone PCs began trickling into an already competitive market. Margins were thin going on thinner. Alex Aguila and Nelson Gonzalez went into the business despite this, and they went in charging more than even the branded PCs. They did have two things going for them. One, they knew their market. Two, they took the cash up front.
With $10,000 in start-up capital, the pair began taking orders (cash upfront) for PCs customized for hardcore gamers. They barely scraped by the first year, but favorable reviews from gaming publications turned Alienware into the elite brand of gaming. Alienware's niche made it too attractive to pass up. The company was doing over $100 million in sales when it was acquired by Dell in 2006.
Mike Domek -- TicketsNow
Mike Domek was already active in the secondary market for tickets using his phones and connections to get tickets to concerts, sporting events and so on. Domek decided to leverage his knowledge of the market in 1992. With $100, Domek became a full-time ticket broker. In 1996, he had enough to launch TicketsNow, an online marketplace for secondhand tickets. By 2005, Domek had almost 200 employees handling over $100 million in sales. As with Alienware, Domek's story as a standalone entrepreneur ended in 2008, when TicketMaster bought the company for $265 million.
Anita Roddick -- The Body Shop
Anita Roddick started a skincare specialty shop in 1977 with a $6,800 bank loan, or $26,000 in today's money. Mixing ingredients at home with her daughters, Roddick created unique skincare products and created a story for each one. Frugal from the beginning, Roddick encouraged customers to bring back their empty bottles for refilling to keep costs down and waste out of landfills. After switching to a franchise model, Roddick's store spread all over the world and was -- surprise, surprise -- acquired by a larger company. The Body Shop was purchased by L'Oreal for over $1 billion in 2006.
Bottom Line
Of course, only looking at the start-up costs of these businesses is not a fair measure of all the hard work and sacrifice that goes into building a successful business. The fact that these start-ups are so successful usually owes to the ambition of their founders. For this reason, a new trend in acquisitions has begun. While large companies used to buy profitable small companies and then replace the founders with internal managers, more are bringing the founders in to run the companies as standalone entities. After all, their passion built the business -- with the help of a little cash.
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