How to Start a Business Without Debt
Entrepreneurs often talk about how they started their businesses with loans from family and friends, seed money from investors and even by maxing out their credit cards. But, for every one of these feel-good success stories, there are more than a few with unhappy endings.
Noelle Federico, the business manager and chief financial officer of Dreamstime.com, a stock photo service, said that while it is not easy to start and grow a business without incurring debt, it is possible.
"We've proven that it can be done," she said. "Myself and the leadership team at Dreamstime.com have never taken loans, used credit cards or tapped angel investors to grow our business."
They did it primarily by sticking with their day jobs while working part-time at the business, which competes with stock photo providers Getty Images and iStockphoto. Once they were comfortable that sales could sustain their salaries, they made Dreamstime.com their full-time jobs.
"On our first sale of $1, we earned 67 cents," she said. "We continue to grow with our expenses, so we are never taking on more expenses than we can support through sales. We started in 2004, incorporated in 2005 and basically within a year all of the principals of the business were able to devote their full attention to this endeavor."
The company grew as more users joined the community and uploaded their stock photography. From 2008 to 2009, the revenues grew 45 percent; from 2009 to 2010, revenues were up 40 percent; and 25 percent from 2010 to 2011. The site currently has 5 million users and almost 15 million stock photographs.
Entrepreneurs who take on too much debt are not thinking about how their business is going to make money in the long run, Federico said. "If you're taking $100 from someone, you're not really thinking about how you're going to pay that back. If you have to earn money before you can move forward, you give it a lot more thought," she said.
She said her business sets itself apart with proprietary photo-editing technology. "We've got something others don't, but we took the money from that first sale and every sale and thought long and hard about how we were going to reinvest it."
The company also keeps expenses low by involving its community of 5 million users who submit photos by having them tag their own photos.
"We encourage people who upload to the site to provide keywords for their own photos, because they are really in tune to what searches are likely to bring up their photos," Federico said. "That, along with our proprietary photo-editing software, helps to keep our staff lean. We upload about 100,000 photos a week with a staff of 12 to 15 photo editors."