Jenny sells 10 pairs of shoes made to order for $1,000 each. For Christmas, she could sell 50. She gets the shoes from a supplier who told her that if she wants him to produce 50 pairs of shoes, she needs to give him $15,000 to buy the raw materials. Jenny doesn’t have any cash.
Her Marketing friend recommends she asks her family for money. She is worried. There is a chance that she will only be able to sell ten pairs, be forced to keep the other 40 in Inventory for months and be unable to pay back her Friends & Family.
Her Finance friend recommends to borrow from a bank or the Small Business Administration (SBA). He is also willing to give her the cash she needs if she agrees to share all profits. He says that is called Equity.
What would you recommend her to do, to borrow $15,000 from a bank or get an investor? Think of your response from the point of view of a bank or an investor first, and then Jenny’s.
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If I were Jenny I would prioritize the new customer with this being her only time to have this opportunity. This leads to more customers and more opportunity to sales and profit growth. Assuming she discounted current customers, it’s’ unfortunate but she can potentially smoothen things out with the current customers by delight and incentivizes them with a small discount on their next purchase to help drive additional volume, and maintain strong retention relates. At the end of the day, her customer base has grown with should lead to improved market share, sales and additional consumer insight data to use for marketing plans.
Jenny should also take cash. It will provide the opportunity to target and engage with a larger audience. It also provides a more inclusive, relevant way to execute transactions.
I would start analyzing old clients data to understand their customers habits in purchasing new shoes and will establish kind of a loyalty program to inform them about the seasonal opportunities . Based on these informations I can make sure my old clients interested in buying will be able to. And then I will focus on new clients to expand my market reach and diversify my customer base.
From a banker standpoint I would recommend her to take a loan as the amount is not that big and that she can overtime pay it back. I will only advise her to borrow money from a freind if the bank refuses to finance the loan.
I suggest that Jenny take out a loan from the bank and keep her inventory low and prioritize selling through the inventory.