This past fall, when Sherene Headley checked the invoice from her manufacturer in China. She was in for a big surprise.
The CEO of London-based shoe manufacturer Mokkah. Who caters to women who need sizes 12 and up, recently placed an order for 57 pairs of black suede boots.
The manufacturer’s invoice, however, was about 20% more than Ms. Headley had anticipated and was priced in US dollars.
Her company’s ability to make international purchases suffered in September. When the value of the British pound hit a record low against the US dollar. Due to the decline of the pound, products quoted in dollars are now significantly more expensive to purchase.
That’s a rude awakening for any company, and especially devastating for a startup.
Marketing is a challenge for “many small firms,” Ms. Headley says, “their margins are quite small.” Since “we just haven’t got the resources to be able to compete with the High Street [on price] . To which the author replies, “therefore I knew from the outset that I could never compete with the High Street.”
Mokkah has always operated with a minimal overhead and grown solely through its own efforts. In June of 2020, Ms. Headley successfully launched her company after raising £13,000 via the crowdfunding platform Crowdfunder.
Ms. Headley’s product prices are sufficiently high to account for inflation thanks to the guidance of an experienced businessperson.
For the United Kingdom, Headley explains, “my selling rate still worked out OK.” Because I am a new businesswoman.”
“This is what I could plug in to produce another pair of shoes or sample”
It’s true that the pound has strengthened since September. But it’s still at an all-time low when compared to the dollar.
The lower value of the dollar relative to the pound should theoretically help Ms. Headley increase exports to the US. UK exporters have seen a significant increase in the cost of global shipping due to the weak pound.
Ms. Headley says, “the real challenge, when it comes, is if I was to increase my sales abroad.” “At the moment, the bulk of my sales are here in the UK. However, I do have quite a few customers that buy from the America.”
The high value of the dollar makes it more difficult for small U.S. manufacturers to secure export orders. Because their products become more expensive for customers in other countries.
Red Clay Hot Sauce’s CEO, Molly Fienning, is hopeful that international expansion is possible in the coming years.
There’s a need to find the right “overseas partner,” she says. To paraphrase, “We want to really own our backyard. And own the South, then own the US, then think about global.”
Ms. Fienning says that since she became CEO in 2018, the cost of cardboard boxes and payments to freight companies have increased to all-time highs due to the currency crisis and other factors.
Red Clay only uses ingredients produced in the United States to protect against the effects of fluctuating exchange rates. Ingredients like raw honey, white wine vinegar, and sweet peppers are some examples.
In the beginning, we used only Southern products. But as we expanded, we needed more peppers and more honey,” Ms. Fienning explains.
This business now purchases peppers from farms all along the eastern seaboard, from Florida to New York, and buys honey from producers in Georgia and Colorado.
Experts in the UK note that currency fluctuations are just one of many difficulties facing small businesses today. Financial analyst Todd Benjamin states, “I would say that in general small UK companies are being challenged on a number of fronts.”
The chancellor’s announcement of higher taxes in the Autumn Statement, along with the effects of Brexit and a weaker currency when importing materials, wage inflation, and a weaker economy in the near future all fall into this category.
Associate professor of entrepreneurship at Istanbul’s Yildiz Technical University Pinar Büyükbalci says that foreign investors are wary of emerging economies like Turkey and its lira because of the lira’s recent sharp depreciation against the dollar.
Over the past year and a half, she says, “we have seen the very strict and cautious approach of foreign investors” toward investing in new ventures in Turkey and other emerging markets.
It is true, according to Timuçin Bilgör, president of the Turkish investor network Buba Ventures, that it is more challenging for young companies to secure funding from abroad. The difficulty, he says, is in raising capital, because potential backers need more assurance that the project will succeed before they put up any money.
The cost of money has increased as a result of the rise in interest rates around the world. Mr. Bilgör says, “The money is not cheap anymore.”
The takeaway for startups is to always be ready for the unexpected and to price items with some wiggle room to account for surprises.
Ms. Headley of Mokkah explains, “When it came to me creating my brand, fortunately I was able to build in certain room for issues.” I didn’t think it would be related to the currency, and I’m crossing my fingers that things get better over time.