So recently we talked about the time-consuming, immediately visible limiters on your business and why you need to get rid of them before your business can grow.
The other half of the equation is the invisible limiters. These are the ones where you can’t tell ahead of time what they are. They don’t emerge until you’re really freaking committed to your business and sometimes they can sink you if you can’t figure them out. At the very least, they create a ceiling on your growth.
So here is a story to illustrate.
4 years ago when we started selling used books on Amazon, we got lucky right out of the gate and started making money right away. Then it was Christmas and we started making even more money. Then it was January. We had sold 80 percent of our inventory and we couldn’t find enough to replace it. Low sales + low inventory = Chris had to find a day job.
If you weren’t aware of the seedy world of second-hand book selling, used books are literally anywhere, for pennies on the dollar. But book that are worth reselling are a lot more rare. Usually you find them at library sales, because people with highbrow tastes in books donate their castoffs to the library. Thrift stores tend to get junk.
But library sales are clustered. They are mostly held in the spring and fall. So in February, we were searching high and low for books, but in April, we simply did not have enough capital to purchase all the books that were available to us. This sucked. A lot.
To make matters worse, our sell-through rate was too good. I know this sounds ridiculous, but if we shipped 100 books, 60 of them would sell within a month, and another 30 would sell in the second month. We bought books that sold, which was GREAT. But it meant that if we couldn’t find more inventory to send, we made no money.
It was an incredibly frustrating chicken-and-egg problem that I tried 6 ways from Sunday to fix. Lack of inventory was the primary limiter, but if we went too far afield in search of inventory, we ran into a bunch of extra costs that ate into our margin (gas, hotels, food, etc.)
If we tried to go to thrift stores and garage sales to search for inventory, we would spend the whole day sorting through junk and come home with a handful of books. If we went on Craigslist and offered to haul away books, then same problem, but more hard labor.
We tried raising our prices, but it impacted our cashflow too much.
Finally, we just decided, “You know what? This is a really decent side gig. It takes about 3 days a month to run it, and it makes a pretty decent sliver of our monthly income. Let’s just let it be what it will be.”
Which sometimes happens to businesses. If we’d had more of a financial cushion, more capital to pour into inventory when necessary, we might have been able to overcome those constraints and make it over the hump to grow. But we didn’t.
So time went on. I started another business. Chris kept his day job. The Amazon biz kept ticking over, quietly adding its 25% or so to the bottom line.
And then Prime became a thing.
I mean, Amazon Prime had been around since we started the business. But it finally started to take off, mainly because Amazon started heavily incentivizing it. But now there were millions and millions of people who were ticking the “Prime Only” box when they were shopping.
And I started to look at selling books at Prime-only levels. Prices were, in many cases, quite a bit more, but mostly they were competitive. I remembered how painful raising our prices had been the first time we tried it, and I didn’t want to get burned. So in March of last year, I decided to scale into this process.
First I raised the prices on only the most in-demand books. I reasoned that if any books would sell at these new, inflated rates, it would be the ones that lots of people wanted. The idea was that I’d raise the prices for a certain number of months, and then at the end of that time if the book hadn’t sold, it just dropped to the lowest price, period. Then I raised the prices on the next tier of desirable books.
So I did that, bit by bit, working on keeping our income steady. At the end of three months, I downloaded our sales figures and discovered that I’d managed to increase our gross margins by 5%! Best of all, we were FINALLY starting to build up our inventory– instead of selling our stock almost as fast as we could ship them, books hung around for a few months, and enough got bought at the new, higher prices to make it worthwhile. And then they dropped to the lowest price and eventually sold “on clearance” as it were.
This has tremendously smoothed out the dips in our sales. We are not at the “full time income” level yet, but now that we’re not turning over 90% of our stock every 90 days, the math says we’ll get there eventually.
And four years of quiet labor on a business that quite possibly would never “go anywhere” was not in vain. We have been steadily building relationships and uncovering unlikely suppliers and now our dry seasons are not quite so dry because there are one or two places we can go to each and every month to get inventory. I will say, though, that it now takes a fair bit more than “three days a month” to run it.
And was it ever fucking satisfying to solve that chicken-and-egg problem I had.
I’m not telling this as a success story. I’m telling it because these intimate, detailed stories of almost-failures and not-quite-big-enough businesses are completely normal, and yet few people who are not serial entrepreneurs tell them.
One of the questions I always ask clients is “How much money do you need this business to make you?” Because there are quite a lot of businesses that can make you $2K a month and not take up too much of your time. So if you can get by on $2K or supplement that income some other way, that counts as a successful business even if it won’t scale any further. Always providing, of course, that you’re okay with your business only making $2K.
If you need to have a $5K/month business, things change. Not only is it a lot harder to gauge, ahead of time, which particular business idea is going to get you there, but you can also rule out certain types of small-scale business models. For instance, you’re not getting $5K a month as a massage therapist, you’ll destroy your body. But $2K is completely reasonable, especially if you can work out of your home.
The trouble with these “invisible constraints” problems is that from the outside, it looks a lot like failure, and few people have the experience to say otherwise. It’s especially galling when you thought for sure this sucker was going to scale, so you quit your dayjob.
But it’s not a failure, it’s a business finding its proper size. A dwarf fruit tree is only going to grow 12 feet tall, but it’s still going to bear apples every year. A standard apple tree is of course going to produce more apples, but for its size, the dwarf tree may even outperform its larger cousin. And you won’t have to hire a bucket truck to harvest the apples.
It does take some experience to do this. Either the experience that you get from a long career in fruit trees or the experience you get from planting a seed and seeing how big it wants to be. But I do want you to know that sometimes if it wants to be small you can’t fix it. But sometimes conditions develop over time that makes it big after all. It just depends.
But it’s never a failure. It’s a bonsai business.
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