Sramana Mitra: What do you do on the cash flow management side?
Dara Greaney: We finance a lot of it ourselves. We use a third-party company called Resolve. It’s a spin-off of a popular payment platform for B2C. People like the idea of not having to take the risk online. For larger companies, we do that ourselves. That requires us to do some vetting.
Sramana Mitra: You have created that whole facility internally?
Dara Greaney: Yes, they do the application. Then we send them terms. We have to make sure to send the invoice to the right person. We had to set up all that in the backend. To stay competitive, you have to have that financing. We realized that early on.
Sramana Mitra: There aren’t companies that you can partner with to do that?
Dara Greaney: We’ve used one for smaller companies. Resolve is what we use for electricians that are too small for us to give credit to. If you’re selling to a municipality, they don’t apply for terms. Everyone gives them terms.
We learned early on that there aren’t companies that are prepared to do that. If they do, they may not give you the financing you want. Even when dealing with Resolve, there are a number of companies we would like to see approved that aren’t getting approved. We realized that we have to have a little bit of sophistication here.
Sramana Mitra: Interesting. To summarize, the difference between your previous business and this one is more on the logistics side. You’re selling big-ticket items. Warehousing and shipping is much more complex. The financing side is way more complex.
Dara Greaney: The product turnover is also different. In the auto parts, SKUs stay in existence for 40 years. They have a life cycle curve where it gets popular and then dies off. For LEDs, that SKU may have a one to two-year shelf life before it’s superseded by a new one. That’s also been a huge thing for us; we have a constant flow of photography, videos, and product descriptions.
Sramana Mitra: Product obsolescence is an issue.
Dara Greaney: Yes. If you buy too much of something and the next year they come out with a faster and better option, you have to be careful. Sometimes it doesn’t matter. Sometimes it’s a small upgrade. It’s okay to have old stock. Once in a while, they come up with something pretty significant.
Sramana Mitra: How do you decide how long an inventory risk you are willing to take?
Dara Greaney: It’s a good question. We look at a lot of variables. The biggest is the contribution margins. The larger items are harder to predict. We have to have a higher margin profile and be prepared for longer sales cycles. We’re still going to have that inventory risk, but we have to compensate for that in a higher margin to make it worth our time.
Sramana Mitra: What is the competition in your space?
Dara Greaney: Lighting is a huge space. There’re probably 30 or 40 pure e-commerce players out there that are selling various lights. Some of them are direct competitors. We also face a lot of stores that have gone online or distributors that have added their stuff online that are sort of a hybrid player.
We have to be able to compete with them as well. Then of course, there are lots of small-time players on Amazon and eBay. The competition comes from every direction. You just have to be on top of it and try to stay one step ahead of it.
Sramana Mitra: What happened to your previous company?
Dara Greaney: They’re still going. They were acquired by a private equity back in 2013. They’re still running.
Sramana Mitra: Thank you for your time.
This segment is part 2 in the series : Thought Leaders in E-Commerce: LED Light Expert CEO Dara Greaney