A bad purchase is haunting us. Help!

This article first appeared October 23, 2009.

Hi Aunty,

We are a small business (three employees plus two working directors) currently in our seventh year, and we have always been profitable, which we are very proud of.

Eighteen months ago we made the decision to purchase a particular item new to the Australian market that is very popular in Europe. We had sold small amounts of this product previously with great feedback. The sales rep (who works on commission only) was enthusiastic, prospects were great, so we decided to buy a large quantity and take a risk that (we thought) would pay off.

Unfortunately, the GFC hit and these previously keen buyers were suddenly not returning our calls, our sales rep has become depressed and feels guilty that he can’t generate sales anymore, and we subsequently still have $200K worth of stock sitting in our warehouse.

Luckily, it does not expire! The problems are a) we purchased it on our overdraft and b) cashflow crisis has come to bite. We need to shift the stock (and have been trying), but we now need to look at alternative markets as our existing clients are not interested.

Do you have any ideas? We realise that we made mistakes during this whole exercise and yes, with hindsight we would not have bought as much stock without guaranteed orders in place, but we can no longer look back and say “this is what we should have done”. Any words of advice about moving forward and not allowing one big mistake to bring the whole business under?

Cheers,
Sandy

Dear Sandy,

Aunty B is away so you get Uncle Col today.

Look, the reality is that even the best sales force cannot create an interest at the wrong time or in the wrong place. You must become proactive.

The first question to ask is who were the customers for the product in Europe? Then find out what was the value proposition that they found attractive. Next you need to accept that you have to drop concern with the wonder product and find ways to create new customers who share the value proposition.

Take your sales rep out to a great restaurant and after the meal ask him what made the difference – the quality of the food or the quality of the experience. Then set the task of converting the value proposition into a sales presentation that creates a compelling case for a set of agents who are going to on-sell your current stock for a piece of the action.

Good luck,

Uncle Col

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