Back in the early 1980’s I started my consulting career teaching small business finance. Ronald Reagan was president, interest rates soared to over 20% and unemployment was approaching 35% in the small city in which I was living. Two men who owned an appliance store signed up for my course. Both had worked at the local sawmill until it had shut down and, pooling their limited funds and putting their homes up as collateral, borrowed the money to buy an appliance shop. But business was tough, the economy was in a recession and the bank interest rates were crushing. Wind the clock forward a few years, they were on the verge of foreclosure and as a last resort the bank asked them to attend my course.
The course, basically Business and Finance 101, was 80 hours long of which 76 hours were class time and the last 4 hours were ‘one on one’ time with me at the participant’s place of business. When I visited these two at their store, I asked to look over their financial statements and specifically the ratios we’d done in class. I wanted to see the inventory turnover…the number of times you sell the inventory each year.
For an appliance store the average inventory turnover is approximately 2.5 times per year. The ratio for my participant’s store was just over 0.5 meaning most of their inventory wasn’t selling. I looked around the store at the fridges and stoves and microwaves etc. Everything looked new, so I asked them to show me some of the stuff that was more than a year old. I was expecting them to show me an appliance but instead they produced a box full of appliance parts. Somewhat surprised, I asked them to take everything out of the box that hadn’t sold within the last year …they emptied most of the box. As I looked around the store I asked, “Is that the same for each brand of appliance?” to which they replied “Yes”
I suggested they get some boxes and label them “GE”, “Frigidaire”, “Whirlpool” etc. and fill them with any replacement part that hadn’t sold within the last 12 months. When the sales rep for each company stopped by, they were to show them the box and ask how much of a refund they could get for the parts. I was hoping they would be offered 50% of the value back.
Fast forward a few weeks and each of the appliance reps had stopped by and promised a 100% refund on the unsold parts. In the end the total added up to approximately what was left owing on the business mortgage. In the blink of an eye these two friends went from the edge of bankruptcy to mortgage free with new ideas on how to make their store successful.
Why is this story so important today?
- Opportunity comes from the strangest places: Sometimes the solution is right under your nose. These partners were on the verge of closing their doors when they discovered the value of their inventory.
- Don’t be too quick to panic…keep digging: Rather than give up their business and lose their homes these two businessmen dug in hard, asked questions, followed advice and kept looking until they found a solution.
If you’re reading this, you’re a leader in your business and people will be looking to you to have a cool head, clear thoughts and a keen sight on the future to lead them through this crisis. You have the skills and the ability – indeed this is what you’ve trained for. Now, more than ever is the time for leaders to lead and, like our store owners, find opportunities where none seemed to be and provide hope to team members where little seems to exist.