FLO Cycling – Adjusting to Growth

 
At FLO we have always been very up front and honest with our customers and followers.  We began by starting our business publicly, letting customers design and choose product appearances, logos, etc.  We’ve also been very open and honest about our successes and failures along the way.  This post is all about more honesty.  If you have been following lately, you are well aware that our supply has not been keeping up with demand.  Many people say that’s a good problem to have.  In many ways they are right, but ultimately it’s still a problem.  Many people have voiced their opinions suggesting “we are playing games,” “can’t figure out production,” or “have financial problems,” but none of these are the case.  This blog article will attempt to explain a bit of the background that has resulted in our lack of stock, how we are working to rectify the situation and answer some frequently asked questions at the end.
 
 
The Background

 

I feel that a big part of successfully running your own business is managing risks.  As an entrepreneur, you will always be faced with risks, they are part of the game and you can’t avoid them.  Knowing that, all you can do is try to make the best decisions you can at any given time with the information you have available. If you end up making a greater percentage of good decisions, there is a chance that your business just might work.    
When starting our business we were no strangers to risk.  Questions like what if our products do not sell, what if our factory has delays, what if our products fail, what if we get a bad reputation online,  and what if we run out of money were just few of the hundreds of risks we faced.  Jon and I also took very large financial risks starting this business.  We are both professional mechanical engineers who had great jobs at a Fortune 100 company.  As we like to say “we lived monk” for many years (and still do) driving old cars, living with college student furniture and saving our money in order to start this business on our own.  We also quit those great jobs in hopes this would all work out.  
 
 
When you start a business with your own money (minus a very helpful loan from our parents when our first payment provider held our Pre Order 1# funds for six months. Thanks, Mom and Dad, we love you ;), you scrutinize every dollar spent to make sure it needs to be spent responsibly.  I believe that “struggle” has the ability to set you up for future success and I say that because I’ve seen many (not all) funded companies have no respect for the dollar.  In a start-up business, cash flow is everything and if you don’t manage it properly, you’re done.  
Without question, the biggest balancing act we play at FLO is determining how many wheels to order.  I used to work a sales job where everything was produced after it was sold.  I always hated the yearly forecast my boss made me put together.  “How much are you going to sell this year?” was always the question.  I didn’t like that question because nobody knows the answer.  The only honest answer in my opinion is everything I can.  The difference with FLO is that instead of producing a product after it is sold, we have to predict how many products to produce for the year ahead of time.  

 

So how do you do that?  Well, as I said above, no one really knows, but you have to make the best decision you can with the information you have available.  Sounds familiar, doesn’t it.  Last year we sold 1,500 wheels in about 11 months.  Our motto for the year was grow aggressively but wisely.  I say wisely because ending the year with seven figures of product on your shelf is a sure way to go bankrupt in a hurry.  We want FLO to be here for the long run, so based on signups, social media interest, industry standards, etc, we decided to increase production by three times to approximately 4,500 wheels.  By many standards that is very agressive.  

 

So, what’s the problem?  The problem is our demand is much higher than that.  Our last Pre-Order (Pre-Order #5) made 400 wheels available.  If you assume most people buy two wheels (which they do) you have enough wheels for about 200 people.  Unfortunately and fortunately, we had our largest Pre-Order sign up ever with 997 people signed up for Pre-Order #5.  That’s 2000 wheels, which is nearly half of our production plans for the year in one sale!  All of the industry standards, facts, and figures in the world wouldn’t have predicted our growth.
Solving the Problem
First and foremost, I think it is important to state that we are taking this issue very seriously.  Any time you have unhappy customers (even if it is a small percentage), you have to take a step back and evaluate what you are doing.  I’d also like to take this opportunity to apologize to those who have been unable to purchase FLO wheels at a time when they wanted to.  Now to the solution.

The economist would say this is easy.  Simply raise our prices.  You’ll be happy to know we are not doing that.  Our goal from day one was “High Quality, Engineered,  Affordable Race Wheels”.  This company was formed on the belief that the people should not have to pay astronomical prices for race wheels.  We are not changing belief now.  Moving on.

 

On paper, the “other” solution is also quite simple. To meet demand, increase supply.  Unfortunately, it’s not as simple as pressing the “send more wheels” button.  Here’s why:  
The time it takes to receive a wheel from the time we order it is three and half months.  This sounds like a long time but there are a list of things to coordinate.  Here is a point form list.

 

  • Components for FLO Wheels are manufactured at four different factories – six to eight  weeks
  • Components are shipped to assembly factory – one week
  • Wheels are assembled and boxed – two to four weeks
  • Wheels are shipped to America via container ship – two to three weeks
  • Wheels make there way from Los Angeles to our warehouse in Las Vegas – one week  
 
At the beginning of a year you give your factories an estimate of how many products you would like to order throughout the year.  This allows them to create their manufacturing schedule for your products.  We told our factories about 4,500 wheels and they in turn manufacture your components accordingly.  Now that our demand is much higher than we expected, it takes a while for the factories and the backlog of components to catch up.  Knowing this, here is what we are doing.  

 

We will move as many orders forward as possible.  We usually have stock available for two or three orders down the road.  We will do our best to have our factories move some of our third and fourth quarter orders into the second and third quarter and being producing more components for future orders now.  We’ve already done this with the Pre-Order #6 shipment.  Originally, Pre-Order #6 was scheduled to have 400 wheels.  It will now have roughly 600 wheels.  We are also heading to Taiwan this month to discuss future production. 
 
We’re also planning to offer Pre-Order #7 at the end of July which is one month ahead of schedule.  Pre-Order #7 is on track to offer 670 wheels.  
To try and prevent the same issue with our FLO 30s we have already began ordering a larger quantity of parts.  Originally we intended to have 200 FLO 30s available by August/September.  The plan is to now have 700 available.  
Some Frequently Asked Questions
Q1. I don’t like having to rush in to make my sale on Pre-Order day.  Why can’t I just pay you now to guarantee my wheels in the next shipment?
A1.  This sounds like a very logical solution but it’s not that simple.  Remember above when I said our demand is about five times that of our current supply?  If we allowed people to pre-pay, there would still be 1000 people fighting for the first 400-600 wheels on the next container.  Pre-paying does not eliminate the purchasing frenzy.  Additionally, those who did not get wheels in the first or second order may have to wait up to six months or more to get their wheels.  That is not fair to anyone.  Finally, we tried this with Pre-Order #1 and we had far more complaints than we do now.  People simply grow tired of waiting and asked us to cut our lead times.  We worked very hard to do that (lead times are now about one week).  
Q2.  You must be having financial problems.  Why don’t you just order 3000 wheels.  
A2.  Trying to make too many products (still relatively new products) too quickly greatly increases the risk for product quality issues.  Our factory is one of the most experienced wheel factories in the world and we working with them to ensure product quality remains excellent.  If we push too hard, problems occur.  We’ve learned that the hard way and we aren’t going to make the same mistake twice.  
Final Thoughts
I hope that you see we are taking this issue seriously.  We’ve literally spent hundreds of hours thinking about these things.  Again, we apologize for our shortages of product and hope you understand our two-man shop is doing all it can to provide a great product at a great price with great customer service.  Please add your comments and suggestions below.
Take care,
Chris
 
 

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