More from Suzy Batiz, StartupNation community success story. She made over $1 million in first year revenue for her Poo-Pourri product line. Read what Suzy shares below in Part 4 of her advice to fellow entrepreneurs who want to break a new product onto the market. In Suzy’s words:
How can you grow without an influx of cash?
The hardest thing for a company to do is start up with little money much less grow without a lot of financial backing. This was a position I found myself in from the get go. It is extremely hard to get loans on unproven businesses so “bootstrapping” ends up being the only option in most cases and was definitely the only option in my case. Not qualifying for startup loans and not wanting to give away any ownership in the company also placed me in a tight operating position. Most business experts will tell you to keep as much ownership as possible in case it does grow to be a multi-million dollar company and goes public; you want to have all the shares you can in order to maintain some control. Many, many startups end up with none of their business after investors and venture capitalists get a hold of it. In addition, if you ever do need an investor they want to know that the ownership is solid and with few partners to deal with, with sole proprietorships being the most appealing to a potential investor. Giving away my company after all this work was not something I wanted to do.
Therefore, it took some strategizing. First, I knew there had to be a high ROI (at least 500-700% markup from manufacturing costs to retail price) even though I was a few years from the major players that would eat up my profit, I knew this would give me a huge jumpstart in the business financially. Secondly, I could not incur large overhead expenses so I operated out of my house for the first year. Even when we started growing and added an assistant and shipping manager, they came into my house a limited amount. Having them out of the house and working with their own equipment kept them within the contractor guidelines so we were not obligated to pay outrageous employment taxes. Thirdly, I kept very good relationships with my vendors. Developing these relationships with the vendors was a great investment of time and energy. When I needed them, they were there for me. Fourthly, using stock bottles from suppliers alleviated the need for me to stock them, which freed up cash. Lastly, taking very little out of the company for myself, almost every dollar made rolled back into the company. My family had a meeting and decided to cut expenses so we could operate without my salary knowing this was an investment in our future. It was a family decision and we went for it knowing the first 2 years was going to be tough.
Do not get me wrong it was not all a perfectly planned bed of roses. There were still the 3 a.m. cold sweat, panic driven awakenings many nights but looking back, I can tell you it all worked out perfectly and would not have done it any other way. At every corner, I had no idea how the next step would be…would we end up ok or was this the big fall? Every move was risky and had to be done deliberately and boldly in order to achieve my goal of $1 million the first year, $3 million the second year and to sell out for $10 million in the third year. (Note: We are still in year two but we are on track so far, only time will tell). For instance, we had had average success in about month 6 of operations but the product was gaining ground. We still did not have enough dollars for inventory and we were approaching the Christmas season, which is the largest for most wholesalers. Knowing that our stores would not wait 4 weeks for an order to turn during the Christmas season nor would they pre-order a lot until they saw how the product sold, I had to do something to beef up inventory being against a wall of opportunity with nowhere to turn I looked to my suppliers. I called the manufacturer, which is the main supplier and explained the situation honestly asking if they could increase my credit line for the Christmas season (keep in mind I had no credit with them prior but had been nurturing the relationship for months now). They had a meeting and to my surprise, gave us a credit line larger than I could imagine! Not only did they increased the line, they asked if I could send extra bottles that they would make product and store it for me and not bill until they shipped it! This was amazing!
Feeling a bit like Rocky after a knockout, I used this information of the increased credit line with my other suppliers who also upped our limits and another vendor offered the same deal; if I committed to producing the goods, they would make the product and warehouse it, billing only after shipping! Our manufacturers were now investing in our company and that’s better than any bank!
Finally, we had the capacity to produce goods and sell them without a loan! We flew through a profitable and successful Christmas season. Then the January shows came and there was no way of knowing what was coming. We had the fortunate luck of one of our vendors standing up in front of 600 other store owners at a breakfast meeting in Atlanta. Little did I know this was to create a frenzy over the product like very few vendors have seen. Within a few days, we had over $200,000 in new orders and several markets still to go! The next dilemma presented itself: how could we produce the goods before we shipped (our customer pays when we ship) Again, I looked to my suppliers, which rallied up and started production right away. We successfully wrote and shipped over $500,000 of orders (to mom and pop gift shops mind you) in a 2 month period.
Next, we caught the attention of several international distributors, which is amazing being so young. All the international distributors wanted discounts and terms (up to 90 days to pay). After negotiating, I upped their discount for upfront payments and buying in volume by the pallet load, they had to purchase all marketing material at or above my cost; none was free. Also, remember with our markup we had the profit margin to negotiate and still maintain make money on the deal, this is why reducing costs is important from the beginning.
The next logical step was to strengthen the company financially. So while I was at the shows I spent a lot of time not just selling the product but also asking other vendors questions about things like how they carry accounts, how factors work, etc. During this time, I found a factorer and was able to work with them. They charge a flat non-recourse 4%. They buy the invoice and pay me everything when the customer shipped less the 4%. To some financial experts it is considered expensive money but to me, it cheap! I have 96% of the money upfront and remember we had the profit margins built in form the beginning…Beautiful! Currently I have looked into Purchase order funding just in case we get hit with the major vendor orders. Also in preparation of this next step we are looking into outsourcing fulfillment. This will enable us to ship large vendors. Major vendors are notorious for having very strict guidelines’ and your profit can easily be eaten up by errors in freight. Seriously most major vendors have shipping binders with guidelines that must be adhered to or you will be fined for each error on your bill. I have heard of nightmare stories where manufacturers invoiced $120,000 and ended up getting paid only $25,000 after all the penalties were figured. It can break you very quickly.
So my advice is to be strong, think positive, plan for the worst, hope for the best, be honest and aggressive and partner as much as you can with all your suppliers.