Human Scale Business

P2Binvestor ("P2Bi") is an online marketplace lender that provides asset-based lines of credit of $1 million or more. Typically, its borrowers are rapidly growing consumer products and professional services companies that can't yet access bank credit. Through the application of technology, P2Bi has democratized access to this kind of debt financing by making it available to companies having annual revenues as low as $1 million. I spoke with Krista Morgan, co-founder and CEO, about what makes P2Bi different.

Growth Capital for Not-yet Bankable Companies

Initially, Krista thought P2Bi would be providing $50,000 to $100,000 loans to small businesses. However, she and her colleagues discovered a better fit with companies in the $1 million to $10 million revenue range.

A classic case is a small, growing, but as yet unprofitable, specialty food company. It might be completing a successful, regional trial with a national retail customer such as Whole Foods. A successful trial can often lead to a national roll-out. However, to fulfill the inventory requirements of a national program requires financing. Bank debt is not in the cards for an unprofitable business. Even if an SBA-backed loan is feasible, it usually takes months to put into place.

That's where P2Binvestor fits in. They can underwrite a revolving line of $1 million or more backed by the receivables from creditworthy customers like Whole Foods. Underwriting is a matter of a few days or weeks, depending on the borrower's preparedness.

As the borrower grows and becomes profitable, it will transition to lower-cost bank financing. Krista says that a typical borrower is with P2Bi for up to three years, during which time its line of credit might grow tenfold.

Asset-based Lenders View the World Differently

Most lenders look to the free cash flow generated by the borrower in the normal course of business to service debt. Such "cash flow lenders" view collateral as a secondary source of repayment. Consequently, cash flow lenders are keenly interested in the debt capacity and character of the borrower.

Asset-based lenders view the world a little differently. Sure, the creditworthiness of the borrower matters. However, true asset-based lenders are at least as sensitive to the collectibility of the borrower's accounts receivable. To the extent the borrower sells to large, creditworthy customers such as national retail chains, an asset-based lender might be willing to overlook some uncertainty about the borrower's future cash flow. In other words, collectible receivables and readily liquidated inventory can overcome uncertainties regarding a borrower's free cash flow in the eyes of an asset-based lender.

Asset-based Loans Are Not New

Asset-based loans have been around a long time. Early in my career, I worked in the "leveraged capital" group of a very large, global bank. We made competitively priced loans of $50 million or more to established companies having revenues of at least $100 million.

In many cases, my bank would lead a "syndicate." That is, my employer would originate, negotiate, and manage the credit. Other banks would "buy" pieces of the loan. Syndication is a way to manage loan portfolio diversification, boost profits, and develop differentiating expertise through the origination of more loans than would otherwise be possible.

Quite frequently, our group would make asset-based loans that couldn't be underwritten per the standards of the "normal" bank. Usually, this was due to the leverage of the borrower. Oftentimes,

In this episode, Dave Bayless speaks with Mario Schulzke on the people Mario calls 5 to 9ers. These are the people who work a day job from 9 to 5 then spend a considerable amount of time after hours building a project that has the potential to build value, but initially is a work of deep interest or even passion. For the last several years, the entrepreneur interview website, IdeaMensch, has been Mario's 5 to 9 project.

In this episode, Dave Bayless speaks with Krista Morgan, co-founder of P2Binvestor. P2Bi is an online marketplace lender that provides asset-backed lines of credit of $1 million or more to growing consumer products and professional services firms that can't yet access bank debt.

Jordan Lacenski founded BrandBoss Creative. She also cofounded the SheWolf Collaborative (where she is an "alpha"). The collaborative is organized as a business "wolf pack" that consists of complementary providers of marketing services. Through its organization, SheWolf Collaborative benefits its clients, members, and the broader community of women entrepreneurs.

BRANDBOSS CREATIVE

SHEWOLF COLLABORATIVE

Jordan's excitement about the prospects for SheWolf is transparent. She's effusive about her fellow "pack members." I spoke with her about what sparked this innovative business approach and its evolution.

The Law of the Jungle

From The Law of the Jungle by Rudyard Kipling

As a niche provider of marketing services, Jordan lives in the "long tail" of businesses. As a member of the SheWolf Collaborative, she enhances the chances of her survival and success in that challenging environment. The logic of making connections in an ecosystem full of competitors is reflected in Rudyard Kipling's poem, The Law of the Jungle.

Those of us who live and work in the long tail of product and service-based businesses can feel as if we are lone wolves. We work hard to differentiate ourselves from a host of competitors. With focus, determination, and luck we carve out a niche in which to survive. We outsource and automate in order to keep our fixed costs down and our breakeven sales rate low. Those behaviors give us a fighting chance. However, they also tend to isolate us from others.

The easiest person to fool is yourself.

Being alone can make us vulnerable. In order to understand the world clearly, we must avoid self-deception. As physicist Richard Feynman put it, "The first principle is that you must not fool yourself, and you are the easiest person to fool." To avoid fooling ourselves, we must seek collaborations with others who view the world from different perspectives.

By nature, we are social animals. As columnist and author David Brooks notes, "We become who we are in conjunction with other people becoming who they are." To deny that basic truth is to deny our nature. Through the formation of SheWolf, Jordan and her colleagues are embracing that which makes them stronger.

The Best of Both Worlds

As BrandBoss – that is, as a solopreneur – Jordan is compelled to continuously sharpen her focus and trim fixed costs. As a pack member of SheWolf Collaborative, Jordan represents a portfolio of capabilities usually in the domain of a large firm. As a result, each pack member can (at least in theory) offer small businesses the economy of a small agency and the scope of a larger agency. Specialization and breadth – it's a neat trick.

Built-in Peer Network

Jordan explains that SheWolf emerged from an informal referral relationship between the cofounders. Over time, trust grew. Cooperation blossomed into collaboration. The pack became a safe place in which to share intimate business details such as pricing and strategy. As a consequence, SheWolf soon came to represent something much more than a source of referrals. It became a tight-knit community of entrepreneurs. By tapping into their collective experience and know-how, pack members accelerate their individual development as entrepreneurs.

The pack's collective marketing experience is impressive. It encompasses branding, film, social media, copywriting, photography, event planning, food, graphic design, website design, music, fashion, and art.

Jordan Lacenski is the founder of BrandBoss Creative and co-founder and "Alpha" at SheWolf Collaborative. SheWolf is an innovative business model that brings together the capabilities of a team of creative women. Together, they can offer big firm scope at rates that are affordable by small businesses.

The Dangers of Single Metric Management

Sales growth is essential to a young company. In fact, until you've reached break-even cash flow, sales growth may be the most important thing. There is danger, though, in focusing on sales to the exclusion of other aspects of your business. Innumerable young companies have experienced rapid sales growth without a commensurate increase in their profitability.

Jen Nord is a CPA and a CMA

I spoke with our friend Jen Nord recently to discuss the disciplines of "optimizing revenue." With her background as a CPA and Certified Management Accountant, Jen has worked with many companies to help wring more profit out of their sales.

Counting Calories Before We Gain Weight

We don't become overweight because we eat too much over the holidays. We pack on the pounds because of the accumulated effect of excess calories over an extended period of time. The same is true for our business expenses. They become misaligned with our revenues not because we binge spend. Rather, they tend to grow insidiously. We stop noticing when we are making expenditures that aren't truly necessary.

sa·li·ence/sālēəns/nounthe quality of being particularly noticeable or important; prominence.

As our businesses grow, they become abstract. Our experience with day-to-day interactions with customers and suppliers becomes more indirect. That's particularly true as we add employees. As a consequence, expenditures can become less salient. When expenses become less salient, we tend to spend more.

Credit Cards Make You Spend More

Think about the difference between paying for dinner with a credit card and paying with cash. Paying with cash seems more tangible and real, while using credit cards seems abstract – as if you are using Monopoly money. Credit cards make it easy to spend, in part because we enjoy the benefit today, and the cost is pushed into the future.

Jen advocates techniques for making expenses more salient. It's kind of like counting calories upfront to help us stay lean.

In particular, translate an expense – hiring a new employee, for example – into the number of units of product you'll need to sell in order to cover the cost. Let's say the fully loaded cost of an employee (salary, benefit, payroll taxes, added administrative burden, your management time, office space and equipment, etc.) is $45,000 a year. In addition, let's say the profit contribution of a unit of product is $15. You'll need to sell more than 8 additional units every day to simply cover the cost of the employee.

How many more prospective customers does that require? What additional marketing expenditures will be necessary? Does hiring an additional employee really make sense, or is it merely expedient? When you make expenses salient, you can be more mindful about your commitments, and the chances for profitable growth increase.

That Extra Sale Can Cost a Lot

Most times – not always – sales tend to grow smoothly and granularly. That's particularly true if we sell direct-to-consumers. In contrast, our operating costs can be a bit lumpy. When we hire a new employee, add new warehouse space, or purchase an additional packaging machine, there is a stepwise jump in costs.

Are your sales going up but you're not putting more money in your pocket? Dave Bayless speaks with Jen Nord about the discipline of optimizing your revenues for profit.

Are your sales going up but you're not putting more money in your pocket? Dave Bayless speaks with Jen Nord about the discipline of optimizing your revenues for profit.

Some of Embark Creative's Clients

Jala Smith-Huys is the founder of Embark Creative, a social media marketing boutique based in Portland, Oregon. Her client list includes some familiar names such as Intel and Whole Foods. In addition, Jala is the founder of Seek & Swoon, a maker of "eco throws." We spoke recently about the intersection of social media marketing and human scale business.

Telling Stories and Making Connections

Jala began her career as a graphic designer. About eight years ago, an opportunity to work with the Tillamook brand presented itself, and she transitioned to social media strategy work. However, Jala has always had the urge to launch her own product. So, after careful deliberation, she started Seek & Swoon in October 2016.

Jala's work as a social media consultant impressed upon her the criticality of meaningful stories and a differentiated brand. Consequently, she knew that any brand she launched needed to reflect her passions, interests, and capabilities. Otherwise, she wouldn't be able to sustain the effort necessary to succeed.

A family trip helped surface three organizing principles: travel, design, and sustainability. That led to blankets made in the U.S. from regenerated cotton having original designs inspired by Jala's travel experiences and aspirations.

Jala perceives, "Customers want to buy more than they are holding in their hand." That is, they wish to connect with the stories behind the brand. Although uncomfortable talking about herself, Jala said she has "woven my story into this brand." She anticipated, "People would find a connection to this desire to travel and explore."

Indeed, Jala has seen how customers bring their own stories about the places reflected in the design of her products. Places and travel are a source of design inspiration for Jala. The resulting products are also serve as physical manifestations of her customers' stories. As with musicians and their audiences, Jala and her customers create meaning together.

I'm Terrible at Marketing Myself

Jala finds it difficult to market her own brands. You might find that surprising, given her background.

In spite of an inclination to do things herself, Jala has hired help. Specifically, she sought out another designer to create her logo as well as a writing coach. As a result, Jala was able to gain perspective and objectivity. It's her brand and her stories, but others have helped bring clarity to her marketing messages.

Social Media for Human Scale Business

Jala's social media strategy resume is impressive. That background combined with her in-the-trenches experience as the owner of a human scale business grabbed my attention. It's one thing to craft a social media campaign for Toshiba and another to do so within the constraints of a small business.

Every brand needs something different.

Strategy and execution inform each other.

Different brands have different goals and audiences. Testing, learning, and evolving are necessary to discover how best to connect your brand with customers.

Jala performs several functions as a social media consultant:

* Messaging strategy

* Channel selection

* Content development

* Asset creation

* Channel management

While she prefers a strategy role, Jala finds that being directly involved with execution helps her craft better strategies.

Walking Her Talk

With Seek & Swoon, Jala has been able to apply what she's done for clients to her own business. As with any business, she started with an understanding of her objectives.

Chad Rubin, Founder of Skubana and Crucial Vacuum

Chad Rubin knows a lot about empowering e-commerce business with technology. In 2008, he founded Crucial Vacuum, a direct-to-consumer e-commerce seller of vacuums, filters, bags, and belts. In time, the company's SKU count numbered in the thousands. With more than 20 sales channels and outsourced fulfillment, Crucial Vacuum's operational complexity exploded.

Chad tried to manage his business by stitching together dozens of software applications. In time, it became increasingly difficult, time-consuming, and expensive to conduct basic analysis – much less take timely action.

Frustration eventually compelled Chad to launch Skubana in 2014. Skubana is integrated operations software designed for high-volume e-commerce businesses. It combines order management, shipping, warehouse management, inventory forecasting, and several other enterprise resource planning (ERP) functions. Skubana integrates with leading marketplaces, shipping providers, and shopping carts. It offers a 14-day trial and onboarding period and volume-based pricing.

Recently, I had the chance to speak with Chad about how his experience shaped his perspectives on how to use technology to empower an e-commerce business.

Fixed Costs are the Enemy of Niche Businesses

It's tough to differentiate your product. Focusing on a niche helps. Niches, however, abhor fixed costs. Fixed costs drive up the minimum scale of our businesses and force us to broaden the appeal of our products. Outsourcing is a way for us to share in the economies of scale of others, keep our fixed costs down, and profitably distinguish our products from the competition.

Crucial Vacuum, for instance, sold through others, including major online marketplaces such as Amazon.com. In other words, Crucial Vacuum didn't have to replicate Amazon's enormous investment in a global platform in order to benefit from the resulting economies of scope. Instead, Crucial Vacuum (in effect) rented Amazon's platform through variable selling fees.

In addition, Chad and his colleagues at Crucial Vacuum determined it needed to outsource its warehouse and fulfillment operations to a third-party logistics provider (3PL). Running an operationally intensive warehouse just wasn't a strength. By outsourcing logistics, Crucial Vacuum could take advantage of its 3PL's economies of scale and keep its own fixed costs down.

Managing Complexity is an Imperative

Cheaper Easier Direct by Chad Rubin with Frank Turner

Choices have consequences. One consequence of outsourcing business functions is coordination complexity. Consider, again, Crucial Vacuum's management challenge:

* It must manage a supply chain characterized by thousands of products. That includes private label manufacturing of its own products as well as procurement from other brands.

* Crucial must pass accurate information about inventory to a couple dozen e-commerce storefronts.

* Fulfillment must be done in a timely and efficient manner.

* Important business information must be readily accessible in order to inform timely decisions.

* To maintain its niche, Crucial Vacuum must keep its fixed costs – including its headcount – to a minimum.

Throwing bodies at the problem isn't a solution. Successful human scale businesses have to be well-versed in the effective use of enabling technology.

Buying Shoes You Can Grow Into

Chad recommends Skubana for e-commerce companies that are fulfilling 3,000 or more orders per month. (If your average order is $50, that works out to about $1.8 million in sales per year.) That's a significant threshold for a young company.