Keep 40% of the raise for batch two.

Problem

Selling out is indistinguishable from succeeding right up to the moment you try to reorder. The money from batch one was in transit, in returns reserve and in retailer terms, and none of it was available to pay a foundry deposit.

Context

Two founders, one product, a cast iron pan made by a foundry outside Coimbatore. Raised ₹1 crore, spent ₹94 lakh of it on the first run and the tooling that run needed.

What they did

1. 1.Rebuilt the plan around a cash conversion cycle rather than a margin, counting the days between paying the foundry and collecting from the retailer.
2. 2.Cut batch two to a third of batch one so it fit inside collected revenue.
3. 3.Moved two retailers from 90-day terms to 45 by giving up four points of margin.
4. 4.Held the remainder of the raise against the batch three deposit rather than spending it on the shortfall.

What to avoid

• •Tooling was counted as a one-off and then needed a repair before batch two, which nobody had reserved for.
• •Selling out was read as demand proof and used to justify a larger batch two, which the cash could not have covered either way.
• •The returns reserve was not modelled at all in the first plan.

Sources

• Batch-one cash timelineAnvil & Ash founder write-up

Related lessons

• Find the step that stopped scaling before you cut the bill of materials.→
• Ship to one city until the reorder rate holds.→