The Opening of this Show.

HATTIE: Hi, and welcome back. Since the beginning of this series, we've introduced you to 51 small-business owners. I think it's time to stop and take a breath. What have we learned so far? And what still remains mysterious? I think we've learned at least five things.

#1: Everybody's doing it -- young, old, men, women, people from different backgrounds, especially first-generation Americans. Even in the face of daunting failure rates, Americans are starting businesses every day. It is the American dream, ownership.

Unidentified Man: Actually, there's a certain amount of satisfaction working for yourself, and there's a certain challenge that certain people, you know, get a thrill from.

HATTIE: #2: Money is not the driving force. The people we have met really do want to make a difference. They're doing what they're doing for deep-seated reasons. They're called to it. They just have to do it.

JoANN CORN (Health Care Resources Group, Inc.): And you know when you have it. You know that you just have to do this in this lifetime. You have do to some--at least try.

JAKE MILES (Cultural Toys): What is it that makes you want to get up and be excited every morning? And then just start doing it, and the rest will take care of itself.

GEOFF ALLEN: If you go out and you do something you love, that you're good at, that you enjoy, that's stimulating, that's the company that's gonna be a success.

HATTIE: #3: Timing is critical. With health-care reform came perfect timing for JoAnn Corn's home health-care business, and Bill Tobin would not be selling flowers around the world if it weren't for the Internet.

BILL TOBIN (Owner, PC Flowers and Gifts): You come onto our service, and for a $15 service charge, you order flowers for anywhere in the world, literally, and it's there tomorrow, guaranteed.

HATTIE: Perfect.

BILL: What you see is what you get. There are a lot of people that say, `Well the floral industry must resent you' and so forth. Actually, guys like myself that are involved in interactive marketing, I think, are friends to the floral industry...

HATTIE: Right.

BILL: ...because we're bringing them kicking and screaming into the 21st century.

JoANN: We're looking, we're seeing those new horizons. We were on the cutting edge of it.

HATTIE: #4: All of the business owners you have met here are optimistic. They have faith.

TOM GEGAX (Co-owner, TiresPlus): Finally, I'm very optimistic for `96. Now have you ever heard a leader of a company say, `You know what? I'm really bummed out about what's gonna happen this year'? Well, you know what? I've never said that, but I can also tell you that I've never, ever been more optimistic than I am this year.

HATTIE: They believe in themselves, they believe in their ideas.

Man #2: And when you come around and you've got faith and you do the things that scare the hell out of you, the next time, they're not so scary. The next time, you're really good at it. And the next time, you don't mind doing it.

HATTIE: ( And they believe in the people who work with them.

Woman #1: I look around at this group and I'm so proud...

HATTIE: This faith is what creates the potential. They see something in their mind's eye and believe they can make it happen.

HATTIE: #5: Physical health and high energy are a must.

If you're going to start a business, be prepared to work long hours on little sleep.

TOM: You need high energy, and you need clarity of mind. And when I do those things and take care of myself...

HATTIE: Then the answers start to come...

TOM: Yeah, they do, and the energy's there, and the answers come.

HATTIE: And the problems are solved.

TOM: People say, `Oh, God, I don't have time to do this, I don't have time to do that.' I don't have time not to.

HATTIE: Now these five points are not trivial, but if this is all we really know for sure, it is not very much. We have many more mysteries to explore. You tell us from your letters, phone calls and e-mail that the biggest mystery is money -- how to get it, how to manage it and how to keep it. So in the next few minutes, we're going to talk about money from two angles; first, money for start-up, and second, money to keep going.

You would think that since banks are in the money business, this would be the first place you would go to borrow.

Not a good idea.

Not one of the business owners you've met here, including me, had a start-up loan from a bank. In fact, there's no such thing as a business start-up loan from a bank. If you get a loan from a bank to start your business, it will be a personal loan, based on personal credit history and personal assets.

So if the banks don't help, what next?

When Bill Tobin was 11 years old, he borrowed his mother's credit card to buy a lawn mower to start a lawn care business. Since then, he has started and self-funded a total of nine businesses, with each new business being funded with retained earnings from the previous one.

BILL TOBIN: From 11 through 16, I did it manually, and then at 16, I got a car, and by the time I graduated college, I had 50 guys and I had 12 trucks, and I owned one of the largest landscaping companies on Long Island.

An entrepreneur to me is sort of like a dog with a bone. He doesn't drop it until there's not a scrap of meat left on it. He stays with it. He is focused, he is myopic, he is tenacious. Whereas people that try to be entrepreneurial but are skipping and jumping and spreading themselves thin, an entrepreneur is absolutely driven and cannot sleep, cannot eat, cannot do anything until he accomplishes that goal.

I never try to do everything myself. Pigs don't get rich. You simply take the best, and you bring it together, and you form strategic alliances. And my Web site is nothing but one massive strategic alliance, and every business I've ever had is one big strategic alliance.

I've really never had a financial partner, ever, mainly because I felt when you take money from an investment banker or any other source, you become an employee, and that's been very alien to me. And, I've always -- I guess-- felt that I would like to be the decision-maker and not have to go back and ask permission. And so right through this company, I've never had a partner. But all entrepreneurs must know that there's a time within a certain life cycle of a company or a product--the Internet is a perfect example--the Internet is bigger than any company in the United States and any government in the world. And consequently, I have established a paradigm that over the past six years has proven financially successful and that it can be ported to the Internet, and I've done that successfully. Now I believe for the first time in my business career at the end of 30 years, that I'm going to take in a financial partner.

There's two words that are synergistic in life: that's entrepreneur and risk. I meet guys all the time in large corporations that tell me they want to go out on their own, and about 90 percent of them shouldn't, because I can tell you right now the difference between an entrepreneur and a guy that is used to working is a guy who says, `Well, I've made $50,000 this year. I'd be willing to go out on my own for $40,000.'

No, you're willing to go out on your own for nothing and with no income possibility for the next couple years, and you must take everything that you've got continuously, as opposed to saying, `This is for my kids' college, this is for this, this is for that.' You've got to take all those marbles and put them up on the table every single time. Take a little aside, keep a little back, but most of it must go on the table for the next venture or to get the penetration you need for this venture.

An entrepreneur is absolutely one of the biggest gamblers in the world, but he gambles in an area where he's figured he controls the odds, as opposed to the house controlling the odds.

HATTIE: Judy Jacobsen and her first partner each put in $200 to produce their first set of greeting cards. It took them two years of hard work before they could begin to pay themselves.

JUDY JACOBSEN (Madison Park Greeting Cards): We would print the cards and then we'd see if they'd sell, and we found out they'd sell, we just reinvested in more cards, and...

HATTIE: OK, you reinvested, then.

JUDY: Yes.

HATTIE: How long did it take for the two of you to make any money?

JUDY: I think it actually probably took--well, we made money right away, but we put it back in.

HATTIE: That's what I meant.

JUDY: Yeah.

HATTIE: You reinvest, you reinvest, you reinvest. When did you have some cash...

JUDY: Probably about a year and a half or two years.

HATTIE: Jake Miles used his early retirement funds, then he turned to friends.

JAKE: We actually sat around the dining room table, my wife and I, and said, `We need dollars. How are we going to get these dollars to fund the production and the launching of the business?' And we decided to go back and network with our college alumni friends...

HATTIE: There you go.

JAKE: ...and Rosalyn did her MBA at Northwestern, and so quite a few of her marketing MBAs and financial MBA people had gone into investment banking, one of whom went to Smith Barney.

HATTIE: So she whipped out her alumni...

JAKE: Right.

HATTIE: ...register and started dialing phone numbers.

JAKE: Dialing for dollars.

HATTIE: There you go.

Twenty years ago, Tom Gegax and Don Gullet each put in $15,000 to buy three gas stations, and their vendors helped at first. For growth funds, they tried a bank.

TOM: Ten banks I had to go through before I was able to get a loan.

HATTIE: Why?

TOM: They kept saying, `No, no.' And the main reason? `You don't have experience.' What, you know, I said to the...

HATTIE: How do I get experience if you won't let me try?

TOM: You know, I said to the banker -- I'll never forget this -- I said, `You know what? '-- I got frustrated about bank number nine -- I said to the gentleman, I said, `You know what?' When he said, `Hey, you don't have any experience,' I said, `Well, then, you know they don't really need you. Why don't they just -- you just have these questions...'

HATTIE: Right.

TOM: `...and if one of them is you don't have any experience, just put it into a computer...'

HATTIE: Right.

TOM: `...and just spit it out and say--that way I don't have to come down, and you...'

HATTIE: That's a reject.

TOM: Yeah, that's a reject. Yeah, right.

HATTIE: You don't have to reject me...

TOM: So they don't need you and you don't need me here. So I thought that was...

HATTIE: No bank, or the 10th bank.

TOM: Tenth bank. Finally we got somebody that was willing to take a risk on us.

HATTIE: OK, after that, have you done any initial public offerings or...

TOM: All our growth has been out of retained earnings. In some earlier years where our growth exceeded our profit-making abilities, manufacturers assisted some in our growth there.

HATTIE: OK. So you did get some partnership from...

TOM: But we've now paid most of that back and are growing now out of internal -- out of retained earnings. We did consider and look at, "Do we do a public offering?", "Do we take on a larger financial partner?" and we have decided `No.'

HATTIE: Why?

TOM: We decided that -- well, I believe, that'd be three balls to keep your eye on. There's two balls we have keep your eye on and so why put a third one in there. You'd better have your eye on #1, your guests or customers; the other is your teammates.

HATTIE: Right.

TOM: Now if you inject a third one and have, you know, a public offering and have lots of shareholders, you're spending a lot of time with regard to those shareholders.

HATTIE: Dave de Varona has a reputation in Seattle. For 10 years, the movers and shakers in town enjoyed business luncheons and leisurely elegant dinners at his restaurant, The Broadway. When Dave decided to change his own lifestyle, stop drinking and stop serving alcohol, he created a whole new place to eat, a new restaurant. Because of his past success, he has been able to attract local investors.

Unidentified Man #3: I like to know what my money's doing at all times, that's true. No. I trust this guy with my life. It's not a problem.

DAVE de VARONA (Restaurant Owner): Especially retail categories like ourselves are getting funded a lot faster by sophisticated investment groups. Those groups, because of Howard Schultz and Starbuck's -- it was very hard for him to raise his first money -- and because of him, companies like ourselves are being noticed sooner.

HATTIE: OK, so he established a model, a success model...

DAVE: Yeah. Yeah.

HATTIE: ...that the investment companies are going to say, `Hey, you're going to be another Starbuck's.'

DAVE: You know, they don't want to miss it. In fact, one of our investors--major players in our investment group missed that opportunity and, you know, said, `God, you know, we don't want to miss another opportunity.'

HATTIE: (Voiceover) However, he warns us before going after venture money, learn how to play the game their way.

DAVE: You know, we didn't have terms like unit-level economics and footprints. So...

HATTIE: So when you started raising money from sophisticated firms, you had to learn some new words.

DAVE: Yeah, well, you have to learn that vocabulary so you can talk to them.

HATTIE: Marty Edelston thought it would take $1.2 million to start his publishing company. When he couldn't find any banks or investors to help him, he kept his job and invested $30,000 of his own to get started.

MARTY EDELSTON (Founder, Publishing Company): I took what I had and built larger mailings from that.

HATTIE: OK, and at that same time, you were still working at your job, so you had some income, and you just said that the person you worked for was aware you were trying to build a business.

MARTY: That's correct and had been for a couple years, and...

HATTIE: So one of the ideas here is that if someone needs to have their job for the cash flow, they might go to their employer and say, `Hey,' and be open. That worked for you.

MARTY: That's correct. Working and putting it all together until two in the morning, three in the morning, four in the morning, and we were too poor to go--to buy a bed in the office, we didn't have a couch, so ultimately we saved our money, and it was a big deal to buy a second-hand sleeper couch for $125.

HATTIE: Grace Tsujikawa-Boyd is an artist. While working full-time, she started making clay pots in her basement, and people actually bought them from her immediately. With her confidence buoyed by sales, she went out looking for money to start her business.

GRACE TSUJIKAWA-BOYD: So after being turned down by a dozen banks, I was talking to a friend whose brother was an accountant, and he said, `Well, why don't you go to the Small Business Administration?'

HATTIE: Yes.

GRACE: I said, `What a good idea.'

HATTIE: Never knew about them, probably, right?

GRACE: Right. Absolutely. You've heard of it, but you don't know how you can be helped. So I said, `Well, I need an introduction. What do I do?' He says, `First of all, you've got to figure out how you're goning topay these guys back if you borrow the money.'

HATTIE: You weren't scared.

GRACE: I wasn't scared.

HATTIE: You weren't thinking...

GRACE: It didn't even occur to me that I wasn't going to have a paycheck every other week.

HATTIE: Did you really have some skimpy times?

GRACE: We had a number of years of skimpy times, and the way I was able to build my business was by parlaying all the money that came into the business.

HATTIE: JoAnn Corn had three children to raise on her own and just $20,000 in savings.

Why didn't you use a banker?

JoANN: Well, because I didn't have any--in the first place, a banker wouldn't touch me with a 10-foot pole, so I didn't have a line of credit. Let me tell you what happened. I did go into--I've had a bad taste in my mouth for banks for quite some time. It's changing a little bit now, but the first place, they didn't want to do anything with me because I was a new business and a woman. I went to Woman's Bank here, because I thought, well, this is Woman's Bank, you know, I'm a woman, I'm starting out in business, I'm sure they'll help me. And I needed at that point just a $20,000 line of credit, so I wouldn't have to go through this worrying over the weekend that I could make the payroll. So I wanted a $20,000 line of credit. So I went in and, oh, well, it's just so nice to have you come in, JoAnn, and we just love entrepreneurs, and etc. and etc., and we will certainly extend this line of credit to you, but we need a CD of $20,000 to back it up. I mean, I thought to myself...

HATTIE: Well, if you had a CD of $20,000, you'd cash it in.

JoANN: I don't need it, that's right, I don't. I mean, I thought this is the most ludicrous, this is the most inane thing I've ever heard. But I walked out. Woman's Bank was the first of probably seven banks I went to. And I would go in and I'd talk to these loan officers who had never been in their own business at all, and they'd sit down and they'd try to tell me how to run my business. So I borrowed some from--my parents are not wealthy--so I borrowed $10,000 from them, and then I'd pay that back, and then $10,000, and we'd go to...

HATTIE: Your mother and father were your bank, at the beginning.

JoANN: Some. Yes, at the beginning. Well--and sometimes we'd contracts, like with retirement centers and nursing homes. They'd pay us before we rendered the service. We were able to get them t...

HATTIE: Thank you, thank you, thank you.

JoANN: Yes, yes, you know, but I'd discount my service. I said, `If you'll pay up front'--because I needed to pay my people as soon as they...

HATTIE: Delivered the service.

JoANN: ...delivered the service. And then sometimes, you'd wait 60, 70, 80 days before you were paid. But I said, `I'll give you this drastic discount if you'll pay...'

HATTIE: OK, so your start-up cash flow strategy was to offer discounts for advance payment.

JoANN: Yes.

HATTIE: Cheryl Womack didn't need start-up capital because she had start-up customers. When she got the idea to start the National Association for Independent Truckers, many of her old customers became her new customers, but she also kept her overhead low. She started in her basement with one telephone line and call waiting.

CHERYL WOMACK (Founder, National Association for Independent Truckers): What I did is I contacted--my old boss never put me under covenant. I guess he just never thought girls would be a threat. Certainly, I wasn't a threat.

HATTIE: No non-compete clauses.

CHERYL: No, non-competes whatsoever. Just employee at will. So I contacted -- as soon as I left him, I contacted five of my primary customers and said, `I want to fly and come and see you,' and I went and saw them, and that was the cash outlay that I had to spend, to fly and see them -- and four out of those five gave me their business. So in the first 30 days, I was actually profitable.

HATTIE: SiloCaf has been in the coffee business for 35 years in Italy.

(Voiceover) This is a case of success breeding success. SiloCaf of New Orleans started with $20 million from its Italian owners. You may say, `If I had $20 million to get going, I would surely succeed.' That's not always the case. That $20 million was available because of years of excellent decisions, including decisions that took them through a succession from their founder to his children and now to his grandchildren. Most businesses don't make it that far. Currently, the average life of all businesses in the US is just 27 years.

The net of all this? You'll probably have to step back before you step forward. You'll have to take a risk, but you're betting on yourself, and you are a known entity to yourself, so it's not like gambling.

If you're not willing to take a risk and bet on yourself, you should not start a business.

And in the beginning, don't think banks; think about your own resources, your family, these other ideas we've just shared with you, and think about your commitment to the concept, and think about: "Is this worth your time and effort and energy? And if it is, the money will follow."

(Voiceover) Before we go on, I would like to invite you to join us. become part of the family by studying further at SmallBusinessSchool.com. There is this show and so much more in streaming video with study guides, transcripts and profile pages.

HATTIE: And what about cash flow, now that you're already in business? All of these small-business owners are very smart about the use of money. Here's some of their great money management techniques:

HATTIE: (Voiceover) Instead of building up overhead, use outsourcing and subcontracting.

JAKE MILES: Well, we subcontract. We basically are a creative house.

JEFF GORDON: We keep about half a dozen to a dozen free-lancers busy all the time as well as our full-time staffing. For multimedia projects, we incorporate very much a Hollywood model where we want to be able to plug in the appropriate talent for the opportunities.

JUDY JACOBSEN: We have about 12 artists, probably, now.

HATTIE: OK. And those--other than the two that are here, those 10 strictly work at home.

JUDY: They work at home, yeah, and they bring their artwork in.

HATTIE: (Voiceover) Turnover is costly. Hire right.

JEFF: We run advertisements in the papers and online full time, so we've got ads running every single weekend of the year. We recruit full time, and I would say that we sift through, depending on the job position, anywhere from 150 to 300 people to get to one individual.

TOM: It first starts with finding people that are trainable and motivatable. Secondly, you'd better compensate them right. So we believe in a pay for productivity type of a situation. Thirdly, you'd better care about them and give them strokes, let them know when they're doing things well, but also--and this goes in with coaching--is to let them when they're not doing things well that they can do better and be better than they are.

HATTIE: (Voiceover) Stay with what you know.

ANDY MURSTEIN: In all of our businesses, we try to stay with what we know best. My grandfather said 60 years ago when he started the business, told my father, `In niches, there's riches,' and that's kind of our motto.

BILL: I'm always looking for a niche. When you're a small business or you're an entrepreneur, you have to find the small niche and be the best at it, and then grow the niche, and remember the crumbs that fall off of large corporate America's table are a big meal for a small company.

HATTIE: (Voiceover) Aggressive application of computer technology. Kim Beach is upgrading her cash registers.

KIM BEACH (Small Business Owner): We have just gone through a process to select our point of sales system to go in all of our stores. That point of sales system includes--the software company that we have selected is Progressive Software, and they use principally IBM hardware.

(Voiceover) We currently have cash registers and those cash register sales are called in to us by the store manager on a daily basis.

HATTIE: So you're using a low-tech phone now, and now you're moving...

KIM: Low-tech phone now, you've got it, and then putting information on a piece of paper and then having that next piece of paper given to another person so that they can put the information on another piece of paper, and so now what we will, in fact, have is a point of sales system that will allow us to gather all the information at the store level automatically.

Unidentified Man #5: This is what we call a solid modeler. The RS6000's real powerful. It's an expensive piece of hardware and software, but if you want to play with the big boys, you've got to have it.

MASSIMO (SiloCaf of New Orleans): And we find now, I mean, in the situation, where we can actually implement the system which is going to be the basically state-of-the-art system with PC servers. A...

HATTIE: And you use an AS400 as well?

MASSIMO: I have a midrange, yeah, an AS400 in the line to consolidate the data. You need to have the mind-set and focus with the idea that you can use technology to do the things better, but I will say that you cannot do the things without technology anymore.

HATTIE: (Voiceover) Use what you have in a new way. Grace Tsujikawa has made ceramic pots for 26 years. Today she also makes ceramic tools for aerospace.

GRACE: So no matter what was happening in the commercial ceramics field, and even if the building industry were downsizing or were in a recession, the other side of the business, the industrial side, would be doing something else.

HATTIE: (Voiceover) Don't take cash out of the business for a fancy personal lifestyle.

Man #4: I feel it's much more important for us to direct capital which I could potentially take personally into building a better basis for us to be able to grow into bigger business opportunities.

HATTIE: (Voiceover) Negotiate with your suppliers and customers.

JoANN: If they pay ahead, they get a big discount for this. Well, I'd have the money to use, it's not the kind of--it's not the margin that I...

HATTIE: Would want.

JoANN: ...would normally want or have now, but...

HATTIE: It got you going.

JoANN: ...it allowed me to survive.

HATTIE: Once you have a two- to three-year track record, you can go to a bank and establish a line of credit or even get a traditional loan.

Unidentified Man #6: We have a real good relationship with our bank. We could not be in this business without a bank, because we are essentially a bank ourselves, when it comes right down to it. We give people credit 30, 60, sometimes 90 days, so we have to keep the bank real happy.

HATTIE: Banks need you, and once you've paid your dues and you've proven that your idea is a winner, a solid banking relationship will be good for you. In fact, if you don't do this, you may stunt your growth.

The Closing of the Show.