Category: Sales

You’ve probably never heard of Worcester Polytechnic Institute near Boston. But, a lot of big-name engineers and tech companies regularly recruit WPI graduates. They welcome the students’ well-rounded education, and the fact that many of them take classes in management, business, and entrepreneurship.

Recently, we participated in their executive speakers series. We spoke about the three central proficiencies of entrepreneurship: Cash Flow Management, Personnel Management, and Distribution Management. We shared lessons we learned while building the Barefoot Wine brand—lessons that we think all business must master to be able to endure and prosper.

A lot of entrepreneur wannabes fear loss of control or failure of their business due to lack of money. They’re aware that many startup businesses collapse because they’ve committed too much before seeing positive cash flow.

But what they actually need is sales! Sales earn investments in equipment, personnel, and real estate—not the other way around.

When we spoke about Cash Flow Management, we offered this advice to avoid preventable costs, and further the runway until sales take off.

Keep Minimum Inventory. Aim for at-the-moment production. Even though you’ll be tempted to reduce cost through buying in bulk, holding onto unsold inventory can be expensive, and can eventually get your company in trouble. Quantity purchases must be justified by sales volume. So, find suppliers who will keep goods in the warehouse until you need them. And offer quantity discounts to buyers for cash to boost positive cash flow. We’ve learned that buyers sell big when they buy big—and they reorder quickly!

Utilize Hidden Assets. Do you have an unused room or garage you could use as an office to get started? For our first two years, we used the laundry room. Maybe your family members can help out here and there. Bonnie’s nephew and mother lived and worked with us. How can you reorganize and optimize your workspace? Our desk was an old door on two sawhorses. This gave us a cushion for the surprising cost of sales needed to get our company off the ground, as you will discover very soon.

Extend Your Terms and Credit. Think of your vendors as strategic partners. Benefit from each other’s growth. Gain the trust of your suppliers through consistent meetings where you share opportunities, challenges, and goals. Be empathetic if you’ll be late paying your bill by giving vendors advance notice and a payment plan to make it up to them. Develop a long-term agreement so they plainly see your loyalty. Just be patient. Over time, your positive performance will earn you the better terms and higher credit limits you’ll need to save your cash flow.

Outsource to Local Service Providers and Producers. There are companies right in your region that can help out with many goods and services you’ll need. And you can pay as you go, removing the need to tie up capital in office space, manufacturing, or hardware. If you create your contracts the right way, you don’t even need to accept delivery of any product that doesn’t match your quality control guidelines. We found success without ever owning a vineyard, a winery, or an office.

There are so many ways to accomplish positive cash flow in your early days. These are just a few that worked excellently for us. And, if you’re fortunate enough to have investors, they’ll be at ease when you display resourcefulness by reducing the need for cash.

For more, read on: http://c-suitenetworkadvisors.com/advisor/michael-houlihan-and-bonnie-harvey/

Last week, Yitzchok Saflas hosted myself on the Mind Your Business radio show in New York on 77 WABC. Michael was honored to be in such great company—Yitzchok’s show is ideal for anyone who wants to hear from the best business minds of our time. This radio show is also number 5 in the top 10 Nielsen ratings. You can check out my interview online here: http://www.mybradio.com/michael-houlihan/

The show covered many topics when it comes to building a startup business, including “How to get from ideation to monetization,” and one of my absolute favorites, “How to decipher the true cost of sales.”

Many startups already understand cost of goods, or COGS. This is the cost to create, develop, or manufacture whatever it is you’re selling. Your budget will have a COGS line.

Other expenses could be lumped into the general budget, or maybe even “overhead”. We think that is, by far, the biggest mistake that startups can make. It could lead to a ton of misconceptions that can close your doors forever. The cost of doing business depends on the territory. Selling costs, including promos, shipping, tax, representation distribution management, and many more, could vary greatly depending on the market. We see many startups underestimating the true cost of sales in each market—not the cost of goods. This is a fatal mistake!

We knew there would be promotion, advertising, and merchandising costs involved when we started Barefoot Wine. But hotels, meals, car rentals, airfare, taxes, freight, sampling, salaries, and expenses—we definitely weren’t ready for that. We learned about those costs the hard way.

The good news: Since our product sold quickly, it completely sold out. The bad news: After it sold out, it wasn’t reordered. It stayed out of stock because we didn’t have someone in each territory looking for our brand. We were floored!

“So, even when distributors and retailers have a hot product that sells quickly, they won’t reorder it automatically?” we complained. Their behavior said everything we needed to know. We had to pay to have a representative in each territory, or else it could run out and never be reordered. This is a huge cost of sales. We wished we knew this when we started! It wasn’t enough for us to get in the store—we had to pay more to stay in.

There was one big Midwest chain that wanted to put our product on a promotion for $5.99 in 5 states. We were so excited! It would be a slam-dunk, we thought. But, as Bonnie recounts, “It was just a slam!” In order to get the sale price in two out of those five states, we had to lose money on each and every sale. The taxes were higher in those states than the others, and so was shipping and handling. So rather than making a killing, we were killed—completely by the cost of sales.

One of the final questions I was asked in that interview was, “What advice would you give new startups today?” I replied, “Start in a small place, learn from your mistakes locally where you won’t fatally hurt your brand. Learn the cost of sales. Hire a cost accountant to analyze those costs ahead of time for each expansion scenario. Then, ‘All ahead slow’ with your eyes wide open and your notepad at the ready. You might find out it’s cheaper to do business in South Carolina that it is in New York!”

For more, read on: http://c-suitenetworkadvisors.com/advisor/michael-houlihan-and-bonnie-harvey/

It always hurts to hear a brand-new “wantrepreneur” discussing their first steps when going into business. They typically say, “Well, if I’m going to go into business, I’m going to need to get an office, a production facility, and a warehouse. I’m also going to need a new car, a new truck, new furniture, and new machinery. Oh, and I’m going to need a full staff.”

For some reason, they think their success is based on acquiring those items. They love to hear about how similar startups get funded. Presumably, the main reason for all that funding is to support the massive overhead, instead of using income from sales. This is known as a “burn rate”. The goal here is to get the business started with enough money to pay your bills until sales “take off”, also known as a “runway”.

We can’t help but cringe when we hear this. Yes, businesses will eventually need these things, but until the buildup phase is complete, they will rack up monthly costs and are a giant millstone around their necks, weighing them down while they’re trying to push upward and achieve positive cash flow. As if it isn’t hard enough already! Putting precious time, energy, and money into building out a business before we even have positive cash flow? NO!

A few startups might know that sales will be the hardest part. They fear it takes too much energy for too little return, especially at first. They can put that to the side and do something that “shows”, like spending the cash on overhead and assets. Some other startups could simply underestimate the focus, energy, and time it actually takes to make a sale happen.

What’s plain crazy to us is how easy it is to borrow money when hard assets are involved. This lax lending policy tempts businesses to wear that millstone. It’s almost like investors and lenders believe they can take the assets back if you default. Even if they can, they’re difficult to move and won’t be able to return the cost in full.

Investing your time, energy, and money in staff and bricks and mortar could distract you from your main objective—sales! The majority of this stuff can be outsourced anyway. Once you get rid of your monthly millstone, you may realize you don’t want to drown yourself with overhead and assets, and instead put more energy into sales. We think that sales earn these assets—not the other way around.

When Barefoot Wine started, people asked us, “Oh, the wine business! Where are your vineyards and how many acres do you have?” We simply responded, “None! But we have sales – lots of sales!”

We couldn’t secure financing when we started, so we had to make sales early and often just to keep our heads above water. We couldn’t afford a millstone around our necks. We had no runway. So, to compensate, we outsourced everything we could. Now, we recommend this “beyond lean” startup approach to our clients.

We think you can outsource just about everything except accounting, sales, and quality control. When you do the sales yourself, especially to get your business going, you develop a deep respect for the customer and how your goods and services fit into the market. As you grow your company and train your own salespeople, this will be a priceless experience.

Accounting in-house is essential. Your numbers must be available now! You can’t wait weeks to see what’s happening in your business today. It’ll be far too late! The business plan you spent so much time creating is now replaced by a cash flow report. And cash flow management is a critical startup skill.

Yes, you can outsource production, but it isn’t possible to outsource quality control. Someone in your facilities needs to ensure quality. In your production contracts, you must specify all the necessary requirements before you pay for these goods and service. And you must specify in great detail.

But mostly everything else can be done by somebody else. In a lot of cases, maybe even better than you could do it yourself. Don’t crush your business with overhead, with bills hungry for your precious cash. Get the hardest job done first—sales! You’ll be shocked by how many vendors come out of the woodwork to help keep those sales going. After all, your sales pay their bills.

The next time a “wantrepreneur” shares their startup plans with us, we’d love to hear, “To get started, I’m outsourcing everything except for sales, accounting, and quality control!”

For more, read on: http://c-suitenetworkadvisors.com/advisor/michael-houlihan-and-bonnie-harvey/