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Online Extra: Commentary: Hey, How About Capital for a Small Biz with Profits?


By Lisa Bergson

In business, I've always played by the rules. Annual profits, stable employment, and an upward trend line (however gradual) were the Holy Grail at my company, MEECO Inc. Achieve those, and your bank, your employees, and your shareholders were all happy. Or at least, reasonably so. I remember when our former bank tossed us into its workout group at the mere hint of a loss, even though we never missed an interest payment. (We remained profitable, but the only way to restore our status was to change financial institutions.)

Then the New Economy turned everything upside down. Not only did it herald an altogether new business model -- which apparently came from nowhere -- but dot-com startups were getting money shoved at them from every direction. Sitting on the sidelines, atop my lumbering but little analytical-equipment company, I had mixed feelings. I was shocked by the profusion of capital available for what appeared to be rather slight propositions. My company had been in business for 50-odd years, churning out consistent profits for the past 16, and we still had to grovel for our small, annual infusion of funding from the bank. What we could do with a quick $10 million or $20 million!

THE MONEY TAP. It made me think. True, it looked like a giant Ponzi scheme. And unsustainable as it clearly was, it was exhilarating all the same. I knew people who were drinking at the money tap. I watched one good friend build a business from nothing to $20 million in revenues, with 100 employees and three offices, in just three years. "They kept saying, 'more, more, faster, faster,'" he recalls of his VC backers. "They wanted us to go public in 12 months." This year, his dot-com went the way of so many others and filed for bankruptcy.

Based on such stories, I think that the New Economy business model should now be regarded as a discredited anomaly of the last millennium. Part of its allure lingers, however. Even Old Economy business owners -- like me -- are exploring ways to "get big fast." This year, I turned a hot new technology we developed over the past seven years with Princeton University into a small, deficit-producing startup, Tiger Optics.

Already, Tiger Optics' stock-related incentives appeal to new recruits more than MEECO's ever did. I'm suddenly spending lots of time thinking about how to integrate an influx of talent and managerial capabilities into what has been a very close, informal, but effective organization. Just this week, my small gang managed to reverse a major setback in less than 24 hours. Sales, production, and accounting all pulled together -- securing, credit-checking, and filling a last-minute order -- to make this fiscal year, ending in July, our best ever. I don't want to lose that kind of commitment and spontaneity as we grow.

BEEN THERE BEFORE. I also don't want to get overleveraged and overextended. Amidst the high-tech wreckage, I'm sure there were some good businesses that would've prospered if they hadn't been pressured to boom. And for many of them, it's now bust, not boom. I've always been able to count on my people and myself to hunker down and ride out the hard times. For example, in the third quarter of this year -- remember, our best ever -- we imposed a plant shutdown and other austerity measures the minute we sensed a softening. No one complained, because they know the drill. By contrast, few dot-coms, for all their fresh energy, had the dexterity and resources to withstand cyclical markets.

Yet I'm convinced that for Tiger to succeed, it must rapidly expand beyond its first breakthrough product and go for market share before the field gets crowded. Our only potential direct competitor doesn't have a commercial product yet. But it has two leading VCs and loads of government funding. It's like going back in history to read its VCs' boasts of "rapid expansion" for a company with no products, no sales, and definitely no profits. My conclusion? The New Economy business model endures. It has just shifted to other markets.

Tiger has also caught the eye of some name VC firms, and I'm busily updating my business plan. Trafficking with venture capitalists -- the very idea! It's certainly nothing I would've considered five years ago. But perhaps the New Economy business model will work if it's linked with solid propositions managed by proven entrepreneurs, who just need a nice capital hit to realize their objectives.

Maybe the rules really are changing. We'll see. I just wouldn't want to go for too long without profits. Ponzi schemes have a few winners, but always plenty of losers. Before joining MEECO in 1983, Bergson worked as a business journalist at BusinessWeek and freelanced for many business publications. She writes "Factory Days," a column about her experiences at MEECO for BW Online's Small Business channel


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