A completely different method of creating and growing a business on bootstrap principles is to use cash only to finance start-up and ongoing operations.

Still, advocates of this approach, like Bill Clark, who with his wife Julie Aigner-Clark launched The Baby Einstein Company aimed at introducing young children to classical music and the arts with $10,000 in personal savings, admit there are challenges.

For Bill, the big four are:

Start With Costs

"A lot of fledgling entrepreneurs start planning for their companies by projecting revenue and determining from that figure the amount of money they can spend to hire staff, develop products or services, and determine marketing activities," Bill said. "At Baby Einstein, we've discovered that the reverse is more appropriate for the all-cash way of operating. Costs are controllable, revenue far less so. The mandate? Nail down those costs!"

Set and Stick to a Budget

"With a firm grip on costs, the all-cash way involves turning next to the task of projecting revenue," he said. "Be sure to set those revenue numbers without looking at costs - and then cut them by 10 percent just to be conservative."

Adjust for Reality

Clark explained, "At Baby Einstein, we once had two major retail chains go bankrupt and a third slow their payments to us to 120 days from 60 days. We immediately analyzed these developments, exploring the ramifications for our competitors as well as our company. Our solution was to lower our prices to the troubled chains during their time of need, while simultaneously reconfiguring our product line to appeal to and thus open a new distribution channel."

Meet the Challenge of Fast Growth

"During a period of rapid growth, inventory and accounts receivable are also likely to be growing, putting pressure on a company's cash," Bill said. "Balancing the need to make additional investments to buy inventory and hire people to provide for growth with the need to spend less cash than the company is generating becomes the ultimate cash-flow challenge."

In the end, it was meeting the challenge of growth that led the Clarks to put up their business for sale.

Clark explained, "In spite of our deep cash reserves, we realized that we would have to raise investment capital to get to the next level. Being true to our goals, we didn't want to do that. By deciding instead to put the company up for sale, we opted to harvest the value we created while transferring the challenge of financing growth to a new owner."