Lara Guevara and a speaker discuss how to help founders see inventory as frozen cash, not just a balance-sheet line item. They frame inventory as a bet on capital: in D2C, doubling your investment is already strong, so the odds of high returns are low. The real risks are inefficient marketing, bad demand forecasts, shrinkage, and product obsolescence.
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So how do you help founders see inventory, not just an asset on the balance sheet, but as a frozen cash that has real cost, just so that we can avoid overstocking and understocking as well?
Yeah, yeah, great question. So a number of different ways. Um, let me, I guess, address this question in maybe 3 parts. So first of all, let's talk conceptually about what investing in inventory really means for you and your business. The framework I like to use here is that whenever you invest in inventory, you essentially placing a bet, right? $100, $1,000, $100,000, whatever the number is, you're putting a bet on the table. And that bet you're making is that you're going to be able to recover some earnings or profit. You're going to be able to sell that inventory for more than what it costs you. Now, when you look at the typical margins and profitability for these businesses, the returns on this are not great, right? Like if you put a dollar into inventory, you'd be doing really, really well to get $2 back at the end of the day. That would actually be a fantastic amount, uh, outcome for a lot of D2C brands. So the odds aren't amazing. At the same time, it doesn't take that many things to go wrong. For you to actually recoup less than a dollar, which means that you're effectively losing money on that bet. I mean, it could be that you end up spending more on marketing. Your marketing efficiency is less efficient. It could be that you overshot your forecast and there's some shrinkage or spoilage and we have to throw a big chunk of it away. It could be that you, you know, it's a slow-moving product and you eventually decide to make it obsolete because you come up with a better version or you redesign it and you end up throwing, you know, half away. So there's a lot of risks that could potentially see you writing off that investment. But you know, it's part of your responsibility as a business owner to think about this as investment that you're making or a bet that you're placing, and you need to be doing all you can to kind of maximize the odds of recouping that capital and doing so profitably.
