All of the salaries, rent, startup inventory, consultant fees, trademark fees, legal fees, etc. for HeavyInk were payed for by profits from SmartFlix.
That said, SmartFlix itself has debt. Why? Because it's really capital intensive. If a given DVD rents out once every 60 days, and we make $4 in profit on a rental, and the DVD costs $60, then an upfront investment of $60 breaks even two years later. So: SmartFlix has incurred a bit of debt (half of it real debt owed to banks and other small lendors, and half of it paper debt, in the form of promissory notes to engineers who were on half salary for six months, etc.).
The capital intensive nature of SmartFlix was fine, but it means that it's hard to grow past a certain size - in the absence of VCs rushing to give us $1 or $5 million (and, frankly, they're right not to - SmartFlix isn't going to have the return that they're looking for), then growth slows to the rate at which we can purchase inventory with profits.
...which is one of the reasons that we looked for a second startup idea that leveraged a lot of our core competencies (ecommerce, fulfillment, datamining, etc.) but did not require nearly as much cash tied up in inventory.
SmartFlix is profitable, but it has debt.
All of the salaries, rent, startup inventory, consultant fees, trademark fees, legal fees, etc. for HeavyInk were payed for by profits from SmartFlix.
That said, SmartFlix itself has debt. Why? Because it's really capital intensive. If a given DVD rents out once every 60 days, and we make $4 in profit on a rental, and the DVD costs $60, then an upfront investment of $60 breaks even two years later. So: SmartFlix has incurred a bit of debt (half of it real debt owed to banks and other small lendors, and half of it paper debt, in the form of promissory notes to engineers who were on half salary for six months, etc.).
The capital intensive nature of SmartFlix was fine, but it means that it's hard to grow past a certain size - in the absence of VCs rushing to give us $1 or $5 million (and, frankly, they're right not to - SmartFlix isn't going to have the return that they're looking for), then growth slows to the rate at which we can purchase inventory with profits.
...which is one of the reasons that we looked for a second startup idea that leveraged a lot of our core competencies (ecommerce, fulfillment, datamining, etc.) but did not require nearly as much cash tied up in inventory.