bankers | The Barefoot Spirit

3 Ways to Get Your Vendors to Reduce Your Need for Cash

Michael Houlihan & Bonnie Harvey — Thu, 19 Jul 2018 17:00:03 +0000

When we talk to young startups these days, we repeatedly hear them asking for the same thing, “Cash!” It’s true that a certain amount of cash is necessary for any startup. But when we press them and ask if they have taken full advantage of their hidden resources, they look back with vacant stares. Most have never thought about utilizing their hidden resources. Or worse, they don’t even know what their hidden resources might be or where to look for them.

Sure, we refer to them as “hidden” resources because they are not necessarily taught in school. Nor are they heralded by the entrepreneurial press. On the contrary, young people today are inundated with the idea that they can’t start a business unless they raise tons of cash. They are being told that they must borrow huge sums, take in large investors, or trade their equity for VC money. In fact, there’s an entire industry based on this premise.

We’ve seen startups who raise tons of cash tend to spend tons of cash in a “burn rate” that is often unsustainable. The cash itself seems to discourage resourcefulness. “Why scratch around for resources when you’ve got all this cash?” Never mind that you can achieve a positive cash flow before you burn it all up. Never mind that there were critical lessons you should have learned by starting out smaller and slower that would help you grow faster and bigger with a more solid understanding of the cost of sales. “Just give me the cash!”

Scaling Fast

The VCs want you to “scale fast and fail fast.” They are betting on 10 or 20 businesses just like yours. They’re playing a cold, detached, numbers game. They just need one unicorn in 20 to hit the jackpot. They expect to lose on the other 19. Why be in the other 19?

You don’t need to scale fast to be successful. You need to understand the cost of your own success. What happens if you scale fast and then find out that your products or services demand customer service that you are unaware of until you got out there? But now you’ve burned up all that cash the VC gave you and you can’t afford to service what you’ve sold.

How to Use Vendors as Bankers

Undercapitalized businesses are forced to grow slowly. In that process, they learn the true costs of sales. They also learn how to finance their expansion through cash flow management. But the most important thing they learned is how to use their vendors as bankers. These are your hidden resources.

Instead of borrowing the cash to pay your vendor, you get the vendor to buy into your integrity, your loyalty, and your growth plan, a plan that includes increased sales using their products and services. If they do, they will see you as a “partner.” This doesn’t happen overnight, but it’s a relationship that can be built by your behavior toward them.

1. Warn them before you miss a payment.

When you see that you can’t pay your bill on time, call them with advanced warning. Show them empathy for their position and the risk they’ve taken with you. This builds trust.

They have bills to pay and must use your funds to do it. Nobody likes a missed or late payment, but it’s way better to get a warning call in advance with a payment plan to become current, than to chase down a deadbeat. Put yourself in their shoes and treat your vendors the way you would like to be treated.

This behavior sends a message that you are the type of client they can trust. You have their interests at heart. They will extend credit and terms to a company like yours because you have mitigated their risk.

Extended credit and terms are the same as cash, cost less, and don’t require you to give up equity.

2. Consider a long-term contract.

Your vendors don’t want to work with you on extended terms and increased credit limits to build your business up just to have you take it away from them. They need some surety that they will see a return on their investment. A long-term contract will give them the confidence that you will stick around long enough to validate the risk they took “financing” your growth.

3. Have regular progress meetings.

Whether they ask for them or not, hold regular meetings where you update them on your immediate and long-term plans. Get them to buy into to your roadmap. Share the challenges that you face and the growth in business you both could have if you work together.

There will be times in your growth when you need more of their goods and services to take on a new big client that can result in increased income for both parties. If they see it coming, they can plan for it. They can make special allowances to help you land that big fish. They’re pulling for you!

Who We Are

Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.

Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.

They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.

Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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7 Ways to Reduce Your Need for Capital

Michael Houlihan & Bonnie Harvey — Wed, 11 Nov 2015 17:28:09 +0000

Happy Veterans Day, everybody! Today, November 11, 2015, it is our honor and our pleasure to speak at the first annual Vets Rock event at Mohegan Sun in Connecticut. What would we share at this keynote event with more than 100 veteran-owned businesses that would be of the greatest value to them? What lessons have we learned, often the hard way, in our own business experience that they could use to improve their own businesses – tomorrow?

Of all the challenges aspiring, launch and growth-phase entrepreneurs face, the top has to be capital, or should we say the lack of it. The key to success of any business is simply making more money than it costs you to stay in business. So we decided to share how to reduce the need for capital in the first place.

Here are 7 tips that worked for us:

Discover Your Hidden Assets. What do you already bring to the table, and what can you find if you look with expectant eyes? Discover how you can repurpose something you have for something you need. Be resourceful. Solve problems creatively. We used a door for a desk and a laundry room for an office.

Identify and Work With Your Strategic Allies. Those who succeed if you succeed are your strategic allies. Learn how your products or service benefit your customers, suppliers, and the community. Find a small company you can work with that is poised to grow, and grow with them. We provided a small company called Trader Joe’s with a fun California product and together we spread across the country.

Use Your Suppliers and Buyers as Bankers. Treat your suppliers like business partners. Enter into long-term contracts so they can see a future with you. Keep them up to date on your progress, challenges and opportunities. Notify them in advance when you will be late on a payment, and show them how you will get current. Then ask for extended credit to expand your business and increase your purchases from them. We offered our buyers quantity discounts for cash.

Pay for Performance. Discover the metrics that demonstrate sales, growth, and profitability, then reward your people for achieving those goals. Keep the bonus period short term, such as every month or every quarter to keep the goals active and achievable in their minds. We matched our people’s 401K either 50%, 100%, or 150% based on quarterly achievement.

Outsource (Locally) Everything but Sales, Quality Control, and Accounting. Don’t invest in a ton of bricks and mortar or other overhead that require monthly payments whether you have sales or not. Try for just-in-time production and avoid holding large inventories. We outsourced production but held our producers to a set of quality specifications in a contract.

Reduce Turnover. The #1 hidden cost in any business is turnover. It can result in the loss of your company knowledge, supplier relationships, and even customers. The key is to hire, orient, train, and compensate properly. If you are paying your people right, the producers can’t afford to leave and the non-producers can’t afford to stay.

Reduce Your Cost of Advertising. Think about your customers as belonging to a community which is interested in more than your product. That community has needs and cause-based groups that work to satisfy those needs, such education, conservation, human rights, and support of the arts. By supporting community fundraisers and non-profits , we gave their members a social reason to buy our products.

These 7 tips can help anyone who runs a business, and we are happy to give back to our vets by sharing these lessons with them today, Veterans Day, 2015.

Who We Are

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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How to Use Your Suppliers as Investors to Reduce Your Need for Capital

Michael Houlihan & Bonnie Harvey — Thu, 15 Oct 2015 17:00:13 +0000

Nobody likes to get bills. They seem unending and chew up your monthly income as fast as it comes in. It’s probably the scariest part of starting a new business. You begin to realize that the bills are due no matter whether you have the funds to pay them or not. Many businesses fold simply because they can’t pay their bills. Many that survive find they can’t expand without a big cash infusion that may cause them to lose control of their own company. Is there another way?

When you are new in business this is especially trying. You find yourself playing catchup almost immediately and it can take years before there’s anything left you could conceivably call “profits.” For us it took 10 years to really get ahead! Why? Because we were growing and everything we made went right back into growth. Sound familiar?

But we found something surprising about all those bills. We discovered that there were several vendors we had who depended on us for their own growth! They actually wanted us to make it so they could sell us more and send us even more bills!

Take another look at your vendors and suppliers. Who’s getting the most money out of you each month? If you succeed do they succeed? Shouldn’t you be strategic allies? How can you make them increase your credit and lengthen your terms so that you can better afford grow, and, in the process make them a lot of money? Answer: TRUST. That’s right, they have to trust you!

They have to believe that you will stick around when you get bigger and don’t need them anymore. They have to believe that you will pay your bills on time. They have to believe that you will notify them as far in advance as possible when you can’t – with a plan to bring your account current within 30 days. They also have to believe in you, your product, your management and your growth strategy.

What would make them believe in all this? How about quarterly meetings where you outline your progress, your challenges and your plans? How about long-term contracts? How about treating them like a real partner with updates and opportunities?

This isn’t going to happen overnight. It will require some seasoning, where, over time, your consistent behavior earns their trust! It took us years but eventually our supply companies, vendors and bankers all extended our credit and terms enabling us to reduce our need for capital and grow on our cash flow. Sure there were times when we were unable to perform, but because they believed we had their best interests at heart, they were lenient. They’d seen how we handled the same situation in the past. They judged us not by how well we paid when we were on time but by how fast we became current when we were late!

Maybe it’s time for a meeting with the vendors and suppliers who send you your largest bills. Find out what it would take to get them to extend your credit. Usually they will have a performance plan whereby you prove over time that you are worthy of more credit. Go ahead and prove it! It’s a whole lot cheaper than a loan, you stay in control of your company, you reduce the use of your interest-bearing line of credit, and you forge a long-term alliance with a supplier who has a special interest in your success. Yes, it’s sort of like what the pioneer said, “Thar’s gold in them thar bills!”

Who We Are

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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