The Genius of Starting a Company Without Outside Capital

Courtesy of Evil Genius. Evil Genius: A brewer with no brewery.

I wonder how many millions of small-business owners and entrepreneurs are sitting out there at this very moment, thinking about the money they need to finance their companies and ideas. The approach an owner chooses can make or break a business. It's a decision that can change your life.

The first question owners need to ask - and challenge themselves on - is how much money they really need. My experience is that most entrepreneurs think they need much more money than they really do. There is almost always a cheaper way to get things done. And here's the point a lot of entrepreneurs overlook: Every month that they are on the hunt for money instead of developing and marketing their product or service, they are wasting valuable time.

I recently met with Luke Bowen, founder of Evil Genius Beer Company, who has managed to finance his growing business without taking on debt or handing out equity. The following conversation, in which he explains how he's done this, has been condensed and edited.

Q.

When did you start your business?

A.

In late 2009 while my original partner, Trevor Hayward, and I were in graduate school at Villanova getting our M.B.A.'s.

Q.

Why did you choose to start a business instead of getting a job?

A.

At the time, we saw a lot of businesses laying off people and our prospects for gainful employment as we graduated were pretty slim. We felt at that time - and we still do - that there are tremendous opportunities in recessions to start companies.

Q.

What did you do first?

A.

We took a look at four or five different ideas based on our expertise and our experience as employees and we thought we could make a difference or start our own business. We did feasibility studies on all of them and really found that none of them had as much potential as the craft beer idea.

Q.

So once you decided on beer, what were your options?

A.

Well, our option in the very beginning was to build a brewery, and that's how most of the craft breweries of this country started. In the late '80s, '90s they started small nano breweries and kind of expanded from there, and when we ran the numbers on basically the amount of beer we were going to be able to produce and the profitability from that small amount of beer, we realized that wasn't feasible.

Instead of raising all this capital in the middle of a recession for a company that had never sold a pint of beer, we decided to use our internally developed recipes and brands and basically outsource the production to a third-party manufacturer.

Q.

What were your start-up costs?

A.

We started this business with less than $35,000.

Q.

Did you get any loans or take any equity from anyone?

A.

No, we took no equity partners and the start-up capital for the business was contributed by the three owners.

Q.

What happened next?

A.

We started selling in Philadelphia. That was our first market. We did a lot of things well and some things not so well but we were always striving to develop the best quality product that we could. Not only did we focus on product quality but we focused on innovative packages, innovative branding, innovative marketing.

Q.

Times Was Slower, but Sure, in Calling the Presidential Election

A few observations on Tuesday night's online coverage and Wednesday's print edition:

The Empire State Building was in blue lights, Mitt Romney's Boston crowd was looking despondent, and even the careful Associated Press had taken the plunge, but The Times held off late Tuesday night in declaring President Obama the winner.

Well over a half-hour after most news organizations had projected the president's re-election, The Times was holding off and attributing victory to the television networks in its major home-page headline. The A.P. made its call at 11:38 p.m.

At 12:03 a.m., I got a mobile alert with The Times itself projecting the president's re-election.

Journalism history is full of cautionary tales about ill-fated instances of jumping the gun â€" whether the famous “Dewey Defeats Truman” headline in The Chicago Tribune or, much more recently, the many newspapers and cable networks who got the presidential result s wrong in 2000.

Unlike the television networks, which depend on their combined exit polls in calling elections, The Times prefers to look at real numbers in addition to exit polls, said Janet Elder, an associate managing editor who is part of The Times's election “decision desk.”

“We have been disciplined” she said, “and it has paid off.”

Both on the Web and in print, Tuesday night and Wednesday morning, The Times had rich offerings for its viewers and readers. In typical Times fashion, it was restrained in both places, with a quiet headline that read, simply, “Obama's Night.” (For extreme contrast, one could look at The Huffington Post on Wednesday morning with its huge “¡Viva Obama!” headline, including Spanish-language exclamation points.)

I especially liked Jodi Kantor's essay in The Times about how Mr. Obama has sought a role in history â€" a smart piece of thinking ahead â€" and forward-thinking analytical pieces by Peter Baker and Carl Hulse.

Online, I enjoyed Megan Liberman's TimesCast video interviews, none more than with a quietly satisfied Nate Silver, the FiveThirtyEight blogger and statistical wizard who had the night of his life. (I couldn't help but note their good-natured and joking reference to my blog post last week on Mr. Silver's wager offer to a TV talk show host.) And I thought the front-page photograph of the Obama family was a heartwarming choice, no matter which candidate you supported. It was an inspired touch to use, as a detail, a similar photo of the family from four years ago. (For one thing, it gave everyone a chance to gauge the height differences of the Obama daughters, four years later.)

Coverage of the election â€" reasonably enough â€" drove follow-up coverage of Hurricane Sandy's damage off Wednesday's front page. But I was glad to see that the storm coverage was given plenty of space inside. That coverage included Jim Dwyer's moving About Ne w York column about the hardship in New Dorp in Staten Island.

The election is decided - causing jubilation for some and disappointment for others - but real devastation continues, especially for those who have the fewest resources.

The Joys (and Dangers) of Owning a Microbusiness

Today, there are about 27 million businesses in the United States. Of these, the vast majority are what we call microbusinesses, those that typically have fewer than five employees and less than $1 million in sales. This was where I started my business career and, after having gone through all three stages of business growth, I'm happy to be back there again today with my wealth management and consulting business.

I love being a microbusiness. I have few worries about capital investment, little need for bank loans and no concerns about taking care of a large group of employees. I am able to concentrate on serving clients and don't spend a lot of time on administrative duties.

Of course, when I'm not able to work, my business suffers. If I were unable to work for more than six months, the business would have a hard time surviving. That's the biggest down side, one I experienced while going through my cancer treatment four years ago.

The other big challenge with a microbusiness is lumpy sales - when your sales go up and down in a significant way. You move between extremes. One day you're so busy serving customers you don't know what to do, and a week later you're trying to figure out where your next job will come from.

That's what happens when a microbusiness owner tries to do everything. Among other things, the microbusiness owner is the marketing manager, the sales representative, the service provider and the person who runs the company. It's the moving from doing work to landing work that causes the roller-coaster ride in terms of cash coming in the door.

Cash flow is king in most small businesses, but this is especially true for those with fewer than 25 employees. Research from Open at American Express shows that about 50 percent of small businesses experience cash flow strains, mostly because they aren't creating enough in extra profit to allow them to put cash away for a rainy da y.

If your business doesn't have enough cash, you will be under stress. That is something I can attest to from first-hand experience. When you don't have enough cash, you feel pressure to take any client who walks in the door. But this is usually a mistake. Trying to be all things to all people will cost you money.

Most owners understand this. But when you are under pressure to pay your bills, it's hard to say no - even if the customer is outside of your target market. You need money, you take the business, and you often end up spending an inordinate amount of time serving the customer. And if you stay in this cycle, you put your business at risk. When you own a microbusiness, burning time is just like burning money.

Several years ago, I did some work with a graphic design firm, Gray Cat Studio. Michelle Bisceglia, the owner, had built a knowledge base working with specialty food manufacturers. She knew a great deal about the businesses and what made them s uccessful.

When I first started working with her, she would take work from anyone. She often lost money when she went outside her knowledge area, but like many microbusiness owners, she was often short on cash.

We worked on developing her niche and I coached her in using a new word: No. Over time, two things happened. She was able to charge higher fees because of her expertise, and it took her much less time to complete projects. This allowed her to create a cash cushion, which made it even easier to say no to customers who didn't fit her profile.

Ultimately, microbusiness owners have two choices. They can choose to remain a microbusiness, like Ms. Bisceglia, or they can do what I did in my previous business and move into the next level, the traditional small business. In both cases, understanding the drivers that create cash for living and saving is crucial. If you want to grow, you will not only need to finance your own living needs and retirement savings , but you also need to create cash for growth.

There is no good or bad about this decision. It's truly about an owner's preferences. Some people decide they want a bigger business, and some are happy just doing what they want without having to worry about managing other people.

If you choose to stay at the micro level, you need to understand that lumpy sales exist and you must have a strategy for dealing with them. You should have a plan in place in case you become disabled. You should have a strategy for saving for retirement, because you will not be able to sell your business.

What do you think? If you're a microbusiness, what are your challenges? Have you decided to stay at this level?

Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on wealth management issues.

An Election Day Look at How Language Changes in The Times, and in the Culture

Here's an Election Day diversion, courtesy of the research and development people at The Times. It's called Chronicle and it measures the number of articles in which a particular word or phrase has appeared since 1981.

The brainchild of Alexis Lloyd, a creative technologist, Chronicle has a serious purpose.

“You can see how topics have risen and fallen over time, but you can also see the way language and terminology change over time,” she said. For example, she said, the term “greenhouse effect” has given way to the broader discussion of “climate change.”

She built a rudimentary version of the tool about six months ago and has been refining it every since. Eventually, she intends to take its reach back to include more than another 100 years of Times usage.  It is intended for internal use, at least for now.

My use of the tool started with some brainstorming involving not only Ms. Lloyd, but also Matt Boggie, director of technology strat egy, and my assistant, Joseph Burgess. Because this post is appearing on Election Day, we concentrated on phrases from the political realm - from “activist judges,” which peaked in late 2004, to jobs and economy, phrases that have been increasing and falling for years but are at an especially high level now for obvious reasons.

Readers who have interesting ideas for words or phrases to search or compare can e-mail me at public@nytimes.com. (One particularly interesting one that is sometimes used as an example is the fall of “yuppies” and the rise of “hipsters.”) I'll do a follow-up post soon to show the results of some of the best suggestions.

From “climate change” to “recount,” here are some of the results we came up with.  (One further Election Day note: I'll be staying in The Times's newsroom later and into the night and intend on being active on Twitter, where you can follow me at twitter.com/sulliview.   I' ll put the messages in Storify form on Wednesday and add them as a link to this blog.)

Jobs vs. Economy: Rising and falling but at a higher level over time.

Alexis Lloyd/The New York Times

Bailout: It increased and has remained in the conversation.

Alexis Lloyd/The New York Times

Election: Predictable rises and falls.

Alexis Lloyd/The New York Time s

Climate Change: Almost unheard of until 1990.

Alexis Lloyd/The New York Times

Activist Judges: We were talking about them most in 2004.

Alexis Lloyd/The New York Times

Chads: The aftermath of the 2000 election made them a household word.

Alexis Lloyd/The New York Times

Job Creation: A growing concern.

Alexis Lloyd/The New York Times

Health Care: Usage reached its height a few years ago

Alexis Lloyd/The New York Times

Death Tax: On everyone's lips in 2000 and fading ever since

Alexis Lloyd/The New York Times

Recount: Is another big increase on the way?

Alexis Lloyd/The New York Times

An Election Day Look at How Language Changes in The Times, and in the Culture

Here's an Election Day diversion, courtesy of the research and development people at The Times. It's called Chronicle and it measures the number of articles in which a particular word or phrase has appeared since 1981.

The brainchild of Alexis Lloyd, a creative technologist, Chronicle has a serious purpose.

“You can see how topics have risen and fallen over time, but you can also see the way language and terminology change over time,” she said. For example, she said, the term “greenhouse effect” has given way to the broader discussion of “climate change.”

She built a rudimentary version of the tool about six months ago and has been refining it every since. Eventually, she intends to take its reach back to include more than another 100 years of Times usage.  It is intended for internal use, at least for now.

My use of the tool started with some brainstorming involving not only Ms. Lloyd, but also Matt Boggie, director of technology strat egy, and my assistant, Joseph Burgess. Because this post is appearing on Election Day, we concentrated on phrases from the political realm - from “activist judges,” which peaked in late 2004, to jobs and economy, phrases that have been increasing and falling for years but are at an especially high level now for obvious reasons.

Readers who have interesting ideas for words or phrases to search or compare can e-mail me at public@nytimes.com. (One particularly interesting one that is sometimes used as an example is the fall of “yuppies” and the rise of “hipsters.”) I'll do a follow-up post soon to show the results of some of the best suggestions.

From “climate change” to “recount,” here are some of the results we came up with.  (One further Election Day note: I'll be staying in The Times's newsroom later and into the night and intend on being active on Twitter, where you can follow me at twitter.com/sulliview.   I' ll put the messages in Storify form on Wednesday and add them as a link to this blog.)

Jobs vs. Economy: Rising and falling but at a higher level over time.

Alexis Lloyd/The New York Times

Bailout: It increased and has remained in the conversation.

Alexis Lloyd/The New York Times

Election: Predictable rises and falls.

Alexis Lloyd/The New York Time s

Climate Change: Almost unheard of until 1990.

Alexis Lloyd/The New York Times

Activist Judges: We were talking about them most in 2004.

Alexis Lloyd/The New York Times

Chads: The aftermath of the 2000 election made them a household word.

Alexis Lloyd/The New York Times

Job Creation: A growing concern.

Alexis Lloyd/The New York Times

Health Care: Usage reached its height a few years ago

Alexis Lloyd/The New York Times

Death Tax: On everyone's lips in 2000 and fading ever since

Alexis Lloyd/The New York Times

Recount: Is another big increase on the way?

Alexis Lloyd/The New York Times

Why Everyone Wants to Fire the Founder

With all of Facebook's struggles since its initial public offering, I suppose it's not surprising that there were whispers over the summer that Mark Zuckerberg should be replaced as chief executive. But spare me. There is no one on Earth who is as qualified to run Facebook.

While things have started to look up for Facebook of late, this conversation is part of a familiar pattern. Bankers, investors and consultants are often outrageously quick to pull the trigger on founders of fast-growth companies. We all get intoxicated by hyper-growth, and expectations can get out of control, which is why smart, fast-growth entrepreneurs temper those fantasies. But it can be hard when the publicity machines are trying to turn the entrepreneur into some kind of Superman.

It happens all of the time with entrepreneurs who are successful enough to hire experts to help them move their companies to the next level. The problem is that the bankers and consultants often show up right in the middle of the hyper-growth stage and sometimes the next level is where the growth starts to level off into reality.

At this point, the bankers and consultants really can't help, but they want to stick around and the only way to do that is by firing the guy who hired them and bringing in a white knight to “save” the company. You've seen this movie before: the founder steps down and is followed by a carousel of unsuccessful chief executives for years to come. If this kind of talk can happen to a founder like Mark Zuckerberg, who has produced billions of dollars of revenue, it can happen to any founder. But given how poorly the strategy often turns out, it's tempting to ask why people are so quick to fire the founder.

There are two reasons. First, bankers, investors and consultants often underestimate founders by calling them visionaries or technical geniuses while questioning their skills as executives. But to get a company from start-up to second stage - where it has transitioned to both positive cash flow and increased market share - is extremely demanding. It requires swift execution and creativity. If the founder didn't have those skills, the company wouldn't have gotten so far. Often, the founder has to plead with people to make personal sacrifices; it can be very hard for an outsider to walk in and make the same demands.

In addition, bankers, investors and consultants often point to a decline in revenue growth (or in the stock price if the company is public) as a sign that the entrepreneur should depart. But no company - not even Facebook - has financials that only go up. Often, this argument is just a pretext. The fact is, the relationship between founders and financiers is uncomfortable from the start. Entrepreneurs are wheelers and dealers who are always testing limits and trying new things. Bankers and consultants like predictability and stability. More to the point, for them, firing the founder is part of their own exit strategy. Their goal is to flip the company by telling the next investor, “We have proven the concept, and we are now bringing in professional management to take it to next level.”

It does not have to be this way. Keep in mind that most of the people suggesting the replacement of fast-growth entrepreneurs have never built anything themselves. They don't understand what it takes.

Founders often have more options than the bankers lead them to believe. For example, if the issue is getting financing, a good place to start can be your own customers - and I don't just mean by selling them something. Lots of established companies are willing to make strategic investments in a smaller company that is performing a vital role for their businesses. Don't be bashful. Present the idea as if you are giving the company a rare opportunity. And if you are asking for $5 million, make the effort to look and act like you know what to do with $5 million.

It' s also critical to be smart and careful with board seats. Don't hand them out like water in the good times, and make sure you know how to count. If you have seven seats, you have to have four votes you can count on in tough times. That's one reason I am a big advocate of keeping one or two people from within the company on the board.

All companies go through ups and downs. The bankers, investors and consultants will always be quick to pull the plug on founders when the first signs of trouble appear. But the person who is most likely to get the business to the next level is the very same person who got it to the current one.

Cliff Oxford is the founder of the Oxford Center for Entrepreneurs.

Has Sandy Affected Your Small Business?

Here in sunny Bridgeport, Pa. - just outside of Philadelphia - there is little sign of Hurricane Sandy's passage. Last week, of course, was a bit different.

On Monday, trees were whipping back and forth, one could hear the intermittent crackling of branches snapping off, and it was raining very hard. I got up early and made the 10-mile drive from my house to the factory where we make our conference tables, just to make sure everything was O.K. and was surprised to find that 6  of my 14 workers had showed up. I gathered them and told them that I appreciated their diligence but that they should leave soon, as it was likely that the storm would get much worse as the day wore on.

I was out of the shop on the Thursday and Friday preceding the storm. My shop manager, Kyle, made sure that windows were closed tightly before he left on Friday and had moved our work-in-progress into the center of the shop, far from the windows. Otherwise, we didn't do anything. I'm not worried about flooding, as we are on the fourth floor, and I was philosophical about the potential for power loss - our building has its own power infrastructure and isn't dependent on lines strung on poles. I'm not sure what it would take to knock it out, but it would have to be an extreme event. Our building complex is right next to the Schuylkill River, but we are on a relatively high spot. The only unusual preparation I made was to stop at my bank and pick up a couple of thousand dollars in small bills, in case A.T.M.'s stopped functioning.

As it turned out, we've had very little disruption from the storm. Our shop power never went out. On Tuesday, seven of the guys showed up, even after I called everyone to tell them to stay home if they felt like it. We had a full complement on Wednesday and have been going strong ever since. The biggest disruption we have felt is from the trucking companies that deliver and pick up from us - they have been delayed and all servic e is much slower.

Have I learned anything from my experience? Not really, other than that it's good to be lucky. There just hasn't been much intersection between the type of damage that Sandy did and the list of things that we do. Clearly, however, this isn't true for many, many businesses. Have you been disrupted by the storm? What do you intend to do about it? Is there anything you wish you had done differently?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.