Company needs help with funding new orders

March 16
The entrepreneur

Jason Kaplan, Tzach Goran and Meir Machlin all consider themselves serious runners. They also happened to have complementary skills when it came to starting a business focused on a very simple problem for runners: Determining when to buy new shoes.

Kaplan is a business development and sales veteran. Goran has experienced operating specialty shops for runners. And Machlin is a technology guru who spent years developing products for start-ups and large companies.

The pitch

Kaplan

“We’ve developed a system for retailers and manufacturers to use wearable technologies to drive customer loyalty and repeat purchases.

“Determining how long a pair of running shoes lasts before they wear out can be tricky, and it is different for every runner, based on how much people weigh, how they run, the health of their knees, how much they run and other factors. Most experts say shoes should last between 300 to 400 miles, which requires careful tracking and doesn’t take into account other factors.

“We started with an idea that we could provide a very low-cost, simple-to-use device that you put on your shoe and keep it there to track your mileage. Then we realized that data was highly valuable to retailers and manufactures looking for repeat business. We put Bluetooth technology on the device, built a mobile app, and added more interesting and informative data for runners to use (mileage, pace, cadence, run history and emergency information). We built this whole system and have a patent pending on it. Runners just lace the MilestonePod onto their shoe.

“We have a product now. People are testing it now and we’re getting a lot of great feedback. Our focus right now is on retailers. We are working with a number of specialty run/walk retailers. At a $19.95 retail price point, with a lower wholesale cost, convincing niche retailers has not been a huge hurdle for us. Our sales cycle has typically been very short. Our biggest issue is inventory. This is a hardware-based business. It’s a much different cost model for growing this type of business than just an app-based business. We need money to expand inventory while we’re still a very early-growth company.

“We’re in this moment in time between retailers’ opening orders and the next order. Opening orders so far have been relatively small — maybe 100 — but their next order might be 5,000. We need to forecast how much inventory to stock to satisfy upcoming orders. It’s not a hugely capital-intensive business. It’s more of a timing issue of paring for our initial purchases and the time it takes to get paid by retailers.”

The advice

Elana Fine, managing director, Dingman Center for Entrepreneurship

“You’re at an exciting point — people want to buy your product. You are certainly not alone in having this inventory problem.

“Be creative in the way you work with retailers. Consider targeting one retailer as an exclusive partner. You might think about a discount you could give them up front for them paying for a portion of your next big order. Perhaps you are even giving them that order at cost to fund the initial working capital. The fact that you have product inventory means you can be creative and try things out. Set things up in a potential partner retailer’s shop and observe how shoppers respond to get feedback on product.

“Also consider other sources of funding. This business could work great for crowdfunding. Or approach family, friends and your network of runners to fund your next round of orders.

“Actually having orders in hand changes the game pretty significantly and opens up more funding mechanisms for working capital. Investing in inventory is an asset. You can look at bank loans and Small Business Administration loans. There are also other types of loans, such as those based on where you are locating. Look for all types of loan opportunities.

“Be ready to show lenders that you and your co-founders are personally invested and putting this business on the line. Banks and other investors will question this and won’t want to invest if you can’t demonstrate this.”

The reaction

Kaplan

“We’re looking at all the avenues you mentioned. I did have a couple conversations with banks several months ago, perhaps when we were too early-stage. That might be worth revisiting now. We could demonstrate that we’ve invested a lot personally in this business — we have plenty of skin in the game.

“Your comments about getting retailers to be creative hits home. We got creative when we first approached retailers with just an idea nearly a year ago, and we should think about that approach again.”

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