4 challenges to growing your business

Black Enterprise, Nov, 1995 by Rhonda Reynolds, Majorie Whigham-Desir

Here's a look at some major small business problems and the solutions four companies pursued

If your company has money in the bank, is current on its payments, is getting repeat business and making a profit, then you can enjoy unusually smooth sailing. Otherwise, you're headed for troubled waters.

You've heard it again and again--three out of five businesses fold. Poor management is a major cause of business failure. But the key to survival is still in sound planning. Assessing problems as they arise and learning how to solve them is critical to business success.

BE examines four challenges faced by entrepreneurs and how they were resolved.

1 UPDATING YOUR MARKETING STRATEGY

What happens when an old-fashioned elixir mixes with newfangled marketing techniques? Ideally, a rejuvenated product with increased exposure that translates into greater sales and earnings. Case in point: Painex Corp. in Detroit. The company wasn't making money because it wasn't selling enough of its product.

The family-owned firm makes Ringmaster, an over-the-counter, topical analgesic ointment that relieves muscular aches and pains. Until eight years ago, Painex's founder and CEO, Frank Sewell, sold the salve via word of mouth. Then his son, Douglas, joined the business. As company president, Doug moved away from Ringmaster's outdated sales image and started promoting it as a viable alternative to aspirin and other analgesics. His newfangled, mainstream approaches helped boost Painex's sales from $25,000 in 1987 to $275,000 in 1994. This year's sales are projected at $325,000.

Douglas capitalized on his father's original concept of documenting testimonials from a variety of users. Only this time, he took to the airwaves via infomercials on satellite television. Last year,

Painex hired a media consultant to help produce a 30-minute videotape for $30,000.

To pay for airtime, Painex gave 30% of any money generated to the satellite network. There was an additional fee for having a toll-free phone number, which cost $1,000 per month for the initial three months, with subsequent fees of $1 per call. But in mid-July, the satellite company was sold and all former schedules were pre-empted

The infomercial was a break-even venture, says Doug. "While it was a costly marketing tool, it allowed us to increase our product exposure."

The company had initially focused its marketing plan on boosting sales in the metro Detroit area by increasing the number of outlets where the product was sold. "We contacted Perry Drugs, a large local drugstore chain and a division of Rite Aid Drugs. [Perry] put the product in 70 stores," says the elder Sewell.

Instead, Painex advertised in an unlikely place: a local dance program that ran on a black-owned television station. The commercials ran on a rotating schedule and, in exchange, the station got 10% of sales via Perry Drugs, a payment method known as percentage of inquiry.

"We think younger people saw it and gave the information to their parents," says Douglas, who holds a bachelor's in business administration from the University of Detroit. The commercial generated $20,000 in wholesale sales for Ringmaster, which is sold in 220 Perry Drugs stores--soon to be 320. Painex shipped an average of 20 cases of Ringmaster (which comes in two-ounce and eight-ounce sizes and retails for $9.95 and $19.95) to Perry Drugs, generating $2,500 to $5,000 a month.

Next, the Sewells got wholesale suppliers to distribute the product. To date, the company has two individual distributors, who move 50 cases per month, and 300 independent dealers, who sell about two cases monthly.

The company also uses package inserts to generate direct mail reorders, which make up about 25% of the company's sales. Painex is now eyeing other alternative marketing outlets, including directly placing its infomercial on a major cable TV system and getting its product on the Home Shopping Network or QVC.

2 EXPANDING TOO QUICKLY

Sometimes a sweet idea can turn into a bitter dose of reality when you're trying to grow business. That's what happened to Donna Nichols, owner of Sweetums, a small bakery in Nassau, Bahamas. Nichols expanded her business too quickly and almost ended up bankrupt.

Nichols opened the bakery in 1984 after quitting her job as an elementary school teacher. With just two years' experience behind her and averaging $300,000 in sales per year, Nichols opened a second store on Bay Street, a prime retail and tourist area. A $100,000 bank loan covered expansion costs.

While research showed that Bay Street was a highly trafficked area, Sweetums II was failing. "People who told me they would buy from my shop if it were near where they worked, didn't," says Nichols.

To keep the store afloat, Nichols "used Peter to pay Paul," taking operating funds from the first location to cover expenses for the second. Within 18 months, Nichols was $150,000 in debt, forcing her to close the second store and focus on saving the original Mackey Street location.

The first Sweetums was bringing in about $40,000 per month--$480,000 annually. But bakeries are a labor- and supply-intensive business, and $35,000 of Sweetums' monthly revenues were used to pay one part-time and 14 full-time employees. Sweetums Il had brought in only $25,000 a month before its demise.