From 0 To 31 Million Dollars With Search Engine Marketing & Inventory Financing: Kim Pedersen, CEO of 1000 Bulbs (Part 5)

Sramana: Aside from improving your personal managerial skills, it also sounds like you were unaware of various technical capabilities that could have helped you with your business, like inventory management software. Were you aware those types of software programs existed?

Kim Pedersen: The real problem for me was the challenge of purchasing additional inventory while growing at 70%. This is an industry that operates at 50% profit margins, but I was offering everyone high discounts. I treated every order like a major client in terms of pricing, so my margins were not as high. I had to secure additional warehouses, delivery vans, and employees to work them.

Our grow rate caused me to have a cash flow problem, so I was not able to just go out and purchase expensive IT systems. Sometimes I did, but there were very few dollars available. I never went to the bank and asked for money; I did everything with cash. I had no investors.

Sramana: I am sure that is something you appreciate today!

Kim Pedersen: Yes, you are so right! I did not even think I could get a loan, and that is why I never asked for one. I asked for a loan for the first time in 2004, and when they took a look at my financials they told me that I was insolvent. I tried to explain to them that it was not an issue and that I just needed $60,000 to buy some inventory from Japan. They told me to come back in a week. The VP of the bank called me up and told me he had no idea why he was willing to trust me, but that he was going to go ahead and give me the loan.

Sramana: Did you do all of the cash flow management yourself, or did you have an accountant?

Kim Pedersen: I had an in-house bookkeeper.

Sramana: Was that the only loan you took, or have you taken out others?

Kim Pedersen: I had taken out other loans since then, but only for inventory. In most cases, the bank specifically financed the inventory.

Sramana: A lot of entrepreneurs who have inventory-based businesses are struggling to manage the inventory scaling process. How did you get connected with a bank that was willing to help you through that?

Kim Pedersen: I had my checking account there. I was in a small town outside of Dallas called Mesquite. I went to a small-town bank that took care of people in their own town. I got to know the banker, and he saw our operations as well as our growth. I developed a good professional relationship with that bank first.

We also started very small, and I never asked for a long-term loan. I asked for a single loan with a payback due in 120 days. I did keep my word and paid that entire loan back in 120 days. I did a series of loans like that and over time that established my credibility.

Sramana: What were the loan terms like? Were they steep terms?

Kim Pedersen: It was a high interest rate, but I don’t remember what it was. I think it was around 12%. Over time, as I took out and paid off more and more loans, I was able to bring that interest rate down. Today I am at the point where I operate off of more favorable terms off a letter of credit. We have a very low rate.

This segment is part 5 in the series : From 0 To 31 Million Dollars With Search Engine Marketing & Inventory Financing: Kim Pedersen, CEO of 1000 Bulbs
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