Herold Marketing Associates, Inc. - Page 4
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which Herold foresaw a strong demand, and (3) products that were
just beginning to be conceptualized that Herold felt would gain
strong market acceptance. By implementing this strategy,
petitioner, which had seen its revenue drop to less than $1
million in 1985, achieved sales of over $36 million in 1992 and
nearly $44 million in 1993. Around 1992, Herold changed the
company's fundamental mode of doing business by ceasing to
operate as a sales representative and concentrating on being a
distributor. Herold recognized that this strategy involved
greater risks, since petitioner would have to finance customer
receivables and carry inventories of the products it was selling.
He decided these risks would be outweighed by certain benefits.
In particular, Herold personally would be able to minimize
unproductive time he had been spending at sales meetings for each
of the manufacturers whose product lines petitioner had been
representing, and petitioner would gain greater leeway to develop
its own sales and business strategies.
Another significant event in 1992 was petitioner's loss of
its largest customer, Gateway Computers, which had accounted for
18 percent of petitioner's sales. This occurred at a time when
the computer industry in general was in a minirecession. Despite
this setback and amid adverse conditions, petitioner achieved
sales growth of more than $12 million in 1992, a 50-percent
increase over 1991, and further growth of nearly $7.7 million in
1993, a 21.25-percent increase over 1992.
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