GIVE AN ENTREPRENEUR MILLIONS to launch a company and he'll find a way to spend it. Start him with little and he's forced to be creative. Steven and Andrew Grundy built their Chicago-based CD-exchange Internet company,Spun.com, with less than $1 million by cutting some clever outsourcing deals. In its first three months Spun.com sold 16,200 CDs for $150,000. Thanks to its near-cashless business plan, the brothers needed to raise only $825,000, giving up just 25% of the company to investors. Here's how they saved nearly $40 million:

EMPLOYEES

ESTIMATED COST: $2.5 million in first-year salaries for designers, writers, programmers, lawyers, accountants, treasurer.
SOLUTION: Programmer Steve, 38, built site infrastructure; former Columbia Records sales exec Andy, 33, handled marketing. A friend produced a business plan for 1% of the company and $1,000 to cover expenses. The Web design firm was paid mostly with a 3% equity stake.
PRODUCT
ESTIMATED COST: $8 million to stock multiple copies of 200,000 new, used and rare CD titles.
SOLUTION: Partnered with wholesaler Alliance Entertainment Corp., which buys CDs from hundreds of labels at cost and resells for a 10% to 20% markup. Orders go to Alliance, which ships CDs out nightly. Spun.com pays only for product it sells.
 

CONTENT

ESTIMATED COST: Up to $20 million to research thousands of new and old CDs and produce band bios, album reviews, art.
SOLUTION: Licensed existing album reviews, artwork and musician bios from All Music Guide's Web site. Spun.com accesses AMG's database--compiled by hundreds of writers--at a basic weekly cost of $1,500.Gets sound clips from AudioBase, paying just pennies for each click.
LOGISTICS
ESTIMATED COST: Initial $457,000 for five-year lease of a 6,000-square-foot warehouse, phones, computers, storage racks, packing supplies and workers.
SOLUTION: Pay $5,000 annual rent to distributor Available Business Group. Covers 1,500 square feet plus use of conveyor belts, storage cages, postal services. Available's employees post and ship CDs for additional 25 cents per package.
 

MARKETING

ESTIMATED COST: An average of $70 to acquire each online music customer.
SOLUTION: Became online retailer for Cyberradio2000.com. What price linkage? Spun.com gives up 15% of each CD sold on the site. Also built online stores for six Web sites of giant AMFM Media Networks, which also gets piece of each CD sale. Result: Spun.com spends less than $20 per customer.
 

Source:  Joanne Gordon, Forbes. Feb 21, 2000