Getting a Purchase on Inventory
How I Did It
The entrepreneur: Chris Martin, 47, owner of Martin Guitar Co., based in Nazareth, Pa. The business has annual revenue of $77 million, Martin says.
Against the grain: The "tone woods" that make a Martin a Martin -- mahogany, ebony, rosewood, and spruce -- are now scarce. Existing trees are covered by environmental protection and replanting began only recently. Meanwhile, acoustic guitar sales hit $440 million last year, up from $200 million in 1992. This obviously complicates Martin's purchasing and inventory, so he has responded by:
1. Cozying up to his bank: Because Martin buys up tone woods whenever they become available, he has arranged to borrow up to $20 million without renegotiating his credit package. "It's a lot of money but not too much money for them, given their performance over the last decade," says David Kepler, of First Union/Wachovia in Allentown, Pa. Martin won his bank's esteem by improving once-contentious labor relations, and by divesting acquisitions that didn't pan out.
2. Setting limits: Martin says that he can tie up $17 million, or 22% of revenue, in inventory, including finished guitars and wood that's warehoused for future production. He arrived at this metric by studying the annual reports of Steinway and other public musical-instrument companies that stockpile, and Harley Davidson -- because, like Martin, the company is known for quality and its loyal following.
WHILE HIS GUITARS GENTLY WEEP: Chris Martin runs a 170-year-old business that makes guitars from expensive tone woods. Springsteen, Clapton, and Dylan all own Martin guitars.
3. Innovating: Last year, Martin debuted a well-received aluminum-topped model, which "proves that the design of the guitar is really more important than the materials," says Acoustic Guitar editor Teja Gerken. He also started making guitars out of cherry that comes from a tree farm.
4. Leaning on dealers: Few dealers wanted cherry guitars, but Martin played hardball, demanding that they buy at least one. Dick Evener of Signature Music in Lancaster, Ohio, was one naysayer proven wrong. He quickly sold his first cherry Martin. "For the buyer, it was love at first sound," Evener recalls. --Donna Fenn
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DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.