Why Small Businesses Can't Afford to Grow

Big companies take a long time to pay their suppliers. Sometimes, so long that the supplier goes out of business. Two entrepreneurs wanted to find out why this system is so broken-and wound up creating a solution.

- By Frances Dodds

IT SHOULD HAVE BEEN A CELEBRATORY LUNCH-THE KIND WHERE YOU ORDER FRENCH FRIES AND CHEESECAKE, THEN GO HOME TO NAP AND DON'T EVEN FEEL BAD ABOUT IT.

Instead, Stacey Abrams and Lara Hodgson were sitting in an Atlanta restaurant, dazed with disappointment, talking in circles, returning again and again to the same confounding question: How did we not know this?

It was 2010, and three years earlier, the women had cofounded a company called Nourish, which made grab-and-go baby bottles filled with premeasured, purified water for easy formula mixing. The company had been finding its legs, one wobbly step at a time. Then, Whole Foods placed a huge order of their product.

"It was, like, orders of magnitude bigger than anything we'd done before," Hodgson says. They were ecstatic. This is what they should've been celebrating. But then they read the payment terms. "We discovered that we weren't going to get paid for three to four months. I mean, no small business can handle that."

The women had run headlong into an unspoken rule: the bigger the buyer, the longer they take to pay. And it didn't even matter what the official payment schedule was. "If your invoice says net 30 or net 60 or net 90-that's just a suggestion," Hodgson says. "We know now that the average net 30 invoice pays in 54 days. But back then, when we realized all this, I just remember thinking, like, Was I sick one day in business school? Why does no one talk about this?"

They had more questions, too. Why was this the status quo? Why did no one seem to think it was a big deal? And why-in a country that calls small businesses the backbone of the economy-had no one bothered to create a better solution?