We all know that entrepreneurs rock to the beat of a different drummer. That’s how most got through this hard-hitting year. As the economy goes into recovery, some business owners are looking to turn the volume up on their efforts, to move beyond mere survival and grow their venture. To ensure longevity, their efforts need to be organized, thorough, and realistic.
S is for Success (and Strategy)
While some fault a lack of resources, and others, an inability to access opportunities, the overall (and often unacknowledged) reason that companies stagnate is their principals have neither a comprehensive outlook of their business nor a strategic growth plan. And strategy is as much about figuring out what not to do as it is about determining what to do. “Most people make the mistake of being reactive,†says Leonard Greenhalgh, professor of management at the Tuck School of Business at Dartmouth College. “They wait for opportunities to come to them. But that’s not strategic, that’s just opportunistic.†Also the author of Managing Strategic Relationships: The Key to Business Success (The Free Press; $30), Greenhalgh urges small businesses to rethink their practices because strategic growth is all about identifying and understanding the following: how the market operates; the business’ role within the value chain; who the competitors are; what the customers need; and what products and/or services the business is capable of providing.
Call of the Wild (Child)
Admittedly, small business owners have little time to work on their business, because operating it takes precedence. “We’re limited by sleep, not by opportunity,†says Marc David, 30, who is one-third of Wildchild Nation (www.wildchildnation.com), a Bronx, New York-based retail and wholesale apparel company started in September 2006. His partners are Traci Copeland, 30, and Luam Keflezgy, 31.
Available in some 25 boutiques and dance studios as well as online, Wildchild clothes are hot: Revenues for 2008 were $280,000–nearly double what they generated the first year out. And they expect to close out 2009 with revenues of about $425,000, quite a feat considering Wildchild is in an industry that has seen better days. Contributing to its growth are retail deals, social networking, and increased exposure (product placement on MTV’s America’s Best Dance Crew and Made series, and in the dance film franchise, Step It Up).
Digging deeper into this niche, Copeland, Keflezgy, and David launched Threader (www.threaderstyle.com) five months ago. Designed as an online marketplace, Threader currently offers a selective group of clients like notable dance crews and choreographers production and/or distribution channels–the same ones as Wildchild’s–in which to produce and/or sell their merchandise. Orders are added with Wildchild’s current production line, which provides their clients with a centralized, reasonably priced portal to bring their products to market. As the parent company, Wildchild receives a percentage of Threader’s sales; in its first three months, Threader generated $5,000 in revenue.
“They’re using what they’re good at doing–their part of the value chain–and generating more revenue off the same set of fixed costs, which is a good thing,†says Greenhalgh.
Greenhalgh says the sooner small businesses know their position in the value chain, the sooner they can function optimally within it. For Wildchild, the chain starts with cotton, which gets made into thread and then fabric to produce the clothes. But Wildchild’s position isn’t manifested until their design is placed on the product, and that’s also when value is added.
“Wildchild is in the
design business,†says Greenhalgh, who is also the director of executive programs for minority- and women-owned businesses at Dartmouth. “I don’t care what industry you’re in, you need to understand what the whole value chain is about, which customers are willing to give you a high margin. And ask yourself, ‘What value am I contributing? Where do I want to be in this value chain? Where is the money?’â€Chain of Command
It’s one thing to know your place in the value chain and another to know when it’s time to expand. Wildchild watched the industry wane as the recession took hold, limiting funds and resources. Threader is considered a counterstrategy, but with a lack of expert guidance and capital, a small business like Wildchild may have done itself more harm than good.
“A lot of businesses want to be able to capitalize on the opportunities that come their way once they get to a certain point, but sometimes you really shouldn’t,†says Maisha Walker, founder and president of Message Medium (www.messagemedium.com), a marketing firm in New York City that helps small businesses increase their exposure through the Internet. “You’re facing those challenges because you’re spreading yourself too thin. Most times in these organizations, it’s not so much a resource problem as it is a strategy problem.†Walker suggests Copeland, David, and Keflezgy choose between the two, leaving one for investors to independently run or to sell off for capital.
Jerome Edmondson, senior partner of the Atlanta-based small business consulting and development firm Edmondson Associates (www.edmondsonassociaties.com) and author of Maximizing Misfortune (Destiny Image Publishers; $15.99), agrees. With little to no time to market, search for capital, or seek investment opportunities, a company attaching itself to another business process before the initial one is solidly established is a “recipe for failure,†he says.
Threader generates some revenues, but not nearly enough to justify the hours that Copeland, Keflezgy, and David, along with two other full-time employees, put in to run both ventures (the trio puts in more than 70 hours per week each). All three realize that one staff juggling two businesses isn’t ideal, and believe the solution is an injection of capital so they can hire more people and amp up inventory. Keflezgy explains: “Funding is the necessary next step in the evolution of Wildchild and a critical one.â€
Costs Versus Risks
Timing is everything, but whatever the industry, you should constantly be in a new product developing stage, says Greenhalgh. While you’re profitable now, you need to be investing in what’s going to be profitable tomorrow.â€
A good rule of thumb for small business owners–and what Wildchild has done well–is to choose a venture aligned with the company’s core skill-set. This keeps costs down while minimizing risks. This doesn’t mean you shouldn’t venture into the unknown. But know that all products and services have a life cycle, making cash flow management imperative. In developing a strategic plan for increasing business volume, it’s best to launch new products and services based on customer needs and a company’s ability to penetrate the market in staggered succession.
The Quest for Capital
No expansion can take place without adequate funding. In September, Wildchild secured a low-interest $35,000 loan from Seedco (www.seedco.org), a New York City-based nonprofit that provides financing to small businesses. The money went toward inventory and was a huge help, but the company still seeks $1 million to $2 million in funding. “We’ve got the potential to grow to mass market,†says Copeland. “But just getting over that hurdle takes serious financial backing and capital.
To secure additional funds, Edmondson recommends calculating a specific amount rather than a range. “You should be able to look at your financials and say, ‘I need $1,327,000 to grow my business,’†he asserts. “Know down to the penny.†To maximize the chances of getting a loan, Edmondson recommends identifying financial institutions that lend to similar businesses.
He also urges entrepreneurs to leverage their business relationships. When speaking to lenders, “outline these entities and include a financial profile of what you have monetarily done with each and what more you could do if you had the capital injection.†Estimate the value of successful partnerships–even if they aren’t a direct revenue generator–to prove to potential lenders or investors that your business could add value to their portfolio as well.
The Open Wild
While it’s too soon to say whether the launch of Threader will ultimately pay off for Wildchild, its core business–the clothing lines–continues to make strides. Their marketing efforts are also on the right track, says Walker of Message Medium, and they are currently working to develop an advisory board.
“It always starts with the customer and satisfying their needs,†says Greenhalgh. “You don’t just grow for the sake of growing. You grow because there’s a revenue stream to be captured, which means there’s customers out there whose needs you can satisfy that will do business with you to feed this enterprise. It starts with that, and the rest is making it happen.â€
This article originally appeared in the November 2009 issue of Black Enterprise magazine.