Making low-cost start-ups pay off - includes a list of books and other resources for small businesses - B.E. Special Report on Small Business - Cover Story

Black Enterprise, Nov, 1992 by Caryne Brown

When Sherrie Maurer made her own tomato-apple ketchup in her Vermont kitchen nine years ago, she gave it away as gifts. Then friends urged her to put it on the market.

Maurer was no stranger to the food trade, having worked as an inn manager and caterer, but she wasn't rolling in start-up capital, either. She managed to scrape together $6,500, mainly from her family. She called her product Beyond Ketchup, her company Jasmine & Bread, and spent the $6,500 carefully. The first order of labels alone took $2,000. Apples, spices, 2tons of tomatoes, containers and shipping cases took another chunk of cash. She rented a co-op production facility and hired workers from a nearby cannery. And she got a break when eight friends volunteered to help with the first production run in exchange for a lifetime supply of ketchup.

For two years, Maurer and her husband spentweekends driving Beyond Ketchup all over New England. "We'd look in the phone books for country stores or specialty-food stores," she recalls, "then go around offering to do demonstrations." When sales couldn't pay for the travel, they paid out-of-pocket.

All that work--and Jasmine & Bread grossed only $6,000 the first year. Then The New York Times featured the company in a story about a New York trade show. That led to more publicity, which Maurer used as entree into more markets, including mail order. "That story made me credible," Maurer says. "Before that I was just this person who showed up with her condiments. It made retailers much more willing to give my product a try. I used that article for a couple of years, sending out copies with the orders I sent out so [the retailers] could display it."

Today growing by between 20% and 30% a year, Jasmine & Bread has mail-order presence throughout the country, wholesale distribution everywhere east of the Mississippi and on the West Coast and a "spetty but increasing" presence in the Midwest and South. The nine-condiment line includes a tomato-pear-ginger salsa (Beyond Belief) and a mustard (Beyond Horseradish Mustard) the company's No. 1 seller. "We're still very small," Maurer says. But she considers last year's gross-- $268,0DO--satisfactory.

Like 75% of black entrepreneurs, Maurer started with a dream and less than $10,000. Sweat equity, not cash equity, tells' their start-up story. But Jasmine & Bread is just one of many successful black-owned companies that started with only $5,000 or so. As Sherrie Maurer and others have found, limited access to conventional business financing doesn't have to shatter the dream. Keeping The Dream Alive

The U.S. Small Business Administration (SBA)reports that fully 70% of all black-owned start-ups are funded from personal savings or by family and friends. Most start with less than $5,000 in working capital. For that reason, 76.1% of black-owned start-ups are service or retail operations, which tend to be more labor- than capital-intensive. The most recent (1987) Economic Censuses counted 209,547 black-owned service businesses, a full 49.4% of all black-owned firms. By contrast, only 24.6% of all small businesses are service companies.

The long-term profit potential in all service and retail firms is limited because the margin for error is small in thinly capitalized businesses. The SBA notes that 94% of black-owned firms are sole proprietorships, but these firms bring in only 51% of the $19.8 billion made by all black-owned businesses. A solid 39% ($7.72 billion)of the money that black-owned firms take in comes from the 3% of incorporated businesses that have a better survival rate than those that are not incorporated.

In fact, would-be entrepreneurs seeking low-cost business opportunities should remember the adage: Forewarned is forearmed. Don't let the appealing affordability of low-investment businesses blind you to the alarmingly high failure rates of such concerns. Last year, the SBA told Congress that between 1986 and 1988, 780,000 businesses with fewer than 20 employees were launched, and 704,000---about 90% of them--failed. During the same period, 197,000 firms with 500 or more employees were started, and 93,000, or only 47%, of these bit the dust. Meanwhile, the number of black-owned retail firms declined by 6.5% between 1982 and 1987.

Numbers like these would scare anybody, but black entrepreneurs are starting up new companies every day. Jerry Roebuck is founder of Black Expo USA, which promotes trade shows featuring black-owned businesses in major cities. "At anytime, 50% of the African-American businesses [exhibiting with us] start out as mom-and-pop type operations, doing under $1 million a year," Roebuck says. "And some go on to do great things."

Roebuck, who sponsored 12 Black Expos in 1992 and plans 14 for 1993, confirms that low-investment entrepreneurs tend to be concentrated in service-oriented businesses, often run from home, "where people can start to create something themselves--consumable food items, T-shirts, dolls, garments. It just amazes me to see the products people fashion out of their home or basement that need to be on store shelves."