It's a Stretch

Too small to take on big clients? Not enough big clients to grow? Unsnag your Catch-22 before business growth becomes a self-defeating concept.

Hal Galvin recently got a huge order from a huge customer. So why isn't he singing "Happy Days Are Here Again"? Because he can't fulfill it. In fact, Galvin, CEO of AlumiPlate Inc. in Minneapolis, says the massive opportunity would require a $10 million investment--enough to generate 20 times AlumiPlate's current annual capacity for applying its patented metal-plating technology--if rolled out across the customer's entire product line. Without the big customer, however, Galvin can't afford to expand his 12-person plant enough to be able to serve such big prospects.

"It's a little bit of a Catch-22," Galvin understates. "You need the customer to get big, but you're not big enough to have the customer."

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AlumiPlate's experience is another example of the difficulty of bridging the gap between a good product and enough capacity to satisfy the needs of the big customers who could make it a huge success. Many traditional sources of expansion loans, such as banks, won't help small companies build new production facilities to serve customers they don't yet have. Longer-term investors who might, such as venture capitalists, are viewed as too costly in terms of control and equity by many entrepreneurs--not to mention that in today's environment, they're almost nowhere to be found.

It's a make-it-or-break-it problem for entrepreneurs, and the issue is especially critical for purveyors of new technology, who can't simply subcontract out their production to other manufacturers.

And it's certainly key at AlumiPlate. Without a much larger production capacity, Galvin can't even attempt to sell his corrosion-plating to potential huge customers such as the auto industry giants. His latest prospect, while pleased with his product in trials, is understandably unwilling to commit to a purchase when the plant to build large volumes doesn't even exist.

Meanwhile, Galvin finds himself trying to grow in a no-man's land where his prospects are customers too small to boost him to the next level and those whose overwhelming needs could cause him to lose his company if he chooses the wrong tool to pay for expansion. "A lot of people don't understand," Galvin explains, "that the big fish can kill you."

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This article was originally published in the January 2002 print edition of Entrepreneur with the headline: It's a Stretch.

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