Family enterprise wants to expand to next level

Patricia Kelly isn’t kidding when she credits some Irish luck for putting her Burbank business, Limerick Inc., on track to reach $1 million in sales this year.

After all, just 3% of women-owned companies ever make it to that level. And Limerick faces some entrenched competitors as it tries to win new customers for its products: breast pumps and workplace lactation programs.

At Limerick, named for the Irish birthplace of Kelly’s mother, the latest lucky break came last year when the company won a package of loans, mentoring, marketing and technology tools through a national business competition. Kelly also landed a scholarship to attend UCLA’s entrepreneur training program.

Happy chance also seemed at work in 1995 when her daughter and co-owner, Joan Ortiz, met an accountant at a Rotary Club luncheon who pushed the team to develop the comfortable breast pump being demanded by the working mothers in the lactation programs they’d run for three years.

The pair refinanced their houses to cover the $200,000 cost to launch PJ’s Comfort pump. The soft-cup, hospital-grade product, now in its third generation, met with solid success.

“We were very lucky,” Kelly acknowledges.

The entrepreneurs know they can’t rely on good fortune alone to help their company meet its next goal. They want to tap new markets, including hospitals, baby boutiques and online retail sales that could boost revenue 20% a year.

They’ve already approved their first professionally designed marketing and branding program. Next month they’ll unveil a revamped website that features the new look and online ordering for the $595 pump.

This week, Kelly and Ortiz will get their first feedback from potential customers when they launch the latest version of their lightweight pump at a trade show for lactation consultants.

“We are holding our breath,” Kelly says. “In fact, sometimes I can’t breathe.”

Ortiz puts it this way: “It’s exciting -- an exciting but scary time.”

Part of their nervousness stems from uncertainty over how and when to add the inventory, people and money to fuel a smart growth strategy. Their dream is to build the business, then pass it on to Ortiz’s daughters, Kristina, 17, and Ashley, 15, who already help out at the company.

It’s a big step for Kelly, a registered dietitian, and Ortiz, a registered nurse, who have been cautious about expansion.

Overcoming that caution, common to small operations, is Limerick’s initial hurdle as it goes up against some big name-competition known to new mothers around the world, including Medela Inc., Philips Avent, Evenflo Co. and Hollister Inc.’s Ameda line. In addition, Kelly and Ortiz must take a close look at inventory and cash-flow issues and invest in technological help.

“They are talking about really dramatic growth, so that means they need to create some systems and become a more professionally managed organization,” business consultant Andrea Garfield says.

Garfield advises small businesses independently as well as through the UCLA Anderson School of Management’s Management Development for Entrepreneurs program, which Kelly and her daughter attended. She is also a partner at software developer Startech Global Corp. of Los Angeles.

Limerick’s owners should start by calculating their minimum inventory needs and determining the payment cycles appropriate for each of the new distribution channels, Garfield says.

That information will help Kelly and Ortiz identify periods when cash flow won’t cover expenses. Mapping out these numbers for an 18-month period will be crucial to securing the financing the company needs to pay for its growth, she says.

Kelly and Ortiz also will want to negotiate better pricing from current suppliers, the consultant says. The larger orders they expect could also lure new suppliers who may offer better terms and services.

Finally, they need to create or buy software systems to handle advanced inventory tracking, online ordering tracking and, possibly, cash-flow analysis.

“You can only grow so far without getting some systems in place and doing some planning in order to take your business to the next level,” Garfield says.

To determine how much cash they will need and when they will need it, the owners must figure out how many breast pump parts they need to order and have on hand each month.

To do that, they will have to learn the delivery requirements for each of their new markets. Retail shops, for example, are likely to order small quantities but want them faster and more frequently than a large buyer such as a hospital, Garfield says.

Limerick buys parts from suppliers and assembles the final products in-house to protect its proprietary pump microchip technology.

Because inventory can be such a drag on the bottom line, the goal of inventory management is to keep levels as low as is practical. In addition to the cost to store and insure parts and assembled pumps, Limerick will have to pay interest on money it borrows to buy the inventory.

High interest costs can quickly eat away at the slim margins most manufacturers have, Garfield says.

The company should update inventory estimates each month as orders come in, she says. Eventually, as Kelly and Ortiz become more familiar with the delivery patterns required by their new customers, they will have a clearer picture of how many pumps they’ll need to be prepared to make each month.

The company also will have to estimate when customers in each of its new distribution channels will pay their bills, the consultant says.

The idea is to shorten customer payment cycles as much as possible, while lengthening the time period the company takes to pay its own vendors. Business owners can learn about the payment cycles for different distribution channels by chatting with buyers at trade shows or during purchase negotiations.

“A lot of it is testing the market,” Garfield says.

On the accounts-payable end, “they should be able to bring their cost of goods sold down significantly,” based on the higher quantities they will be ordering, the consultant says.

Garfield estimates that negotiating with new or existing suppliers for better pricing could earn the company a 10% overall reduction.

The inventory and payment information can be entered into a spreadsheet, a cash-flow analysis software program or turned over to an accountant or bookkeeper to uncover those crucial “cash-flow-negative” periods, Garfield says.

Limerick should also consider investing in technology that would allow it to track inventory from vendor to customer, to automate cash-flow reports and to provide effective online order tracking.

It won’t be cheap. Garfield figures that an online order system alone would cost about $20,000. For that price, Limerick would get a system that allows customers to place and track their orders online. It would also include a database that sorts customers by category, displaying retail prices for consumers, for example, and wholesale prices for, say, baby boutiques.

To pay for the software, inventory and other resources needed to expand successfully, Garfield suggests that the owners meet with a banker from a small-business bank that can offer the personal attention and expertise they need.

“You want to be a small fish in a big pond,” she says.

And don’t wait until you’re strapped for cash to apply for a line of credit or a loan. It’s no secret that bankers typically don’t want to lend to companies that are out of money.

“They would rather lend to people with plenty of money in the bank who want to grow and say, ‘This is what we are going to do and this is how much we need,’ ” Garfield says.

With a boost from the consultant’s recommendations, Limerick’s owners say they’re ready to take advantage of any more luck that comes their way -- including that growing stack of orders on their desks.

“It’s a great problem to have,” Garfield says. “Now they really need to prepare to deliver on that demand.”

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Begin test of infobox

Limerick Inc.

Owners

Patricia Kelly and Joan Ortiz

Business

* Breast-pump maker; workplace lactation consultant

History

* Founded: 1992

* Start-up funds: $200,000 from refinancing their homes to launch breast-pump business

Company snapshot

* Headquarters: Burbank

* 2007 revenue: $1 million, estimated

* Employees: Four full-time, six independent contractors

* Customers: Mothers, companies, municipalities, hospitals

Problem

How and when to build operations and increase financial resources for expansion

Goal

To expand breast pump sales into retail and other markets

Recommendations

* Talk to a small-business banker about financing options.

* Calculate inventory needs and payment cycles for new distribution channels.

* Identify periods when cash flow will not cover costs.

* Negotiate better pricing from suppliers.

* Create software to handle advanced inventory tracking and other needs.

About the consultant

Andrea Garfield consults with small-business owners independently and through UCLA Anderson School of Management’s Management Development for Entrepreneurs program. She is also a partner at software developer Startech Global Corp.