JIMMY BEANS WOOL is an online yarn and fabric retailer with a brick-and-mortar store in Reno, Nev. The company, which has 37 employees, was founded by a married couple who are former software engineers, Laura and Doug Zander, in 2002. After five years, sales were $1 million. They topped $7 million in 2013. The Challenge From 2007 to 2012, Jimmy Beans Wool grew organically at an annual rate of as much as 50 percent. But about two years ago, after the company earned national recognition for its growth, Ms. Zander began to think bigger. Everyone in the business community was saying we could be a $100 million business, she said. That became her objective. But last June, after Ms. Zander had put in place many strategies to grow even higher, Jimmy Beanss sales fell flat. In subsequent months, they dropped further. The Zanders had to stop taking salaries, pay employees out of their personal savings account and rethink their growth plans. The Background Founded as a small storefront shop, Jimmy Beans developed a loyal following online through its creative use of social media, most notably instructional videos and product reviews, which it started posting on YouTube in 2008. Sales took off. Then, beginning in fall 2011, Jimmy Beans fell into the trap of thinking, if we can sell yarn, we can sell anything, said Ms. Zander, the chief executive. The company began selling fabric, investing $150,000 in inventory. By offering fabric in addition to yarn, the Zanders thought, they would double their sales in three to five years. With visions of becoming a destination much like L. L. Beans flagship store, the Zanders moved Jimmy Beans from a 3,500-square-foot space into 20,000 square feet that included warehouse, office, and retail areas. They put $25,000 toward renovating the warehouse and remodeling the retail store. Ms. Zander read business books and spoke to consultants, who advised her to spend less time guiding operations and more becoming an ambassador for her company. Counseled to hire people who are smarter than you and just lead the ship, she increasingly left day-to-day operations to her growing staff and embarked on an all-out, national effort to make Jimmy Beans Wool a household name. She introduced numerous marketing initiatives, including a partnership with the United States Ski and Snowboard Association and support of Heart Truth, a National Institutes of Health campaign intended to increase awareness of heart disease in women. To sustain these efforts, Jimmy Beans bulked up its marketing staff, which had consisted of Ms. Zander and four employees who also worked in the warehouse. Gradually, the marketing team grew to eight full-time employees. Additionally, Jimmy Beans made a high-level technology hire to give Mr. Zander, the chief technology officer, more time to focus on growth. In her new role, Ms. Zander traveled constantly. When Stitch Mountain, a campaign to get athletes excited about knitting, began with a sampling tent in Park City, Utah, Ms. Reproduced in part from an article published in The New York Times, April 2, 2014 Zander was there to give away yarn and teach knitting. She also traveled to meet with the Home Shopping Network, discussed a partnership with 1-800-Baskets and gave a TEDx talk. She had grand visions, she said, of teaching knitting at corporate retreats and supplying yarn to attendees. After five years, sales were $1 million, and topped $7 million in 2013. But a big push for growth instead caused trouble. CreditCandice Nyando for The New York Times She also wrote books. One, Stitch Mountain, showed winter sports enthusiasts how to create their own garments and accessories. Three others Crochet Red, Sew Red and Knit Red reinforced Jimmy Beans support of Heart Truth. Jimmy Beans donated about $50,000, a percentage of the sale of its Stitch Red products, including the books, to Heart Truth. Ms. Zander was confident her efforts would pay off in increased sales. Instead, sales flattened and then began to decline. Expenses also spiraled. We were spending too much money to spread the gospel, she said. Before long, the company ran out of cash. Morale suffered, too, Ms. Zander said, as Jimmy Beans experienced an identity crisis. It was no longer the family business where employees shared personal updates during morning huddles. The thinking had become, Were big guys. We need to act like it, she said. Desperate to get Jimmy Beans back on track, Ms. Zander hired another consultant. He was the first one who spoke our language, she said. Working with him, Ms. Zander said, she realized that the very steps she had taken to expand the business had hurt sales. They spent too much money, and Ms. Zander got away from the hands-on, creative leadership that had given rise to the YouTube videos and other successful initiatives. Maybe, she realized, she should go back to spending more time in the office but how would Jimmy Beans become a $100 million company? And was that even the right goal?

1. There are several factors that have created a difficult situation for this company. Correctly identify at least 5 of these factors. From a financial perspective, how did these factors/decisions impact the company? Make sure that your explanations are clear and complete.

2. For each of the factors you have identified at point #1, state specifically what corrective actions you would recommend.

3. Although you do not have access to the company's financial statements, please discuss at least two financial ratios (in differing ratio categories) that you would analyze to support the identified issues and your recommendations for the company.