(FORTUNE Small Business) – Hughes founded Radio One in 1980 and grew it into the seventh-largest U.S. radio network, No. 1 in the African-American market. Here's the story of how she went from sleeping on the floor of her office to running a company with $303 million in revenue. —JULIA BOORSTIN

"I worked at the Howard University radio station, where I invented the Quiet Storm format. It was the forerunner of what is now called Adult Contemporary—mood music, romantic love songs, ballads—and it became the No. 1 urban format in the history of black radio. I tried to get Howard University to license it, and they refused. So I decided to leave.

I took advantage of the FCC's Distress Sell Policy, in which the FCC discounted the price on radio stations in financial trouble by one-third and sold them to either a woman or a minority. All of a sudden, WOL in Washington, D.C., was placed in the distressed-sell category. I had a $100,000 inheritance from my father that I had not touched, and I raised another $100,000. Then I went to VC firms. Syndicated Communications became my lead investor, with $5,000. They took me to Chemical Bank of New York, after we had made numerous presentations to numerous banks. Banks were really leery of making broadcast loans back then. You had very limited hard assets—the value of the station was goodwill. Male bankers all told us no. But a woman banker in her first week on the job at Chemical—a Puerto Rican woman—gave us a $1 million loan.

So in 1980, with $1.5 million, I went into business. Three months later was the great interest rate hike. In 1981 interest went up into the mid-20s. And I was 2.5% over prime. Some months my interest rate was as high as 27%. It was devastating for business. The economy was so bad that no one wanted to buy ads.

I lost my marriage because of the company. Up until then I had never borrowed a dime. I was always the one that the other kids would come to to borrow a quarter. I sold lemonade and cookies, so I always had cash flow. So when my husband said, "We'll never pay this back, this is a tunnel with no light at the end, let's just walk," I couldn't do that to my lenders. I had $1.5 million of other people's money; I would not have been able to live with myself.

I tried to reason with him, and I tried to talk to my lenders about a payment plan. They said, The only way you'll ever repay this $1.5 million is for the radio station to be successful. And so he moved to California, and we got a divorce.

I lost everything. I stood in my window one day as they repossessed my car. In 1982 I ended up living in the radio station, sleeping in a sleeping bag for 18 months. I didn't take a salary. During this time my son was in his first year of college, and what little resources I did have were concentrated on keeping him there. I was literally washing up in the bathroom for the radio station. I cooked on a hot plate. It was crazy, because some days I might forget a personal item, and the staff would be embarrassed. The receptionist would say, "You left your bra in the ladies' room."

After six months of living like this, my mother was disgusted that I wouldn't just throw in the towel. But when you spend the majority of your time at a job, it really does become your life. People are always saying that you've got to separate. I've never been able to do that. My job is my life. My job is my family. If I was going to be there until midnight, why not just sleep there and not travel? It saves gas money. My mother took pity on me and sent me $5,000, and I purchased a portable bathroom. It had a shower.

I developed a habit that used to drive a lot of my lenders and creditors crazy, but I recommend it to young entrepreneurs. If I owed you $10,000 and didn't have but $3,000, I'd send you the $3,000 that month with a note saying, 'I don't have the other $7,000.' I made partial payments on every one of my bills each and every month. It built up my credibility with lenders. I also tell new entrepreneurs, Don't hide from the phone calls and the letters. The minute I knew that one of my lenders or one of my creditors was on the phone, I immediately stopped what I was doing and went and had a discussion with the person.

The way out of it was to build up the audience and to get better at selling ads. All my advertising clients were what they call "retail." I didn't have any of the big clients. My strategy for selling retail ads was that every Saturday morning I'd take $100 and hit ten businesses, and I would spend $10 at each business. It's a lot easier to get a small entrepreneur to talk to you when you just finished ringing his cash register than when you try to take something out of his cash register. With that $10 I would buy something for my staff. So on Monday morning it was almost like Santa Claus at the station, because they would all come into my office to see what I had bought.

My listeners trusted me, so I was really able to deliver. Once I started getting big customers, it was much harder to show you were delivering, but I would do it. How does Cadillac know I sold 100 cars for them? When the only black dealership in D.C. advertised with me, I would sponsor clinics for women, to show them how to change a flat tire or change oil. And sometimes 200 women would show up, and the dealership would know I sent them. I did this with all sorts of my advertisers. The more I gave back, the more my company would receive in return. And it worked great.

It's so embarrassing, but the moment I started making money I called up my accountant, and I cursed him out. I was in a bad mood, so I called him and said, "Listen, as much trouble as I've had, you've sent over this financial statement without the brackets." I was accustomed to seeing brackets, showing a loss, on every report. He laughed and said he knew this was going to happen. There was no loss, because the $3,732 was a profit. I asked if he was sure, and he said he was. I sat there at my desk for a moment and then called him back and apologized.

I kept waiting for the loss to come back. I didn't realize that I had turned the corner until we went public in 1999. At the time, I was the only African-American woman to head a publicly traded corporation. I remember the USA Today headline: RADIO ONE, IPO IS GOLD. The stock just skyrocketed.