Making low-cost start-ups pay off - includes a list of books and other resources for small businesses - B.E. Special Report on Small Business - Cover Story

Black Enterprise, Nov, 1992 by Caryne Brown

Warren Dobson became an unemployment statistic in 1991 when the Chicago company he worked for--a supplier of McDonald's Happy Meal containers and toys--merged with another company and dumped staff. He'd saved some money and had thought about manufacturing Afrocentric drinkware. His first product was the Kente Kup, a plastic tumbler imprinted with the pattern of kente cloth, a hand-woven fabric from Ghana. But Dobson didn't go out and buy a factory or even rent one. He comparison-shopped among vendors he had worked with.

"I came up with artwork and went to cup suppliers, one a silk screener and one an offset printer," he says. "One would go as low as 500 units, and the other started production at 5,000. My initial investment was in low-volume production (1O[X) units per design), Which a manufacturer would normally use just to test a design. Basically l knew I would be selling at a less, but if the design was proven, I would go into production."

It was now October 1991--ordinarily too late to get in on Christmas-season sales. He had already spent about $5,000 to get his product to this point. But Dobson Products didn't lose a dime. When the Kente Kup's first production run sold out in three weeks, Dobson quickly carried the kente print to a coffee mug and sports squeeze bottle. Then he added paraphernalia of the eight major black fraternities and sororities, where he merged the African pattern with the organizations' own identification. He marketed this line to boutiques, black bookstores, gift shops and by taking booths at Jerry Roebuck's Black Expos and at fraternity conventions. "We sold over 10,000 units," he says of his first few months of operation.

His second bestseller--a Kwanzaa Kup, marketed to retailers through the Kwanzaa Expo in New York--came out in December 1991. Within three weeks, Dobson sold 7,500 units. Initially, he projected $60,000 in first-year sales but now believes he will reach $100,000 in sales by the end of 1992. He's still made no plans to buy or rent a factory, but he is now hiring four people to follow up on new-order inquiries.

The Challenge Of Success

Lack of cash can limit business potential, no doubt about it Roebuck cites a typical case. "Let's say a buyer from CVS [a national drugstore chain] wants to do a promotion with your product and wants 100,000 units to ship to all their stores. If it costs you a dollar to make your product, do you have $100,000 to take advantage of that national distribution? I've seen people not being in a position to take advantage of that offer. The problem is th at it happens so quickly they can't respond to it. You have to have some capital available."

Inability to respond to an opportunity is the worst problem a cash-poor business can have. One solution might be to take the purchase order to a bank and apply for a short-term commercial loan to finance production. Another potential solution, according to Goldstein, is to use a factoring company, "which will pay you upfront, while holding back a reserve for bad debts." Both of these options, of course, involve expensive fees and interest charges.