In 2008, after two years of an average 50 percent growth rate, Santa Rosa-based apparel wholesaler Indigenous Designs was moving toward a Series B stock offering to fund new marketing programs and continued growth.
Founded in 1995, Indigenous Designs is an industry leader in organic, fair-trade fashion apparel. Co-founders Scott Leonard and Matt Reynolds are known for their long-standing commitment to sustainability and socially responsible business practices.
In August of 2008, a member of the company's board of directors, a veteran in the apparel business, cautioned the board that industry indicators signaled trouble ahead. Chairman of the Board and CEO Mr. Leonard describes the situation with a metaphor.
"We were ready to set sail and go out for new funding, but one of our lookouts saw serious storm clouds on the horizon. We came back into port, took down the sails, and proceeded to go into the bowels of the ship, looking into every nook and cranny to repair any internal leaks so that we would be better prepared for any rough weather ahead."
In September 2008, when the bottom dropped out of the economy, Indigenous Designs was already at anchor, hard at work internally on its organization. Mr. Leonard and President Mr. Reynolds pulled together their executive team and crafted a contingency plan.
Similar to many businesses during this turbulent economy, here are some of the lessons they learned.
First and foremost, a company can still expand its capacities and thrive even when it is not growing in size or sales.
Mr. Leonard comments, "We got better internally, looking at key performance indicators and maximizing efficiencies without spending a lot of money. We looked at everything. There were no sacred cows, and everything was subjected to scrutiny. We started over with a zero based budget. Every item in the chart of accounts was assigned to one of the members of the executive team. Everyone was 100 percent accountable for coding and signing off on expenses in their area."
In October and November of 2008, Mr. Leonard and Mr. Reynolds saw how critical the situation was going to be. As the economy slid further downward and sales continued to decline, they continuously monitored their forecasts and dissected cash management. Their top priority was to maintain their bank covenants and keep their line of credit open.
Mr. Leonard describes a progression of excruciating decisions regarding staff reductions. "As a small company, there was little fat to cut and we quickly got to muscle. No one was superfluous. Every loss hurt. Ultimately over the year, we had to reduce our employee force by 20 percent, and in no case was it a performance issue. We had to lay off good, hard-working, valuable employees who I considered personal friends.
"Laying off people I adored was heart-wrenching, one of the toughest things I've ever had to do. We had to do it in order to obtain positive financial results for the company, but when you lose people in the wake of those decisions, you can't feel good about it."
Another lesson was that just because you're not out looking for money doesn't mean you have to be out of contact with the investment community.