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.
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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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