Don't Let Too Much of a Good Thing Crash Your Startup

Don't Let Too Much of a Good Thing Crash Your Startup
Image credit: Reuters | Lucas Jackson

Free Preview: Start Your Own Business

Submit your email below to get an exclusive glimpse of Chapter 3: “Good Idea! How Do I Know If I Have a Great Idea for a Business?
Entrepreneur, Co-Founder and President of Confirm Biosciences and TestCountry
4 min read
Opinions expressed by Entrepreneur contributors are their own.

A startup can fail for a host of reasons. Lack of funding, low market interest and poor preparation can all lead to your demise. But would you ever expect that having too much popularity could put you under?

Sudden growth, paired with a poorly maintained inventory, can cost your company more than you realize. That’s why it’s vital to make sure you’re ready for success before you even hit the market. That starts with proper inventory management.

Inventory management can make or break you.

Good inventory management is the key to running a successful product-based business. Failure to meet the demands of your customers can have major long-term consequences, including the loss of sales and revenue, the loss of new or returning customers and the loss of a positive public image. Once you’re facing these issues, they’re awfully hard to shake.

Related: Inventory Out of Control? Take Stock With These 3 iPad Apps.

An entrepreneur named Mathew Carpenter learned this the hard way. He started an online business called Ship Your Enemies Glitter where, for the low price of $9.99, you could anonymously send an envelope full of glitter to your worst enemies. When Carpenter’s site became an overnight sensation, he quickly found himself overwhelmed with orders. He pleaded with his customers to stop buying his product, but the orders kept pouring in. Carpenter fell so far behind that he had to sell the site just two weeks after launching.

Issues with inventory can be a great learning opportunity for a business. Soon after my company launched, we quickly ran out of one of our products that was manufactured in China. Inconveniently, this occurred during Chinese New Year and a worker’s strike at the shipping port. Our product was stranded for an extra two weeks -- certainly not an ideal situation.

But we used those two weeks as an opportunity to hone our procedures to prevent this from happening again.

Related: Five Steps to Painless Inventory Management

How to prevent inventory setbacks.

The best way to avoid the hassles and consequences of inventory problems is to account for supply and demand early in your company’s planning and development. Consider these three tips when you’re starting the process:

1. Generate a detailed forecast: Forecasting and demand planning are vital when it comes to meeting customer needs and minimizing inventory costs, as they help you make key stocking and replenishment decisions. Collaborate with your sales team and a few key customers to better predict future demand and improve product availability.

2. Strive to improve manufacturing: Whether you’re manufacturing your products yourself or having them made elsewhere, effective manufacturing planning will reduce your inventory costs, improve your customer service and streamline your forecasting, planning and purchasing process.

Make sure you’re constantly working with the manufacturing facility to improve production schedules and supply chain procedures. Keep track of national (and international) holidays and local happenings that could impact production and shipping. Doing this would’ve saved my company quite the headache!

3. Focus on replenishment: Your organization needs to have a replenishment process in place from day one. Adjust it over time by studying your manufacturing speeds and sales rates to figure out how quickly you need to restock your products. Look into inventory management tools such as NetSuite that make the entire tracking and ordering process easier and more efficient.

No entrepreneur wants to be left swimming in a pool of overstocked inventory. But you also don’t want to find yourself drowning in a pile of orders that you can’t fulfill. That’s why you need to effectively forecast, manage and replenish your inventory from the get-go.

Related: Tackling the Unsexy Business of Inventory Management

More from Entrepreneur
Entrepreneur Select: A Fund For Entrepreneurs, By Entrepreneurs

Entrepreneurs require more than just money, which is why we aim to empower you, as well as act as a catalyst for value creation.

Discover the franchise that’s right for you by answering some quick questions about
  • Which industry you’re interested in
  • Why you want to buy a franchise
  • What your financial needs are
  • Where you’re located
  • And more
Make sure you’re covered for physical injuries or property damage at work by
  • Providing us with basic information about your business
  • Verifying details about your business with one of our specialists
  • Speaking with an agent who is specifically suited to insure your business

Latest on Entrepreneur