Facing limited capital, Faherty leaned on wholesale. They used factoring—getting advances on purchase orders from established retailers like Nordstrom—to manage cash flow and fund production, a capital-efficient alternative to dilutive venture rounds.
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While VCs pushed direct-to-consumer, Faherty's founders blended wholesale, retail, and online sales. This diversified revenue, managed cash flow via wholesale factoring, and built brand presence in a way a pure-play DTC model couldn't.
By developing and owning the exact specifications for their fabrics—from the yarn to the finish—Faherty can move production between different manufacturers. This de-risks their supply chain from tariffs and geopolitical issues, as the "makers become less important."
When demand from a large customer outstrips your production capacity, propose a strategic financing arrangement. Ask them to help fund your expansion in exchange for a guaranteed volume contract, such as by pre-paying for a large future order or co-investing in a specific equipment line.
Comfort offers customers a discount to 'pre-order' items, even if they are in stock, in exchange for waiting longer for delivery. This generates immediate, upfront cash flow that the bootstrapped company uses to fund large inventory purchase orders without external capital.
A massive purchase order from Trader Joe's created a $1M funding gap. Instead of selling equity at an early stage, the founders secured debt from friends and family, backed by the PO and personal guarantees. This preserved their ownership while fueling a pivotal 10x growth moment.
Mike Faherty's deep engagement with overseas factories while at Ralph Lauren built strong personal relationships. These factory owners later became his new brand's first investors and manufacturing partners, a crucial advantage for a startup.
For hardware startups constrained by working capital, building deep trust with a manufacturer can be a form of financing. Belkin's founder convinced his manufacturer to produce and hold inventory on their own books, allowing Belkin to pull stock as needed without having to fund it all upfront.
Avoid the classic bootstrap vs. raise dilemma by using customer financing. Pre-sell your product or service to a group of early customers. This strategy not only provides the necessary starting capital without giving up equity but also serves as the ultimate form of market validation.
Before gaining traction in major US department stores, Faherty received unsolicited interest from prestigious Japanese boutiques. This early international demand provided critical validation and accounted for 40% of their initial wholesale business.
To overcome cash flow issues for large purchases, small businesses can offer a 'Special Purpose Vehicle' (SPV) to loyal customers. A customer fronts the capital, gets repaid first from the sales, and then splits the remaining profit with the business, turning patrons into financial partners.
