A bear market is one where prices are dropping. Most investors
search for, rejoice and succeed in bull markets (where prices are on the rise).
But for even a fairly simple business (say, a local hot dog stand), some prices
are going to rise (say, meat prices) while others might simultaneously fall
(maybe mustard).
An entrepreneur might bet that her production prices will
fall (or at least not increase) when she signs a contract to deliver a product
that she does not have in inventory, knowing that she can have it produced and
delivered. This is a bet that prices will drop or at least not increase. Like
any bet, if the market moves against the entrepreneur, and her supplier wants
to raise the price before she has placed her order, then she will make less
than expected, or might even lose money. Likewise, if the price drops after the
entrepreneur has made the sale, but before she has placed the order, she will
make more than expected. High fives!
The traditional start-up model is to manufacture a thousand
widgets and then try to sell them. The smart entrepreneur at least considers
the option of making the sale first,
and then producing or buying the
products to meet the order.
Later on, as the enterprise gets bigger (for a few),
it will likely require a minimum inventory because many customers might need
the product immediately. But that’s a good problem for a later day.
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