In order to build a viable business, you need to exercise sound inventory control.
Norm Brodsky is a veteran entrepreneur.
Dear Norm, Seven years ago, I started a T-shirt company as a hobby, but I became more serious about it when I saw how well people responded to my designs. Sales grew quickly. Figuring I could sell more T-shirts if I had them in stock, I began using my credit card to increase my inventory. Big mistake. The inventory did not move as fast as I expected. Now, the income from the T-shirts is barely enough to cover my credit card bill each month. I have ideas for new lines I'd like to release, but I don't have the money to pay for them. I feel stuck. What should I do?
Every start-up has the same goal: to become a viable business. By viable, I mean that the business can sustain itself on its internally generated cash flow. It does not have to rely on outside sources of capital to pay its bills.
Often, however, your first idea about how to reach viability doesn't work. When that happens, you need to change your model. Aaron Castellanos was at that stage, although he didn't know it. He thought his problem had to do with his decision to use his credit card to increase inventory. His real problem was his business model, which required him to have inventory to begin with.
The first step was to get rid of the old inventory that wasn't selling and use the cash to pay down his debts. I told him that, if he searched online under sell excess inventory, he would find dozens of services catering to people like him. Then he had to figure out a way to avoid winding up with the same problem in the future. That would mean printing only as many T-shirts as he could sell. I suggested he think about changing to a print-on-demand business model. For example, he could raise the $1,000 to $5,000 it would cost to buy his own printing machine and then print shirts as needed. Or he could do that in partnership with someone who already owns a printing machine and isn't using it all the time. It can be a way for that printing business to deal with its own excess capacity. Aaron said he would think about it. In the meantime, he'd focus on reducing his excess inventory and ordering fewer T-shirts in the future. He said our discussion made him realize that it wasn't bad to run out of a particular design now and then.
Please send all questions to AskNorm@inc.com. Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, is available in paperback under the title Street Smarts: An All-Purpose Tool Kit for Entrepreneurs.