rupe":1205ns0a said:
Regarding deposits and revenue, I believe he clarified at some point that he is differentiating between the technical term and the practical application.
Bottom line is that it's a poor business practice to make use of a customer's deposit prior to delivering the goods. In fact, in some cases (pre-paid funerals come to mind) its illegal.
Regards,
William J Rupert - MBA
Geez, still on this, huh?
You're correct, I have been trying to point out that the gist of what I'm talking about is either going over everyone's heads or more likely, everyone is just so determined to make my points look invalid that they can't see the forest for the trees. The repetitive attempts at discrediting any business knowledge I might have are a bit of a giveaway.
I would suspect anyone with business experience beyond the textbook would understand the concepts of cash flow management and liquidity. No?
Of course, when I get suggestions like what Steve (sah5150) mentioned about dumping a bunch of capital into building up an inventory of finished goods that has no demand yet, I can't be so sure that this would be the case. And then there are others who talk about "business 101" and such, placing the startup in the same ball game as an established corporation when it comes to bringing a product to market--as though marketing resources and distribution channels are equivalent and therefore the methods of bringing a product to market are the same. Let's touch on that for a second.
You know what finished goods inventory that has no demand is called in the manufacturing industry?
WASTE. Industry has proven beyond the shadow of a doubt that Lean Manufacturing principles are the way to optimize returns on just about everything. Not one single manufacturing consultant worth his or her salt would ever suggest to build up an inventory of finished goods that has no demand. Likewise, I doubt any business consultant worth his salt would tell any startup to take a bunch of capital and dump it into finished goods waste. It's a silly concept. There are no distribution channels for a startup in what I would assume to be 99.9% of cases and there is a virtually nonexistent budget for marketing beyond grassroots level stuff. Does that mean a startup shouldn't bring a product to market even though he/she thinks it might be great offering? Does it mean that demand won't eventually present itself? Of course not. But as long as there is limited (or in some cases none at all) demand, what sense does it make to invest liquid capital into preemptively producing a bunch of finished products?
Finished goods waste costs money. It also creates space waste, which costs even more money. On top of that it works to eliminate liquidity for the company. You think any startup should willfully put themselves in that sort of position? I mean hell, poor liquidity can run a
profitable company out of business!
Rupe, by the way, these questions are not necessarily directed to you. There seem to be a lot of folks chiming in to attempt to invalidate things I'm saying by putting a literal semantic microscope on specific wordage and disregarding the greater concepts. I'm sure it will happen again in response to this post.
Now let's talk manufacturing for a moment, and I may lose some folks here because as I mentioned, it appears that industry best practices might not be widely known. I gather that some folks feel that a manufacturing company should operate like a retail shop. Fill the shelves with stock, and then open the doors. I don't know any manufacturing consultant who would ever suggest such an approach--particularly to a young company or a startup.
Inventory should be limited to raw materials (and it still shouldn't be an exorbitant amount at any given time) and production should be demand based with a VERY small amount of finished goods inventory. Now here's the kicker: Processes should be streamlined, reduce or eliminate waste, and reduce or eliminate defects. If done right, lead time should be acceptable most of the time (relative to the nature of the product being manufactured). But process engineering (and process improvement) is obviously its own animal.
Do most small startup gear manufacturers understand these principles? My guess is of course not. Particularly when you throw in two or more production units at staggered initiation dates. Throw in some general ineptitude regarding inventory control/management and a dash of poor cash flow management and you're creating a real difficult situation that separates the "hobbyist for profit" from the "manufacturer."
Is the majority of nightmare circumstances a result of "hobbyists for profit" biting off more than they can chew? More than likely. Does it suck? Yep. Does it mean that taking customer prepayments and working that into your cash flow "big picture" is bad business? No. Does it mean that waiting until there is demand before manufacturing products a bad practice? No. Although it can turn into a bad practice if production isn't executed well and customer service sucks. I can totally agree with that.
Please don't confuse this with the practice of taking deposits because the company doesn't have any capital or other assets and couldn't start production on anything otherwise. Although something tells me the posse is gonna come pursue another lynching.
And I'm one of the good guys for crying out loud!
I'm trying to be patient, but its tough. It seems 3-5 years is not unusual for John.
You are obviously very passionate about arguing your beliefs about how you believe an amp manufacturer should operate and how CECamps is not doing it the proper way or how you would do it....BUT if you did not have significant assests (assuming you do) your outlook might be closer to his or at least more understanding of his operation. Rip on me all you want but after reading your posts and dissection of his posts, it comes off as kind of harsh and attack-like. Just an opinion.