Refining product strategies will be essential for small businesses seeking to stay afloat as inflation continues to impact both the U.S. and global economies, said Marten Abrahamsen, CFO for financial service provider Fundbox.

Adjusting the products they focus on towards those with the greatest path to profitability could be one way smaller businesses could survive as concerns over inflation linger, said Abrahamsen. The San Francisco-based company provides both credit and payment solutions to small businesses.

“If they previously had [several] products, product A and product B….they might be better off stopping or slowing down selling on [product] A and only focusing on product B, or wherever they might have more opportunity to increase the price of the product,” he advised.

Inflation has continued to pressure businesses in recent months, with the Federal Reserve taking steps to curb its rise with a June 15 rate hike of 75 basis points. Further hikes are expected for July and September, according to a Bloomberg report.

Economists are tentatively indicating inflation could moderate but being selective and carefully balancing inventory will be key given the higher cost of holding more products in a rising price environment. Fundstrat Head of Research Tom Lee noted that companies will want to trim inventory rather than carry higher inventory that introduces balance sheet risk, according to a June 28 Yahoo Finance report. 

Small businesses also don’t have the same type of cash reserves as larger entities, Abrahamsen pointed out. That makes them more vulnerable to effects such as shortages and subsequent price increases for raw materials.

“They often end up having to deal with not being able to increase the prices and dealing with both high raw material costs, as well as higher labor costs,” said Abrahamsen, who has served as Fundbox’s CFO since January 2020. “So there's absolutely a risk going on in the economy overall, but it's particularly prevalent among small business owners.”

Navigating larger potential interest rate hikes and mounting inflation pressures has also led Fundbox itself to “take a more focused approach” to new product development, Abrahamsen said. The company is concentrating on getting key products to market more quickly.

“I think in the past we had multiple different projects going at a time,” he said. “We're focusing that to have one to two products on the roadmap that we're very actively working on, that we're spending marketing dollars behind, to get those products to market faster.”

The financial service provider will be spending more to build out its product suite for its Flex Pay product, accounts payable solution for small business owners, Abrahamsen said. The company also recently announced partnerships with both card network Visa and payment processing platform Stripe in May, launching the Fundbox Flex Visa debit card for business spend management with the former and embedding its working capital platform into the latter.

While narrowing their product development focus will impact Fundbox’s growth trajectory “slightly,” the approach will have a bigger impact on its cash flow — “trading off a little bit of growth for a fair amount of cash savings,” he said.

By Grace Noto on June 28, 2022
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