Buying Small Lots → Buying Pallets → Buying Truckloads → Securing Direct Contracts
Since the industry is a volume business, it requires significant assets to grow. The capability to secure and process large volumes quickly, is made possible by assets owned by the company in the form of warehousing, equipment, technology, staffing and bankroll. A business’ ability to provide these assets either has to be built up over time from the business’ profits or from well-capitalized funding at start-up. Some of the assets that a business must bring to the table are:
- Large areas of square footage
- Staff to process the inventory
- Equipment to be able to move, process and store the inventory
- Logistics capabilities to move the product in and out of the warehouse
- Technology requirements for receiving, tracking, processing and selling the inventory
- Large network of both suppliers and customers
- Large bankroll to buy volume deals, enter contracts, and show ability to pay
- Leasing too large of a warehouse
- Entering too long of a lease term
- This can cause problems both from over-extending size requirements to out-growing the square footage faster than the lease term.
- Being under-capitalized for the attempted speed of growth
- Risking too large of a percentage of the business’ cash on a single purchase
- Purchasing inventory too fast and losing control over the business’ growing inventory
- Entering a contract with a retailer too soon
- Growing too fast without:
- Diversified set of sales channels
- Diversified supplier base
- Diversified & large customer base
- Slows down the sell-through of product and causes a significant increase in the cost of carrying the product. As one of my mentors stated, “We are in the wholesale business, not the warehousing and storage business.”
The consistent lack of understanding of the intricacies of this industry causes new businesses to quickly over-extend. Unfortunately, the mistakes are generally not realized until it is detrimental to the business and it is too late for a simple “fix”. Most of the work in this industry has to come on the “front-end” to avoid the mistake, not on the “back-end” fixing the mistake. Most people who are new to the industry will not have the foresight to understand what safeguards to put into place. If that is you, you should strongly consider growing your company at a slower, more stable pace than you would otherwise want to.
Without the experience in the industry, it is easy to look at the “other guy” and think that it is easy to duplicate, and even exceed, what they have done (many people have done this with bin stores lately). This business is inherently messy, which sometimes helps hide the genius of what the successful industry participants have done to grow their businesses. In addition, it is easy to listen to your customers asking you for everything you don'ßt have instead of the customer buying what you do have. Most of the customers asking for something new will never buy the items they requested once you get them, even though they requested them!
Instead of this article being a list of “do not do” or “watch out for,” it is really a warning to be cautious, calculated, and careful as you grow and make plans for your company. It is exciting to grow a company fast, but it is more exciting to have an established company that provides you various freedoms twenty years from now. Don’t rush it.