Staying the course
COEUR d’ALENE – Yvonne Ellis would pose one question to eager, young entrepreneurs: How’s your risk tolerance?
Seven years ago, Ellis founded The Backup Training Corp., a company that produces CD-ROM training courses used by 30,000 police officers each year.
The company grew out of an online newsletter Ellis and a key employee – Rick Gallia – developed for law enforcement officers. Since the young company couldn’t qualify for a bank loan, its early years were boot-strapping ones.
“You really risk everything when you a start a company,” Ellis said. “Your money, your credit cards, your credit rating …a lot of people aren’t comfortable with that.”
The Backup turned a corner in 2004, achieving its first year of profitability. But even with an expanding clientele, a national reputation for customized training, and deep-pocketed investors, running a small business remains a game of risk, Ellis said.
“You’re never done with risk, because you want to grow,” she said.
The Backup Training Corp. started in 1997. Ellis, a former partner in a Coeur d’Alene antique mall, was a newly divorced single mom with two kids. She wanted a change from retail.
The brave new world of the Internet beckoned. Ellis hired Gallia, a former California cop, to team up with her on an on-line newsletter.
An article on police chases led to hundreds of reprint requests. Ellis and Gallia seized the opportunity, developing an eight-hour course on “pursuit driving,” available for $25 on CD-ROM.
One thing led to another. Soon, The Backup was turning out dozens of courses with names like “Surviving Search Warrants,” “Clandestine Meth Labs for Street Cops” and “Crisis Negotiations.”
Gallia used his law enforcement contacts to find and bring national experts to Coeur d’Alene. The company’s modest conference room doubled as a production studio for filming.
The CD-ROMs targeted police officers who needed continuing education for job advancement. The Backup worked with North Idaho College to certify the course work, so the officers could earn transferable college credits.
“I have the utmost respect for the Backup,” said Tad Leach, coordinator of NIC’s law enforcement programs. “They bring in national-caliber instructors, and put the class on disc…It makes the experts available to everybody.”
Retired Los Angeles Police Department detective Chic Daniel teaches an eight-hour class called “Suicide by Cop,” dealing with situations where police are forced to shoot armed, despondent people. Daniel’s the “guru” on the topic, but most departments could never afford to have him give a talk in person, Leach said.
At any given time, about 7,000 students are taking The Backup’s CD-ROM courses.
But rapid growth taxed the company’s resources in its early years. As Ellis’s savings dwindled, cash-flow was a problem.
“We thought it would take $10,000 to get started….We ran through her money real quick,” Gallia said.
“Whatever you think is enough money, you can times it times 10,” Ellis said ruefully.
The Backup couldn’t qualify for an SBA loan or a conventional bank loan. In the late 1990s, CD-ROM training was such a new concept that banks didn’t know how to assign it a credit risk, Ellis said. She resorted to desperate measures to pay bills and employees.
Ellis took out a high-interest title loan on her vehicle, and sold company invoices through a process called “factoring.” Lenders advanced The Backup money on accounts receivables, but kept a percentage of the sale.
Both she and Gallia were both ready to quit, though never at precisely the same moment.
“We could never agree to close on the same day,” Gallia said.
“It’s true,” Ellis said. “I’d tell him he’d have to go talk to the employees…but we could never agree on which day we’d close.”
Angel investors saved the company. A law enforcement friend introduced Gallia to wealthy California investors, who fund start-up companies. Beginning in 2000, the investors poured $5 million into The Backup.
Ellis remains a part-owner of the company, and its chief operating officer. Idaho investors, who put money in early on, also retain a small ownership share.
“You have to persistently believe in your product,” Ellis said. “If you believe in it, other people will believe in it too, and they’ll be willing to invest in it.”
The angel investors will get their money back when The Backup sells, an event Ellis and Gallia anticipate within two to three years.
The company will do about $1.2 million in sales this year. Ellis expects sales to double in 2005.
The Sept. 11, 2001, terrorist attacks sparked an enormous demand for new training materials. The Backup added a new unit on law enforcement response to terrorism. When the state of Montana needed to train 2,000 employees to meet a Homeland Security grant deadline, The Backup developed a customized training program in 45 days.
“That’s what the company is best at,” Gallia said. “Producing material under a tight deadline.”
The Backup’s next challenge is to create a mature, business model, Elllis said. As the company expands, both she and Gallia are learning to delegate.
“We come from such a boot-strapping mentality,” Gallia said. “A lot of companies get hurt…
“…because they don’t know how to grow,” Ellis said.