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Firms Take Financial Side of Growth Into Own Hands

Although there are many ways for companies to finance their growth, owners of many of the Valley’s fastest growing private companies have been cautious in seeking money through stock offerings or venture capital funding, preferring to grow things on their own. Their strategies, developing a quality business proposal and hiring the right people to execute it, seem to be working as some of these firms have doubled their growth every year. Drew Kaplan, CEO of Internet service provider ISWest said the company was in business for two years before it even applied for a line of credit. “We got some businesses to lease us their equipment, we put some expenses on credit cards and funded ourselves,” said Kaplan. “We just started out small and grew.” Karenjo Goodwin, founder and CEO of Exact Staff Inc. in Woodland Hills started her company in 1996 using $200,000 she had saved to buy a house and convinced her husband to co-sign a loan to get about $500,000 more. “(Starting the business) was just one of those things that topped any kind of luxury. I started eating tater tots, but it was really my dream,” Goodwin said. “Every day of my life until this day I’m happy I did it.” Without private investors or stockholders to supply further infusions of cash, private company owners hoping to expand have to be creative. Kaplan knew that ISWest had to move offices when the company was using so much power that its air conditioning was failing and the lights were going off. The company was forced to rent portable air conditioning units to keep its servers from overheating. Buyout offers ISWest did not have the capital it need to purchase additional space, however, and was forced to consider buyout offers from other companies. It was impossible to find a company that ISWest’s founders would feel comfortable selling to, however. In fact, ISWest came very close to accepting an offer from a company that was out of business six months later. Kaplan said the company ultimately decided it needed to expand on its own. “Instead of trying to sell the company to another business, we went to our bank, it was when Los Robles Bank was converting to Santa Barbara Bank and Trust. We said ‘We’re running out of power and air conditioning and want to take our business to the next level,” said Kaplan. “They said ‘go find a building, we’ll loan you money for tenant improvements. . .essentially the bank came up with, between leases and lines of credit, half a million bucks for us all on our signatures.” In 1999, ISWest was one of a few Internet service providers to be making a profit, Kaplan said, and that history of financial success made it possible to move from a 1,300 square-foot location to a 3,000 square-foot building and, recently, to a 10,000-square-foot facility. Tim Braheem, co-founder of LTB Inc., followed a similar path. Rather than look for private investors, he and his partner Richard Katz used their own savings to build their business helping. “I was lucky enough to have money in the bank; we’ve never borrowed a dollar. We own all of our equipment free and clear and haven’t had any investors help with funding,” said Braheem. Solid foundation Braheem said that although making such a sizable investment is daunting, carrying a huge debt load is even more nerve-wracking. His anxieties were allayed, he said, by exploring the marketplace and convincing himself that his product was filling a need, and spending money to hire competent sales people assured that he and Katz were building LTB on a solid foundation. LTB provides training and marketing resources to mortgage professionals. “I was never really worried about whether (the business) would be successful,” Braheem said. “It didn’t lead to any nervousness because I said to myself, ‘this is going to work.'” After more than three years in business, however, Braheem and Katz are considering looking for private investors as they’re thinking of expanding, but they are much more comfortable doing so with a successful business than as a start up. Kaplan and Braheem would give the same advice to young entrepreneurs: make sure the business model is sound, and don’t be afraid to start small if that’s all you can afford. When cash is an obstacle, Kaplan said, growing a business requires a bit of creativity. “Along the way we were trying to figure out how to grow, the idea we came up with was that the fastest way to grow would be to acquire companies,” said Kaplan. Rather than having to establish new clients, ISWest found other Internet service providers who had been hit by the tech boom fallout, and simply purchased the business and client lists from businesses that were close to bankruptcy. “We got creative because we didn’t want to get a bank loan. We got the other businesses to carry paper; we said we would give them some money down and pay them out of our cash flow for the next few years,” said Kaplan. “What else were they going to do?”

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