By Elaine Appleton Grant
One company that almost went bad when the economy turned sour is Brad Oberwager's Sundia Fruit. Using money from friends and family, Oberwager, 39, founded Sundia Fruit four years ago in his Oakland, Calif., basement. The $7.5 million company provides freshly cut, ready-to-eat organic fruit to grocery store chains like Albertson's, Kroger, and Food Lion. Sundia's biggest competitors are forbidding, to say the least: Dole and Del Monte. To compete with these produce giants, Sundia turned to technology that not only helped the company grow but also kept it from collapsing during the credit crunch that hit many businesses hard last fall.
Value-added produce is a high-risk business. Because fresh produce has such a short lifespan, suppliers won't deliver it until Sundia pays for it, and Sundia's customers won't pay for it until it's delivered to them. That means virtually all value-added produce companies must borrow money to buy their watermelons and mangoes. After delivery to customers, they borrow money against their receivables in order to buy more watermelons and mangoes. With margins hovering around 35%, these companies can afford to pay high interest rates; Oberwager wouldn't flinch at paying 22% to keep his buy-sell cycle going.
But in November, when the credit crisis hit, even that wasn't enough. Sundia's lenders simply turned off the flow of money. Without money to borrow, Sundia faced insolvency in a matter of weeks, or even days.
Oberwager and his employees were scared -- especially when they lost a midsize account because of credit woes. "Our supply chain runs around half the world -- from Turkey through Thailand through Mexico and the U.S.," Oberwager says. "Everything in the chain is financed." When lenders stopped lending, Sundia still had to pay its suppliers. "Every day our bank balance got smaller and smaller and smaller," he recalls.
But Sundia's innovative investment in technology offered a lifeline. Oberwager had built the 120-employee company on an intranet-based platform that includes NetSuite ERP and supply chain management, along with custom software. The system provides up-to-the-minute information on which customers owe money, how much they owe, how long it's taking them to pay, and who the best payers are. It also provides a weekly, company-wide reporting system.
This emphasis on visibility was critical when credit dried up. Oberwager looked at the data and quickly decided to discontinue an unprofitable fruit juice product line to buy some time. But that was only a short-term fix; Sundia needed a multimillion-dollar equity infusion to replace its lost credit line -- and it had to happen fast.